Winner Medical POS AM Prospectus update (post-effective amendment)

Registration No. 333-130473_

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Post-Effective Amendment No. 2 to

FORM S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

WINNER MEDICAL GROUP INC.

(Exact name of registrant as specified in its charter)

Nevada	3842	33-0215298
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

Winner Industrial Park, Bulong Road

Longhua, Shenzhen City, 518109

People’s Republic of China

(86-755) 28138888

(Address and telephone number of principal executive offices)

Jianquan Li Chief Executive Officer Winner Industrial Park, Bulong Road Longhua, Shenzhen City, 518109 People’s Republic of China (86-755) 28138888 Simon Luk Winston & Strawn LLP 200 Park Avenue, New York, New York 10166-4193  (852) 2292 2000  

(Names, addresses and telephone numbers of agents for service)

Approximate date of commencement of proposed sale to public: From time to time after the effective date of this Registration Statement, as determined by market conditions and other factors.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering. o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be registered(1)(3)		Proposed maximum offering price per share (2)		Proposed maximum aggregate offering price(2)		Amount of registration fee
Common stock, $0.001 par value		7,474,027	$	1.06	$	7,922,409.26	$	848	(4)

(1)   In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

(2)   Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices reported on the OTC Bulletin Board on December 14, 2005.

(3)   Represents shares of the Registrant’s common stock being registered for resale that have been issued to the selling stockholders named in this registration statement.

(4) $848 was previously paid in connection with the filing of the initial registration statement on December 16, 2005.

EXPLANATORY NOTE

This Post-Effective Amendment No. 2 to the Registration Statement, previously filed with, and declared effective by, the Securities and Exchange Commission (Registration No. 333-130473), is being filed in order to update the prospectus included in this Registration Statement as required by Section 10(a)(3) of the Securities Act of 1933, and the Registrant’s undertaking, to include the information contained in the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008 filed with the Securities and Exchange Commission on December 9, 2008.

PROSPECTUS

WINNER MEDICAL GROUP INC.

7,474,027 Shares of Common Stock

This prospectus relates to 7,474,027 shares of common stock of Winner Medical Group Inc. that may be sold from time to time by the selling stockholders named in this prospectus. We will not receive any proceeds from the sales of any shares by the selling stockholders.

Our common stock is quoted on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority under the symbol “WMDG.OB.” The closing price for our common stock on January 15, 2009 was $0.75 per share, as reported on the OTC Bulletin Board.

The selling stockholders, and any participating broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, and any commissions or discounts given to any person deemed to be an “underwriter” may be regarded as underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their shares of our common stock subject to this prospectus.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 4 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is _____ , 2009.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
RISK FACTORS	5
RISKS RELATED TO OUR BUSINESS	5
Our dependence upon international customers may impede our ability to supply products.	5
We engage in international sales, which expose us to trade restrictions.	5
Expansion of our business may put added pressure on our management, financial resources and operational infrastructure, impeding our ability to meet any increased demand for our medical products and possibly impairing our operating results.	5
We rely on patent and trade secret laws that are complex and difficult to enforce.	5
We depend on key personnel, and turnover of key employees and senior management could harm our business.	5
Our revenues are highly concentrated in a single customer and our business will be harmed if this customer reduces its orders from us.	6
We are subject to potential product liability claims for which we do not have insurance coverage.	6
We may not be able to adequately finance the significant costs associated with the development of new medical products.	6
The current global financial crisis may have a negative impact on our business and financial condition, especially on the market acceptance of our new PurCottonTM products.	6
Our PurCottonTM products may be adversely affected by price reductions of raw materials of our competitive products In order to grow at the pace expected by management, we will require additional capital to support our long-term business plan. If we are unable to obtain additional capital in future years, we may be unable to proceed with our long-term business plan and we may be forced to curtail or cease our operations.	6
We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.	7
Our holding company structure and Chinese accounting standards and regulations may limit the payment of dividends.	7
RISKS RELATED TO OUR INDUSTRY	7
We may not be able to maintain or improve our competitive position because of strong competition in the medical dressing and medical disposable industry, and we expect this competition to continue to intensify.	7
Cost containment measures that are prevalent in the healthcare industry may result in lower margins.	7
Our failure to comply with ongoing governmental regulations could impair our operations and reduce our market share.	7
Our margins are reduced when we sell our products to customers through a buying group.	8
RISKS RELATED TO DOING BUSINESS IN CHINA	8
Changes in China’s political or economic situation could harm the Company and its operational results.	8
Our business is largely subject to the uncertain legal environment in China and your ability to legally protect your investment could be limited.	8
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.	8
Future inflation in China may inhibit our activity to conduct business in China.	9
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.	9
The value of our securities will be affected by the foreign exchange rate between U.S. dollars and Renminbi.	9
RISKS RELATED TO THE MARKET FOR OUR STOCK	9
Our common stock is quoted on the OTC Bulletin Board, which may have an unfavorable impact on our stock price and liquidity.	9
We are subject to penny stock regulations and restrictions.	9
Certain of our stockholders hold a significant percentage of our outstanding voting securities.	9
Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change- in-control.	10
The price of our common stock is volatile. The market price for our common stock has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future.	10
Our common stock is thinly-traded.	10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	10
USE OF PROCEEDS	11
DIVIDEND POLICY	11
MARKET FOR OUR COMMON STOCK	11
DILUTION	12
SELECTED CONSOLIDATED FINANCIAL DATA	12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
BUSINESS	29

MANAGEMENT	40
EXECUTIVE COMPENSATION	41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	45
CHANGE IN ACCOUNTANTS	46
SELLING STOCKHOLDERS	46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	49
DESCRIPTION OF CAPITAL STOCK	50
SHARES ELIGIBLE FOR FUTURE SALE	50
PLAN OF DISTRIBUTION	52
LEGAL MATTERS	53
EXPERTS	53
WHERE YOU CAN FIND MORE INFORMATION	54
EXHIBIT INDEX	62

i

PROSPECTUS SUMMARY

This summary highlights some information from this prospectus, and it may not contain all of the information that is important to you. You should read this summary together with the more detailed information regarding our company and the common stock being sold in this offering, including “Risk Factors” and our consolidated financial statements and related notes, included elsewhere in, or incorporated by reference into, this prospectus.

Except as otherwise indicated by the context, references in this report to “Winner Medical,” the “Company,” “we,” “us,” or “our,” are references to the combined business of Winner Medical Group Inc. and its wholly-owned subsidiary, Winner Group Limited, along with Winner Group Limited’s wholly-owned subsidiaries which include Winner Industries (Shenzhen) Co., Ltd., Winner Medical & Textile Ltd. Zhuhai, Winner Medical & Textile Ltd. Jingmen, Hubei Winner Textiles Co., Ltd., Winner Medical & Textile Ltd. Yichang, Winner Medical & Textile Ltd. Jiayu, Winner Medical & Textile Ltd., Chongyang and Winner Medical (Huanggang) Co., Ltd., and Winner Group Limited’s majority owned subsidiary Shanghai Winner Medical Apparatus Co., Ltd., and Winner Medical (Hong Kong) Limited.  References to “Winner Group Limited” or “Winner Group” are references to Winner Group Limited and its subsidiaries listed above. References to “China” and “PRC” are references to the “People’s Republic of China.” References to “U.S.” are references to the United States of America. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” are to the legal currency of the United States.

The Company

Background

We were originally incorporated under the name Birch Enterprises, Inc. in the state of Nevada in August 1986. We were initially formed as a “blank check” entity for the purpose of seeking a merger, acquisition or other business combination transaction with a privately owned entity seeking to become a publicly owned entity.

On September 14, 1987, we consummated a business combination transaction with Las Vegas Resort Investments whereby Las Vegas Resort Investments became a wholly owned subsidiary of ours. Concurrent with this transaction, we changed our corporate name to Las Vegas Resorts Corporation. During 1989, we completed a public offering of our common stock pursuant to a Registration Statement on Form S-18 (Registration No. 33-10513-LA).

During September 1992 all of our operations ceased and, by July 31, 1993, we had dissolved all subsidiaries and business operations. We had no active operations from then until December 16, 2005, when we completed a reverse acquisition transaction, discussed below under “—Acquisition of Winner Group Limited,” with Winner Group Limited, a Cayman Islands corporation, whose subsidiary companies originally commenced business in February 1991.

Winner is a technology-driven medical dressings and medical disposables manufacturer based in China. Winner became our wholly owned subsidiary in connection with the reverse acquisition transaction and is the holding company for all of our commercial operations.

On February 13, 2006, we amended our Articles of Incorporation to change our name from Las Vegas Resorts Corporation to Winner Medical Group Inc. We changed our name to reflect our new business and to be similar to the names of our subsidiary companies.

Acquisition of Winner Group Limited

On December 16, 2005, we completed a reverse acquisition transaction with Winner Group Limited whereby we issued to the stockholders of Winner Group Limited 42,280,840 shares of our common stock in exchange for all of the issued and outstanding capital stock of Winner Group Limited. Winner Group Limited thereby became our wholly owned subsidiary and the former stockholders of Winner Group Limited became our controlling stockholders.

Upon the closing of the reverse acquisition, Timothy Halter, our former CEO and sole director, submitted his resignation letter pursuant to which he resigned from all offices of Winner Medical Group Inc. that he held and also from his position as our director effective as of January 7, 2006. Jianquan Li was appointed as our director on December 16, 2005 and Xiuyuan Fang was appointed to the board of the directors on January 7, 2006 when Timothy Halter resigned. In addition, our executive officers were replaced by the Winner Group Limited executive officers upon the closing of the reverse acquisition as indicated in more detail below.

1

For accounting purposes, the share exchange transaction was treated as a reverse acquisition with Winner Group Limited as the acquirer and Winner Medical Group Inc. as the acquired party. When we refer in this prospectus to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Winner Group Limited on a consolidated basis unless the context suggests otherwise.

Winner Group Limited’s operations began with Winner Medical & Textile Ltd. Zhuhai, which was incorporated in China in February 1991 by our CEO, President and director Mr. Jianquan Li. Over the years, Winner Group Limited expanded to ten factories and two trading companies. Winner Group Limited was incorporated as a Limited Liability Exempted Company in the Cayman Islands in April 2003 and is the holding company of all of our business operations. Winner Group Limited owns 100% of Winner Industries (Shenzhen) Co., Ltd., Winner Medical & Textile Ltd. Zhuhai, Winner Medical & Textile Ltd. Jingmen, Hubei Winner Textiles Co., Ltd., Winner Medical & Textile Ltd. Yichang, Winner Medical & Textile Ltd. Jiayu, Winner Medical & Textile Ltd., Chongyang and Winner Medical (Huanggang) Co., Ltd. Winner Group Limited also owns 60% of Shanghai Winner Medical Apparatus Co., Ltd. and Winner Medical (Hong Kong) Limited, 40% of Winner medical &Textile Ltd Xishui, and 35% of Winner Medical Jordan Ltd. Below is our holding company structure.

Our Business

Through our subsidiary Winner Group Limited, our business consists of research and development, manufacturing and marketing of medical dressings and medical disposables. We have eight wholly-owned operating subsidiaries and four joint venture companies, and we established several integrated manufacturing and processing lines for our core products. Our product offerings include medical care products, wound care products, home care products and PurCottonTM products, a new product of nonwoven fabric made from 100% natural cotton.

We are one of the leading manufacturers of medical dressings and medical disposables in China. Our products have been sold to all major countries and regions internationally, including China, Japan, Germany, the United States, Italy, the Netherlands, the United Kingdom, Australia, and France, as well as countries in South America, Africa and the Middle East. Certain of our medical device products are registered and listed with the U.S. Food and Drug Administration or FDA, giving us the approval to export those sterilized products directly to the United States.

2

The Offering

Common stock offered by selling stockholders	7,474,027 shares. This number represents 16.71% of our current outstanding stock (1)
Common stock outstanding before the offering	44,677,171 shares.
Common stock outstanding after the offering	44,677,171 shares.
Proceeds to us	We will not receive proceeds from the resale of shares by the Selling Stockholders.

(1) Based on 44,727,171 shares of common stock outstanding as of January 15, 2009.

Summary of Historical Financial Information

The summary historical financial information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The income statement information for the years ended September 30, 2008, 2007 and 2006, and the balance sheet information as of September 30, 2008, and 2007 were derived from our audited financial statements included in this prospectus. The balance sheet information as of September 30, 2006 was derived from our audited financial statements that are not included in this prospectus.

3

	Year Ended September 30,
	2008		2007		2006
Revenues	$	85,505,762	$	70,280,960	$	63,873,058
Operating expenses		14,437,539		11,959,184		11,335,006
Operating income (loss)		6,020,007		5,819,171		6,486,035
Income taxes		591,118		-15,015		516,635
Net income (loss)		5,066,295		5,624,854		5,829,294
Net income per share-basic and diluted		0.11		0.13		0.14
BALANCE SHEET DATA:
Working capital		12,370,246		12,379,247		15,097,981
Current assets		41,336,315		36,464,937		30,020,106
Total assets		101,918,091		85,121,335		67,171,711
Current liabilities		28,966,069		24,085,690		14,735,036
Total liabilities		29,008,034		24,108,547		14,756,743
Stockholders' equity (deficiency)		72,761,751		60,821,657		52,265,472

Additional Information

Our corporate headquarters is located at Winner Industrial Park, Bulong Road, Longhua, Shenzhen City, 518109, People’s Republic of China. Our telephone number is (86-755) 28138888. We maintain a website at www.winnermedical.com that contains information about us, but that information is not a part of this prospectus.
 

4

RISK FACTORS

The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of our common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our common stock could decline, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

Our dependence upon international customers may impede our ability to supply products.

During fiscal year 2008, approximately 87% of our products were sold internationally.  As a result, we are subject to risks associated with shipping products across borders, including shipping delay.  If we cannot deliver our products on a competitive and timely basis, our relationships with international customers may be damaged and our financial condition could be harmed.

We engage in international sales, which expose us to trade restrictions.

As a result of our product sales in various geographic regions, we may be subject to the risks associated with customs duties, export quotas and other trade restrictions that could have a significant impact on our revenue and profitability.  While we have not encountered significant difficulties in connection with the sales of our products in international markets, the future imposition of, or significant increases in the level of, custom duties, export quotas or other trade restrictions could have an adverse effect on us.  Further, we cannot assure that the laws of foreign jurisdictions where we sell and seek to sell our products afford similar or any protection of our intellectual property rights as may be available under U.S. laws.  We are directly impacted by the political, economic, military and other conditions in the countries where we sell or seek to sell our products.

Expansion of our business may put added pressure on our management, financial resources and operational infrastructure, impeding our ability to meet any increased demand for our medical products and possibly impairing our operating results.

Our business plan is to significantly grow our operations to meet anticipated growth in demand for existing products, and by the introduction of new product offerings.  Our planned growth includes the construction of several new production lines to be put into operation over the next five years.  Growth in our business may place a significant strain on our personnel, management, financial systems and other resources.  We may be unable to successfully and rapidly expand sales to potential customers in response to potentially increasing demand or control costs associated with our growth.

To accommodate any such growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities.  If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

We rely on patent and trade secret laws that are complex and difficult to enforce.

The validity and breadth of claims in medical technology patents involve complex legal and factual questions and, therefore, the extent of their enforceability and protection is highly uncertain.  Issued patents or patents based on pending patent applications or any future patent applications may not exclude competitors or may not provide a competitive advantage to us.  In addition, patents issued or licensed to us may not be held valid if subsequently challenged and others may claim rights in or ownership of such patents.  Furthermore, we cannot assure that our competitors have not developed or will not develop similar products, will not duplicate our products, or will not design around any patents issued to or licensed by us.

We depend on key personnel, and turnover of key employees and senior management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Jianquan Li, Xiuyuan Fang, Jiagan Chen and Nianfu Huo, who hold the titles of CEO, President and Chairman, CFO and Vice President, Vice President of Project Management and General Manager of Winner Zhuhai, respectively.  They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations.  If we lose a key employee or if a key employee fails to perform in his or her current position, or if we are unable to attract and retain skilled employees as needed, our business could suffer.  Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team.  We depend on the skills and abilities of these key employees in managing the manufacturing, technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.

5

Our revenues are highly concentrated in a single customer and our business will be harmed if this customer reduces its orders from us.

In fiscal year 2008, almost 15.66% of our business comes from just one customer, Sakai Shoten Co., Ltd, which acts as a purchasing agent for a large number of ultimate consumers of our products in Japan.  If we lose this customer and are unable to replace this customer with other customers that purchase a similar amount of our products, our revenues and net income would decline considerably.

We are subject to potential product liability claims for which we do not have insurance coverage.

Defects in our products could subject us to potential product liability claims that our products are ineffective or cause some harm to the human body.  We do not have product liability insurance.  Plaintiffs may advance claims that our products or actions resulted in some harm.  A successful claim brought against us could significantly harm our business and financial condition.

We may not be able to adequately finance the significant costs associated with the development of new medical products.

The medical products in the medical dressings and medical disposables market change dramatically with new technological advancements.  We may conduct research and development on a number of new products, which require a substantial outlay of capital.  To remain competitive, we must continue to incur significant costs in product development, equipment, facilities and invest in research and development of new products.  These costs may increase, resulting in greater fixed costs and operating expenses.

In addition to research and development costs, we could be required to expend substantial funds for and commit significant resources to the following:

· additional engineering and other technical personnel;

· advanced design, production and test equipment;

· manufacturing services that meet changing customer needs;

· technological changes in manufacturing processes; and

· manufacturing capacity.

Our future operating results will depend to a significant extent on our ability to continue to provide new products that compare favorably on the basis of cost and performance with the design and manufacturing capabilities of competitive third-party suppliers and technologies.  We will need to sufficiently increase our net sales to offset these increased costs, the failure of which would negatively affect our operating results.

The current global financial crisis may have a negative impact on our business and financial condition, especially on the market acceptance of our new PurCottonTM products

The current worldwide economic crisis has created significant reductions in available capital and liquidity from banks and other providers of credit, which may adversely affect our customers’ ability to buy our new PurCottonTM products and fulfill their obligations to us.  Additionally, many of the effects and consequences of the current global financial crisis and a broader global economic downturn are currently unknown; any one or all of them could potentially have a material adverse effect on our customers' or our own liquidity and capital resources, or otherwise negatively impact our business and financial results.

Our PurCottonTM products may be adversely affected by price reductions of raw materials of our competitive products

Markets for all of our products, especially our PurCottonTM products, are extremely competitive. We compete based upon a variety of factors, including cost of production and raw materials.  It is possible that our competitors have lowered their cost of production due to price decrease in rayon and polyester and engage in price competition through aggressive pricing policies to secure a greater market share to our detriment.  Our PurCottonTM business may be adversely affected by competition, and we may not be able to maintain our profitability if the competitive environment worsens.

In order to grow at the pace expected by management, we will require additional capital to support our long-term business plan. If we are unable to obtain additional capital in future years, we may be unable to proceed with our long-term business plan and we may be forced to curtail or cease our operations.

We will require additional working capital to support our long-term business plan, which includes identifying suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance the overall productivity and benefit from economies of scale. Our working capital requirements and the cash flow provided by future operating activities, if any, will vary greatly from quarter to quarter, depending on the volume of business during the period and payment terms with our customers. We may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. Additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities. In addition, we may grant registration rights to investors purchasing our equity or debt securities in the future. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

6

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the companies’ internal controls over financial reporting in their annual reports, including Form 10-K.  In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. These requirements first applied to us in connection with the Report for the fiscal year ended September 30, 2008. Management’s report on internal control over financial reporting is set out in Item 9A “Controls and Procedures.” of the 2008 Form 10-K. We can provide no assurance that we will be able to comply with all of the requirements imposed thereby.  There can be no assurance that we will receive a positive attestation from our independent auditors.  If significant deficiencies or material weaknesses in our internal controls are identified, we may not be able to remediate in a timely manner. In such case, investors and others may lose confidence in the reliability of our financial statements.

Our holding company structure and Chinese accounting standards and regulations may limit the payment of dividends.

We have no direct business operations other than our ownership of our subsidiaries.  While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments.  In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below.  If future dividends are paid in Renminbi, fluctuations in the exchange rate for the conversion of Renminbi into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.

Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations.  Our subsidiaries in China are required to set aside a portion of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds.  Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends.  If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.

RISKS RELATED TO OUR INDUSTRY

We may not be able to maintain or improve our competitive position because of strong competition in the medical dressing and medical disposable industry, and we expect this competition to continue to intensify.

The medical dressing and medical disposable industry is highly competitive.  We face competition from medical dressing and medical disposable manufacturers around the world.  Some of our international competitors are larger than us and possess greater name recognition, assets, personnel, sales and financial resources.  These entities may be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do.  They may also be able to devote greater resources than we can to the development, promotion and sale of their products.  Increased competition could require us to reduce our prices, resulting in fewer customer orders, and loss of market share.  We cannot assure that we will be able to distinguish ourselves in a competitive market.  To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition would face material adverse effects.

Cost containment measures that are prevalent in the healthcare industry may result in lower margins.

The health care market accounts for most of the demand for medical disposables products.  The health care market was typified in recent years by strict cost containment measures imposed by governmental agencies, private insurers and other “third party” payers of medical costs.  In response to these economic pressures, virtually all segments of the health care market have become extremely cost sensitive and in many cases hospitals and other health care providers have become affiliated with purchasing consortiums that obtain large quantities of needed products and thus can sell at much lower cost.  These factors in combination have hindered suppliers and manufacturers like us who may not be able to supply the large quantities sought by the purchasing consortiums or who are unable to respond to the need for lower product pricing.

Our failure to comply with ongoing governmental regulations could impair our operations and reduce our market share.

In China, medical sanitary materials and dressings, including medical gauzes, absorbent cottons, bandages and disposable surgical suits, are supervised as medical devices and are administered by the Department of Medical Device of State Drug Administration of China.  The technology and specifications of these types of products must conform to and comply with Regulations for the Supervision and Administration of Medical Devices of China and the relevant Chinese laws and standards.  In addition, since we sell our products in the international markets, our products are subject to regulations imposed by various governmental agencies in the markets where our products are sold.  For example, certain of our products exported to the U.S. must be listed with FDA.  All our products exported to EU countries must have the CE certificate.  We also need a Certificate of Foreign Manufacture for the Japanese market.  These layers of regulation cause delays in the distribution of our products and may require us to incur operating costs resulting from the need to obtain approvals and clearances from regulators.  As to date, we have reached the applicable standards and obtained the required certificates in the markets mentioned above.

7

Our margins are reduced when we sell our products to customers through a buying group.

A trend in our industry is the use of buying groups by customers.  These buying groups aggregate the demand of several different customers and then buy products in bulk at lower prices than any of the customers would be able to obtain individually.  We have only limited production capacity.  This makes it difficult for us to meet the often large demand for our products from buying groups that represent overseas customers in developed countries.  A single order of one kind of product from a top 500 multinational buyer could require the full manufacturing capacity of one of our plants.  Although we have expanded our manufacturing capacity, our capacity is still not large enough to meet the demands of these clients.  As a result, we may lose business to other manufacturers of our products who have more manufacturing capacity than we do.

RISKS RELATED TO DOING BUSINESS IN CHINA

Changes in China’s political or economic situation could harm the company and its operational results.

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the Chinese government could change these economic reforms or any of the legal systems at any time. This has an unknown effect on our operations and profitability. Some of the things that could have this effect are:

• Level of government involvement in the economy;

• Control of foreign exchange;

• Methods of allocating resources;

• Balance of payments position;

• International trade restrictions; and

• International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.

Our business is largely subject to the uncertain legal environment in China and your ability to legally protect your investment could be limited.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of China and not of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

China has only recently permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its economic policies and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

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Future inflation in China may inhibit our activity to conduct business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and widely fluctuating rates of inflation. These factors have led to the adoption by Chinese government, from time to time, of various austerity measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The majority of our revenues will be settled in Renminbi, U.S. dollars, and Euro, and any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.

The value of our securities will be affected by the foreign exchange rate between other currencies and Renminbi.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated, such as Euro, British pound, Austrilian dollars, and etc. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

RISKS RELATED TO THE MARKET FOR OUR STOCK

Our common stock is quoted on the OTC Bulletin Board, which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board under the symbol “WMDG.OB”. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or NASDAQ Stock Market. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

We are subject to penny stock regulations and restrictions.

The SEC has adopted regulations which generally define so-called “penny stocks” as an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As of November 27, 2008, the closing price for our common stock was $0.90. As a “penny stock”, our common stock may become subject to Rule 15g-9 under the Exchange Act of 1934, or the “Penny Stock Rule.” This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors”, generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure also is required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

Certain of our stockholders hold a significant percentage of our outstanding voting securities.

Mr. Jianquan Li and his wife Ping Tse own 80.68% of our outstanding voting securities. As a result, they possess significant influence, giving them the ability, among other things, to elect a majority of our Board of Directors and to authorize or prevent proposed significant corporate transactions. Their ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

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Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change- in-control.

Our Articles of Incorporation authorizes the Board of Directors to issue up to 5,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

The price of our common stock is volatile. The market price for our common stock has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future.

These factors include:

• general conditions in our industry, the markets in which we participate, or the worldwide economy;

• announcements of developments related to our business or sector;

• fluctuations in our results of operations;

• our debt-to-equity ratios and other leverage ratios;

• effects of significant events relating to the healthcare or medical products sectors in general;

• issuances, including though sales or lending facilities, of substantial amounts of our common stock or other securities into the marketplace;

• an outbreak of war or hostilities;

• a shortfall in revenues or earnings compared to securities analysts’ expectations;

• changes in analysts’ recommendations or projections; and

• announcements of new acquisitions or development projects by us.

The market price of our common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

Our common stock is thinly-traded

For most of our history our common stock has been thinly-traded, making it difficult for stockholders to sell shares of our common stock at a predictable price or at all. An active trading market for our common stock may not develop and you may be unable to sell our common stock quickly or at predictable prices. The volatility in the market price of our common stock may cause stockholders to encounter significant short term variations in the market price of the stock on account of factors beyond our control.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Important factors that may cause actual results to differ from those projected include the risk factors specified above.

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USE OF PROCEEDS

We will not receive any portion of the proceeds from the sale of common stock by the selling stockholders.

DIVIDEND POLICY

Other than the dividends declared or paid by our subsidiary Winner Group Limited and the reverse stock split effected before the reverse acquisition transaction, we have never declared or paid cash dividends. Our board of directors will make any future decisions regarding dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

MARKET FOR OUR COMMON STOCK

Our common stock is quoted under the symbol “WMDG.OB” on the Over The Counter Bulletin Board. The CUSIP number is 517831103.

