Dehaier Medical Announces Record Second Quarter 2011 Financial Results

BEIJING, Aug. 15, 2011 /PRNewswire-Asia-FirstCall/ -- Dehaier Medical Systems Ltd. (Nasdaq: DHRM) ("Dehaier" or the "Company"), an emerging leader in the development, assembly, marketing and sale of medical devices and homecare medical products in China, today announced its financial results for the second quarter ended June 30, 2011.

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Second Quarter 2011 Financial Highlights

• Revenue of $7.7 million, up 60% over the $4.8 million reported in the second quarter of 2010.
• Gross profit was $2.8 million, or 36.8% of revenue, compared with $1.9 million, or 39.7% of revenue in the second quarter of 2010.
• Operating income and operating margin were $1.9 million and 25.0%, respectively, compared with $1.4 million and 28.1%, respectively, in the second quarter of 2010.
• Net income attributable to the Company was $1.7 million, or $0.39 per diluted share, which compares to net income of $1.1 million, or $0.27 per diluted share in the second quarter of 2010.
• As of June 30, 2011 cash and cash equivalents were $3.0 million and working capital totaled $25.1 million.

Financial Highlights for the Six Months Ended June 30, 2011

• Revenue of $10.7 million, an increase