During 2005, we filed a request with NASD Regulation Inc. for clearance of quotations on the OTC Bulletin Board or OTCBB under Subsection (a)(5) of Rule 15c2-11 of the Securities Exchange Act of 1934. A clearance letter was issued to us on April 27, 2005 and we were issued a trading symbol “LVRC.OB.” As a result of a 1:1,500 reverse split of our common stock that became effective on October 26, 2005, our trading symbol on the OTC Bulletin Board was changed from “LVRC.OB” to “LVGC.OB.” On March 6, 2006, in connection with our name change from Las Vegas Resorts Corporation to Winner Medical Group Inc., our trading symbol was changed from “LVGC.OB” to “WMDG.OB.” The following table sets forth, for the periods indicated, the high and low close prices for our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

	High		Low
Fiscal 2007 – First quarter (10/1/06 to 12/31/06)	$	4.50	$	4.00
Fiscal 2007 – Second quarter (1/1/07 to 3/31/07)	$	5.00	$	4.00
Fiscal 2007 – Third quarter (4/1/07 to 6/30/07)	$	5.00	$	2.25
Fiscal 2007 – Fourth quarter (7/1/07 to 9/30/07)	$	2.42	$	1.55
Fiscal 2008 – First quarter (10/1/07 to 12/31/07)	$	2.30	$	1.40
Fiscal 2008 – Second quarter (1/1/08 to 3/31/08)	$	1.95	$	1.20
Fiscal 2008 – Third quarter (4/1/08 to 6/30/08)	$	1.70	$	1.05
Fiscal 2008 – Fourth quarter (7/1/08 to 9/30/08)	$	1.10	$	0.51

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Reports to Stockholders

We plan to furnish our stockholders with an annual report for each fiscal year ending September 30 containing financial statements audited by our independent certified public accountants. Additionally, we may, in our sole discretion, issue unaudited quarterly or other interim reports to our stockholders when we deem appropriate. We intend to maintain compliance with the periodic reporting requirements of the Securities Exchange Act of 1934.

Approximate Number of Holders of Our Common Stock

On December 5, 2008, there were approximately 1,431 stockholders of record of our common stock.

DILUTION

Since this offering is being made solely by the selling stockholders and none of the proceeds will be paid to us, our net tangible nook value will be unaffected by this offering.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of income and comprehensive income data for the years ended September 30, 2008, 2007 and 2006 and the selected balance sheet data as of September 30, 2008, and 2007 are derived from our audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the year ended September 30, 2005 and 2004 are derived from our audited consolidated financial statements not included in this report, and the selected balance sheet data as of September 30, 2006, 2005 and 2004 is derived from our audited consolidated financial statements not included in this report.

The following selected historical financial information should be read in conjunction with our consolidated financial statements and related notes and the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Year Ended September 30,
	2004		2005		2006		2007		2008
Statement of operations data:
Sales Revenues:	$	44,281,465	$	58,357,129	$	63,873,058	$	70,280,960	$	85,505,762
Cost of Sales		32,814,282		42,059,663		46,335,354		52,869,597		64,086,581
Gross profit		11,467,183		16,297,466		17,537,704		17,411,363		21,419,181
Expenses:
Administrative expenses		2,142,340		3,536,218		5,619,590		5,535,369		8,138,438
Amortization and depreciation		383,540		448,787		726,816		663,095		1,106,572
Other operating expenses		1,655,237		3,085,624		4,866,985		4,858,607		6,945,890
Provision for doubtful debt		103,563		1,807		25,789		13,667		85,976
Selling expenses		4,488,256		5,294,557		5,689,627		6,423,815		6,299,101
Total expenses		6,630,596		8,830,775		11,335,006		11,959,184		14,437,539
Income from continuing operations before taxes		4,681,760		8,362,388		6,326,690		5,662,391		5,563,166
Income taxes		285,462		446,146		516,635		-15,015		591,118
Net income		4,391,491		7,892,670		5,829,294		5,624,854		5,066,295
Income from continuing operations per common share	$	0.13	$	0.23	$	0.15	$	0.13	$	0.12
Earnings per share — basic and diluted	$	0.12	$	0.21	$	0.14	$	0.13	$	0.11
Weighted average number of shares outstanding — basic		36,991,105		36,991,105		43,053,212		44,677,171		44,727,171
—diluted		36,991,105		36,991,105		43,061,546		44,677,171		44,946,068
Cash dividend declared per common share		-		0.05		-		-		-
Cash flows data:
Net cash flows provided by/used in operating activities	$	5,510,556	$	4,340,346	$	10,272,612	$	7,662,424	$	9,771,150
Net cash flows provided by/used in investing activities		-8,057,982		-3,089,900		-13,676,919		-12,239,051		-11,117,516
Net cash flows provided by/used in financing activities		2,465,411		-268,782		5,046,022		6,287,573		864,476

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	September 30,
	2004		2005		2006		2007		2008
Balance sheet data:
Cash and cash equivalents	$	1,544,131	$	2,650,867	$	4,319,579	$	6,377,488	$	6,462,505
Working capital		2,522,777		7,160,711		15,285,070		12,379,247		12,370,246
Total assets		44,812,790		54,223,425		67,171,711		85,121,335		101,918,091
Total current liabilities		16,213,618		18,667,138		14,735,036		24,085,690		28,966,069
Total long term liabilities		15,099		37,271		21,707		22,857		41,965
Total liabilities		16,228,717		18,704,409		14,756,743		24,108,547		29,008,034
Total stockholders’ equity		27,614,169		34,354,830		52,265,472		60,821,657		72,761,751

The information below is from unaudited consolidated quarterly financial statements.

	Three Months Ended
	12/31/06		03/31/07		06/30/07		09/30/07		12/31/07		03/31/08		06/30/08		09/30/08
Statement of operations data:
Sales Revenues:	$	15,880,770	$	15,117,911	$	17,772,176	$	21,510,103	$	19,325,599	$	17,888,303	$	23,073,575	$	25,218,285
Cost of Sales		11,944,126		11,745,435		13,382,573		15,797,463		14,526,018		13,936,502		17,094,433		18,529,628
Gross profit		3,936,644		3,372,476		4,389,603		5,712,639		4,799,581		3,951,801		5,979,142		6,688,657
Selling, general and administrative expenses		2,501,626		2,527,498		2,692,916		4,237,144		3,583,820		3,341,351		3,655,928		3,856,440
Income from continuing operations before taxes		1,528,606		981,434		1,590,630		1,561,721		1,201,660		329,059		1,987,335		2,045,112
Income taxes		28,399		-224,551		93,387		87,750		64,857		-223,441		271,384		478,318
Net income		1,494,570		1,190,875		1,452,162		1,487,247		1,162,076		570,228		1,736,853		1,597,138
income from continuing operations per common share-basic and diluted	$	0.030	$	0.022	$	0.036	$	0.035	$	0.027	$	0.007	$	0.044	$	0.046
Earnings per share — basic and diluted	$	0.030	$	0.027	$	0.033	$	0.033	$	0.026	$	0.013	$	0.038	$	0.036
Weighted average number of shares outstanding — basic		44,677,171		44,677,171		44,677,171		44,677,171		44,727,171		44,727,171		44,727,171		44,727,171
—diluted		44,685,505		44,677,171		44,677,171		44,677,171		44,852,550		44,864,313		44,849,292		44,946,068

	12/31/06		03/31/07		06/30/07		09/30/07		12/31/07		03/31/08		06/30/08		09/30/08
Balance sheet data:
Cash and cash equivalents	$	2,101,989	$	4,232,127	$	3,876,150	$	6,377,488	$	3,142,685	$	2,509,307	$	4,547,462	$	6,462,505
Working capital		12,819,181		13,364,647		13,724,259		12,379,247		13,145,773		9,988,429		12,443,479		12,370,246
Total assets		70,929,523		72,457,100		77,656,659		85,121,335		88,654,532		91,984,055		97,496,417		101,918,091
Total current liabilities		16,296,894		16,073,143		18,879,019		24,085,690		24,471,857		24,432,370		26,611,455		28,966,069
Total long term liabilities		4,467		4,510		4,580		22,857		23,502		40,765		41,717		41,965
Total liabilities		16,301,361		16,077,653		18,883,599		24,108,547		24,495,359		24,473,135		26,653,172		29,008,034
Total stockholders’ equity		54,483,482		56,219,630		58,568,116		60,821,657		63,986,858		67,356,333		70,658,081		72,761,751
Total long term liabilities

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

Winner Medical’s business operations consist of the manufacturing and marketing, research and development of medical dressings and medical disposables products. We have eight wholly-owned operating subsidiaries and four joint venture companies. We have established several integrated manufacturing and processing lines for our core products. Our product offerings include medical care, wound care, home care products and PurCottonTM products, a nonwoven fabric made from 100% natural cotton. We manufacture our products in China and sell them both in China and abroad in other countries and areas such as Japan, Germany, Italy, the Netherlands, the United Kingdom, Australia, France, South America, Africa, the Middle East and the United States.

The following analysis discusses changes in the financial condition and results of operations at and for the year September 30, 2008, 2007 and 2006, and should be read in conjunction with our audited consolidated financial statements and the notes thereto include elsewhere in this prospectus.

Our Company 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. From July 1993 until late 2005, our immediate predecessor, Las Vegas Resorts Corporation, and its predecessors had no meaningful business operations.

In July 2005, Winner Group Limited entered into a financial advisory agreement with HFG International, Limited, HFG, pursuant to which HFG agreed to provide financial advisory and consulting services in facilitating the transaction by which Winner Group Limited would go public, which, among other things, included locating a proper shell company. In November 2005, HFG recommended Winner Medical Group Inc. to the management of Winner Group Limited and Winner Group Limited started negotiations with Winner Medical Group Inc. on a possible reverse acquisition transaction. Other than fees paid to HFG International, Limited pursuant to that certain Financial Advisory Agreement, no finder’s fees or other forms of consideration were paid by Winner Group Limited or us or our respective officers, directors or shareholders in connection with the share exchange.

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 our wholly-owned subsidiary. Even though, from a legal perspective, Winner Medical Group Inc. was the acquirer in this transaction, Winner Group Limited is treated the acquirer from an accounting perspective.

Winner Medical Group Inc. presently conducts its business operations through its operating subsidiaries located in China and elsewhere.

Our Business Operations

Winner Medical’s present business operations commenced February 1991 and involve the manufacture and marketing of our products primarily out of our facilities in China. We generate revenues through domestic (China) and foreign sale of a variety of medical dressings and medical disposables products, such as dressing packs, wound care dressings, protective products, medical instruments, dental products, hygiene products and home care products.

We have integrated manufacturing lines that provide our clients with the ability to procure certain products from a single supplier. We sell our own brand products in the developing countries including China, the Middle East, South America, Africa, and Southeast Asia. In the developed countries where we sell our products, we also operate on an original equipment manufacturer, OEM, basis, whereby we provide our customers with a customized product that is then sold by the customer under its brand name, by providing our OEM customers with our specialized design, manufacturing and packaging services. When we work on this basis, our clients are able to select the design, size, type and scale of the products we manufacture for them.

Industry Wide Trends that are Relevant to Our Business

The medical dressings and medical disposables manufacturing market are continually evolving due to technological advances and new demands in the healthcare industry. We believe 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 our products. We anticipate that these factors will result in growth in sales of medical dressings and medical disposables products and increased revenues for us.

The export of medical dressings and medical disposables products from China has grown rapidly over the last few years. We believe that our sales over the next five years will grow in correlation to the growth of medical dressings and medical disposables export volume from China.

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One main factor that management considers when estimating our future growth is the potential for revenues from new product sales. Our subsidiary Winner Medical (Huanggang) Co., Ltd., “Winner Huanggang”, has commenced production of the new spunlace cotton nonwoven products, “PurCottonTM Products”. We have already installed three manufacturing lines in Winner Huanggang. The PurCottonTM product combines the superior characteristics of both natural cotton and materials made using nonwoven technology. It has many advantages over woven cotton or synthetic nonwoven fabric as it is natural, safe, strong, durable, healthy, environmentally friendly, and of higher quality. Patent applications covering the invention of spunlace cotton nonwoven process have been made in more than 30 countries. Patents have been granted in China, patent number: ZL200510033147.1; in the United States, patent number: US 7049753 B2; in Russia, patent number: 2005118845/12(021367); in Singapore, patent number: 200503941-7, and in South Africa, patent number: 07/7583. Our patented manufacturing process enables us to produce PurCottonTM at a lower cost than the woven cotton products, so we expect our new PurCottonTM products to gradually supersede our gauze products.

We increased the sales and marketing input for PurCottonTM products, and our focus is the Japanese, Chinese, US and European markets. After equipment installation and adjustment, as well as factory audits by customers, we commenced small scale production of PurCottonTM, and started selling PurCottonTM raw materials to Japan, US, Europe, and Chinese customers. During fiscal year 2008, revenue from these products reached approximately $1,359,000. At the same time, we are in the stage of processing small scale trial orders of PurCottonTM finished medical products with customers in the North America and Europe.

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 our 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, we anticipate that more medical care will be required, and that will result in increased sales of our products.

Another trend or consumption pattern in our industry is that hospitals are increasingly seeking to reduce their costs. One method hospitals employ to reduce costs is to seek 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 disposable products used by hospitals to reduce operating costs include Eustachian tubes and needles, disposable clothing and accessories. We believe the demand for cost-effective products and healthcare solutions and an increasing emphasis on health in the U.S. and EU will bring an increase in the demand for medical instruments, medical dressings and medical disposables products.

Also affecting our industry is the growing trend towards protecting the environment. Consumers are becoming increasingly concerned about the environmental impact of the products they buy. Nonwoven medical dressings, medical instruments and medical disposables products usually contain materials like rubber and polyester, which may result in restrictions on these products under environmental protection regulations which may negatively affect sales of these products. Moreover, such materials are non-biodegradable and exploit petroleum, a non-renewable energy resource. We believe this trend will benefit us in competing with our competitors because our new PurCottonTM products are primarily made of natural cotton, which is an environmentally friendly raw material, and our new nonwoven fabric manufacturing capabilities enables us to make our new products with natural cotton at lower costs.

We believe that there is a trend in our industry that is resulting in the geographical shift in product manufacturing from countries with high labor and manufacturing costs to countries, such as China, where labor and manufacturing costs are generally lower. As a result of the lower cost structure and rapid development of the Chinese economy, more foreign multinational companies are entering the Chinese market to produce their goods as China emerges as part of the global production and supply chain. We anticipate that this trend of large multinational companies seeking to produce their products in China will benefit us, especially since our main business model is to act on an OEM basis. We provide our customers with customized products that are then sold by the customers under their brand names. In addition, we are negotiating with several large companies in the industry in developed countries which intend to outsource some of their production lines.

Finally, we estimate that China’s current annual exports of medical dressings and medical disposables products still account for a small percentage of the total world market demand. Therefore, we believe there is a significant opportunity to expand China’s export volume in this industry. This presents a significant opportunity for us.

Competition

We compete based upon manufacturing capacity, product quality, product cost, ability to produce a diverse range of products and logistical capabilities.

We encounter significant competition from within China and throughout the world. Some of our competitors have greater financial resources, additional human resources, and more established market recognition in both domestic and international markets than we do. However, we believe that our China-based competitors have lower labor costs, but their products often lack diversity. With respect to our competitors located outside China, we believe that competitors in India generally utilize older equipment to manufacture their products, resulting in lower product quality. Our competition in Europe and the North and South America may have a geographic advantage in the EU and U.S. markets, but we believe they are generally manufacturing on a smaller scale, have less product diversity and higher production costs.

This level of competition puts pressure on the sales prices of our products, which results in lower margins for us.

15

Results of Operations

Comparison for the Year Ended September30, 2008 and 2007

The following sets forth certain of our income statement information for the years ended September 30, 2008 and 2007.

(All amounts, other than percentages, in thousand of U.S. dollars)

	YEAR ENDED 9/30/08					YEAR ENDED 9/30/07
Item	In Thousand		As a Percentage			In Thousand		As a Percentage			Amount Change		% Change
Sales Revenue	$	85,506		100.00	%	$	70,281		100.00	%	$	15,225		21.66	%
Costs of Goods Sold	$	64,087		74.95	%	$	52,870		75.23	%	$	11,217		21.22	%
Other Operating Income, Net (1)	$	416		0.48	%	$	789		1.12	%	$	-373		-47.27	%
Exchange Difference, Net	$	-1,378		-1.61	%	$	-422		-0.60	%	$	-956		226.54	%
Selling, general and administrative expenses	$	14,438		16.88	%	$	11,959		17.02	%	$	2,478		20.72	%
Interest Expense	$	591		0.69	%	$	408		0.58	%	$	183		44.93	%
Interest Income	$	41		0.05	%	$	73		0.10	%	$	-31		-43.10	%
Investment yields	$	93		0.11	%	$	179		0.25	%	$	-85		-47.79	%
Income tax	$	591		0.69	%	$	-15		-0.02	%	$	606		-
Minority interest	$	94		0.11	%	$	-53		-0.07	%	$	147		-
Net income	$	5,066		5.93	%	$	5,625		8.00	%	$	-559		-9.93	%

(1) Other operating income, net are mainly consists of incomes from the sales of unused raw materials, sales of leftover materials, and the refund of taxes.

Segment Information

In fiscal 2008, our operations were conducted in two operating segments. Our operating decisions, on-site management, internal reporting and performance assessments are conducted within each of the following two identified segments:

· Traditional Products (Medical Care, Wound Care, Home Care)

· PurCottonTM Products

The following table summarizes the operating results for fiscal years 2008 and 2007 by segment.

(All amounts, other than percentages, in thousand of U.S. dollars)

	Traditional Products (Medical Care, Wound Care, Home Care)				PurCottonTM Products					Consolidated
Item	2008		2007		2008			2007		2008		2007
Revenue		84,147		70,281		1,359			-		85,506		70,281
Gross Profit		21,324		17,411		95			-		21,419		17,411
Income from Operations Before Taxes		6,760		5,662		(1,197	)		-		5,563		5,662
Net (loss) income		6,263		5,625		(1,197	)		-		5,066		5,625

16

Sales Revenue

Sales revenue increased $15,225,000, or 21.66%, to $85,506,000 for the year ended September 30, 2008 from $70,281,000 for the year ended on September 30, 2007. This increase was mainly attributable to an increased volume of large sales orders, especially from European customers. The sales revenue to European customers was $40,582,000 for the year ended September 30, 2008, an increase of 31.04% compared to the same period last year. We have been gradually shifting our resources and services to larger clients. As a result, we expect revenue from these significant customers will increase in the future.

The following table illustrates the sales revenues from the major product types for the years ended September 30, 2008 and 2007. The table also provides the percentage of total revenues represented by each listed product type.

 (All amounts, other than percentages, in thousand of U.S. dollars)

	Year Ended on 9/30/08 in Thousand		As a Percentage of Total Revenues			Year Ended on 9/30/07 in Thousand		As a Percentage of Total Revenues			Amount Change in Thousand		As a Percentage Change
Traditional Products (Medical care, Wound care, and Home Care)	$	84,147		98.41	%	$	70,281		100.00	%	$	13,866		19.73	%
PurCottonTM Products	$	1,359		1.59	%		-		0.00	%	$	1,359		-
Total	$	85,506		100.00	%	$	70,281		100.00	%	$	15,225		21.66	%

After equipment installation and adjustment, as well as factory audits by customers, we commenced small scale production of PurCottonTM. During fiscal year 2008, revenue from PurCottonTM products reached approximately $1,359,000, which is mainly from the selling of PurCottonTM raw materials to Japan, US, Europe, and Chinese customers who produce consumer products including sanitary and incontinence products. At the same time, we are in the stage of processing small scale trial orders of PurCottonTM finished medical products, such as operation room towel and sponges, with customers in North America and Europe.

Looking forward, we are marketing our own branded PurCottonTM wipes/tissue in Hong Kong and Mainland China, as well as the PurCottonTM materials for the international clean room product market. Thus, we believe that demand for PurCottonTM will steadily grow. While it will be necessary to build education levels and cultivate interest in the short term, we are confident in its mid- to long-term growth potential and steady progress has been made to expand the sales revenue.

Sales by Region

The following table illustrates the sales revenues from the major geographic areas in which we sell our products for the years ended September 30, 2008 and 2007. 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)

	Year Ended on 9/30/08 in Thousand		As a Percentage of Total Revenues			Year Ended on 9/30/07 in Thousand		As a Percentage of Total Revenues			Amount Change in Thousand		As a Percentage Change
Europe		40,582		47.46	%		30,970		44.07	%		9,612		31.04	%
Japan		16,340		19.11	%		15,182		21.60	%		1,158		7.63	%
North and South America		12,403		14.51	%		8,824		12.56	%		3,579		40.56	%
China		10,964		12.82	%		8,527		12.13	%		2,437		28.58	%
Other		5,217		6.10	%		6,778		9.64	%		-1,561		-23.03	%
Total		85,506		100.00	%		70,281		100.00	%		15,225		21.66	%

17

Other Operating Income, Net

Our other operating income, net, for the year ended September 30, 2008, decreased $373,000 to $416,000, from $789,000 for the year ended September 30, 2007. Other operating income, net mainly consists of income from sales of cotton and packing materials, sales of leftover materials, and government subsidies for reinvestment of profit, and other government subsidies.

Exchange Defference, Net

Our exchange difference, net, for the year ended September 30, 2008, decreased $956,000 to a loss of $1,378,000, from a loss of $422,000 for the year ended September 30, 2007. The decrease is mainly due to the foreign currency exchange losses recognized on fiscal year 2008 compared with the same period last year. After our customers placed orders with us at an agreed selling price in United States dollar or Euro, the Renminbi (RMB) appreciated against the United States dollar or Euro, as a result, we suffered a foreign currency exchange loss on the actual payment date.

Cost of Goods Sold

Our cost of goods sold increased $11,217,000 to $64,087,000 for the year ended September 30, 2008 from $52,870,000 for the year ended September 30, 2007. As a percentage of net revenues, the cost of goods sold decreased 0.28% to 74.95% for the year ended September 30, 2008 from 75.23% for the year ended September 30, 2007. The decrease as percentage of revenue was mainly attributable to the price increase of our products, the unit product cost decrease as a result of better economies of scale, and the improvement of our cost control and lean production management that increased production efficiency and reduced production waste.

Gross Profits

Our gross profit increased $4,008,000 to $21,419,000 for the year ended September 30, 2008 from $17,411,000 for the year ended September 30, 2007. Gross profit as a percentage of net revenues was 25.05% for the year ended September 30, 2008, as compared to 24.77% for the year ended September 30, 2007. The increase in gross profit as a percentage of net revenue was mainly due to the unit product cost decrease as a result of better economies of scale, and the improvement of our cost control and lean production management that increased production efficiency and reduced production waste.

The following table illustrates the gross profits from each product types for the years ended September 30, 2008 and 2007. The table also provides the percentage of total gross profits represented by each product type.

(All amounts, other than percentages, in thousand of U.S. dollars)

	Year Ended on 9/30/08 in Thousand		Gross Margin			Year Ended on 9/30/07 in Thousand		Gross Margin			Amount Change in Thousand		As a Percentage Change
Traditional Products (Medical care, Wound care, and Home Care)	$	21,324		25.34	%	$	17,411		24.77	%	$	3,913		22.47	%
PurCottonTM Products	$	95		6.99	%		-		-		$	95		-
Consolidated Total	$	21,419		25.05	%	$	17,411		24.77	%	$	4,008		23.02	%

The gross profit margin for PurCottonTM Products is 6.99% during the year ended September 30, 2008, mainly attributable to that we send the potential customers free samples of PurCottonTM Products for their confirmation and validation.

Selling Expenses

Our selling expenses decreased $125,000 to $6,299,000 for the year ended September 30, 2008 from $6,424,000 for the year ended September 30, 2007. As a percentage of net revenues, our selling expenses decreased to 7.37% for the year ended September 30, 2008 from 9.14% for the year ended September 30, 2007. The decrease as percentage of revenue was primarily attributable to the decrease of approximately $712,000 in transportation expense for export sales compared with the same period last year.

Our transportation expenses for domestic sales, i.e., transportation costs within China, were $862,000, 1.01% of total sales, and $627,000, 0.89% of total sales, in fiscal years 2008 and 2007, respectively. Our transportation expenses for export sales were $3,553,000, 4.16% of total sales, and $4,265,000, 6.07% of total sales, in fiscal years 2008 and 2007, respectively. Our transportation fees for export sales decreased by $712,000from fiscal year 2007 to fiscal year 2008 or approximately 16.69%. This decrease in the transportation expenses for export sales was mainly due to (1) the decrease of unit transportation fee, and (2) we have changed some sales contracts from Cost, Insurance and Freight, or CIF, into Free On Board, or FOB, according to which, the customers shall pay for the transportation fee.

18

Administrative Expenses

Our administrative expenses increased $2,603,000, or 47.04%, to $8,138,000 for the year ended September 30, 2008 from $5,535,000 for the year ended September 30, 2007. As a percentage of net revenues, administrative expenses increased to 9.52% for the year ended September 30, 2008 from 7.88% for the year ended September 30, 2007. This increase was primarily attributable to (1) a grant of 911,500 shares of restricted stock to our management and employees pursuant to the Company’s stock incentive plan on October 8, 2007, the apportionment of expenses for the fiscal year 2008 being approximately $382,000, (2) commencement of small scale production by our subsidiary factory, Winner Medical (Huanggang) Co., Ltd., “Winner Huanggang”, which produces PurCottonTM products in the fiscal year 2008, and the related administrative expenses for the Winner Huanggang factory for the fiscal year 2008 increased approximately $993,000 compared to the same period last year, (3) an $321,000 increase in salary for the management and administrative staff compared with the same period last year, and (4) an increase in administrative expenses related to implementation of Sarbanes-Oxley 404 compliance project since January 2008.

Interest Expenses

Interest expenses increased to approximately $591,000, 0.69% of the total revenue, for the year ended September 30, 2008 as compared to approximately $408,000,0.58% of total revenue, for the same period of 2007, an increase of approximately $183,000,or 44.93%. Our interest expense relates to bank loans which are primarily used to improve our production capacity, to maintain inventory level, and to maintain daily operation. The percentage increase of interest expense was mainly due to (1) an increase in our comparatively high average outstanding balance of bank loans of approximately $15,033,000 as of September 30, 2008, compared with approximately $12,782,000 as of September 30, 2007, and (2) increased interest rates of bank loans in fiscal year 2008.

Income taxes

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, or 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 our 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 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 our 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. As such, for the first two calendar years ended December 31, 2008 and 2009, Winner Medical (Huanggang) Co., Ltd. is exempted from any enterprise income tax. Between January 1, 2010 and December 31, 2012, Winner Medical (Huanggang) Co., Ltd. is subject to an enterprise income tax rate of 12.5%. Between January 1, 2008 and December 31, 2010, Winner Medical & Textile Ltd. Chongyang is subject to an enterprise income tax rate of 12.5%. Between January 1, 2008 and December 31, 2009, Hubei Winner Textiles Co., Ltd. is subject to an enterprise income tax rate of 12.5%. For the calendar years ended December 31, 2008, Shanghai Winner Medical Apparatus Co., Ltd. is exempted from any enterprise income tax. Between January 1, 2009 and December 31, 2011, Shanghai Winner Medical Apparatus Co., Ltd. is subject to an enterprise income tax rate of 12.5%.

In addition, during the grandfather period, the income tax rate for enterprises located in Shenzhen currently enjoy a 18% income tax rate will increase from 18%, 20%, 22%, and 24% in 2008, 2009, 2010, and 2011 respectively, and reach 25% in 2012.

Winner Medical (Hong Kong) Limited was incorporated in January 2008 and the applicable statutory tax rate is 16.5%.

No provision for US tax is made as the Company has no assessable income in the US for the year ended September 30, 2008 and 2007. The enterprise income tax of US is 34%.

Our income tax provision for fiscal year ended September 30, 2008 was $591,000 as compared to -$15,000 for the year ended September 30, 2007. The increase of income tax is mainly due to a change in the tax rate on our subsidiaries in China.

Minority Interest

Our financial statements reflect an adjustment to our consolidated group net income equal to $94,000 and -$53,000 in the fiscal years 2008 and 2007, respectively, reflecting third party minority interests in two of our subsidiaries, 40% in Shanghai Winner Medical Apparatus Co., Ltd., and 40% in Winner Medical (Hong Kong) Limited.

19

Net income (profit after taxes)

Net profit decreased to approximately $5,066,000for the year ended September 30, 2008 as compared to approximately $5,625,000for the same period of 2007, a decrease of approximately $559,000,or approximately 9.93%. Such decrease is mainly attributable to (1) an increase of approximately $956,000 in foreign currency exchange loss compared with the same period last year. After our customers placed orders with us at an agreed selling price in United States dollar or Euro, the Renminbi (RMB) appreciated against the United States dollar or Euro, as a result, we suffered a foreign currency exchange loss on the actual payment date, (2) the commencement of small scale production of PurCottonTM products in fiscal year 2008, whereas the relatively high fixed expenses, such as depreciation, amortization, employee salaries, training expenses, etc. resulted in a net loss of approximately $1,197,000 in PurCottonTM product segment for the fiscal year 2008, (3) a grant of 911,500 shares of restricted stock to our management and employees pursuant to the Company’s stock incentive plan on October 7, 2007, the apportionment of expenses for the fiscal year 2008 being approximately $382,000, and (4) a $606,000 increase in income taxes. However, we raised the sales price of some products for most of our customers, and improved the production management to reduce manufacture cost, which helped to offset those negative impacts on our net income.

(All amounts, other than percentages, in thousand of U.S. dollars)

	Year Ended  on 9/30/08 in Thousand		Net Profit Margin			Year Ended  on 9/30/07 in Thousand		Net Profit Margin			Amount Change in Thousand		As a Percentage Change
Traditional Products (Medical care, Wound care, and Home Care)	$	6,263		7.44	%		5,625		8.00	%	$	638		11.34	%
PurCottonTM Products	$	-1,197		-			-		-		$	-1,197		-
Consolidated Total	$	5,066		5.92	%		5,625		8.00	%	$	-559		-9.94	%

Foreign Currency Translation Difference

We incurred a gain in foreign currency translation, equal to $6,291,000and $2,908,000in the years ended September 30, 2008 and 2007, respectively. On July 21, 2005, China reformed its foreign currency exchange policy to adopt floating RMB exchange rates. On September 30, 2008 and 2007, the exchange rates of RMB against US dollar were 6.8183 and 7.5108 respectively; the appreciation was 10.16%. As a result, we implemented different exchange rates in translating RMB into U.S. dollar in our financial statements for the years ended September 30, 2008 and 2007. In the year ended September 30, 2008, the exchange rates of 6.8183, 8.277 and 7.1643 were implemented in calculating the total assets/liabilities, shareholders’ equity and profit and loss, as compared to the exchange rates of 7.5108, 8.277 and 7.7098 in the year ended September 30, 2007, respectively. In addition, we also implemented different exchange rates in translating Hong Kong dollar into U.S. dollar in our financial statements for the year ended September 30, 2008. In the year ended September 30, 2008, the exchange rates of 7.7787, 7.7787 and 7.7793 were implemented in calculating the total assets/liabilities, shareholders’ equity and profit and loss, respectively.

Inventory turnover

Our inventory increased to approximately $15,840,000 for the year ended September 30, 2008 as compared to approximately $11,483,000for the same period of 2007, an increase of approximately $4,357,000,or 37.94%. Our inventory turnover was 4.69 and 4.64 in fiscal years 2008 and 2007, respectively. The relatively low inventory turnover was mainly due to our integrated manufacturing process. In order to control product quality and maintain a stable supply chain, our subsidiaries take different roles in the manufacturing processes and constitute a whole production line from raw materials to semi-finished products, then to final products. This arrangement increased our inventory and lowered our inventory turnover.

Accounts receivable collection period

Accounts receivable increased to approximately $13,517,000for the year ended September 30, 2008 as compared to approximately $11,280,000for the same period of 2007, an increase of approximately $2,237,000,or 19.83%. Our average accounts receivable collection period was 52.20 days and 48.12 days in fiscal years 2008 and 2007, respectively. The increase in accounts receivable is mainly attributable to the increase in sales revenue during the fourth quarter of fiscal year 2008. In order to reduce the risk of inability to collect the accounts receivables, we entered into a one-year insurance contract with China Export & Credit Insurance Corporation to cover the non-collected accounts receivable, which became effective on April 25, 2008 and automatically renewed unless a one month written notice is given by either party. A total of US$17.8 million of accounts receivables from the new customers and the customers with high credit risk were covered under this insurance contract, and the maximum insurance indemnity from China Export & Credit Insurance Corporation is US$8 million. Also, we are using SAP ERP system to evaluate and monitor account receivables risks of each individual customer.

20

Comparison for the Year Ended September 30, 2007 and 2006

The following sets forth certain of our income statement information for the years ended September 30, 2007 and 2006.

(All amounts, other than percentages, in million of U.S. dollars)

	YEAR ENDED 9/30/07					YEAR ENDED 9/30/06
Item	In Millions		As a Percentage			In Millions		As a Percentage
Sales Revenue	$	70.28		100	%	$	63.87		100	%
Costs of Goods Sold	$	52.87		75.23	%	$	46.34		72.55	%
Other Operating Income, Net (1)	$	0.37		0.5	%	$	0.28		0.44	%
Selling, general and administrative expenses	$	11.96		17.02	%	$	11.34		17.75	%
Interest Expense	$	0.41		0.58	%	$	0.27		0.42	%
Interest Income	$	0.07		0.1	%	$	0.05		0.08	%
Investment yields	$	0.18		0.26	%	$	0.05		0.08	%
Income tax	$	-0.01		-0.01	%	$	0.52		0.81	%
Minority interest	$	-0.05		-0.07	%	$	0.02		0.03	%
Net income	$	5.62		8.00	%	$	5.83		9.13	%

(1) Other operating income, net are mainly consists of incomes from the sales of unused raw materials, sales of leftover materials, and the refund of taxes.

Sales Revenue

Sales revenue increased $6.41 million, or 10.04%, to $70.28 million for the year ended September 30, 2007 from $63.87 million for the year ended on September 30, 2006. This increase was mainly attributable to the increased sales orders from customers with large orders, especially from European customers. Beginning in calendar year 2007, we have been gradually shifting our resources and services to larger clients. As a result, we expect revenue from these significant customers will increase in the future.

Our new self-adhesive and elastic bandage products entered into the market in January 2006. During the year ended September 30, 2007, revenue from these products reached approximately $2.34 million, which is 3.3% of the total revenue. Our PurCottonTM Products commenced trial production and we have sent the finished PurCottonTM products - operation room tower and lap sponge to hospitals for testing and validation, but the approval process for these new products has taken longer than we originally expected, resulting in the delay of additional PurCottonTMproducts sales. During the year ended September 30, 2007, revenue from these products reached approximately $0.27 million.

Sales by Region

The following table illustrates the sales revenues from the major geographic areas in which we sell our products for the years ended September 30, 2007 and 2006. The table also provides the percentage of total revenues represented by each listed region.

(All amounts, other than percentages, in million of U.S. dollars)

	Year Ended  on 9/30/07		Percentage of Total Revenues			Year Ended  on 9/30/06		Percentage of Total Revenues
Europe	$	30.97		44.07	%	$	25.01		39.16	%
Japan	$	15.18		21.6	%	$	16.65		26.06	%
North America	$	8.82		12.55	%	$	7.62		11.93	%
China	$	8.53		12.14	%	$	7.78		12.18	%
Other	$	6.78		9.65	%	$	6.81		10.67	%
Total	$	70.28		100	%	$	63.87		100.00	%

Other Operating Income, Net

Our other operating income, net, for the year ended September 30, 2007, increased $0.09 million to $0.37 million, from $0.28 million for the year ended September 30, 2006. Other operating income, net mainly consists of income from sales of unused raw materials such as cotton and packing materials, sales of leftover materials, government subsidies for reinvestment of profit, and other government subsidies.

21

Cost of Goods Sold

Our cost of goods sold increased $6.53 million to $52.87 million for the year ended September 30, 2007 from $46.34 million during the year ended September 30, 2006. As a percentage of net revenues, the cost of goods sold increased 2.68% to 75.23% in the year ended September 30, 2007 from 72.55% in the year ended September 30, 2006. The increase was mainly attributable to the increased cost of raw materials, labor and energy.

Gross Profits

Our gross profit decreased $0.13 million to $17.41 million for the year ended September 30, 2007 from $17.54 million for the year ended September 30, 2006. Gross profit as a percentage of net revenues was 24.77% for the year ended September 30, 2007, as compared to 27.46% during the year ended September 30, 2006. The decrease in gross profit as a percentage of net revenue was mainly due to the increase of direct labor, energy and raw materials cost; and the appreciation of RMB against USD. Approximately 88% of our revenue is through export, and over 70% of our export is settled by USD, and almost all the costs are expensed in RMB, so the RMB appreciation against USD lowered our gross profit margin. For years ended September 30, 2007 and 2006, the average exchange rates were 7.7098 and 8.0004 respectively, an increase of 3.63%.

For the year ended September 30, 2007, revenue from sterilized products and non-sterilized products are $31.62 million and $38.66 million respectively, or 45% and 55% of the total revenue. Gross margin from sterilized products for the year ended September 30, 2007 is $9.03 million, or 28.56%, of the total revenue. Gross margin from non-sterilized products for the year ended September 30, 2007 is $8.41 million, or 21.76% of the total revenue.

Selling Expenses

Our selling expenses increased $0.73 million to $6.42 million for the year ended September 30, 2007 from $5.69 million for the year ended September 30, 2006. As a percentage of net revenues, our selling expenses increased to 9.14% for the year ended September 30, 2007 from 8.91% for the year ended September 30, 2006. The increase was primarily attributable to increased sales and marketing expenses related to PurCottonTM products, and an increase in transportation costs. For fiscal year ended September 30, 2007, the transportation cost is $4.90 million, or 76% of the total selling expense.

At present, we perform nearly all of our finished product manufacturing at our Shenzhen, China based manufacturing facilities. Our facilities in Hubei provide semi-finished products to the Shenzhen facilities, where the products are finished. We export our products to the overseas markets from our Shenzhen facilities. Therefore, there are two important elements of transportation costs that affect us: one is the transportation cost between our Hubei production facilities and our Shenzhen production facilities, and the other is the cost to export our products to destinations outside of China. Our domestic land transportation expenses, i.e., transportation costs within China, were $630,000, 0.90% of total sales, and $480,000, 0.75% of total sales, in fiscal years 2007 and 2006, respectively. Our export transportation expenses were $4.27 million, 6.08% of total sales, and $3.57 million, 5.59% of total sales, in fiscal years 2007 and 2006, respectively. Our export transportation expenses increased by $0.7 millionfrom fiscal year 2006 to fiscal year 2007, or approximately 19.61%. This amount increase in the export transportation expenses was mainly due to the increase of unit transportation fee.

Administrative Expenses

Our administrative expenses decreased $0.08 million, or 1.42%, to $5.54 million for the year ended September 30, 2007 from $5.62 million for the year ended September 30, 2006. As a percentage of net revenues, administrative expenses decreased to 7.88% for the year ended September 30, 2007 from 8.80% for the year ended September 30, 2006. This decrease was primarily attributable to our improved cost control system after implementing the Enterprise Resources Planning, “ERP”, software provided by a Systems Applications and Products company, “SAP”, or SAP ERP system, which integrates all of the core business operations of each of our subsidiaries-from production, supply, and sales to financial records-into one system.

Interest Expenses

Interest expenses increased to approximately $0.41 million, 0.58% of the total revenue, for the year ended September 30, 2007 as compared to approximately $0.27 million,0.42% of total revenue, for the same period of 2006, an increase of approximately $0.14 million,or 51.85%. Our interest expenses related to bank loans which are primarily used to construct or purchase manufacturing facilities and equipment and to improve our production capacity. The percentage decrease of interest expense was mainly attributable to the increase of the total amount of the bank loans. In the year ended September 30, 2007, the bank loans increased $7.34 million, compared with the year ended September 30, 2006.

Income taxes

Enterprise income tax in the PRC is generally charged at 33%, in which 30% is for national tax and 3% is for local tax, of the assessable profit. All our subsidiaries in the PRC have applied for the exemption for the local tax. For foreign investment enterprises established in a Special Economic Zone or Coastal Open Economic Zone, where our subsidiaries are located, and which are engaged in production-oriented activities, the national tax rate could be reduced to 15% or 24%, respectively. Our subsidiaries incorporated in the PRC are subject to PRC enterprises income tax at the applicable tax rates on their taxable income as reported in their Chinese statutory accounts in accordance with the relevant enterprise income tax laws applicable to foreign enterprises. Pursuant to the same enterprise income tax laws, our subsidiaries are fully exempt 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. For those foreign enterprises established in the middle-west region of the PRC, a 50% tax exemption is granted for a further three years after the tax holiday and concession stated above. On the other hand, an export-oriented enterprise, whose exports sales contributed over 70% of the total sales, can enjoy a lower tax rate of 10%.

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Foreign enterprises in the PRC are eligible for a refund of tax paid for 40% of the purchase amount of domestic machinery in that year, if the enterprises income tax for the year of acquisition is higher than that of the previous year and if those invested projects are encouraged by the government. The maximum tax deduction is 5 years. For example, our subsidiaries of Winner Industries (Shenzhen) Co., Ltd., Hubei Winner Textiles Co., Ltd., and Winner Medical (Huanggang) Co., Ltd. can enjoy this tax exemption.

Foreign-invested enterprises in China are eligible for a refund of taxes paid equal to 40% of the reinvestment of profit. Being an export originated and high-technology enterprise, our subsidiary Winner Industries (Shenzhen) Co., Ltd. is eligible for a 100% tax refund for its reinvestment of profits. In addition, export-oriented enterprises whose exports sales contribute over 70% of the total sales can receive a 100% refund of the tax paid.

In 2006, Shenzhen Bureau of Science Technology & Information formally recognized Winner Shenzhen as a High- Technology Enterprise, which gives Winner Shenzhen a 50% tax exemption till 2009 and a 50% tax drawback from 2010 to 2011.

Starting in January 1, 2008, the enterprise income tax rate in the PRC will be adjusted to 25% from the previous 33%. For an enterprise currently enjoying any tax benefits mentioned above, those benefits are still valid until 2012. The income tax rate is expected to gradually increase to the standard rate of 25% over a five-year transition period. Also, the new Enterprise Income Tax Law has not set out the details as to how the existing preferential tax rate will gradually increase to the standard rate of 25%. Consequently, the Company is not able to make an estimate of the financial effect of the new Enterprise Income Tax Law on its deferred tax assets and liabilities. The Company will continue to assess the impact on the Group’s results of operations and financial position of this change in enterprise income tax rates.

Our income tax provision for year ended September 30, 2007 was -$15,015 as compared to $516,635for the year ended September 30, 2006. The decrease of income tax is mainly due to (1) our subsidiaries of Winner Industries (Shenzhen) Co., Ltd., Winner Medical & Textile Ltd. Jingmen, and Hubei Winner Textiles Co., Ltd. receiving government approval for tax refund of 40% of the purchase amount of domestic machinery, totaling $0.07 million $0.12 million and $0.12 million respectively in the third fiscal quarter, and (2) after we reassessed our tax status, the over provision of income taxes was written off in the second fiscal quarter of 2007.

Minority Interest

Our financial statements reflect an adjustment to our consolidated group net income equal to ($52,552) and $19,239 in the fiscal years 2007 and 2006, respectively, reflecting the minority interests held by third parties in one of our subsidiaries, 40% in Shanghai Winner Medical Apparatus Co., Ltd..

Net income (profit after taxes)

Net profit decreased to approximately $5.62 millionfor the year ended September 30, 2007 as compared to approximately $5.83 millionfor the same period of 2006, a decrease of approximately $0.21 million,or approximately 3.6%. Such decrease is mainly attributable to (1) the appreciation of RMB against USD, for the years ended September 30, 2007 and 2006, when the average exchange rates were 7.7098 and 8.0004 respectively, an increase of 3.63%, (2) the increased sales and marketing expense related to PurCottonTM products, (3) the export transportation expenses increased $0.7 million to $4.27 million for the year ended September 30, 2007 from $3.57 million for the year ended September 30, 2006, and (4) the increase in labor cost.

Foreign Currency Translation Difference

We incurred a gain in foreign currency translation, equal to $2.91 millionand $0.86 millionin the years ended September 30, 2007 and 2006, respectively. On July 21, 2005, China reformed its foreign currency exchange policy. As of September 30, 2007, the accumulated appreciation of RMB against U.S. dollar is approximately 9.26%. As a result, we implemented different exchange rates in translating RMB into U.S. dollar in our financial statements for the years ended September 30, 2007 and 2006. In the year ended September 30, 2007, the exchange rates of 7.5108, 8.277 and 7.7098 were implemented in calculating the total assets/liabilities, shareholders’ equity and profit and loss, as compared to the exchange rates of 7.9087, 8.277 and 8.0004 in the year ended September 30, 2006, respectively.

Inventory turnover

Our inventory increased to approximately $11.48 million for the year ended September 30, 2007 as compared to approximately $11.33 millionfor the same period of 2006, an increase of approximately $0.15 million,or 1.68%. Our inventory turnover was 4.64 and 4.25 in fiscal years 2007 and 2006, respectively. The relatively low inventory turnover was mainly due to our integrated manufacturing process. In order to control product quality and maintain a stable supply chain, our subsidiaries took different roles in the manufacturing processes and constitute a whole production line from raw materials to semi-finished products, then to final products. This arrangement increased our inventory and lowered our inventory turnover.

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Accounts receivable collection period

Accounts receivable increased to approximately $11.28 millionfor the year ended September 30, 2007 as compared to approximately $7.51 millionfor the same period of 2006, an increase of approximately $3.77 million,or 50.2%. Our average accounts receivable collection period was 48.12 days and 44.44 days in fiscal years 2007 and 2006, respectively. The increase in accounts receivable is mainly attributable to the increase in sales revenue in the fourth quarter, especially September. Sales revenue increased $3.73 million, or increased 50.2% for three months ended September 30, 2007, compared to the three months ended September 30, 2006. The payment from our international customers consists of 40% Letter of Credit, 35% Documents Against Payments, and 25% Telegraphic Transfer. In order to reduce the risk of inability to collect the accounts receivables, we entered into a one-year insurance contract with China Export & Credit Insurance Corporation to cover the non-collected accounts receivable, which becomes effective April 28, 2007. A total of $10 million of accounts receivables from our customers were covered under this insurance contract.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and cash equivalents of approximately $6,463,000.

Cash Flow

(in Thousand US$)

	Years Ended September 30,
	2008			2007			2006
Net cash provided by operating activities		9,771			7,662			10,273
Net cash (used in) investing activities		(11,118	)		(12,239	)		(13,677	)
Net cash provided by financing activities		864			6,288			5,046
Effect of exchange rate changes on cash balance		567			347			27
Net increase in cash and cash equivalent		85			2,058			1,669
Cash and cash equivalents at the beginning of year		6,377			4,320			2,651
Cash and cash equivalents at the end of year		6,463			6,377			4,320

Operating Activities:

Net cash provided by operating activities was $9,771,000 for the year ended September 30, 2008 which is an increase of $2,019,000 from the $7,662,000 net cash provided by operating activities for the same period in 2007. The increase was mainly due to an increase in unsettled account payable in fiscal year 2008 and a reduction of prepaid expenses.

Net cash provided by operating activities was $7,662,000 for the year ended September 30, 2007 which is a decrease of $2,611,000 from the $10,273,000 net cash provided by operating activities for the same period in 2006. The decrease was mainly due to the increase in account receivable in fiscal year 2007.

Investing Activities:

Our main uses of cash for investing activities are payments to the acquisition of property, plant and equipment and restricted cash pledged as deposit for bills payable issuance.

Net cash used in investing activities for the year ended September 30, 2008 was $11,118,000, which decreased an amount of $1,121,000 from net cash used in investing activities of $12,239,000 in the same period of 2007 due to the decreased investment during the year ended September 30, 2008 in the non-woven spunlance 100% cotton project in Winner Medical (Huanggang) Co., Ltd., compared with the same period last year.

Net cash used in investing activities for the year ended September 30, 2007 was $12,239,000, which decreased an amount of $1,438,000 from net cash used in investing activities of $13,677,000 in the same period of 2006 due to the decreased investment during the year ended September 30, 2007 in the non-woven spunlance 100% cotton project in Winner Medical (Huanggang) Co., Ltd., compared with the same period last year.

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Financing Activities:

Net cash provided by financing activities for the year ended September 30, 2008 totaled $864,000 as compared to $6,288,000 provided by financing activities in the same period of 2007. Such decrease of the cash provided by financing activities was mainly attributable to the increase of repayment of bank borrowing.

Net cash provided by financing activities for the year ended September 30, 2007 totaled $6,288,000 as compared to $5,046,000 provided by financing activities in the same period of 2006. Such increase of the cash provided by financing activities was mainly attributable to the increase of bank loans.

Our loans to asset ratio was 28.42% as of September 30, 2008. We plan to maintain our debt to asset ratio below 40%. We believe that we currently maintain a good business relationship with each of the banks with whom we have loans, as identified in the table below.

As of September 30, 2008, we have loans with Chinese banks totaling $15,033,000. These loans have annual interest rates ranging from 6.21%-8.22%.

Bank loans as of September 30, 2008

Loan		Bank	Loan period	Interest rate			Secured by	Balance as of September 30, 2008 US$
	A	Shenzhen Industrial and Commercial Bank of China	07-03-2008 to 06-29-2009		8.22	%	Land use rights & buildings		1,466,641
	B	Shenzhen Industrial and Commercial Bank of China	07-21-2008 to 06-29-2008		8.22	%	Land use rights & buildings		733,321
	C	Shenzhen Industrial and Commercial Bank of China	08-22-2008 to 08-21-2009		8.22	%	Land use rights & buildings		733,321
	D	Shenzhen Industrial and Commercial Bank of China	08-29-2008 to 08-28-2009		8.22	%	Land use rights & buildings		1,466,641
	E	Shenzhen Industrial and Commercial Bank of China	09-27-2008 to 03-24-2009		6.21	%	Land use rights & buildings		1,466,641
	F	China Merchants Bank, Shenzhen Branch	01-02-2008 to 01-02-2009		7.47	%	Land use rights & buildings		1,173,313
	G	China Merchants Bank, Shenzhen Branch	01-02-2008 to 01-02-2009		7.47	%	Land use rights & buildings		1,026,649
	H	China Merchants Bank, Shenzhen Branch	05-27-2008 to 05-27-2009		7.47	%	Land use rights & buildings		1,173,313
	I	China Merchants Bank, Shenzhen Branch	06-30-2008 to 04-15-2009		6.57	%	Land use rights & buildings		1,319,977
	J	China Merchants Bank, Shenzhen Branch	09-22-2008 to 03-22-2009		6.21	%	Land use rights & buildings		1,466,641
	K	Huanggang Industrial and Commercial Bank of China	01-22-2008 to 01-20-2009		7.47	%	Land use rights & buildings		2,126,630
	L	Huanggang Industrial and Commercial Bank of China	06-26-2008 to 06-25-2009		7.84	%	Land use rights & buildings		879,985
			Total						15,033,073

As of September 30, 2008, we had approximately $7.18 million bank credit facilities available from four commercial banks, consisting of approximately $2.64 million from Shenzhen Branch of China Merchants Bank, approximately $2.93 million from Shenzhen Branch of the Industrial and Commercial Bank of China, approximately $1.58 million form Tianmen Branch of the Industrial and Commercial Bank of China, and approximately $0.03 million from Huanggang Branch of the Industrial and Commercial Bank of China. These loan facilities are all secured by our real estate and other assets. These revolving lines of credit allow us to make short-term loans repeatedly, and the banks re-evaluate our credit line annually. These bank credits enable us to utilize the short-term loans and enjoy a lower interest expense compared with long-term loans.

We believe that our 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 our operations at our current level and working capital and capital expenditure needs over the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our 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, we may make investments in, or acquisitions of, complementary businesses, services or technologies which could also require us to seek additional equity or debt financing. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

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Contractual Obligations

As of September 30, 2008, our contractual obligations are as follows:

	Payment due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Short-Term Debt Obligations	$	15,033,073	$	15,033,073		-		-		-
Long-Term Debt Obligations		-		-		-		-		-
Capital Lease Obligations		-		-		-		-		-
Operating Lease Obligations	$	578,144	$	288,576	$	289,568	$	-		-
Purchase Obligations	$	417,466	$	417,466		-		-		-
Other Long Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		-		-		-		-		-
Total	$	16,028,683	$	15,739,115	$	289,568	$	-		-

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our 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. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

· Principles of consolidation – Our consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America and include the assets, liabilities, revenues, expenses and cash flows of the Company and all of its subsidiaries. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.

· Revenue Recognition – We derives its revenue primarily from the sales of medical dressings and disposables. 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 collectibility is reasonably assured. Customers do not have a general right of return on products shipped. Products returns to us were insignificant during past years.

· 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 material, 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 expense 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

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· 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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Seasonality

Our 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 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates are fixed for the terms of the loans, the terms are typically six or twelve months and interest rates are subject to change upon renewal. During calendar years 2006, 2007, and 2008 the People’s Bank of China, the central bank of China, adjusted the interest rate of RMB bank loans ten times - on April 28, 2006, August 19, 2006, March 18, 2007, May 19, 2007, July 21, 2007, August 22, 2007, September 15, 2007, December 21, 2007, September 16, 2008, and October 19, 2008. Since October 19, 2008, the new interest rates are 6.12% and 6.93% for RMB bank loans with a term less than 6 months and loans with a term of 6-12 months, respectively, as compared to the respective rates of 5.22% and 5.58%, before April 28, 2006. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities on September 30, 2008 would decrease net income before provision for income taxes by approximately $0.15 millionfor the fiscal year ended September 30, 2008. Management monitors the banks’ interest rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

Our reporting currency is US dollar and the majority of our revenues will be settled in RMB and US dollars. All of our assets are denominated in RMB except for cash. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollars and RMB.

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 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. Until 1994, the Renminbi experienced a significant devaluation against US dollars but since then the value of the Renminbi relative to the US dollar has remained stable. However, China recently adopted a floating rate with respect to the Renminbi, with a 0.5% fluctuation. In July 21, 2005, China reformed its foreign currency exchange policy, resulted an appreciation of RMB against USD by 2.1 % during a very short period of time. On September 30, 2008 and 2007, the exchange rates of RMB against US dollar were 6.8183 and 7.5108 respectively; the appreciation was 10.16%. This floating exchange rate, and any appreciation of the Renminbi that may result from such rate, could have various adverse effects on our business.

Our currency exchange rate risks come primarily from the sales of products to international customers. If the RMB continues its appreciation against US dollar, it will make our sale prices more expensive, thus our sales may decline. We believes that the RMB will continue to appreciate against US dollar, thus we currently implemented the following strategies to reduce or limit the currency exchange risks. (1) We raised the sales price of some products for most of the customers, and asked them to share the currency exchange rate loss. (2) As a percentage of total revenue, the sales revenue in China continues to increase. (3) We shall increase import of raw materials from the US, such as cotton and packaging materials.

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Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Based on the information disclosed by National Bureau of Statistics of China, for the first nine month of calendar year 2008, the Consumer Price Index in China increased 7.0%, compared with the same period last year. In order to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues, we implement the following strategies to reduce or limit the inflation risk. (1) We raised the sales price of some products for most of the customers. (2) We are continuously developing new technology to reduce labor cost by replacing hand labors with machines. (3) We implement lean production management among all subsidiaries to eliminate waste during production and increase efficiency.

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BUSINESS

Background

We were originally incorporated under the name Birch Enterprises, Inc. in the state of Nevada in August 1986. We were initially formed as a “blank check” entity for the purpose of seeking a merger, acquisition or other business combination transaction with a privately owned entity seeking to become a publicly-owned entity.

On September 14, 1987, we consummated a business combination transaction with Las Vegas Resort Investments whereby Las Vegas Resort Investments became a wholly-owned subsidiary of ours. Concurrent with this transaction, we changed our corporate name to Las Vegas Resorts Corporation. During 1989, we completed a public offering of our common stock pursuant to a Registration Statement on Form S-18 (Registration No. 33-10513-LA).

During September 1992 all of our operations ceased and, by July 31, 1993, we had dissolved all subsidiaries and business operations. We had no active operations from then until December 16, 2005, when we completed a reverse acquisition transaction, discussed below under “—Acquisition of Winner Group Limited,” with Winner Group Limited, a Cayman Islands corporation, whose subsidiary companies originally commenced business in February 1991.

Winner is a technology-driven medical dressings and medical disposables manufacturer based in China. Winner became our wholly-owned subsidiary in connection with the reverse acquisition transaction and is the holding company for all of our commercial operations.

On February 13, 2006, we amended our Articles of Incorporation to change our name from Las Vegas Resorts Corporation to Winner Medical Group Inc. We changed our name to reflect our new business and the names of our subsidiary companies.

Acquisition of Winner Group Limited

On December 16, 2005, we completed a reverse acquisition transaction with Winner Group Limited whereby we issued to the stockholders of Winner Group Limited 42,280,840 shares of our common stock in exchange for all of the issued and outstanding capital stock of Winner Group Limited. Winner Group Limited thereby became our wholly-owned subsidiary and the former stockholders of Winner Group Limited became our controlling stockholders.

Upon the closing of the reverse acquisition, Timothy Halter, our former CEO and sole director, submitted his resignation letter pursuant to which he resigned from all offices of Winner Medical Group Inc. that he held and also from his position as our director effective as of January 7, 2006. Jianquan Li was appointed as our director on December 16, 2005 and Xiuyuan Fang was appointed to the board of the directors on January 7, 2006 when Timothy Halter resigned. In addition, our executive officers were replaced by the Winner Group Limited executive officers upon the closing of the reverse acquisition as indicated in more detail below.

For accounting purposes, the share exchange transaction was treated as a reverse acquisition with Winner Group Limited as the acquirer and Winner Medical Group Inc. as the acquired party. When we refer in this prospectus to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Winner Group Limited on a consolidated basis unless the context suggests otherwise.

Winner Group Limited’s operations began with Winner Medical & Textile Ltd. Zhuhai, which was incorporated in China in February 1991 by our CEO, President and director Mr. Jianquan Li. Over the years, Winner Group Limited expanded to ten factories and two trading companies. Winner Group Limited was incorporated as a Limited Liability Exempted Company in the Cayman Islands in April 2003 and is the holding company of all of our business operations. Winner Group Limited owns 100% of Winner Industries (Shenzhen) Co., Ltd., Winner Medical & Textile Ltd. Zhuhai, Winner Medical & Textile Ltd. Jingmen, Hubei Winner Textiles Co., Ltd., Winner Medical & Textile Ltd. Yichang, Winner Medical & Textile Ltd. Jiayu, Winner Medical & Textile Ltd., Chongyang and Winner Medical (Huanggang) Co., Ltd. Winner Group Limited also owns 60% of Shanghai Winner Medical Apparatus Co., Ltd. and Winner Medical (Hong Kong) Limited, 40% of Winner medical &Textile Ltd Xishui, and 35% of Winner Medical Jordan Ltd.

Our Business

Through our subsidiary Winner Group Limited, our business consists of research and development, manufacturing and marketing of medical dressings and medical disposables. We have eight wholly-owned operating subsidiaries and four joint venture companies, and we established several integrated manufacturing and processing lines for our core products. Our product offerings include medical care products, wound care products, home care products and PurCottonTM products, a new product of nonwoven fabric made from 100% natural cotton.

We are one of the leading manufacturers of medical dressings and medical disposables in China. Our products have been sold to all major countries and regions internationally, including China, Japan, Germany, the United States, Italy, the Netherlands, the United Kingdom, Australia, and France, as well as countries in South America, Africa and the Middle East. Certain of our medical device products are registered and listed with the U.S. Food and Drug Administration or FDA, giving us the approval to export those sterilized products directly to the United States.

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Our Industry

The worldwide market for medical dressings and medical disposables is growing at a rapid pace. For example, according to information published in 2006 by Freedonia Group, a U.S.-based international business research company, the U.S. market for medical dressings and medical disposables products is expected to be $79 billion by 2007 and to grow at an annual rate of 5.6% for the next three years. We believe the growth for medical dressings and medical disposables products in the U.S. could be even greater, driven by continued improvement in medical treatment techniques, and the rapid progress in technology. As a result, we expect demand for our products to rise due to an increased need for health care services, in general, and to increased demand for products such as filled inhalers, Eustachian tubes, products for angioplasty applications, nucleic acid diagnostic instruments and elastic bandages.

Another significant market for medical dressings, medical instruments and medical disposables is the European Union or EU. In 2003, sales in this market reached €8.884 billion (approximately $11.85 billion, based on an exchange rate of €1 = $1.3342 as of December 1, 2006), a 37% increase from €6.5 billion (approximately $8.67 billion) in 1998 according to CBI-the Centre for the Promotion of Imports from developing countries. In the EU, diapers and similar hygiene products, wadding, gauze and bandage products accounted for the largest share of medical disposables used. Since the mid-1990s, hospital treatment in the EU has declined as a result of the low medical care expense policy applicable in the EU. We believe that that decline is offset in part by an increase in home nursing. We believe that this policy and the related increase in home nursing care has created greater retail demand for hygiene cotton products such as gauzes, bandage products and diapers.

Rapid economic growth in China over the past 20 years has significantly increased the demand for medical disposable products. Since 1990, the demand for medical disposable products in China has grown at an annual rate of 14.4%. Based on the information provided by the official website of International Hospital Federation, the import and export volume of medical consumables and dressing products in China was $1.4 billion in 2004, an increase of 27.82% per year, of which the import value was $742 million (an increase of 65.44%), and the export amount was $648 million (an increase of 25.14%). In Beijing alone, consumables purchased by hospitals amount to billions of RMB per year, indicating a huge market demand. (Source: China MED 2006.) The most popular disposable medical products in China are hypodermic syringes, intravenous tubular products, bandages, cotton balls, disposable surgical suits, products for incontinence, surgical and examination gloves, sterilization products, suture lines and other products. We believe the continued development of the health care industry in China will result in increased demand for disposable products.

Cotton grown in China has a low sugar content and moderate fiber content, making it ideal for medical use. As a result, Chinese medical dressing products enjoy a unique competitive advantage in the global marketplace. From January to May 2005, medical dressing products such as medicinal cotton gauzes and bandages ranked second among China’s medical products exports, with an export value of $161 million. In 2004, the total value of medical dressings exports and imports reached $489 million, an increase of 27.82% compared to the prior year. Imports accounted for $42 million, with a year-over-year increase of 65.44%; exports accounted for $447 million, with a year-over-year increase of 25.14%. (Source: Medicines and Economy).

The lifting of the textile quota system worldwide on January 1, 2005, eliminated trade barriers in the global marketplace and provided more firms with the ability to export textile products. With this impediment removed, China now can begin to capitalize on its advantages in medical gauze exports. Therefore, we anticipate that medical gauze exports from China will increase significantly going forward.

New Market Segments We Are Targeting

We are targeting two new market segments that we believe offer growth opportunities for us: the medical nonwoven fabric market and the self-adhesive and elastic bandages market.

(1). Medical Nonwoven Fabric Market

Nonwoven fabric came into existence only 20 years ago. Spunlace is one type of nonwoven fabric technology. Spunlace fabrics are soft to the touch, have high strength, good moisture absorbency and excellent drapability. Spunlace has a performance similar to traditional textiles, but due to its lower costs of production, it sells at a price that is generally lower than traditional textiles.

100% cotton spunlace nonwoven fabric successfully combines natural cotton fiber in a nonwoven production technique. Its advantages accrue from its use of renewable resources, the quality benefits associated with natural materials and the employment of large-scale production made possible by modern technology.

Medical nonwoven fabrics are used in therapy and diagnosis applications, including medical protective clothing, products for infection control and incontinence, surgical gauze, products for ward, and surgical curtains, among others. To date, disposable suits have dominated the market, while the market for static-free products for everyday use continues to expand.

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Nonwoven fabrics currently account for almost 15% of cotton fabric production in the medical care industry and demand is increasing. The medical nonwoven fabric industry is expanding rapidly. For example, 17,000,000 square yards of medical nonwoven fabric is produced each year in the U.S. and this amount is predicted to increase at a rate of 5% annually. In 2004, the demand for medical nonwoven fabric products in the U.S. market reached $10.7 billion, of which more than $ 4.2 billion was for disposable nonwoven products. From 2001 to 2004, the annual growth rate was 4.9% for nonwoven products in the U.S.

In 1985, the total production of spunlace fabric in the world was less than 50,000 tons. By 2004, total production had increased to 350,000 tons. According to the INDA (the Association of the Nonwoven Fabrics Industry) statistics, the annual growth rate of spunlace fabric was 13.3% between 2001 and 2004, higher than any other nonwoven fabrics. INDA also estimates that in the following five-year period (2005-2010), the average annual growth rate for spunlace fabric production could be as high as 11%.

In 2004, China produced 54,000 tons of nonwoven fabric, up 50% from 2003. China is now the third largest single producer of spunlace fabric, following Europe and North America. In terms of per capita, the Chinese production is less than 1/10th that of the EU and U.S., and there is still large growth in demand and capacity. Yet, China’s production volume remains relatively low compared to the US and the EU, and we believe there is still large growth potential in both capacity and demand for spunlace products .

(2). Self-Adhesive Bandages and Elastic Bandages Markets

Self-adhesive bandages and elastic bandages can support and protect the body as well as assist in prevention and recuperation. Compared with traditional bandages, they are safer, more comfortable and more convenient, and thus are widely used in the health care, sports, labor protection, family use and veterinary clinics markets. The markets for self-adhesive bandages and elastic bandages are exhibiting growth, and we believe these markets will become further segmented with an expanding number of product categories and increased worldwide production capacity.

Our Strategy – How We Plan to Succeed

Our primary business strategy is to achieve annual growth in revenue by building our brand and reputation. We seek to implement our business strategy by focusing on:

Providing High Quality Products

Our goal is to manufacture and sell products that are of the highest quality in the industry and in accordance with established industry standards. Our quality management system is certified by the International Organization for Standardization and is registered under ISO 9001 ISO 13485:2003. Currently, over 90% of our products have obtained EU CE Certificates. We have 30 types of products registered and listed with the FDA in the U.S., where it is proud to be authorized by the FDA to export sterilized products directly. Among those products are sterilization pouches and face masks, which have 510(k) FDA certificates. Japanese certificates, which are awarded to individual factories, have been granted to Winner Medical’s Shenzhen factory, Jiayu Factory, and Chongyang Factory, which are all qualified and entitled to export products to Japan directly.

Marketing Own Brand Product in China

The surgical dressing and medical disposables market in China is expanding quickly. Demand for disposable medical products has experienced rapid growth, according to Research and Markets http://www.researchandmarkets.com/, China is already the third largest medical device market in the world, after the United States and Japan. Within 5 to 7 years, China will surpass Japan and become the second largest medical device market in the world.  In addition, the medical market in China will become increasingly regulated due to the Chinese government’s efforts to reform its medical care system. These factors create market opportunities for companies, such as Winner Medical, that follow strict conduct and quality control regulations.

During fiscal year 2008, approximately 12.82% of our sales revenue was generated domestically in China, and this percentage is expected to increase rapidly over the medium term. Our sales channel in China includes: Over-The-Counter, or OTC, drugstore chains and local distributors.

Developing Products Through Research and Development

Our research and development efforts are aimed at finding new varieties of products, improving existing products, improving product quality and reducing production costs.

We intend to focus significant efforts on opening new opportunities for our new products. These new products include PurCottonTM products, self-adhesive and elastic bandages. We believe the following products will contribute to our growth.

PurCottonTM products. We have launched our nonwoven cotton spunlace products - PurCottonTM products, in the first half of fiscal year 2008. This product launch was intended to capitalize on findings from our market research which suggested that several worldwide medical device distributors might have interest in purchasing our nonwoven cotton spunlace products.

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To execute our strategy, we entered into an agreement in 2005 with the local government agency of Huanggang to acquire 564,742 square meters, approximately 140 acre, of land that will mostly be dedicated to the construction of 100% cotton spunlaced nonwoven fabric production facilities. Land use right certificates of this land were issued to us in November 2005 and July 2007. As of October 2008, there are three production lines in Winner Huanggang which commenced production of PurCottonTM products.

The PurCottonTM product combines the superior characteristics of both natural cotton and materials made using nonwoven technology. It has many advantages over woven cotton or synthetic nonwoven fabric, such as it is natural, safe, strong, durable, healthy, environmentally friendly, and of higher quality. Our patented manufacture process enables us to produce PurCottonTM at a lower cost than the woven cotton products, so we believe the launch of the cotton nonwoven spunlace products will provide a significant advantage to us.

Self-adhesive and elastic bandages. We independently developed and produced a new series of self-adhesive and elastic bandages, which we introduced to the U.S. and Japanese markets in January 2006.

Managing Business Effectively Through Strong Management Team

Each member of our management team has an average of ten years of experience in the industry. Under their leadership, we have a demonstrated record of rapid and orderly growth. We intend to capitalize on the acumen and industry experience of our management team to grow our business.

Implementing Advanced Information Technology System

We have implemented the Enterprise Resources Planning, “ERP”, software provided by a Systems Applications and Products company, “SAP”, or SAP ERP system, which integrates all of the core business operations of each of our subsidiaries-from production, supply, and sales to financial records-into one system. Looking forward, our goal is to build a platform on which the Company can share information with its customers, including raw material preparation, production status, inventory, and transportation.

Achieving Low Production Costs

Our factories are located in China, where we enjoy relatively low labor costs. We are also able to purchase raw materials in China at lower costs than many of our competitors that need to purchase these materials outside of China. Our manufacturing processes for nonwoven cotton fabrics were implemented in order to reduce our production costs as compared with makers of woven fabrics. As a result of these and other factors, we believe our production costs are lower than those of our major competitors.

Building a Broad Customer Base

We have many customers in all major regions throughout the world. Our customers are located in China, Japan, Germany, North America, Italy, Australia, France, the United Kingdom, Australia, the Netherlands, South America, Africa, the Middle East and other places around the globe. Our largest markets are currently Japan, the EU and the United States. We intend to broaden our customer base by diversifying our sales and marketing efforts.

Providing Customers with a Complete Product Line – One Stop Procurement Services

We provide to customers all over the world specialized medical dressing products that are intended to address a number of customer issues and needs. Our products are designed to meet a wide variety of original equipment manufacturer, or OEM, product configuration demands. We employ manufacturing equipment, including gauze sponge bleaching equipment, sterile packaging machines, auto-gauze sponges folding machines, nonwoven sponge folding machines, and steam sterilization and ethylene oxide, or ETO, sterilization processing which we believe allow us to produce our products in a cost efficient manner.

Developing and Expanding Our Logistics Capabilities

Logistics capability is an important aspect of our strategy. We believe it is important for us to have warehouses in large transportation ports and near central cities. Our use of modern logistics management methods is designed to enhance our service levels, including our ability to deliver products to customers in a timely fashion, and we strive to handle customer service inquiries quickly and accurately. Information on purchase order confirmation, production or order status and shipping advice is readily available. We also offer our customers a variety of payment terms to facilitate international purchases.

Our Products – What We Sell

Our products can be divided into the following four categories according to their functions:

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Medical care products

Include operating room products, procedural packs, protective products and gauze.

Wound care products

Include dressing pads, cotton products, retention products and dental products.

Home care products

Include cosmetic products, handkerchiefs, sweat pads and bathing sets.

PurCottonTM products

Include jumble rolls as consumer raw materials, operating room towels, lap sponges, swabs and surgical gowns, as well as finished consumer products such as wipes and cosmetic cotton products.

We continuously focus on the development and launch of high value added products, and on increasing our sales volume of innovative new products, which have a higher profit rate.

Our new self-adhesive (cohesive) bandages utilize Winner Medical's proprietary weaving technology and glue technique, which make them ideal for emergency settings. The material can be torn without scissors and without producing raw and shredded edges which can attract infectious microorganisms. The unique glue technique, formulation and diversified coating methods provide us with the ability to produce non-allergenic Latex-free bandages

We plan to continue to penetrate the medical and health care market for medical disposable products, particularly in Japan, Europe and the U.S., which are the main markets for medical disposable products. We have established trade relationships with Sakai Shorten of Japan, which was our largest clients in fiscal year 2008, with total sales of approximately $13.39 million. We sell our products through Molnlycke Healthcare in Sweden, Covidien in the US, Artsana in Italy, NHS in the UK, BSN Medical in Germany, and Medeco in Netherlands. In order to adapt the demand of increasing international orders, we have also established production systems designed to address international product demands, which include a one hundred thousand grade purification room and modern manufacturing equipment.

We also focus on quality control. Our products have met the requirements of major international medical product quality tests, and we continuously seek to improve our production systems and processes.

Our Intellectual Property

We currently have nine issued patent in China. Below are the brief descriptions of these patents:

Description of Patent	Patent No. / Patent Application No.	Type	Status
Disposable medical compound eye-protective face mask	ZL 03273570.7 (China)	Utility Model	Granted
100% cotton gauze with protective function	ZL 200620132920.X (China)	Utility Model	Granted
A medical dressing resists penetration and adhesion	ZL 200620132921.4 (China)	Utility Model	Granted
Colored 100% cotton gauze	ZL 200620132922.9 (China)	Utility Model	Granted
An ancillary fight code machine	ZL 200620017009.4 (China)	Utility Model	Granted
A safety medical gauze with detective device	ZL 200620014971.2 (China)	Utility Model	Granted
Wipes box	ZL 200630060318.5 (China)	Appearance design	Granted
Colored non-woven cloth with special coat	ZL 200620013847.4 (China)	Utility Model	Granted
Spunlace non-woven cloth with special coat and protective function	ZL 200620013845.5 (China)	Utility Model	Granted

Nianfu Huo, senior vice president of Winner Group Limited and the general manager of our subsidiary Winner Medical & Textile Ltd. Zhuhai, or Winner Zhuhai, has entered into a licensing agreement with Winner Zhuhai pursuant to which Mr. Huo granted Winner Zhuhai the rights for the use of his patent “disposable compounded face mask”, patent No. ZL01256074.X, on a worldwide, royalty-free basis.  Such patent is to expire in September 2011.

In addition, we have licensed from Jianquan Li, our CEO, President and director, his rights under seven patent, one patent application and related technology for nonwoven fabric manufacturing on a perpetual, worldwide royalty-free basis.  Below are the brief descriptions of these patent and patent applications:

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Description of Patent  licensed from Jianquan Li	Patent No. / Patent Application No.	Type	Status
Manufacture method of the 100% cotton non-woven medical dressings	ZL 200510033147.1 (China)	Invention	Granted
Manufacture Method of the Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby	ZL 200510033576.9 (China)	Invention	Granted
Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby.  We added X-Ray detectable elements into the spunlace non-woven cloth so that it can be easily detected by X-ray, thereby avoiding leaving medical dressings in patient’s body	ZL 200520055659.3 (China)	Utility Model	Granted
Draw out wipes box	ZL 200520035670.3 (China)	Utility Model	Granted
Method For Producing Spunlace Non-Woven Cloth, Method For Producing Spunlace Non-Woven Cloth With X-Ray Detectable Element, Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby	200503941-7 (Singapore)	Invention	Granted
Method For Producing Spunlace Non-Woven Cloth, Method For Producing Spunlace Non-Woven Cloth With X-Ray Detectable Element, Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby	US 7049753 B2 (U.S.)	Invention	Granted
Method For Producing Spunlace Non-Woven Cloth, Method For Producing Spunlace Non-Woven Cloth With X-Ray Detectable Element, Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby	2005118845 (Russia)	Invention	Granted
Method For Producing Spunlace Non-Woven Cloth, Method For Producing Spunlace Non-Woven Cloth With X-Ray Detectable Element, Spunlace Non-Woven Cloth With X-Ray Detectable Element Produced Thereby	PI 0502653-9 (Brazil) 2005-0056783 (Korea) 05013515.1/EP05013515 (E.U.) GCC/P/2005/4854  (The United Arab Emirates) 1629/DEL/2005 (India) 2005-206619 (Japan) PA/a/2005/4854 (Mexico)	Invention	Under application

We have registered six trademarks with the Trademark office of the State Administration for Industry and Commerce of China relating to the word “Winner” in English and in Chinese. We also have registered the trademark for the word “Winner” in other countries and areas, including the United States, Canada, Singapore, Libya, Jordan, the United Arab Emirates, Saudi Arabia, Thailand, Yemen, Chile, Cambodia and Hong Kong, and this trademark has passed the registration application in the member countries of the Madrid Agreement such as Germany, France, Italy, Russia, Switzerland, Australia, and etc.

In addition, we have registered the following domain names: www.winnermedical.com (currently in use), www.winner-industries.com, www.winner-shenzhen.com, www.winner-shanghai.com, and www.winner-beijing.com. We also have registered two Chinese domain names.

Where appropriate for our business strategy, we will continue to take steps to protect our intellectual property rights.

Our Research and Development Efforts – How We Create New Products and Enhance Existing Ones

Currently, we have more than 80 employees devoted to our research and development efforts and to the application of the research achievements into integrated manufacturing practices and processes. We spent approximately $1,802,000, $2,050,000, and $1,580,000 on research and development in fiscal years 2008, 2007 and 2006, respectively. More than 80% of our research and development staff graduated from junior college or achieved an equivalent educational level. Thirty-five percent of our research and development staff has worked in this field for more than 10 years. Our CEO, President and director, Jianquan Li, has filed three patent applications under which he is named as the inventor of certain nonwoven cotton fabric technology. We will continue to utilize the skills and experience of our research and development team to manufacture nonwoven cotton medical dressings in a cost efficient manner. Mr. Li granted us a perpetual, worldwide, royalty-free license of this technology.

Our research and development in 2008 was mainly focused on researching new technology for a new surgical gown product with a special liquid repellent coating. Such new technology will be applied on the production of surgical gowns which repel liquids, thus giving better protection to doctors while they perform operations

Nonwoven medical dressing is a type of medical dressing that is made of nonwoven fabric. As a natural product, it is environmentally friendly, reproducible, comfortable, non-allergenic and static-free.

With this nonwoven fabric technology, we can produce environmentally friendly nonwoven medical dressings at a lower cost. Our new nonwoven fabric technology modifies the conventional manufacturing method of nonwoven cloth. We refined the production equipment and reduced the number of steps in making nonwoven cloth. As a result, the new technology allows us to minimize raw material waste, save production costs, and improve production efficiency.

Our research and development activities adhere to strict procedures and utilize standardized processes. We are focused on further improving our core manufacturing technologies so that we can reduce waste and overall costs.

In addition, we use advanced automatic equipment as part of our processing system, including folding machines, plastic absorbing machines and sterilization systems. These improvements not only reduce production costs, but also enable us to further diversify our product lines.

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Our Marketing Efforts – How We Sell Our Products

Our products are sold in all major regions internally through a network of distributors, wholesalers, OEMs, whereby we provide each of our customers with a customized product that is then sold by such customer under its brand name, and manufacturers’ representatives. Our major target markets are China, Japan, Europe and North and South America. In light of our existing production capacity constraints, we plan to meet the demands from international markets, and at the same time expand our sales to the Chinese market.

Since there are different requirements in different geographic markets, we have adopted marketing strategies that are market specific. For developed markets such as the U.S., Japan and the EU, we are an OEM supplier, providing each of our customers with a customized products in which the design, size, type and scale of the products is decided by our customers. This approach enables us to capitalize on our customers’ branding strengths and established market channels. In order to gain market share, we attempt to leverage our customers’ strong brand names, efficient distribution networks and market presence. We believe it is a better strategy for us to team up with large, well-known companies than to compete directly with them. Most of our sales in developed countries are conducted by direct marketing. In addition, we also conduct sales through third-party manufacturers’ representatives, who are compensated through payment of sales commissions.

In China and other developing countries, we sell our products under the “Winner” brand name. As the economies of developing countries grow, we expect there will be a significant increase in demand for medical products, including demand for our medical dressings and other medical disposable products. We believe our products are generally price-competitive with products from the U.S., Japan and the EU. Competition can also come from local producers in the developing countries, but we attempt to compete with local manufacturers based on the quality of our products. Under these circumstances, we believe we have successfully established a reputation for our own brand based on low prices and high quality. We employ manufacturers’ representatives and actively participate in formal bid contracts organized by local governments and organizations. We believe we have built our brand reputation and market share in these markets and “Winner” has become a recognized brand in local hospitals, the home health care sector and retail markets in many developing countries.

Raw Materials

We depend on external suppliers for all of the raw materials we use to produce our products. The principal raw materials used for our products are cotton, cotton yarn, non-woven cloth and packaging materials, each of which we purchase from a limited number of suppliers. Our major supplier of cotton is Louis Dreyfus Beijing Trading Co. Ltd. (China), which currently supplies less than 10% of our total purchase amount in fiscal year 2008. Regarding our purchases from individual suppliers that are less than 5% of the total purchase amount, we purchase most of our cotton yarn, non-woven cloth and packaging materials from Zhijiang Laoshide Co., Ltd. (China), Dalian Ruiguang Nonwoven Co., Ltd. (China) and AMCOR Flexibles (EU), respectively. We believe we are not over-reliant on any of these suppliers.

Given the importance of key raw materials to our business, we carefully manage our purchasing efforts and have established company policies involving raw material procurement. The cost of raw materials amounts to almost 50% of our total production cost.

Supplier Management System

We have established a strict supplier management system to comprehensively assess suppliers on the basis of quality and improvement, purchasing cycles, management systems, price and delivery cycles. Suppliers are formally evaluated twice a year. The quality of the suppliers determines how much business they receive from us in subsequent months. We also host an annual suppliers’ conference, during which we communicate directly with our suppliers our needs and service level demands. We undertake an open and transparent purchasing practice, which is well received by most suppliers.

Purchasing Procedures

Purchasing transactions are conducted in accordance with a procedure termed “inquiry-comparison-negotiation.” Potential suppliers make initial offers that are compared objectively according to relevant guidelines. After validation of the various suppliers’ service and quality capabilities, we acquire the needed materials from the supplier offering the highest quality product at a reasonable cost. Our financial department establishes an oversight process by appointing individuals to conduct independent market research of key price points. The research findings are announced periodically. Our auditing department and quality assurance department also provide oversight to assure that we strictly adhere to all purchasing procedures.

Our Major Customers

We have customers in approximately 80 countries throughout the world, including Japan, Germany, the United States, Italy, the Netherlands, the United Kingdom, Australia, France, China, as well as countries in South America, Africa and the Middle East. Some of our customers are large-scale producers and distributors with well known brand names, while others are import and export firms or wholesalers with trade expertise and established sales channels. We have long-term relationships with most of our customers.

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No customer, other than Sakai Shoten Co., Ltd., accounted for 10% or more of our revenues in fiscal year 2008. Sakai Shoten Co., Ltd. accounted for approximately 15.66% and 19.15% of our revenue in fiscal years 2008 and 2007, respectively. Sakai Shoten Co., Ltd. acts as a purchasing agent for a large number of ultimate consumers of our products in Japan. If we lose this customer and are unable to replace this customer with other customers that purchase a similar amount of our products, our revenues and net income may decline considerably.

Our Competition

We are subject to intense competition. Some of our competitors have greater financial resources, larger staff and more established market recognition than we do in the domestic Chinese market and international markets. Increased competition in the medical disposable product market could put pressure on the price at which we sell our products, resulting in reduced profitability for the Company.

In our industry, we compete based on manufacturing capacity, product quality, product cost, ability to produce a diverse range of products and logistics capabilities.

Our competitors include medical dressing and other medical disposable product manufacturers around the world. Below is a list by geographic area of the companies we view as our most significant competitors in the major markets in which we sell our products.

Competitors based in China

Our competitors based in China primarily include: Shenzhen Aumei, Zhejiang Zhende Medical Dressing Co., Ltd., Jiangsu Province Jianerkang Medical Dressing Co., Ltd., and Qingdao Hartmann Medical Dressing Co., Ltd.

Our China-based competitors tend to have lower labor costs, and we believe that their products are of lower quality and often lack diversity.

Competitors based in Asia (Outside of China)

Competitors based in this area mainly come from India, and include: Premier Enterprise and Sri Ram Products, whose main business is weaving.

These competitors tend to have older equipment and lower product quality.

Competitors based in Europe

Competitors based in Europe include: Bastos Viegas, S.A. (Portugal), Intergaz, S.R.O. (Czech Republic) and TZMO S.A. (Poland).

Our competitors from Europe may have a geographic advantage in the EU market, but we believe they are generally smaller in scale, have less product diversity and higher production costs.

Regulation

We are subject to complex and stringent governmental laws and regulations relating to the manufacture and sale of medical devices in China and in many other countries in which we sell our products. These laws and regulations in the major markets in which we compete are discussed further below. All of the regulatory laws and regulations may be revised or reinterpreted, or new laws and regulations may become applicable that could have a negative effect on our business and results of operations. See Item 1A. “Risk Factors — Risks Related to Our Industry — Our failure to comply with ongoing governmental regulations could impair our operations and reduce our market share.”

China

In China, medical sanitary materials and dressings, including medical gauzes, absorbent cottons, bandages and disposable surgical suits, are regulated as medical devices and are administered by the Department of Medical Devices of the State Drug Administration of China. The technology and specifications of these products must be consistent with the Regulations for the Supervision and Administration of Medical Devices and relevant laws and standards.

Our business is regulated by a number of provincial authorities that license the production of, and register, products such as those we manufacture. Eight of our wholly-owned facilities, which require licenses from these authorities, operate under current licenses.

Other Countries

In addition, since we sell our products in the international markets, our products are subject to regulations imposed by various governmental agencies in the markets where our products are sold. All of our products exported to EU countries must have a CE certificate, CE-certification or CE Marking, which is a conformity marking consisting of the letters “CE”. The CE Marking applies to products regulated by certain European health, safety and environmental protection legislation. The CE Marking is obligatory for products it applies to and the manufacturer affixes the marking in order to be allowed to sell his products in the European market.

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In Japan, we need a Certificate of Foreign Manufacture from the Pharmaceuticals and Medical Devices Agency of Ministry of Health, Labor and Welfare of Japan in order to sell our products in the Japanese market. We have reached the applicable standards and obtained the required certificates in the EU and Japan.

In the U.S., some of our products are considered medical devices. The FDA regulates the design, manufacture, distribution, quality standards and marketing of medical devices. Accordingly, our product development, testing, labeling, manufacturing processes and promotional activities for certain products that are considered medical devices are regulated extensively in the U.S. by the FDA. The FDA has given us clearance to market such products within the U.S.

Under the U.S. Federal Food, Drug, and Cosmetic Act, or “FFDCA”, medical devices are classified into one of three classifications, each of which is subject to different levels of regulatory control, with Class I being the least stringent and Class III being subject to most control. Class III devices, which are life supporting or life sustaining, or which are of substantial importance in preventing impairment of human health, are generally subject to a clinical evaluation program before receiving pre-market approval, or PMA, from the FDA for commercial distribution. Class II devices are subject in some cases to performance standards that are typically developed through the joint efforts of the FDA and manufacturers, but do not require clinical evaluation and pre-market approval by the FDA. Instead, these products require a pre-market notification to the FDA and in most cases a showing of substantial equivalence to an existing product under Section 510(k) of the FFDCA. Class I devices are subject only to general controls, such as labeling and record-keeping regulations, and are generally exempt from pre-market notification or approval under Section 510(k) of the FFDCA, although they are required to be listed with the FDA. Our medical device products are generally considered Class I devices; therefore, they are exempt from pre-market notification or approval requirements. We have listed all of our relevant products with the FDA pursuant to the FFDAC.

If a 510(k) pre-market notification is required for a medical device, then such device cannot be commercially distributed until the FDA issues a letter of substantial equivalence, approving the sale of the product. Certain of our surgical face masks and sterilization pouches are subject to the 510(k) pre-market notification requirements. We have already received the necessary approvals from the FDA for such products.

Our medical device products are also subject to the general labeling requirements under the FDA medical device labeling regulations. As of September 30, 2008, we have labeled all of our medical device products and are no longer the subject of any current enforcement action initiated by the FDA.

In addition, manufacturers of medical devices distributed in the U.S. are subject to various regulations, which include establishment registration, medical device listing, quality system regulation (QSR) and medical device reporting. Under FFDAC, any foreign establishment that manufactures, prepares, propagates, compounds or processes a medical device that is imported, or offered for import, into the U.S. is required to register its establishment with the FDA. In addition, any foreign establishment that engages in manufacturing, preparation, compounding, assembly or processing of a medical device intended for commercial distribution in the U.S. is required to list its devices with the FDA. Our subsidiary Winner Shenzhen, which exports all our products, has registered its establishment with the FDA and has listed 31 medical and dental devices.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which covers the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of our medical device products. The QSR, among other things, requires maintenance of a device master record, device history record and complaint files. As of September 30, 2008, we were not the subject of any current enforcement actions initiated by the FDA.

We are also required to report to the FDA if our products cause or contribute to a death or serious injury or malfunction in a way that would likely cause or contribute to death or serious injury were the malfunction to recur. The FDA can require the recall of products in the event of material defects or deficiencies in design or manufacturing. The FDA can withdraw or limit our product approvals or clearances in the event of serious, unanticipated health or safety concerns. We may also be required to submit reports to the FDA of corrections and removals. As of September 30, 2008, we had not received any complaints that any of our products had contributed to a death or serious injury, or that they suffered any such malfunctions or defects.

The FDA has broad regulatory and enforcement powers. If the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted and criminal prosecution. The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed. Our failure to meet any of these requirements may cause the FDA to detain our products automatically when they are presented for entry into the U.S. If any of these events occur, it could create a material adverse impact on us. As of September 30, 2008, we were not the subject of any current enforcement actions initiated by FDA.

Our Employees

As of September 30, 2008, we employed approximately 4,645 full-time employees. We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

As required by applicable Chinese law, we have entered into employment contracts with all of our officers, managers and employees.

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Our employees in China participate in a state pension scheme organized by the Chinese municipal and provincial governments. We are required to contribute to the scheme at rates ranging from 8% to 20% of the average monthly salary. The expenses related to this scheme were $515,232, $356,113, and $321,899 for fiscal years 2008, 2007 and 2006 respectively.

Our Facilities

All land in China is owned by the government. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations. We currently have land use rights to approximately 888,938 square meters in various parts of China, with total book value of approximately $4,950,135. All fees for acquiring such land use rights have been paid off as of September 2008. We also have approximately 333,959 squares meters of structure in China, with total book value of approximately $25,540,463. Approximately 295,187.7 square meters of our lands and 36,396.88 square meters of structure are subject to mortgages.

The following table summarizes main land we owned as of September 30, 2008.

Winner Medical Subsidiaries	Location	Land Size (Square Meters)		Net Book Value (in US $)
Winner Medical & Textile Ltd. Jingmen	Te 1 Hangkong Road, Pailou Town, Jingmen City, Hubei Province , China		40,542		42,452
Winner Medical (Huanggang) Co., Ltd.	Te 1, Chibi Avenue, Huanggang City, Hubei Province, China		564,742		2,536,378
Winner Medical & Textile Ltd. Yichang	No. 20 Jiangxia Avenue, Jiangkou Town, Zhijiang City, Hubei Province, China		24,448		105,658
Winner Medical & Textile Ltd. Chongyang	Qingshan Park, Chongyang County, Hubei Province, China		73,268		9,925
Winner Medical & Textile Ltd. Jiayu	No. 172 Phoenix Avenue, Yuyue Town, Jiayu County, Hubei Province, China		34,167		15,481
Winner Industries (Shenzhen) Co., Ltd.	Winner Industrial Park, Bulong Road, Longhua, Shenzhen City, Guangdong Province, China.		29,064		1,057,728
Hubei Winner Textiles Co., Ltd.	No. 47 South Road of Jianshe, Yuekou Town, Tianmen City, Hubei Province. China		122,707		1,182,513
Total			888,938		4,950,135

The following table summarizes our main structures we owned as of September 30, 2008.

Winner Medical Subsidiaries	Location	Structure Size (Square Meters)		Net Book Value (in US $)
Winner Medical & Textile Ltd. Zhuhai	No. 2, Street 3, Cuizhu Industries Park, Qianshan Town, Zhuhai City, Guangdong Province, China.\		3,895		607,423
Winner Medical & Textile Ltd. Jingmen	Te 1 Hangkong Road, Pailou Town, Jingmen City, Hubei Province , China		19,897		2,081,176
Winner Medical (Huanggang) Co., Ltd.	Te 1, Chibi Avenue, Huanggang City, Hubei Province, China		67,400		9,560,456
Winner Medical & Textile Ltd. Yichang	No. 20 Jiangxia Avenue, Jiangkou Town, Zhijiang City, Hubei Province, China		15,154		714,002
Winner Medical & Textile Ltd. Chongyang	Qingshan Park, Chongyang County, Hubei Province, China		74,097		3,352,534
Winner Medical & Textile Ltd. Jiayu	No. 172 Phoenix Avenue, Yuyue Town, Jiayu County, Hubei Province, China		20,700		1,237,451
Winner Industries (Shenzhen) Co., Ltd.	Winner Industrial Park, Bulong Road, Longhua, Shenzhen City, Guangdong Province, China.		36,397		4,998,371
Hubei Winner Textiles Co., Ltd.	No. 47 South Road of Jianshe, Yuekou Town, Tianmen City, Hubei Province. China		96,419		2,989,050
Total			333,959		25,540,463

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The following table summarizes our properties that are subject to mortgages as of September 30, 2008.

Mortgagor/Borrower	Location	Mortgagee/Lender Bank	Land Subject to Mortgage （sq. m）		Structure Subject to Mortgage （sq. m）
Winner Industries (Shenzhen) Co., Ltd.	Winner Industrial Park, Bulong Road, Longhua, Shenzhen City, Guangdong Province, China.	China Merchants Bank, Shenzhen Branch		-		18,808.09
Winner Industries (Shenzhen) Co., Ltd.	Winner Industrial Park, Bulong Road, Longhua, Shenzhen City, Guangdong Province, China.	Shenzhen Industrial and Commercial Bank of China		-		17,588.79
Winner Medical (Huanggang) Co., Ltd.	Te 1, Chibi Avenue, Huanggang City, Hubei Province, China	Huanggang Industrial and Commercial Bank of China		295,187.7		-
Total				295,187.7		36,396.88

We entered into an agreement in 2005 with the local government agency of Huanggang to acquire 564,742 square meters, approximately 140 acres, of land which we plan to dedicate primarily to the construction of 100% cotton spunlace nonwoven fabric production facilities. The land use right certificate for 295,188 square meters, approximately 73 acres, of this land was issued to us in November 2005. The land use right certificate for 269,554 square meters, approximately 63 acres, of this land was issued to us in July 2007. As of September 30, 2008, the total investment for this project is approximately $24.54 million, which includes $3.29 million in land, $8.84 million in facilities and $11.98 million in equipment, $0.43 million in other aspects. Funds for this project were raised in the equity market and through bank loans.

We believe that all our land and structures have been adequately maintained, are generally in good condition, and are suitable and adequate for our business. We believe that the new facility under construction and the expected land use rights to additional land will be sufficient for our expansion efforts.

Some of our properties are leased from third parties. In most cases, the leased properties are dormitories or small operating spaces. In the remaining cases, the leased properties include manufacturing facilities and the use we are making of the land is in compliance with the relevant government authority’s land use planning. In a few cases, the lessers were unable to provide copies of documentation evidencing their rights to use the property leased to us. In the event of any future dispute over the ownership of the leased properties, we believe we could easily and quickly find replacement premises and dormitories so that the operations would not be affected.

Legal Proceedings

From time to time, we 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 our business.

Our board of directors decided it was in our best interest to transfer all the business operations of our subsidiary Winner Medical & Textile Ltd. Zhuhai, or Winner Zhuhai, to Winner Industrial (Shenzhen) Co. Ltd. and Winner Medical & Textile Ltd. Jingmen. On February 1st, 2008, we stopped all the business operations of Winner Zhuhai and filed for the liquidation of Winner Zhuhai. Currently, it is in the public notice period for liquidation.

Except as provided above, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

To our knowledge, no director, officer or affiliate of ours, and no owner of record or beneficial owner of more than five percent, 5%, of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us in reference to pending litigation.

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MANAGEMENT

Directors and Executive Officers

The following sets forth the name and position of each of our current executive officers and directors.

Name	Age	Position
Jianquan Li	53	Chief Executive Officer and President, and Chairman of the Board of Directors
Xiuyuan Fang	40	Chief Financial Officer, Vice President, Treasurer and Director
Larry Goldman	52	Director
Richard B. Goodner, Esq.	63	Director
Dr. Horngjon Shieh	48	Director
Jiagan Chen	57	Vice President of Project Management
Nianfu Huo	56	Senior Vice President of Winner Group Limited and General Manager of Winner Zhuhai

JIANQUAN LI. Mr. Li has served as our Chief Executive Officer, President and director since December 16, 2005. Mr. Li is the founder of Winner Group and has served as its Chairman and CEO since its subsidiary companies’ formation in 1991. As Chairman and CEO, Mr. Li oversaw the implementation of the business plan of Winner Group and was key to the development of its strategic vision. Mr. Li is a graduate of the Hubei Foreign Trade University with a major in International Trade.

XIUYUAN FANG. Mr. Fang has been our Chief Financial Officer, Vice President and Treasurer since December 16, 2005 and our director since January 7, 2006. Mr. Fang has been employed by Winner Group since 1999. Mr. Fang has served as Winner Group’s director since 1999 and as a Vice President since 2001. Mr. Fang is a certified public accountant and has extensive experience in financial management, capital management and tax planning. He was responsible for Winner Group’s financial management and capital management programs. He graduated from Zhongnan University of Economics and Law.

LARRY GOLDMAN, CPA. Mr. Goldman has been our director since May 8, 2006. Mr. Goldman is a certified public accountant and currently serves as the consultant of Thorium Power, Ltd. (OTCBB: THPW), a nuclear fuel technology company. Prior to joining Thorium Power, Ltd., Mr. Goldman worked as the Chief Financial Officer, Treasurer and Vice President of Finance of WinWin Gaming, Inc., a multi-media developer and publisher of sports, lottery and other games (OTCBB: WNWN). Prior to his employment with WinWin Gaming, Inc., Mr. Goldman was a partner with Livingston Wachtell & Co., LLP where he acted as an auditor for several publicly traded companies in a variety of industries.

RICHARD B. GOODNER, Esq. Mr. Goodner has been our director since May 8, 2006. Mr. Goodner has served as Vice President - Legal Affairs and General Counsel of U.S. Home Systems, Inc., a NASDAQ listed company that is engaged in the business of home improvement and consumer finance, since June 2003. From 1997 to June 2003, he was a partner in the Dallas, Texas law firm of Jackson Walker, L.L.P. He also serves as a director of China BAK Battery, Inc., a company that is engaged in the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion rechargeable batteries. Mr. Goodner has practiced in the area of corporate and securities law for over 35 years and has represented numerous public and private companies in a range of general corporate and securities matters.

DR. HORNGJON SHIEH. Dr. Shieh has been our director since May 8, 2006. Dr. Shieh has served as an Assistant Professor at the City University of Hong Kong for the past seven years, where he has teaching experience in Enterprise Resource Planning, Accounting Information Systems, Accounting Information Systems Security and Control, Financial Accounting, Managerial Accounting, Financial Management, Financial Statement Analysis, International Accounting, and International Financial Statement Analysis and research experience in international accounting, information content and usefulness of financial statements, corporate governance, as well as disclosure requirements and capital market access.

JIAGAN CHEN. Mr. Chen has been our Vice President of Project Management since December 16, 2005. Mr. Chen joined Winner Group as its Vice President of Project Management in 2000. Mr. Chen is currently in charge of the Huanggang construction project, which is the facility that will produce 100% of our new, cotton spunlace nonwoven products. He is an economic engineer and graduated from Wuhan Institute of Economic Management. Mr. Chen was responsible for Winner Group’s construction projects at our headquarters facility in the Shenzhen Winner Industrial Park.

NIANFU HUO. Mr. Huo has been Senior Vice President of Winner Group Limited since April 8, 2003 and has served as General Manager of Winner Zhuhai since February 1, 2001. He is responsible for the strategic planning as well as formulating and monitoring policies and operating objectives of the Company. Mr. Huo also is involved in the decision making process of establishing all of our subsidiaries in Hubei, Shanghai, Shenzhen and Zhuhai. Mr. Huo joined Winner Zhuhai in 1991. He graduated from Beijing International Studies University.

There are no agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Directors are elected until their successors are duly elected and qualified.

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Board Composition and Committees

The board of directors is currently composed of five members, Jianquan Li, Xiuyuan Fang, Larry Goldman, Richard B. Goodner and Dr. Horngjon Shieh. All Board action requires the approval of a majority of the directors in attendance at a meeting at which a quorum is present.

Committees of Our Board of Directors

Audit Committee. On May 9, 2006, our board of directors formed an audit committee, which is chaired by Mr. Goldman, who is determined to be an independent board member and qualifies as the audit committee financial expert. Mr. Goodner and Dr. Shieh also serve on the audit committee. The audit committee reviews and monitors our internal controls, financial reports and accounting practices, as well as the scope and extent of the audits performed by both the independent and internal auditors, reviews the nature and scope of our internal audit program and the results of internal audits, and meets with the independent auditors.

Compensation Committee. On May 9, 2006, our board of directors formed a compensation committee, which is chaired by Dr. Shieh, Mr. Goldman and Mr. Goodner also serve on the compensation committee. The compensation committee oversees our compensation and employee benefit plans and practices and produces a report on executive compensation.

Governance and Nominating. On May 9, 2006, our board of directors formed a governance and nominating committee, which is chaired by Mr. Goodner, Mr. Goldman and Dr. Shieh also serve on the governance and nominating committee. The primary purpose of governance and nominating committee is to identify and to recommend to the board individuals qualified to serve as directors of our company and on committees of the board, advise the board with respect to the board composition, procedures and committees, develop and recommend to the board a set of corporate governance principles and guidelines applicable to us; and oversee the evaluation of the board and our management.

Other Committees. Our board of directors may on occasion establish other committees, as it deems necessary or required.

Compensation Committee Interlocks and Insider Participation

None of our executive officers has served as a member of a compensation committee, or other committee serving an equivalent function, of any other entity whose executive officers serve as a director of our company or member of our compensation committee.

Independent Director

Our board of directors has determined that each of Messrs. Goldman, Goodner and Shieh qualify as an “independent director” within the meaning of that term under the rules and regulations of the NASDAQ National Market.

Family Relationships

There are no family relationships among our directors or officers.

Code of Ethics

On May 9, 2006, our board of directors adopted a new Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The new code replaces our prior code of ethics that applied only to our principal executive officer, principal financial officer, principal accounting officer or controller and any person who performed similar functions, and addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the Code of Ethics has been filed as Exhibit 14.1 to our current report on Form 8-K filed on May 11, 2006. The Code of Ethics will also be posted on the corporate governance page of our website at www.winnermedical.com as soon as practicable. We intend to post any amendments and any waivers to our code of conduct on our website in accordance with Item 5.05 of Form 8-K and Item 406 of Regulation S-K.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Prior to May 8, 2006, the Company’s compensation decisions with respect to executive officers were made by a compensation committee consisting of the persons in the following positions: two representative of the board of Directors, and the human resources manager. The committee reviewed and made recommendations with respect to the salary of executive officers and directors. Final approval of the committee’s recommendations was made by the CEO, and approval of CEO’s compensation was made by the Board of Directors.

On May 8, 2006, the Board of Directors established a Compensation Committee consisting only of independent Board members, which is responsible for setting the Company’s policies regarding compensation and benefits and administering the Company’s benefit plans. At the end of fiscal year 2008, the Compensation Committee consisted of Horngjon Shieh (Chairman), Larry Goldman and Richard B. Goodner. The members of the Compensation Committee approved the amount and form of compensation paid to executive officers of the Company and set the Company’s compensation policies and procedures during these periods.

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The primary goals of our Board Compensation Committee with respect to executive compensation are to attract and retain highly talented and dedicated executives and to align executives’ incentives with stockholder value creation. The Compensation Committee will evaluate individual executive performance with a goal of setting compensation at levels the Compensation Committee believes are comparable with executives at Chinese companies, which are of similar size and stage of development operating in the same area and same industry.

The Compensation Committee will conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers. We compare compensation levels with amounts currently being paid to executives at the similar companies in the same area and the same industry, and most importantly we compare compensation levels with local practices in China. We believe that our compensation levels are competitive with local conditions.

Elements of compensation

Our executive compensation consists of the following elements:

Base Salary. Base salaries for our executives are established to be amounts of compensation that are similar to those paid by other companies to executives in similar positions and with similar responsibilities. Base salaries are adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. The compensation committee established a salary structure to determine base salaries and is responsible for initially setting executive officer compensation in employment arrangements with each individual. The base salary amounts are intended to reflect our philosophy that the base salary should attract experienced individuals who will contribute to the success of the company’s business goals and represent cash compensation that is commensurate with the compensation of individuals at similarly situated companies. Our structure includes a basic annual salary amount for each category of directors and officers. Individuals then receive a salary enhancement in connection with their position. Finally, the initial base salary is increased by a “household subsidy” which represents a living allowance.

Discretionary Annual Bonus. The compensation committee has the authority to award discretionary annual bonuses to our executive officers. Bonuses are intended to compensate officers for achieving financial and operational goals, and for achieving individual annual performance objectives. These objectives vary depending on the individual executive, but relate generally to strategic factors such as the accomplishment of the planned target of the sales revenue, the net profit, and the asset turnover rate. In addition, except CEO, other executive officers’ annual bonuses are also dependent upon the performance measurement score of the departments that he/she is charge of. The bonus targets are set in a reasonable level, and the Compensation Committee believes that a majority of the executive officers could achieve these targets. The actual amount of discretionary bonus is determined following a review of each executive’s individual performance and contribution to our strategic goals conducted during the first quarter of the next fiscal year following the year subject to review. For example, in fiscal year 2008 our CEO, Mr. Jianquan Li was awarded a bonus of $49,820 (RMB 356,720). Our CFO, Mr. Xiuyuan Fang was awarded a bonus of $13,310 (RMB 95,320) in fiscal year 2008.

Equity Incentive Plan. Our 2006 Equity Incentive Plan, the “2006 Plan”, was initially adopted by our Board of Directors in April 2006 and approved by our stockholders in April 2006. The 2006 Plan provides for the grant to our employees, directors, consultants and advisors of stock options, stock appreciation rights and stock awards, including restricted stock, performance grants, stock bonuses and other similar types of awards, including other awards under which recipients are not required to pay any purchase or exercise price, such as phantom stock rights. All equity awards granted under the Plan will be granted with respect to shares of our common stock.

During the last fiscal year, neither we nor our subsidiaries granted any stock options or stock appreciation rights to any executive officers . In fiscal year 2007, we made individual grants of options to purchase shares to directors, as reported below in the Director Compensation Table.

On October 7, 2007, our Board of Directors approved certain amendments to the 2006 Plan.

Among other things, the 2006 Plan was amended to:

· Clarify that, in the event we experience a change of control of our company, the Board or a committee of the Board may (i) provide for the assumption or substitution of or adjustment to each outstanding award, (ii) accelerate the vesting of options and terminate any restrictions on stock awards, and/or (iii) provide for termination of awards as a result of the change in control on such terms as it deems appropriate, including providing for the cancellation of awards for a cash or other payment to the participant.

· Clarify that, in the event of a proposed dissolution or liquidation of our company, unless otherwise determined by the administrator, all outstanding awards will terminate immediately prior to such transaction.

· Provide that the administrator may permit participants under the 2006 Plan to defer compensation payable under the terms of a written award agreement, so long as each such deferral arrangement complies with Section 409A of the U.S. Internal Revenue Code.

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On October 7, 2007, our Board of Directors also approved the 2008-09 Restricted Stock Unit Incentive Plan, the “2008-2009 Plan”, an equity incentive compensation program for fiscal years 2008 and 2009 that is a sub-plan of our 2006 Plan.

Eligible participants under the 2008-2009 Plan are directors who are employees of the Company, and our senior management and key employees as designated by our Chief Executive Officer or our Board of Directors. All equity awards to participants in the 2008-2009 Plan will be restricted stock unit awards, where a participant will be eligible to receive one share of our 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.

The material terms of the 2008-2009 Plan include the following:

·The maximum number of restricted stock units that will be available for issuance under the 2008-2009 Plan is 1,200,000 units. The shares of our common stock issuable upon vesting of the restricted stock units will be issued from our 2006 Plan.

·Our Board of Directors has established the target corporate net income and annual sales objectives for each of fiscal years 2008 and 2009, and each participant’s individual performance objectives have been set by our Chief Executive Officer. Our Board of Directors or the Compensation Committee of our Board will certify the satisfaction of each target.

· On each of October 7, 2010 and October 7, 2011, a participant is eligible to vest in up to 50% of the total number of restricted stock units underlying an award. 25% of the potential vesting at each vesting date is tied to satisfaction of each of the target corporate net income and annual sales objectives, respectively, and 50% of the potential vesting is tied to achievement of an participant’s individual performance objectives.

Our Board of Directors also approved the following restricted stock unit awards to certain executives on October 7, 2007 and October 16, 2008:

Name and Principal Position	Restricted Stock Unit Award in 2007 (shares)		Restricted Stock Unit Award in 2007 ($) (1)		Restricted Stock Unit Award in 2008 (shares)		Restricted Stock Unit Award in 2008 ($) (2)
Jianquan Li, President and Chief Executive Officer		40,000	$	72,000		-		-
Xiuyuan Fang, Chief Financial Officer, Vice President, and Treasurer		40,000	$	72,000		10,000	$	2,500
Jiagan Chen, Vice President		40,000	$	72,000		10,000	$	2,500
Nianfu Huo, Senior Vice President of  Winner Group Limited and General Manager of Winner Zhuhai		40,000	$	72,000		-		-

(1) Estimated value of award as of grant date is based on the last sale price of our common stock as quoted on the NASDAQ.com as of October 5, 2007, which was $1.80 per share, and assumes that the individual achieves 100% of the applicable corporate and individual objectives set forth in the award.

(2) Estimated value of award as of grant date is based on the last sale price of our common stock as quoted on the NASDAQ.com as of October 15, which was $0.25 per share, and assumes that the individual achieves 100% of the applicable corporate and individual objectives set forth in the award.

Other Compensation. Other than the annual salary for our executive officers, the bonus that may be awarded to executive officers at the discretion of the Compensation Committee and arrangements with executive officers for the use of a Company car, and the household subsidies referred to above, we do not have any other benefits and perquisites for our executive officers. However, the Compensation Committee in its discretion may provide benefits and perquisites to these executive officers if it deems it advisable.

Employment contracts and termination of employment

All of our executive officers have executed standard employment agreements with us, which are governed under Chinese law. Other than the amount of compensation, the terms and conditions of the employment agreements with the executive officers are substantially the same as those of our standard employment agreements with non-executive employees. Our standard employment agreements are for a fixed period of three years and may be renewed upon notice from the employee and consent of the Company. The Company may terminate an employment agreement upon thirty days’ notice if an employee is not suitable for the job due to medical or other reasons. An employee may terminate his or her employment agreement without cause upon one month’s notice.

Jianquan Li, our CEO and President’s employment agreement became effective as of January 1, 2008. The agreement is for a term of three years. Mr. Li is receiving an annual salary of approximately $140,000 under the agreement (RMB 1,000,000).

Xiuyuan Fang, our CFO, Vice President and Treasurer’s employment agreement became effective as of January 1, 2008. The agreement is for a term of three years. Mr. Fang is receiving an annual salary of approximately $56,000 under the agreement (RMB 400,000).

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Jiagan Chen, our Vice President of Project Management’s employment agreement became effective as of January 1, 2008. The agreement is for a term of three years. Mr. Chen is receiving an annual salary of approximately $42,000 under the agreement (RMB 300,000).

Nianfu Huo, our Senior Vice President’s employment agreement became effective as of January 1, 2008. The agreement is for a term of three years. Mr. Huo is receiving an annual salary of approximately $28,000 under the agreement (RMB 200,000).

Accounting and tax treatment

Given our current levels of compensation, the accounting and tax considerations have not significantly impacted our forms of compensation. The board considers as one factor the impact of accounting and tax treatment on compensation in the Company’s compensation programs.

Director Compensation

On May 8, 2006, we entered into separate Independent Directors’ Contracts and Indemnification Agreements with each of the independent directors. Under the terms of the Independent Directors’ Contracts, Mr. Goldman is entitled to $35,000, Mr. Goodner is entitled to $25,000 and Dr. Shieh is entitled to $15,000 as compensation for the services to be provided by them as our independent directors, and as chairpersons of various board committees, as applicable.

The following table summarizes director compensation during the fiscal year 2008.

Name	Fees Earned or Paid in Cash		Stock Awards	Option Awards (1)		Non-Equity Incentive Plan Compensation	Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation	Total
Jianquan Li,		-	-		-	-		-	-		-
Xiuyuan Fang		-	-		-	-		-	-		-
Larry Goldman	$	35,000	-		-	-		-	-	$	35,000
Richard Goodner	$	25,000	-		-	-		-	-	$	25,000
Horngjon Shieh	$	15,000	-		-	-		-	-	$	15,000

Under the terms of the Indemnification Agreements, we agreed to indemnify the independent directors against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the independent directors in connection with any proceeding if the independent director acted in good faith and in the best interests of our company. The Independent Directors’ Contracts and Indemnification Agreements were filed as Exhibits 10.1 through 10.6 to our current report on Form 8-K filed on May 11, 2006.

None of the employee directors receives additional compensation solely as a result of his position as a director.

Compensation Committee Report

The Compensation Committee of the Board of Directors of Winner Medical Group Inc. has reviewed and discussed the Compensation Discussion and Analysis contained in this annual report on Form 10-K with management. Based on our Compensation Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report on Form 10-K for filing with the SEC.

The foregoing report is provided by the following directors, who constitute the Compensation Committee: Horngjon Shieh, Larry Goldman and Richard B. Goodner.

Summary Compensation Table

The following table sets forth information regarding compensation for the fiscal year ended September 30, 2008 received by the individual who served as the Company’s Chief Executive Officer as well as one individual who served as the Company’s Chief Financial Officer, “Named Executive Officers”. The total compensation of other executive officers did not exceed $100,000 per year.

Name And Principal Position	Year		Salary (1) (3)	Bonus (1)		Stock Awards (1)	Option Awards		Nonequity Incentive Plan Compensation	Change in Pension Value & Nonqualified Deferred Compensation		All Other Compensation (2)	Total (1)
Jianquan Li, CEO and		2008	100,280		49,820	-		-	-		-	-		150,100
President		2007	77,823		51,882	-		-	-		-	-		129,705
Xiuyuan Fang, CFO, Vice President, and		2008	49,350		13,310	-		-	-		-	-		62,660
Treasurer		2007	35,799		23,995	-		-	-		-	-		59,794

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(1) Salary, bonus amounts, stock awards and total compensation are reported in United States dollars.

(2) During fiscal year 2008, the executive officers of the Company were not granted any perquisites or other personal benefits other than an arrangement with Mr. Li to use a company car. The total value of this perquisite is less than $10,000, therefore we have not disclosed any amount in the Summary Compensation Table as permitted under Item 402(c)(2)(ix)(A).

(3) On August 20, 2005, the board of directors of our subsidiary, Winner Group Limited, declared a dividend to all shareholder of Winner Group Limited. As a stockholder, Mr. Li received such dividend in the amount of $1,352,515.72 and $504,315.90 from Winner Group Limited in fiscal year 2006 and fiscal year 2007.

Option Exercises and Stock Vested. None of our executive officers exercised any options during the last fiscal year, nor did any such officer hold any restricted stock that vested during the last fiscal year.

Compensation Committee Interlocks and Insider Participation

No executive officer of us served as a member of the compensation committee or the equivalent of another entity during fiscal year 2006, 2007 or 2008. No executive officer of us served as a director of another entity, other than affiliates of us, during fiscal year 2006, 2007 and 2008.

Indemnification of Directors and Executive Officers and Limitation of Liability

Our Bylaws provide for the indemnification of our directors and officers, past, present and future, under certain circumstances, against attorney’s fees, judgments, fines and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of us. We will also bear expenses of such litigation for any of our directors, officers, employees or agents upon such persons promise to repay us therefor if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934 may be permitted to our directors, officers and controlling persons pursuant to provisions of the Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceedings that may result in a claim for such indemnification .

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following discloses transactions entered into by both Winner Medical Group Inc. and Winner Group in the past two years as required by Item 404 of Regulation S-K.

Mr. Jianquan Li, a director with a controlling interest in Safe Secure Packing (Shenzhen) Co., Ltd (“Safe Secure”), sold all of his controlling interest in Safe Secure to a third party as of September 30, 2007. We continuously trade with Safe Secure in the year 2008. During the years ended September 30, 2007 and 2006, we sold goods to Safe Secure for US$1,740 and US$nil, respectively, and purchased goods from it for US$491,463 and US$1,319,939, respectively.

45

During the years ended September 30, 2008, 2007 and 2006, we sold goods to Winner Medical & Textile (H.K.) Limited for US$894,560, US$809,168 and US$988,895 respectively. Mr. Jianquan Li, director of the Company, has a controlling interest in Winner Medical & Textile (H.K.) Limited. As of September 30, 2008, 2007 and 2006, the outstanding balance due from Winner Medical &Textile (HK.) Limited were US$183,247, US$252,999 and US$239,588 respectively.

During the years ended September 30, 2008, 2007 and 2006, we sold goods to L+L Healthcare Hubei Co., Ltd., an equity investee, for US$nil, US$nil and US$1,760 respectively, and purchased goods from it for US$716,248, US$490,818, and US$1,093,712 respectively. As of September 30, 2008, 2007 and 2006, amount due from the equity investee was US$141,892, US$108,987 and US$241,312 respectively.

The amounts due from/to the above affiliated companies with the exception of L+L Healthcare Hubei are unsecured, interest free and payable according to the trading credit terms. The amount due from L+L Healthcare Hubei Co., Ltd. are unsecured, 5% interest bearing and payable according to the trading credit terms.

Our independent directors approve the related party transactions based on their fiduciary duties under Nevada state law and based on the best interest of the company.

CHANGE IN ACCOUNTANTS

On December 16, 2005, concurrent with the reverse merger transaction discussed above, our Board of Directors elected to continue the existing relationship of our new subsidiary Winner Group Limited with BDO McCabe Lo Limited (“BDO”) and appointed BDO as our independent auditor. Additionally, our board of directors approved the dismissal of S. W. Hatfield, CPA of Dallas, Texas (“SWHCPA”) as our independent auditor.

No accountant’s report issued by SWHCPA on the financial statements for either of the past two (2) years contained an adverse opinion or a disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles, except for a going concern opinion issued on August 31, 2005, expressing substantial doubt about the ability of our company to continue as a going concern.

During our two most recent fiscal years (ended July 31, 2005 and 2004) and from August 1, 2005 to the date of change of our independent auditor, there were no disagreements with SWHCPA on any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure. There were no reportable events, as described in Item 304(a)(1)(iv)(B) of Regulation S-B, during our two most recent fiscal years (ended July 31, 2005 and 2004) and from August 1, 2005 to the date of change of our independent auditor.

We furnished a copy of this disclosure to SWHCPA and requested SWHCPA to furnish us with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made by us herein in response to Item 304(a) of Regulation S-K and, if not, stating the respect in which it does not agree. A copy of the letter was filed by us as Exhibit 16.1 to our current report on Form 8-K, filed December 19, 2005.

SELLING STOCKHOLDERS

This prospectus relates to the resale by the selling stockholder from time to time of up to a total of 7,474,027 shares of our common stock that were issued to selling stockholders pursuant to transactions exempt from registration under the Securities Act of 1933.

The following table sets forth certain information regarding the selling stockholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, or SEC. In computing the number of shares beneficially owned by a selling stockholder and the percentage of ownership of that selling stockholder, shares of common stock underlying shares of convertible preferred stock, options or warrants held by that selling stockholder that are convertible or exercisable, as the case may be, within 60 days of December 19, 2007 are included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. Each selling stockholder’s percentage of ownership in the following table is based upon 44,727,171 shares of common stock outstanding as of January 15, 2009.

54 selling stockholders are employees or suppliers of ours or our affiliates. Except these 54 selling stockholders and except as specifically set forth in the footnotes to the table, none of the selling stockholders has held a position as an officer or director of us, nor has any selling stockholder had any material relationship of any kind with us or any of our affiliates. All information with respect to share ownership has been furnished by the selling stockholders. The shares being offered are being registered to permit public secondary trading of the shares and each selling stockholder may offer all or part of the shares owned for resale from time to time. In addition, none of the selling stockholders has any family relationships with our officers, directors or controlling stockholders. Furthermore, no selling stockholder is a registered broker-dealer or an affiliate of a registered broker-dealer.

For additional information, refer to “Security Ownership of Certain Beneficial Owners and Management” below.

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The term “selling stockholders” also includes any transferees, pledges, donees, or other successors in interest to the selling stockholders named in the table below. To our knowledge, subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name.

Name and Address	Beneficial Ownership Before the Offering		Shares of Common Stock Included in Prospectus		Beneficial Ownership After the Offering (1)		Percentage of Common Stock Owned After Offering(1)
Glenn Little		382,014		382,014		0		*
Halter Financial Investments, L.P. (2)(3)		535,000		535,000		0		*
Halter Financial Group, L.P. (3)		535,000		535,000		0		*
Zhihao Zhang (4)		133,858		133,858		0		*
Kang Hu (5)		25,335		25,335		0		*
Guoqiang Wan (5)		6,197		6,197		0		*
Chaoli Feng (5)		2,975		2,975		0		*
Li Zhang (5)		9,916		9,916		0		*
Zhu Liu(5)		4,958		4,958		0		*
Dan Qu (5)		9,916		9,916		0		*
Jingchang Xie (5)		27,268		27,268		0		*
Shiqing Hu (5)		33,713		33,713		0		*
Lu Jiang (5)		17,353		17,353		0		*
Xuehong Li (5)		10,907		10,907		0		*
Xianyu Dong (5)		24,789		24,789		0		*
Bixin Dai (5)		4,958		4,958		0		*
Junxiong Zeng (5)		4,462		4,462		0		*
Jiaqing Zhou (5)		2,479		2,479		0		*
Dufei Song (5)		4,958		4,958		0		*
Liangquan Yu (5)		4,958		4,958		0		*
Nianfu Huo (5)		22,310		22,310		0		*
Youzhi Long (5)		20,327		20,327		0		*
Ping Luo (5)		24,789		24,789		0		*
Zheng Huang (5)		12,395		12,395		0		*
Lili Luo (5)		22,211		22,211		0		*
Yagang Xie (5)		2,479		2,479		0		*
Rongqun Wang (5)		11,403		11,403		0		*
Wanhong Guo (5)		24,789		24,789		0		*
Changying Xu (5)		4,958		4,958		0		*
Ai Li (5)		4,958		4,958		0		*
Juner Ma (5)		4,958		4,958		0		*
Guangsheng Dai (5)		2,479		2,479		0		*
Zhonghou Bai (5)		6,941		6,941		0		*
Shaoping Zhang (5)		3,471		3,471		0		*
Jun Wang (5)		3,718		3,718		0		*
Degao Zhan (5)		24,789		24,789		0		*
Shuibin Gao (5)		22,310		22,310		0		*
Aiguo Liu (5)		16,361		16,361		0		*
Jide Wu (5)		17,848		17,848		0		*
Fanwen Zen (5)		14,874		14,874		0		*
Shousheng Li (5)		7,437		7,437		0		*
Hua Ji (5)		2,479		2,479		0		*
Wenming Tan (5)		2,479		2,479		0		*
Jiong Wang (5)		2,479		2,479		0		*
Fuguo Yang (5)		2,479		2,479		0		*
Xueya Ding (5)		49,579		49,579		0		*
Chengbao Zhou (5)		3,074		3,074		0		*
Xingfu Qian (5)		24,789		24,789		0		*
Hai Xu (5)		21,765		21,765		0		*
Jun Liu (5)		9,916		9,916		0		*
Zhenglin Yang (5)		9,916		9,916		0		*
Lei Chen (5)		5,949		5,949		0		*
Fuhai Zhang (5)		4,958		4,958		0		*
Yongming Zuo (5)		2,479		2,479		0		*

47

Hiroshi Isobe (6)	49,579	49,579	0	*
Guido Mathias Clemens Maria Bloemen (6)	49,579	49,579	0	*
Lian Li (6)	9,916	9,916	0	*
Daisuke Kanazu (6)	9,916	9,916	0
Xinyong Nie	14,874	14,874	0	*
Shengping He	24,789	24,789	0	*
Xiaowei Wu	39,663	39,663	0	*
Zhi Li	9,916	9,916	0	*
Torch Import & Export Co., LTD (7)	198,314	198,314	0	*
Guimin Wang	14,874	14,874	0	*
Zhiying Guo	54,536	54,536	0	*
Lin Zhou	9,916	9,916	0	*
Linsheng Gu	49,579	49,579	0	*
Binggeng Luo	24,789	24,789	0	*
Qunfeng Zhu	4,958	4,958	0	*
Yong Ma	49,579	49,579	0	*
Pinnacle China Fund, L.P.(8)	4,194,077	4,194,077	0	*
Gary C. Evans (2)	366,877	366,877	0	*
Daniel O. Conwill (2)	99,136	99,136	0	*
				*
Total	7,474,027	7,474,027	0	*

* Less than 1%

(1)  Assumes that all securities offered are sold.

(2) Global Hunter Securities LLC is a registered broker-dealer. The identified selling stockholders are limited partners of the holding company that controls such broker-dealer.

(3) Our former CEO and director Timothy Halter is the sole member of TPH GP, LLC which is the sole general partner of TPH, L.P. which is a limited partner of the identified selling stockholders. Mr. Halter is also the chairman of Halter Financial Investment GP, LLC which is the general partner of Halter Financial Investment, L.P. Halter Financial Investments, L.P. is a Texas limited partnership in which Timothy P. Halter, David Brigante, Marat Rosenberg and George Diamond (or their affiliated entities) are limited partners, and each have voting power and investment power over the securities owned by Halter Financial Investments, L.P.

(4) Zhihao Zhao is an affiliate of Halter Financial Group L.P. of which our former CEO and director Timothy Halter is a principal stockholder and which provides consulting services to us.

(5) Employees of Winner.

(6) Suppliers of Winner.

(7) Xinyong Nie is the president of Torch Import & Export of which Xiang Torch Co., Ltd., a public company in China, owns 98% shares.

(8) Barry M. Kitt exercises investment discretion and control over the shares of common stock of the issuer held by Pinnacle China Fund, L.P., a Texas limited partnership ("Pinnacle China"). Mr. Kitt may be deemed to be the beneficial owner of the shares of common stock beneficially owned by Pinnacle China, however, Mr. Kitt hereby disclaims beneficial ownership of such shares of common stock reported herein to the extent of his direct or indirect pecuniary interest therein, and this shall not be deemed to be an admission that Mr. Kitt is the beneficial owner of the shares of common stock reported herein.

We will not receive any of the proceeds from the sale of any shares by the selling stockholders. We have agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders, including the Securities and Exchange Commission registration fee and legal, accounting, printing and other expenses of this offering.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our common stock as of December 5, 2008 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

Title of Class	Name & Address of Beneficial Owner	Office, If Any	Amount & Nature of Beneficial Ownership1		Percent of Class2
Common Stock $0.001 par value	Jianquan Li 3 Ping Tse 3 6-15D, Donghai Garden, Futian District, Shenzhen, China	CEO, President and Director		36,084,527	80.68	%
Common Stock $0.001 par value	Xiuyuan Fang Room 5B Building 2 Jun’an Garden, Futian District, Shenzhen City, Guangdong Province, China	CFO, Vice President, Treasurer and Director		464,512	1	%
Common Stock $0.001 par value	Larry Goldman 5 Victory Road, Suffern, NY 10901	Director		0	*
Common Stock $0.001 par value	Richard B. Goodner, Esq. 6608 Emerald Drive Colleyville, Texas 76034	Director		0	*
Common Stock $0.001 par value	Dr. Horngjon Shieh Flat 37B, Tower 3 The Victoria Towers 188 Canton Road, TST Kowloon, Hong Kong	Director		0	*
Common Stock $0.001 par value	Jiagan Chen No.25 Zhazhu Front Road, Wuchang District, Wuhan City, China	Vice President of Project Management		24,789	*
Common Stock $0.001 par value	Nianfu Huo Hai Yi Wan Pan, No. 333 Jin Tang Road, Tang Jia Wan Zhuhai, China 519000	Senior Vice President of Winner Group Limited and General Manager of Winner Zhuhai		196,834	*
Common Stock $0.001 par value	Pinnacle China Fund, L.P. 4 4965 Preston Park Blvd. Suite 240, Plano, Texas 75093			3,614,124	8.08	%
Common Stock $0.001 par value	All officers and directors as a group (8 persons named above)			36,770,662	82.21	%

* Less than 1%

1Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.

2A total of 44,727,171 shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner above, any options exercisable within 60 days have been included in the denominator.

3 Mr. Jianquan Li and his wife, Ping Tse, hold a total of 36,084,527 shares of our Common Stock. Mr. Jianquan Li disclaims the power to vote and dispose of the 9,021,130 shares of our Common Stock owned by Ping Tse. Ping Tse disclaims the power to vote and dispose of the 27,063,397 shares of our Common Stock owned by Mr. Jianquan Li.

4 Barry Kitt is the sole officer of Pinnacle China Advisors, L.P. which is the general partner of Pinnacle China Fund, L.P.

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DESCRIPTION OF CAPITAL STOCK

Common Stock

We are authorized to issue up to 495,000,000 shares of common stock, par value $0.001 per share. Prior to the closing of the reverse merger transaction, we effected a 1-for-1500 reverse split of our common stock. As a result, the total number of our issued and outstanding common stock on September 20, 2005 was reversed from 376,862,000 shares to 251,241 shares. The purpose of the reverse stock split was to decrease the number of shares of common stock outstanding so as to make us more attractive to a potential merger or acquisition candidate. On November 4, 2005, we converted the promissory note in the amount of $60,000 owned by Glenn A. Little into 240,000 shares of our common stock. On the same date, we issued 1,070,000 shares to Halter Financial Investment, L.P. in connection with a private placement transaction. On December 16, 2005, we issued 42,280,840 shares to stockholders of Winner Group Limited and 793,260 shares to Winner’s employees and suppliers. See “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.” On April 18, 2006, as part of the consideration for consultant’s service, we issued 40,800 share of our common stock to 223 employees in accordance with the 2006 Equity Incentive Plan.  On November 7, 2007, we issued 50,000 share of our common stock to Heritage Management Consultants, Inc. in accordance with the 2006 Equity Incentive Plan. As a result, as of  Januray 15, 2009, 44,727,171 shares of our common stock were issued and outstanding.

Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that the persons receiving the greatest number of votes shall be the directors. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock. Upon our liquidation, dissolution or winding up, and after payment of creditors and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock.

The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors.

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

Preferred Stock

We may issue shares of preferred stock in one or more classes or series within a class as may be determined by our board of directors, who may establish, from time to time, the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof, and may increase or decrease the number of shares of any such class or series without any further vote or action by the stockholders. Any preferred stock so issued by the board of directors may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both. In addition, any such shares of preferred stock may have class or series voting rights. Moreover, under certain circumstances, the issuance of preferred stock or the existence of the un-issued preferred stock might tend to discourage or render more difficult a merger or other change in control.

No shares of preferred stock are currently outstanding. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.

Transfer Agent and Registrar

Our independent stock transfer agent is Nevada Agency and Trust Company, located in Reno, Nevada. Their mailing address is 50 West Liberty Street, Reno, Nevada 89501. Their phone number is (775) 322-0626.

SHARES ELIGIBLE FOR FUTURE SALE

January 15, 2009, we had outstanding 44,727,171 shares of common stock.

50

Shares Covered by this Prospectus

All of the 7,474,027 shares being registered in this offering may be sold without restriction under the Securities Act of 1933.

Rule 144

Restricted Securities may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the 1933 Act and as required under applicable state securities laws. In general, under Rule 144, as currently in effect, a person who has beneficially owned shares of our common stock for at least six months, including the holding period of prior owners other than affiliates, is entitled to sell his or her shares without any volume limitations; an affiliate, however, can sell such number of shares within any three-month period as does not exceed the greater of:

1% of the number of shares of our common stock then outstanding, which equaled 446,727 shares as of January 15, 2009, or

the average weekly trading volume of our common stock on the OTC Bulletin Board during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us.  In order to effect a Rule 144 sale of our common stock, our transfer agent will require an opinion from legal counsel.  There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the restricted securities have been held by the owner for a period of one year or more.

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PLAN OF DISTRIBUTION

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

–  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

– block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

– purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

– an exchange distribution in accordance with the rules of the applicable exchange;

– privately negotiated transactions;

– short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;

– through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

– broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; and

– a combination of any such methods of sale.

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

52

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. We know of no existing arrangements between any of the selling stockholders and any other stockholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares, nor can we presently estimate the amount, if any, of such compensation. See “Selling Stockholders” for description of any material relationship that a stockholder has with us and the description of such relationship.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to pay certain fees and expenses incurred by us incident to the registration of the shares. Such fees and expenses are estimated to be $447,848. We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144 of the Securities Act.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for us by Jones Vargas, Las Vegas, Nevada counsel.

EXPERTS

The financial statements as of September 30, 2008 and 2007 and for each of the three years in the period ended September 30, 2008 included in this prospectus and in the registration statement have been so included in reliance on the report of BDO McCabe Lo Limited, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditing and accounting.

53

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to us and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matters involved.

You may inspect our registration statement and the attached exhibits and schedules without charge at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain copies of all or any part of our registration statement from the SEC upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also available from the SEC’s website at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

54

WINNER MEDICAL GROUP INC.

Consolidated Financial Statements

For the years ended September 30, 2008, 2007 and 2006

WINNER MEDICAL GROUP INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Income and Comprehensive Income	F-4
Consolidated Statements of Stockholder’s Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 – F-23

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

Winner Medical Group Inc.

We have audited the accompanying consolidated balance sheets of Winner Medical Group Inc. and subsidiaries (the “Company”) as of September 30, 2008 and 2007, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  Our audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Winner Medical Group Inc. and subsidiaries as of September 30, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO McCabe Lo Limited

Hong Kong, December 9, 2008

F-2

WINNER MEDICAL GROUP INC.

CONSOLIDATED BALANCE SHEETS

	September 30,
	2008		2007
	US$		US$
ASSETS
Current assets:
Cash and cash equivalents		6,462,505		6,377,488
Restricted bank deposits		126,749		-
Accounts receivable, less allowances for doubtful accounts of US$100,964 and US$36,832 at September 30, 2008 and 2007 respectively		13,516,688		11,279,810
Amounts due from affiliated companies		349,359		405,919
Inventories		15,839,587		11,483,442
Prepaid expenses and other current assets		4,734,503		6,631,492
Income taxes recoverable		99,126		94,698
Deferred tax assets		207,798		192,088
Total current assets		41,336,315		36,464,937
Property, plant and equipment, net		57,937,881		46,827,013
Held-for-sale asset		607,423		-
Investment in equity investees		1,518,848		1,425,550
Intangible assets, net		126,141		130,513
Prepaid expenses		233,203		246,578
Deferred tax assets		158,280		26,744
Total assets		101,918,091		85,121,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term bank loans		15,033,073		12,781,595
Accounts payable		8,271,926		7,305,581
Accrued payroll and employee benefits		1,891,410		1,299,342
Customer deposits		458,303		362,900
Other accrued liabilities		2,518,326		1,990,871
Amounts due to affiliated companies		136,481		41,809
Income taxes payable		656,550		303,592
Total current liabilities		28,966,069		24,085,690
Deferred tax liabilities		41,965		22,857
Total liabilities		29,008,034		24,108,547
Commitments and contingencies
Minority interests		148,306		191,131
Stockholders’ equity:
Common stock, par value $0.001 per share; authorized 495,000,000 issued and outstanding September 30, 2008 – 44,727,171 shares; September 30, 2007 – 44,677,171 shares		44,727		44,677
Additional paid-in capital		30,843,327		30,260,547
Retained earnings		28,791,259		24,116,054
Statutory reserves		2,305,434		1,914,344
Accumulated other comprehensive income		10,777,004		4,486,035
Total stockholders’ equity		72,761,751		60,821,657
Total liabilities and stockholders’ equity		101,918,091		85,121,335

See accompanying notes to consolidated financial statements.

F-3

WINNER MEDICAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Year ended September 30,
	2008			2007			2006
	US$			US$			US$
Net sales		85,505,762			70,280,960			63,873,058
Cost of sales		(64,086,581	)		(52,869,597	)		(46,335,354	)
Gross profit		21,419,181			17,411,363			17,537,704
Other operating income, net		416,654			789,253			556,903
Exchange difference, net		(1,378,289	)		(422,261	)		(273,566	)
Selling, general and administrative expenses		(14,437,539	)		(11,959,184	)		(11,335,006	)
Income from operations		6,020,007			5,819,171			6,486,035
Interest income		41,338			72,650			54,772
Interest expenses		(591,477	)		(408,123	)		(266,934	)
Equity in earnings of 50 percent or less owned persons		93,298			178,693			52,817
Income before income taxes and minority interests		5,563,166			5,662,391			6,326,690
Income taxes		(591,118	)		15,015			(516,635	)
Income before minority interests		4,972,048			5,677,406			5,810,055
Minority interests		94,247			(52,552	)		19,239
Net income		5,066,295			5,624,854			5,829,294
Other comprehensive income
Foreign currency translation adjustment		6,290,969			2,907,981			857,313
Comprehensive income		11,357,264			8,532,835			6,686,607
Net income per share
- basic		0.11			0.13			0.14
- diluted		0.11			0.13			0.14
Weighted average common stock outstanding
- basic		44,727,171			44,677,171			43,053,212
- diluted		44,946,068			44,677,171			43,061,546

See accompanying notes to consolidated financial statements.

F-4

WINNER MEDICAL GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common stock				Additional							Accumulated other		Total stock-
	Stock				paid-in		Retained			Statutory		comprehensive		holders’
	outstanding		Amount		capital		earnings			reserves		income		equity
			US$		US$		US$			US$		US$		US$
Balance at September 30, 2005		36,991,105		36,991		19,020,848		14,104,400			471,850		720,741		34,354,830
Shares issued for reverse takeover		1,562,271		1,562		1,089		-			-		-		2,651
Issuance of common stock		6,082,995		6,083		10,876,433		-			-		-		10,882,516
Issuance of employee stock		40,800		41		316,159		-			-		-		316,200
Stock options granted		-		-		22,668		-			-		-		22,668
Net income		-		-		-		5,829,294			-		-		5,829,294
Foreign currency translation difference		-		-		-		-			-		857,313		857,313
Transfer to statutory reserves		-		-		-		(750,828	)		750,828		-		-
Balance at September 30, 2006		44,677,171		44,677		30,237,197		19,182,866			1,222,678		1,578,054		52,265,472
Stock options granted		-		-		23,350		-			-		-		23,350
Net income		-		-		-		5,624,854			-		-		5,624,854
Foreign currency translation difference		-		-		-		-			-		2,907,981		2,907,981
Transfer to statutory reserves		-		-		-		(691,666	)		691,666		-		-
Balance at September 30, 2007		44,677,171		44,677		30,260,547		24,116,054			1,914,344		4,486,035		60,821,657
Issuance of common stock		50,000		50		199,950		-			-		-		200,000
Restricted stock granted		-		-		382,830		-			-		-		382,830
Net income		-		-		-		5,066,295			-		-		5,066,295
Foreign currency translation difference		-		-		-		-			-		6,290,969		6,290,969
Transfer to statutory reserves		-		-		-		(391,090	)		391,090		-		-
Balance at September 30, 2008		44,727,171		44,727		30,843,327		28,791,259			2,305,434		10,777,004		72,761,751

See accompanying notes to consolidated financial statements.

F-5

WINNER MEDICAL GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended September 30,
	2008			2007			2006
	US$			US$			US$
Cash flows from operating activities
Net income		5,066,295			5,624,854			5,829,294
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		4,029,453			3,105,376			2,636,716
Impairment loss on property, plant and equipment		209,041			-			-
Amortization of intangible assets		16,776			6,276			5,063
Deferred tax		(108,234	)		5,354			70,688
Gain on disposal of a subsidiary		-			-			(88,454	)
(Gain)/loss on disposal of property, plant and equipment		125,985			9,944			(10,289	)
Minority interests		(94,247	)		52,552			(19,239	)
Share of undistributed earnings in equity investees		(93,298	)		(178,693	)		(52,817	)
Stock based compensation		382,830			57,556			327,182
Changes in operating assets and liabilities:
Accounts receivable		(1,091,244	)		(3,368,780	)		896,164
Amounts due from affiliated companies		191,864			108,261			(218,176	)
Inventories		(3,189,830	)		446,283			(609,907	)
Prepaid expenses and other current assets		2,570,516			(121,491	)		856,974
Income taxes recoverable		5,189			(86,766	)		51,454
Non-current prepaid expenses		38,419			(10,299	)		(182	)
Accounts payable		224,354			2,886,369			625,850
Accrued payroll and employee benefits		460,100			51,797			8,059
Customer deposits		58,546			78,633			167,651
Other accrued liabilities		525,251			(549,260	)		(112,998	)
Amounts due to affiliated companies		90,426			(172,997	)		(57,543	)
Income taxes payable		352,958			(282,545	)		(32,878	)
Net cash provided by operating activities		9,771,150			7,662,424			10,272,612
Cash flows from investing activities
Purchase of property, plant and equipment		(11,055,205	)		(12,088,215	)		(11,180,904	)
Proceeds from disposal of property, plant and equipment		64,438			129,892			220,298
Restricted bank deposits		(126,749	)		-			-
Acquisition of intangible assets		-			(96,006	)		(4,623	)
Proceeds from disposal of a subsidiary, net of cash disposed		-			-			(39,004	)
Acquisition of an equity investee		-			(184,722	)		-
Decrease in prepaid expenses and other current assets		-			-			(2,672,686	)
Net cash used in investing activities		(11,117,516	)		(12,239,051	)		(13,676,919	)
Cash flows from financing activities
Proceeds from bank borrowings		20,823,780			18,809,343			6,621,689
Repayment of bank borrowings		(19,916,504	)		(11,981,294	)		(10,119,940	)
Repayment to affiliated companies		(94,077	)		(7,804	)		(143,209	)
Amount due to a shareholder		-			(1,638	)		(171,178	)
Repayment of dividend payable		-			(531,034	)		(1,411,886	)
Issuance of common stock		-			-			11,062,647
Proceeds from (Repayment to) minority interest		51,277			-			(792,101	)
Net cash provided by financing activities		864,476			6,287,573			5,046,022
Effect of exchange rate changes on cash balance		566,907			346,963			26,997
Net increase in cash and cash equivalents		85,017			2,057,909			1,668,712
Cash and cash equivalents, beginning of year		6,377,488			4,319,579			2,650,867
Cash and cash equivalents, end of year		6,462,505			6,377,488			4,319,579
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		591,477			408,123			266,934
Income taxes		387,795			314,470			417,027

See accompanying notes to consolidated financial statements.

F-6

1. Organization and Basis of Preparation of Financial Statements

Winner Medical Group Inc. (formerly known as Las Vegas Resorts Corporation, HDH Industries, Inc. and Birch Enterprises, Inc.) (“Winner Medical” or “the Company”) was originally incorporated under the name Birch Enterprises, Inc. in the state of Nevada in August 1986. The Company was initially formed as a “blank check” entity for the purpose of seeking a merger, acquisition or other business combination transaction with a privately owned entity seeking to become a publicly owned entity.

On September 14, 1987, the Company consummated a business combination transaction with Las Vegas Resort Investments whereby Las Vegas Resort Investments became a wholly owned subsidiary of the Company. Concurrent with this transaction, the Company changed its corporate name to Las Vegas Resorts Corporation. During 1989, the Company completed a public offering of the common stock pursuant to a Registration Statement on Form S-18 (Registration No. 33-10513-LA).

During September 1992 all of Las Vegas Resort Corporation’s operations ceased and, by July 31, 1993, Las Vegas Resort Corporation had dissolved all subsidiaries and business operations. Las Vegas Resort Corporation had no active operations from then until December 16, 2005.

Winner Group Limited, (subsequently became a subsidiary of the Company), is a limited liability company registered under the laws of the Cayman Islands and was incorporated in Cayman Islands on April 8, 2003. On July 1, 2003, the major shareholder of Winner Group Limited contributed all of his equity interest in 11 entities to Winner Group Limited. Winner Group Limited then became the holding company of the reorganized group with a total of 11 subsidiaries. The transaction was a group reorganization entered into among entities under common control. The reorganization was treated similar to the pooling of interest method with carry over basis. In July 2005, Winner Group Limited entered into a financial advisory agreement with HFG International, Limited, HFG, pursuant to which HFG agreed to provide financial advisory and consulting services in facilitating the transaction by which Winner Group Limited would go public, which, among other things, included locating a proper shell company. In November 2005, HFG recommended Winner Medical Group Inc. to the management of Winner Group Limited and Winner Group Limited started negotiations with Winner Medical Group Inc. on a possible reverse acquisition transaction. Other than fees paid to HFG International, Limited pursuant to that certain Financial Advisory Agreement, no finder’s fees or other forms of consideration were paid by Winner Group Limited or the Company or the Company’s respective officers, directors or shareholders in connection with the share exchange.

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 wholly owned subsidiary. Even though, from a legal perspective, Winner Medical Group Inc. was the acquirer in this transaction, Winner Group Limited is treated the acquirer from an accounting perspective.

Winner Group Limited is a technology-driven medical dressings and medical disposables manufacturer based in China. It became the wholly owned subsidiary in connection with the reverse acquisition transaction and is the holding company for all of the commercial operations.

On February 13, 2006, the Company amended the Articles of Incorporation to change the name from Las Vegas Resorts Corporation to Winner Medical Group Inc. Winner Medical changed the name to reflect the new business and to be similar to the names of the subsidiary companies.

The financial year end date of the Company was changed from July 31 to September 30 with effect from February 13, 2006. On February 13, 2006, the Company changed its name to Winner Medical Group Inc.

2.    Summary of Significant Accounting Policies

The principal activities of the Company and its subsidiaries consist of research and development, manufacturing and trading of medical dressings and medical disposables. All activities of the Group are principally conducted by subsidiaries operating in the People’s Republic of China (“PRC”).

Principles of consolidation- The consolidated financial statements, prepared in accordance with generally accepted accounting principles in the United States of America, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. All significant inter-company accounts, transactions and cash flows are eliminated on consolidation.

Equity investments, in which the Company exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method. The Company regularly reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary.

F-7

2. Summary of Significant Accounting Policies - Continued

Intangible assets- Trademarks are measured initially at cost and amortized on a straight-line basis over their estimated useful lives, which is on average ten years.

Cash and cash equivalents- Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time certificates of deposit with a maturity of three months or less when purchased.

Inventories-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.

Allowances for doubtful accounts receivable balances are recorded when circumstances indicate that collection is doubtful for particular accounts receivable. Management estimates such allowances based on historical evidence such as amounts that are subject to risk. Accounts receivable are written off if reasonable collection efforts are not successful.

Property, plant and equipment- Property, plant and equipment are stated at cost including the cost of improvements. Maintenance and repairs are charged to expense as incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Depreciable amounts are net of expected residual value of assets. 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

Valuation of long-lived assets- The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Revenue recognition- The Company derives its revenue primarily from the sales of medical dressings and disposables. 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 collectibility is reasonably assured. Customers do not have a general right of return on products shipped. Products returns to the Company were insignificant during past years.

Comprehensive income- Accumulated other comprehensive income represents foreign currency translation adjustments and is included in the consolidated statement of stockholders’ equity.

Shipping and handling cost- Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the years ended September 30, 2008, 2007 and 2006, shipping and handling costs expensed to selling expenses were US$4,415,131, US$4,891,760 and US$4,055,053 respectively.

Research and development costs- Research and development costs are charged to expense when incurred and are included in operating expenses. During the years ended September 30, 2008, 2007 and 2006, research and development costs expensed to operating expenses were approximately US$1,801,821, US$2,050,000 and US$1,580,000 respectively.

F-8

2. Summary of Significant Accounting Policies – Continued

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.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN48). This Interpretation provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. FIN 48 also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions.

Foreign currency translation- The consolidated financial statements of the Company are presented in United States Dollars (“US$”). Transactions in foreign currencies during the year are translated into US$ at the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into US$ at the exchange rates prevailing at that date. All transaction differences are recorded in the income statement.

The Company’s subsidiaries in the PRC have their local currency, Renminbi (“RMB”), as their functional currency. The Company’s subsidiary in Hong Kong has its local currency, Hong Kong Dollar (“HK$”), as its functional currency. On consolidation, the financial statements of the Company’s subsidiaries in PRC and in Hong Kong are translated from RMB and HK$ into US$ in accordance with SFAS No. 52, “Foreign Currency Translation”. Accordingly all assets and liabilities are translated at the exchange rates prevailing at the balance sheet dates and all income and expenditure items are translated at the average rates for each of the years. The exchange rate between the Renminbi and the US$ and used for the years ended September 30, 2008 and 2007 were RMB6.8183 to US$1 and RMB7.5108 to US$1, respectively. The exchange rate between the Hong Kong Dollar and the US$ and used for the years ended September 30, 2008 was HK$7.7787 to US$1. Translation adjustments arising from the use of different exchange rate from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gain and losses resulting from foreign currency translations are included in other comprehensive income.

Fair Value of Financial Instruments- The carrying amounts of cash and cash equivalents, accounts and bills receivable, deposits and other receivable and other current assets, bank loans, accounts payable and other current liabilities are reasonable estimates of their fair values. All the financial instruments are for trade purposes. Fair value of the amounts due to or from affiliates and shareholder cannot be readily determined because of the nature of the related party transactions.

Post-retirement and post-employment benefits- The Company’s subsidiaries contribute to a state pension scheme in respect of their PRC employees and a mandatory provident fund scheme in respect of its Hong Kong employees. Other than the above, neither the Company nor its subsidiaries provide any other post-retirement or post-employment benefits.

Net income per share- Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share gives effect to all dilutive potential ordinary shares outstanding during the year. 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. In computing the dilutive effect of potential common shares, the average stock price for the period is used in determining the number of treasury shares assumed to be purchased with the proceeds from the exercise options.

As of September 30, 2008 and 2007, basic and diluted net income per share calculated in accordance with SFAS No. 128, “Earnings Per Share”, are reconciled as follows:

F-9

2. Summary of Significant Accounting Policies – Continued

	Year ended September 30
	2008		2007
	US$		US$
Basic income per share
Net Income for the year		5,066,295		5,624,854
Weighted average common stock outstanding		44,727,171		44,677,171
Net income per share		0.11		0.13
Diluted income per share
Net Income for the year		5,066,295		5,624,854
Weighted average common stock outstanding		44,727,171		44,677,171
Effect of dilution
Restricted stock		218,897		-
Options		-		-
Weighted average common stock outstanding		44,946,068		44,677,171
Net income per share		0.11		0.13

As of September 30, 2008, 8,333 and 20,000 potential common shares relating to options at the exercise price of US$9.25 and US$4.75 per share, respectively, and representing the total options granted, were excluded from the computations of diluted income per share as both exercise prices were higher than the average market price for the year ended September 30, 2008.

Government Subsidies- Certain subsidiaries of the Company located in PRC received government subsidies from local PRC government agencies. In general, the Company records the government subsidies received as part of other income unless the subsidies received are earmarked for capital expenditures or to compensate certain expense, which have been accounted for in offsetting the respective expenses.

Use of estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to allowance for uncollectible accounts receivable, inventory obsolescence, asset impairment, depreciation and useful lives, taxes and contingencies. These estimates may be adjusted as more current information becomes available and any adjustment could be significant. Actual results could differ from those estimates.

Recent changes in accounting standards- In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 157 related to financial assets and liabilities, and other assets and liabilities that are carried at fair value on a recurring basis is not anticipated to materially impact the Company’s consolidated financial position, results of operations and cash flows.  The FASB provided for a one-year deferral of the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis. The Company is still evaluating the impact of the adoption of SFAS 157 and is not yet a position to determine such effects on the Company’s consolidated financial position and results of operations.

F-10

2. Summary of Significant Accounting Policies - Continued

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Adoption is required for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of fiscal year 2009.  Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS Statement No. 157.  The Company is currently evaluating the impact of SFAS No. 159 on its consolidated financial statements and is not expected to have material impact on the Company’s financial position, results of operations and cash flows.

In December 2007, FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS No. 141R”).  The objective of SFAS No. 141R is to improve the relevance, presentational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects.  SFAS No. 141R is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and is required to be adopted by the Company in the first quarter of fiscal year 2010.  The Company is evaluating the impact, if any, of the adoption of SFAS No. 141R.  The impact will depend on future acquisitions.  It is not expected to have material impact on the Company’s financial position, results of operations and cash flows.

In December 2007, FASB issued SFAS No. 160 “Non-controlling Interest in Consolidated Financial Statements”. SFAS No. 160 amends Accounting Research Bulletin No.51, Consolidated Financial Statements, to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS No. 160 defines “a non-controlling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent”.  The objective of SFAS No. 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements.  SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and is required to be adopted by the Company in the first quarter of fiscal year 2010.  The Company is evaluating the impact, if any, of the adoption of SFAS No. 160.  It is not expected to have material impact on the Company’s financial position, results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities amendment of FASB Statement No. 133” (“SFAS 161”).  This statement changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures stating how and why an entity uses derivative instruments; how derivatives and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and its related interpretations; and how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows.  SFAS 161 is effective in fiscal years beginning after November 15. 2008 and is required to be adopted by the Company in the first quarter of fiscal year 2010.  The Company does not expect the adoption of SFAS 161 will have a material impact on the Company’s disclosures.

 In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of FSP 142-3 will have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”) for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  The Company does not anticipate that the provisions of SFAS No. 162 will have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

In June 2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for Maintenance Deposits Under Lease Arrangements” (EITF 08-3). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 08-3 on its consolidated financial position and results of operations and is currently not yet in a position to determine such effects.

F-11

3.    Inventories

Inventories by major categories are summarized as follows:

	September 30
	2008		2007
	US$		US$
Raw materials		5,400,887		4,496,795
Work in progress		5,839,042		4,057,579
Finished goods		4,599,658		2,929,068
		15,839,587		11,483,442

4.    Property, Plant and Equipment

Property, plant and equipment consist of the following:

	September 30,
	2008			2007
	US$			US$
At cost:
Leasehold land and buildings		34,331,569			27,246,287
Plant and machinery		27,315,614			23,867,086
Furniture, fixtures and equipment		2,380,817			1,493,883
Motor vehicles		866,630			824,712
Leasehold improvements		3,514,271			2,979,130
Total		68,408,901			56,411,098
Less: accumulated depreciation and amortization		(17,023,596	)		(12,462,185	)
Less: impairment on plant and machinery		(410,312	)		(173,084	)
Construction in progress		6,962,888			3,051,184
Net book value		57,937,881			46,827,013

All the land in the PRC is owned by the PRC government. The government, according to PRC laws, may grant to entities the right to use of land for a specified period of time (the period of the land used for ordinary industry is 50 years).  Thus, all of the Company’s land purchased in the PRC is considered to be leasehold land and amortized on a straight-line basis over the respective term of the right to use the land.

Included in cost of the plant and machinery of the Company is two sets of machineries amounting to US$1,969,730 against which total impairment provision of US$410,312 was made as of September 30, 2008. Management estimates the fair value of plant and machinery reported in its two reportable segments in note 21 are based on the best information available such as the market prices for similar assets or expected future cash flows. The interest cost of US$ 377,191 for the production lines was capitalized for the year ended September 30, 2008.

Construction in progress is stated at cost, which includes the cost of construction and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use. Construction in progress on September 30, 2008 represents machinery not yet put to use by the Company either under installation or quality inspection stages.

F-12

5. Held-for-sale asset

On July 17, 2008, board of directors passed a resolution to liquidate one of the Company’s subsidiaries in Zhuhai, PRC and obtained the approval from the local government in PRC on July 24, 2008. On September 10, 2008, board of directors authorized to sell out a building held by that subsidiary. On September 18, 2008, a sales contract has been signed with an independent third party to transfer the building at a consideration of US$868,333. The carrying amount of the held-for-sale asset as of September 30, 2008 was US$607,423.

Held-for-sale asset consist of the following:

	September 30,
	2008			2007
	US$			US$
At cost:
Building		1,051,320			-
Less: accumulated depreciation		(443,897	)		-
Net book value		607,423			-

6. Credit Facilities and Pledged Assets

The Company’s subsidiaries in Shenzhen and Huang Gang have credit lines with Shenzhen Commercial Bank, Shenzhen Branch of the Industrial and Commercial Bank of China, Huanggang Branch of the Industrial and Commercial Bank of China, representing trade acceptances, loans and overdrafts.  As of September 30, 2008 these facilities totaled RMB151,460,000, equivalent to US$22,213,748.  The maturities of these facilities are generally up to June 30, 2009. The total unused credit line as of September 30, 2008 was US$7,180,676.  For bank loans obtained by other subsidiaries, there were no unused credit lines.  The weighted average interest rates on short-term borrowings as of September 30, 2008 and 2007 were 7.39% and 6.63% per annum, respectively. There are no significant covenants or other financial restrictions relating to the Company’s facilities except that at September 30, 2008, 2007 and 2006, leasehold land and buildings, plant and machinery with net book values of US$6,590,342, US$7,357,524 and US$1,777,892 respectively, have been pledged as collateral for the above facilities.

As of September 30, 2008 and 2007, the Company has the following short-term bank loans:

	September 30,
	2008		2007
	US$		US$
Bank loans repayable within one year		15,033,073		12,781,595
Original currency in Chinese Renminbi		102,500,000		96,000,000

F-13

6. Credit Facilities and Pledged Assets - Continued

Bank loans as of September 30, 2008 consist of the following:

								2008
Loan		Loan period		Interest rate			Secured by	US$
	A		2008.07.03-2009.06.29		8.22	%	Land use rights & buildings		1,466,641
	B		2008.07.21-2009.06.29		8.22	%	Land use rights & buildings		733,321
	C		2008.08.22-2009.08.21		8.22	%	Land use rights & buildings		733,321
	D		2008.08.29-2008.08.28		8.22	%	Land use rights & buildings		1,466,641
	E		2008.09.27-2009.03.24		6.21	%	Land use rights & buildings		1,466,641
	F		2008.01.02-2009.01.02		7.47	%	Land use rights & buildings		1,173,313
	G		2008.01.02-2009.01.02		7.47	%	Land use rights & buildings		1,026,649
	H		2008.05.27-2009.05.27		7.47	%	Land use rights & buildings		1,173,313
	I		2008.06.30-2009.04.15		6.57	%	Land use rights & buildings		1,319,977
	J		2008.09.22-2008.03.22		6.21	%	Land use rights & buildings		1,466,641
	K		2008.01.22-2009.01.20		7.47	%	Land use rights & buildings		2,126,630
	L		2008.06.26-2009.06.25		7.84	%	Land use rights & buildings		879,985
									15,033,073

Bank loans as of September 30, 2007 consist of the following:

								2007
Loan		Loan period		Interest rate			Secured by	US$
	A		2007-01-23 to 2008-01-22		6.12	%	Land use rights & buildings		1,997,124
	B		2007-09-28 to 2008-09-27		7.29	%	Land use rights & buildings		1,331,416
	C		2007-05-17 to 2007-11-17		5.67	%	Land use rights & buildings		798,850
	D		2007-06-11 to 2007-12-11		5.85	%	Land use rights & buildings		1,065,133
	E		2007-07-02 to 2008-01-02		5.85	%	Land use rights & buildings		798,850
	F		2007-05-16 to 2008-02-15		6.39	%	Property, plant& machinery		665,708
	G		2007-09-24 to 2008-09-23		7.29	%	Land use rights & buildings		665,708
	H		2007-09-13 to 2008-09-12		7.02	%	Land use rights & buildings		1,464,558
	I		2007-09-30 to 2008-09-29		7.29	%	Land use rights & buildings		1,997,124
	J		2007-06-28 to 2008-06-27		6.57	%	Land use rights & buildings		1,065,133
	K		2007-08-10 to 2008-08-10		6.84	%	Land use rights & buildings		931,991
									12,781,595

7.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

	September 30,
	2008		2007
	US$		US$
Value added tax receivable		2,747,965		2,309,399
Deferred expenditure		122,779		100,540
Advance to suppliers		489,472		562,566
Advance to plant and machinery vendors		628,499		2,631,944
Others		745,788		1,027,043
		4,734,503		6,631,492

F-14

8. Investment in Equity Investees

	September 30,
	2008		2007
	US$		US$
Investment cost of L+L Healthcare Hubei Co. Ltd.		1,045,130		1,045,130
Investment cost of Winner Medical Jordan Ltd.		184,722		184,722
Share of accumulated equity in earnings of 50 percent or less owned persons		288,996		195,698
		1,518,848		1,425,550

As of September 30, 2008, the Company holds a 40% equity interest in L+L Healthcare Hubei Co. Ltd. (“L+L”) in PRC, and 35% equity interest in Winner Medical Jordan Ltd. in Jordan.  The Company originally owned 100% equity interest in L+L.  On February 28, 2005, the Company disposed 60% of the interest in L+L to a third party at the consideration of US$2,400,000 with a gain of US$1,165,821. Accrued income tax related to the gain on disposal of investment is US$116,582.  At the time of disposal, accumulated loss of L+L shared by the Company was US$44,920.  In May 2007, the Company invested an amount of US$184,722 to Winner Medical Jordan Ltd. representing 35% equity interest held during 2007.  The share of equity in earnings of equity investees during the year ended September 30, 2008, 2007 and 2006 was US$93,298, US$178,693 and US$52,817 respectively.

9. Intangible Assets

	September 30,
	2008			2007
	US$			US$
Patent, cost		51,317			46,585
Trademark, cost		113,911			103,408
Less: accumulated amortization		(39,087	)		(19,480	)
Net book value		126,141			130,513

10.  Other Accrued Liabilities

Other accrued liabilities consist of the following:

	September 30,
	2008		2007
	US$		US$
Transportation costs		470,186		245,251
Accrued expenses		362,223		609,758
Deposit received		255,558		52,281
Advance from staff		110,621		36,225
Payable to machinery vendors		184,472		215,924
Government subsidy receipt in advance		428,479		409,964
Value added tax payable		407,601		241,168
Withholding tax payable		116,582		116,582
Other taxes payable		90,822		-
Others		91,782		63,718
		2,518,326		1,990,871

F-15

11. Income Taxes

United States

The Company is incorporated in the United States of America and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has no taxable income for the years. The applicable income tax rate for the Company for the years ended September 30, 2008 and 2007 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, a 60% owned subsidiary of the Company, is incorporated in Hong Kong. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. The Company was incorporated in January 2008 and the applicable statutory tax rate for the subsidiary is 16.5%.

PRC

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, or 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.

Despite these pending changes, 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. During the grandfather period, foreign investment enterprises that currently enjoy fully exempt 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 our 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. As such, for the first two calendar years ended December 31, 2008 and 2009, Winner Medical (Huanggang) Co., Ltd. is exempted from any enterprise income tax. Between January 1, 2010 and December 31, 2012, Winner Medical (Huanggang) Co., Ltd. is subject to an enterprise income tax rate of 12.5%. Between January 1, 2008 and December 31, 2010, Winner Medical & Textile Ltd. Chongyang is subject to an enterprise income tax rate of 12.5%. Between January 1, 2008 and December 31, 2009, Hubei Winner Textiles Co., Ltd. is subject to an enterprise income tax rate of 12.5%. For the calendar years ended December 31, 2008, Shanghai Winner Medical Apparatus Co., Ltd. is exempted from any enterprise income tax. Between January 1, 2009 and December 31, 2011, Shanghai Winner Medical Apparatus Co., Ltd. is subject to an enterprise income tax rate of 12.5%. In addition, during the grandfather period, the income tax rate for enterprises located in Shenzhen currently enjoy a 18% income tax rate will increase from 18%, 20%, 22%, and 24% in 2008, 2009, 2010, and 2011 respectively, and reach 25% in 2012.

On October 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN48). The Company’s policy on classification of all interest and penalties related to unrecognized tax benefits, if any, as a component of income tax provisions. 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 statue 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 September 30, 2008, the management considered that the Company had no uncertain tax positions affected its consolidated financial position and results of operations or cash flow, and will continue to evaluate for the uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s financial statements for the year ended September 30, 2008. 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 years for examinations in China are 5 years.

F-16

11. Income Taxes- Continued

The provision for income taxes consists of the following:

	Year ended September 30,
	2008			2007			2006
	US$			US$			US$
Current tax
- PRC		912,954			204,900			445,947
- HK		(218,829	)		(225,130	)		-
Deferred tax		(103,007	)		5,215			70,688
		591,118			(15,015	)		516,635

A reconciliation between the provision for income taxes computed by applying the statutory tax rate in PRC to income before income taxes and the actual provision for income taxes is as follows:

	Year ended September 30,
	2008			2007			2006
	US$			US$			US$
Tax calculated at domestic statutory rate (2008: 25%; 2007: 33%)		1,390,792			1,868,875			2,114,437
Effect of different tax rates in various jurisdictions		(604,756	)		(677,801	)		(951,155	)
Effect on opening deferred tax balances resulting from an decrease in applicable tax rate		(90,436	)		-			-
Tax holidays and concessions		(73,127	)		(687,812	)		(689,291	)
Tax refund		(252,400	)		(171,468	)		-
Tax effect of expenses not deductible for tax purpose		15,805			(1,105	)		168,976
Tax effect of revenue not subject to tax		(69,418	)		(90,650	)		(156,085	)
Tax effect of tax loss not utilized		493,220			-			-
Tax effect of temporary difference not recognized		(57	)		-			-
(Over)/Under provision in previous year		(218,505	)		(229,032	)		10,249
Others		-			(26,022	)		19,504
		591,118			(15,015	)		516,635

The amount of deferred tax assets recognized is as follows:

	September 30,
	2008		2007
Deferred tax assets	US$		US$
Current: -
Future benefit of tax losses		59,368		145,580
Temporary differences in accrued liabilities		35,380		17,273
Temporary differences in inventories		87,641		29,235
Temporary difference in bad debt		25,409		-
		207,798		192,088
Non current: -
Temporary differences in property, plant and equipment		158,280		26,744

The amount of deferred tax liabilities recognized is as follows:

	September 30,
	2008		2007
	US$		US$
Non current: -
Temporary differences in property, plant and equipment		41,965		22,857

F-17

12. Related Party Transactions

Mr. Jianquan Li, a director with a controlling interest in Safe Secure Packing (Shenzhen) Co., Ltd (“Safe Secure”), sold all of his controlling interest in Safe Secure to a third party as of September 30, 2007. The Company continuously trades with Safe Secure in the year 2008. During the years ended September 30, 2007 and 2006, the Company sold goods to Safe Secure for US$1,740 and US$nil, respectively, and purchased goods from it for US$491,463 and US$1,319,939, respectively.

During the years ended September 30, 2008, 2007 and 2006, the Company sold goods to Winner Medical & Textile (H.K.) Limited for US$894,560, US$809,168 and US$988,895 respectively. Mr. Jianquan Li, director of the Company, has a controlling interest in Winner Medical & Textile (H.K.) Limited. As of September 30, 2008, 2007 and 2006, the outstanding balance due from Winner Medical &Textile (HK.) Limited were US$183,247, US$252,999 and US$239,588 respectively.

During the years ended September 30, 2008, 2007 and 2006, the Company sold goods to L+L Healthcare Hubei Co., Ltd., an equity investee, for US$nil, US$nil and US$1,760 respectively, and purchased goods from it for US$716,248, US$490,818, and US$1,093,712 respectively.  As of September 30, 2008, 2007 and 2006, amount due from the equity investee was US$141,892, US$108,987 and US$241,312 respectively.

The amounts due from/to the above affiliated companies with the exception of L+L Healthcare Hubei are unsecured, interest free and payable according to the trading credit terms. The amount due from L+L Healthcare Hubei Co., Ltd. are unsecured, 5% interest bearing and payable according to the trading credit terms.

13. 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 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”, includes highly subjective assumptions based on long-term prediction, including the expected stock price volatility and average life of each option grant.

	Year ended September 30,
	2008			2007			2006
Risk free interest rate		2.28	%		4.5	%		4.5	%
Volatility		112.10	%		50.13	%		107	%
Expected life (years)		3			3			3
Dividends		-			-			-
Weighted average fair value of options granted during the period		0.40			0.19			2.73

F-18

13. Stock-Based Compensation- Continued

In a contract signed on May 8, 2006, the Company agreed to grant to two of the independent directors each year non-qualified options for the purchase of up to 20,000 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. These options shall be vested in equal installments on a quarterly basis over a one year period. Upon execution of the agreement, the Company granted a prorated amount of initial options of 2,500 each, to two of the independent directors. Such options might be adjusted from time to time as agreed by the parties. The Company uses the Black-Scholes option-pricing model, to value its options granted to the independent directors, and recorded the relating compensation expenses accordingly. As of September 30, 2006, a total of 8334 options have been granted, and accumulated compensation expenses of US$22,668 was recorded. On February 6, 2007, the Company further granted to two of the independent directors each, with non-qualified options for purchases up to 10,000 shares of the common stock. As of September 30, 2007, a total of 28,334 options have been granted, representing the total options from the period May 8, 2006 to September 30, 2007. On October 1, 2007, the Company and the two independent directors agreed to increase the cash compensation to them of US$5,000 each in order to substitute the option compensation terms agreed in the previous contracts. The options granted according to the previous contracts are still valid. The Company has recorded an amount of US$nil and US$23,350 in compensation expenses in the financial years 2008 and 2007 respectively.

A summary of option activity under the Plan as of September 30, 2008, and changes during the year then ended is presented below:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
			US$		Years
Outstanding at September 30, 2006		8,334		9.25		1.58
Granted (from October 1, 2006 to September 30, 2007)		20,000		4.75		2.35
Exercised (from October 1, 2006 to September 30, 2007)				-		-
Forfeited or expired				-		-
Outstanding at September 30, 2007		28,334		6.07		2.12
Granted (from October 1, 2007 to September 30, 2008)		-		-		-
Exercised (from October 1, 2007 to September 30, 2008)		-		-		-
Forfeited or expired		-		-		-
Outstanding at September 30, 2008		28,334		6.07		1.13

The Company had entered into a one year consulting agreement with Heritage Management Consultants, Inc., “Heritage” in 2005, pursuant to which Heritage would assist the Company in meeting its obligations as a U.S. publicly traded company. This agreement was subsequently replaced by another agreement that covered a specific period of one year commencing January 25, 2006. On May 30, 2006, the Company has further amended and superseded the two previous agreements with Heritage. Pursuant to the agreement, as amended, Heritage would assist the Company in meeting the obligations of a U.S. publicly traded company in exchange for an annual compensation of $175,000 and 50,000 shares of common stock of the Company, which would be delivered on or before July 31, 2006. As of January 25, 2007, the expiry date of the consulting service contract, the fair value of the 50,000 restricted shares based on the market price of US$4 per share was US$200,000. The total compensation expense of the consulting service was US$200,000, in which US$34,206 and US$165,794 representing the compensation expense recorded for the period from October 1, 2006 to January 24, 2007 and the period from January 25, 2006 to September 30, 2006, respectively.

On October 7, 2007, the Board of Directors approved a 2008-09 Restricted Stock Unit Incentive Plan, the “2008-2009 Plan”, an equity 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 our 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 1,000,000 units out of the total 1,200,000 authorized restricted stock 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, annual sales objectives, and the participant’s individual performance objectives are fulfilled. As of September 30, 2008, 88,500 units were cancelled due to the resignation of employees or failure to meet the agreed performance.

F-19

13. Stock-Based Compensation- Continued

A summary of the restricted stock units activity under the Plan is as follows:

	Number of units
Units outstanding at October 1, 2007		-
Granted		1,000,000
Exercised		-
Cancelled		88,500
Units outstanding at September 30, 2008		911,500

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 5, 2007, which was $1.80 per share, and assumes that the individual achieves 100% of the applicable corporate and individual objectives set forth in the award.The Company recorded share-based compensation expense of USD 382,830 for the year ended September 30, 2008.

14. Commitments and Contingencies

Operating leases- The Company was obligated under operating leases requiring minimum rentals as follows:

	US$
Year ending September 30,
2009		288,576
2010		197,268
2011		92,300
Total minimum lease payments		578,144

Rental expenses under operating leases included in the income statement was US$291,431, US$266,382 and US$150,911 for the year ended September 30, 2008, 2007 and 2006 respectively.

Purchase obligations-The Company has signed agreements with suppliers and other parties to purchase plant and machinery, and computer equipment with estimated non-cancelable obligations of US$417,466 as of September 30, 2008.

Foreign currency forward contract obligations- The Company’s subsidiaries in the PRC utilize their local currency as their functional currency.  The functional currency is used to pay material purchased, labor and other operating costs.  However, these subsidiaries have client contracts wherein revenue is invoiced and collected in US$.  Since the management foresees that RMB will appreciate against US$, the Company has contracted with a commercial bank to hedge for future trade receipts as an economic hedge against its future US$ denominated cash flows.  These contracts generally expire within one to six months.  The foreign exchange forward contracts entered into by the Company are not designated as hedge instruments under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” and, accordingly, any changes in the fair value of such contracts are reflected in earnings.

The Company does not use derivative financial instruments for speculative or trading purposes, nor does it hold or issue leveraged derivative financial instruments.

The Company has entered into several foreign currencies forward contracts with a commercial bank to hedge for future trade receipts in U.S. dollars against RMB during the year 2006. All these foreign currency forward contracts were realized before September 30, 2006 and net exchange loss totaling US$116,863 has been debited against selling, general and administrative expenses for the year then ended. There was no outstanding foreign currency forward contract as of September 30, 2007 and September 30, 2008.

F-20

15. Stockholders’ Equity

Common Stock

In December 2005, there were 1,562,271 shares of common stock treated as issued.

In December 2005, prior to the consummation of the share exchange with the Company, Winner completed a private placement of its common shares to 15 accredited investors, which were then exchanged for 5,289,735 shares of common stock in the Company, in raising US$10,400,000 in gross proceeds. Further, 793,260 of the Company’s shares were issued for US$1,600,000 in gross proceeds. As a result of the above stock issue, the Company raised a total of US$12,000,000 in gross proceeds.

In April, 2006, the Company issued a total of 20,400 shares of common stock, to 223 employees at contracted price of US$8.70 per share in accordance with the 2006 Equity Incentive Plan, for a gross proceeds of US$177,480. Pursuant to the 2006 Equity Incentive Plan, the Company issued 20,400 bonus shares of common stock to these 223 employees in respect of the earlier 20,400 common stock issued.

In November 2007, the Company issued a total of 50,000 shares of common stock to Heritage Management Consultants, Inc. (“Heritage”), representing the share-based compensation to Heritage for the service obtained from January 25, 2006 to 2007. The total compensation expense of such consulting service was US$200,000, in which US$34,206 and US$165,794 representing the compensation expense recorded for the period from October 1, 2006 to January 24, 2007 and the period from January 25, 2006 to September 30, 2006, respectively.

On October 16, 2008, the Company’s Board of Directors approved to grant the remaining 200,000 units out of the total 1,200,000 authorized restricted stock. 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, 2011if the target of corporate net, income, 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$0.25 per share, and assumes that the individual achieves 100% of the applicable corporate and individual objectives set forth in the award.

16.  Employee Benefits

The Company contributes to a state pension scheme organized by municipal and provincial governments in respect of its employees in PRC.  The compensation expense related to this plan, which is calculated at a range of 8%-20% of the average monthly salary, was US$515,232, US$356,113 and US$321,899 for the years ended September 2008, 2007 and 2006 respectively.

According to the Mandatory Provident Fund ("MPF") legislation regulated by the Mandatory Provident Fund Schemes Authority in Hong Kong, with effect from December 1, 2000, the Company is required to participate in a MPF scheme operated by approved trustees in Hong Kong and to make contributions for its eligible employees.  The contributions borne by the Company are calculated at 5% of the salaries and wages (monthly contribution is limited to 5% of HK$20,000 for each eligible employee) as calculated under the MPF legislation.  The expense related to the MPF in the years ended September 30, 2008, 2007 and 2006 amounted to US$1,608, US$nil and US$154 respectively.

17.  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 this customer accounted for  16%, 19% and 22%, of the total net sales for the years ended September 30, 2008, 2007 and 2006, 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.  There was bad debt expense US$85,976 and US$13,667 during the years ended September 30, 2008 and 2007 respectively.

Interest rate risk-The interest rates and terms of repayment of bank and other borrowings are disclosed in Note 6.  Other financial assets and liabilities do not have material interest rate risk.

F-21

17.  Operating Risk- Continued

Credit risk-The Company is exposed to credit risk from its cash at bank and fixed deposits and bills and accounts receivable.  The credit risk on cash at bank and fixed deposits is limited because the counterparties are recognized financial institutions.  Bills and accounts receivable are subjected to credit evaluations.  An allowance has been made for estimated irrecoverable amounts which has been determined by reference to past default experience and the current economic environment. In order to reduce the risk of inability to collect the accounts receivables, the company entered into a one-year insurance contract with China Export & Credit Insurance Corporation to cover the non-collected accounts receivable, which became effective on April 25, 2008 and automatically renewed unless a one month written notice is given by either party. A total of US$17.8 million of accounts receivables from the new customers and the customers with high credit risk were covered under this insurance contract, and the maximum insurance indemnity from China Export & Credit Insurance Corporation is US$8 million.

Foreign currency risk-Most of the transactions of the Company were settled in Renminbi and U.S. dollars. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB depreciates against the U.S. dollar, the value of its RMB revenues, earnings and assets as expressed in U.S. dollar financial statements will decline. If RMB continues its appreciation against U.S. dollar, it will make the Company’s products more expensive and less competitive, thus sales may decline. The Company believes that the RMB will continue to appreciate against the US dollar, and the following strategies were implemented to reduce or limit the currency exchange risks:- (1) The Company is gradually requiring our European and Australian customers to settle their payments by Euro, British Pound, and Australian Dollar; (2) The Company asks for a currency exchange rate risk loss from some customers who use forward payment contracts; (3) The Company increases the import of raw materials from the US, such as cotton and packaging materials; (4) The Company raises the sales price of some products for some customers, and asked them to share the currency exchange rate loss.

18.  Statutory reserves

According to the laws and regulations in the PRC, the Company is required to provide for certain statutory funds, namely, reserve fund by an appropriation from net profit after taxation but before dividend distribution based on the local statutory financial statements of the PRC subsidiaries prepared in accordance with the accounting principles and relevant financial regulations.

The Company’s wholly owned subsidiaries in the PRC is required to allocate at least 10% of its net profit to the reserve fund until the balance of such fund has reached 50% of its registered capital.  Appropriations of enterprise expansion fund are determined at the discretion of its directors.

The reserve fund can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital.  The enterprise expansion fund can only be used to increase capital upon approval by the relevant authority.

19.  Geographical Information

The business of the Company is manufacturing and trading of medical dressings and medical disposables.  The Company’s sales by geographic destination are analyzed as follows:

	Year ended September 30,
	2008		2007		2006
	US$		US$		US$
Europe		40,582,122		30,969,642		25,014,601
Japan		16,340,084		15,182,130		16,646,672
America		12,403,209		8,824,161		7,617,644
PRC		10,963,382		8,526,756		7,777,550
Others		5,216,965		6,778,271		6,816,591
Total net sales		85,505,762		70,280,960		63,873,058

F-22

20.  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, profitability information and asset information of the Company’s reportable segments for the years ended September 2008 are as follows:

	Year ended September 30,
	2008 US$			2007 US$
Net Sales:
Segment:
Traditional products		84,147,242			70,280,960
PurCotton products		1,358,520			-
Consolidated total		85,505,762			70,280,960
Gross Profits:
Segment:
Traditional products		21,323,950			17,411,363
PurCotton products		95,231			-
Consolidated total		21,419,181			17,411,363
Income from operations before taxes:
Segment:
Traditional products		6,760,503			5,662,391
PurCotton products		(1,197,337	)		-
Consolidated total		5,563,166			5,662,391
Net Income:
Segment:
Traditional products		6,263,632			5,624,854
PurCotton products		(1,197,337	)		-
Consolidated total		5,066,295			5,624,854

	September 30,
	2008			2007
Total Assets:
Segment:
Traditional products		75,552,814			85,121,335
PurCotton products		29,587,955			-
Segment total		105,140,769			85,121,335
Reconciliation to consolidated totals:
Elimination of receivables from intersegments		(3,222,678	)		-
Consolidated total		101,918,091			85,121,335

	September 30,
	2008			2007
Total Liabilities:
Segment:
Traditional products		21,724,802			24,108,547
PurCotton products		8,242,378			-
		29,967,180			24,108,547
Reconciliation to consolidated totals:
Elimination of receivables from intersegments		(959,146	)		-
Consolidated total		29,008,034			24,108,547

F-23

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts, other than the SEC registration fee, are estimates. We will pay all these expenses.

	Amount to be Paid
SEC Registration Fee	$	848
Printing Fees and Expenses		12,500
Legal Fees and Expenses		200,000
Accounting Fees and Expenses		228,000
Blue Sky Fees and Expenses		2,000
Transfer Agent and Registrar Fees		1,500
Miscellaneous		3,000
Total	$	447,848

Item 14. Indemnification of Directors and Officers

Our bylaws provide for the indemnification of our directors and officers, past, present and future, under certain circumstance, against attorney’s fees, judgments, fines and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of us. We will also bear expenses of such litigation for any of our directors, officers, employees or agents upon such persons promise to repay us therefor if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934 may be permitted to our directors, officers and controlling persons pursuant to provisions of the Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

Item 15. Recent Sales of Unregistered Securities

On December 16, 2005, we issued 42,280,840 shares of our common stock to stockholders of Winner Group Limited. The issuance of our shares to these individuals was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering and regulation D promulgated thereunder.

On December 16 2005, we completed a private placement in which we sold 793,260 shares of our common stock to certain of our employees and suppliers at a price of $2.017 per share for aggregate gross proceeds of $1,600,000. The shares were offered and sold to investors in reliance upon exemptions from the registration requirements of the Securities Act pursuant to Regulation S thereunder.

On November 4, 2005, we settled a $60,000 note payable to Glenn Little by the issuance of 240,000 shares of unregistered, restricted common stock in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering.

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On November 4, 2005, we consummated a private placement of common stock with Halter Financial Investments, L.P. for the sale of 1,070,000 shares of unregistered, restricted common stock for $267,500 in cash in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering.

In instances described above where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D of the Securities Act. These stockholders who received the securities in such instances made representations that (a) the stockholder is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the stockholder agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the stockholder has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the stockholder had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the stockholder has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are Accredited Investors (as defined in Regulation D) based upon management’s inquiry into their sophistication and net worth. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.

In instances described above where we indicate that we relied upon Regulation S promulgated under the Securities Act in issuing securities, our reliance was based upon the following factors (a) each subscriber was neither a U.S. person nor acquiring the shares for the account or benefit of any U.S. person, (b) each subscriber agreed not to offer or sell the shares (including any pre-arrangement for a purchase by a U.S. person or other person in the United States) directly or indirectly, in the United States or to any natural person who is a resident of the United States or to any other U.S. person as defined in Regulation S unless registered under the Securities Act and all applicable state laws or an exemption from the registration requirements of the Securities Act and similar state laws is available, (c) each subscriber made his, her or its subscription from the subscriber’s residence or offices at an address outside of the United States and (d) each subscriber or the subscriber’s advisor has such knowledge and experience in financial and business matters that the subscriber is capable of evaluating the merits and risks of, and protecting his interests in connection with an investment in us.

In instances described above where we indicate that we relied upon Section 4(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us .

Item 16. Exhibits and Financial Statement Schedules

The following exhibits are included as part of this Form S-1.

Exhibit No.	Description
2.1	Share Exchange Agreement, dated December 16, 2005, among the registrant, Winner Group Limited and its stockholders. [Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
3.1	Articles of Incorporation of the registrant as filed with the Secretary of State of the State of Nevada on August 7, 1986, as amended to date.  [Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
3.2	Amended and Restated Bylaws of the registrant adopted on December 16, 2005.  [Incorporated by reference to Exhibit 3.2 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.1	English translation of Licensing Agreement between Winner Group Limited and Jianquan Li, dated December 1, 2005. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]

56

10.2	English translation of Licensing Agreement between Winner Medical & Textile Ltd. Zhuhai and Nianfu Huo, dated August 5, 2005. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.3	English translation of Equipment Purchase Contract between Winner Medical (Huanggang) Co., Ltd. and Zhengzhou Textile Machinery Co., Ltd, dated July 12, 2005. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.4	English translation of Water Supply Agreement between Winner Medical & Textile Ltd. Tianmen and Hubei Winner Textiles Co., Ltd., dated August 2, 2004. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA]
10.5	2006 Incentive Equity Plan.  [Incorporated by reference to Exhibit 10 to the registrant’s registration statement on Form S-8 filed on April 19, 2006.]
10.6	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Larry Goldman, CPA. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.7	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Richard B. Goodner, Esq. [incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.8	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. Dr. Horngjon Shieh. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.9	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Larry Goldman, CPA. [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.10	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Richard B. Goodner, Esq. [Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.11	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Dr. Horngjon Shieh. [Incorporated by reference to Exhibit 10.6 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.12	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Jianquan Li. [Incorporated by reference to Exhibit 10.12 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.13	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Xiuyuan Fang. [Incorporated by reference to Exhibit 10.13 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.14	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Jiagan Chen. [Incorporated by reference to Exhibit 10.14 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.15	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Nianfu Huo. [Incorporated by reference to Exhibit 10.15 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.16	Registrant’s 2006 Equity Incentive Plan (as amended October 7, 2007). [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on October 11, 2006]

57

10.17	Registrant’s 2008-2009 Restricted Stock Unit Incentive Plan (as adopted October 7, 2007). [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on October 11, 2006]
14	Code of ethics, dated May 9, 2006.  [Incorporated by reference to Exhibit 14 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
21	List of subsidiaries of the registrant [Incorporated by reference to Exhibit 21 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
23.1	Consent of BDO McCabe Lo Limited*
23.2	Consent of Jones Vargas, included in exhibit 5. [Incorporated by reference to Exhibit 23.2 to the registrant’s registration statement on Form S-1, File No. 333-130473, dated April 20, 2007.]
24	Power of Attorney. [Incorporated by reference to Exhibit 24 to the registrant’s registration statement on Form SB-2, File No. 333-130473, dated December 19, 2005.]
31.1	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 31.1 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
31.2	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 31.2 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 32.1 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 32.2 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]

           * filed herewith

Item 17. Undertakings

The undersigned registrant hereby undertakes to:

File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 (a)   Include any prospectus required by Section 10(a)(3) of the Securities Act, and

 (b)   Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement, and

 (c)   Include any additional or changed material information on the plan of distribution.

For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

58

For determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

For purposes of determining any liability under the Securities Act to any purchaser in the initial distribution of the securities, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time it was declared effective.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act (Sections 230.424(b)(1), (4) or 230.497(h)) as part of this registration statement as of the time the Commission declared it effective.

For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.

That, for the purpose of determining liability under the Securities Act to any purchaser:

 (1) If the registrant is relying on Rule 430B:

(i) Each prospectus filed by the undersigned registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

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(2) If the registrant is subject to Rule 430C, include the following:

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of an included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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  SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Shenzhen, China, on the 23rd day of January, 2009.

WINNER MEDICAL GROUP INC.
By:	/s/ Jianquan Li
	Jianquan Li Chief Executive Officer

WINNER MEDICAL GROUP INC.
By:	/s/ Xiuyuan Fang
	Xiuyuan Fang Chief Financial Officer

In accordance with the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities and on the date stated.

By:	/s/ Jianquan Li
	Jianquan Li Chief Executive Officer, President and Chairman of the Board of the Directors (Principal Executive Officer) Dated: January 23, 2009

By:	/s/ Xiuyuan Fang
	Xiuyuan Fang Chief Financial Officer, Vice President, Treasurer and Director (Principal Accounting and Financial Officer) Dated: January 23, 2009

By:	/s/ Larry Goldman
	Larry Goldman Director Dated: January 23, 2009

By:	/s/ Richard B. Goodner
	Richard B. Goodner, Esq. Director Dated: January 23, 2009

By:	/s/ Horngjon Shieh
	Dr. Horngjon Shieh Director Dated: January 23, 2009

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Share Exchange Agreement, dated December 16, 2005, among the registrant, Winner Group Limited and its stockholders. [Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
3.1	Articles of Incorporation of the registrant as filed with the Secretary of State of the State of Nevada on August 7, 1986, as amended to date.  [Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
3.2	Amended and Restated Bylaws of the registrant adopted on December 16, 2005.  [Incorporated by reference to Exhibit 3.2 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.1	English translation of Licensing Agreement between Winner Group Limited and Jianquan Li, dated December 1, 2005. [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.2	English translation of Licensing Agreement between Winner Medical & Textile Ltd. Zhuhai and Nianfu Huo, dated August 5, 2005. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.3	English translation of Equipment Purchase Contract between Winner Medical (Huanggang) Co., Ltd. and Zhengzhou Textile Machinery Co., Ltd, dated July 12, 2005. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.4	English translation of Water Supply Agreement between Winner Medical & Textile Ltd. Tianmen and Hubei Winner Textiles Co., Ltd., dated August 2, 2004 [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on December 16, 2005 in commission file number 33-10513-LA.]
10.5	2006 Incentive Equity Plan.  [Incorporated by reference to Exhibit 10 to the registrant’s registration statement on Form S-8 filed on April 19, 2006.]
10.6	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Larry Goldman, CPA.  [Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.7	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Richard B. Goodner, Esq. [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.8	Independent Director’s Contract, dated as of May 8, 2006, by and between Winner Medical Group Inc. Dr. Horngjon Shieh. [Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.9	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Larry Goldman, CPA.  [Incorporated by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.10	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Richard B. Goodner, Esq. [Incorporated by reference to Exhibit 10.5 to the registrant’s current report on Form 8-K filed on May 11, 2006.]

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10.11	Indemnification Agreement, dated as of May 8, 2006, by and between Winner Medical Group Inc. and Dr. Horngjon Shieh.  [Incorporated by reference to Exhibit 10.6 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
10.12	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Jianquan Li. [Incorporated by reference to Exhibit 10.12 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.13	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Xiuyuan Fang. [Incorporated by reference to Exhibit 10.13 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.14	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Jiagan Chen. [Incorporated by reference to Exhibit 10.14 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.15	English translation of Employment Agreement, dated January 1, 2008, by and between Winner Industries (Shenzhen) Co., Ltd. and Nianfu Huo. [Incorporated by reference to Exhibit 10.15 to the registrant’s current report on Form 10-K filed on December 9, 2008.]
10.16	Registrant’s 2006 Equity Incentive Plan (as amended October 7, 2007). [ Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on October 11, 2006.]
10.17	Registrant’s 2008-2009 Restricted Stock Unit Incentive Plan (as adopted October 7, 2007). [Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed on October 11, 2006.]
14	Code of ethics, dated May 9, 2006.  [Incorporated by reference to Exhibit 14 to the registrant’s current report on Form 8-K filed on May 11, 2006.]
21	List of subsidiaries of the registrant.  [Incorporated by reference to Exhibit 21 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
23.1	Consent of BDO McCabe Lo Limited*
23.2	Consent of Jones Vargas, included in exhibit 5. [Incorporated by reference to Exhibit 23.2 to the registrant’s registration statement on Form S-1, File No. 333-130473, dated April 20, 2007.]
24	Power of Attorney.  [Incorporated by reference to Exhibit 24 to the registrant’s registration statement on Form SB-2, File No. 333-130473, dated December 19, 2005.]
31.1	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 31.1 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
31.2	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 31.2 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 32.1 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [Incorporated by reference to Exhibit 32.2 to the registrant’s annual report on Form 10-K filed on December 9, 2008.]

        * filed herewith

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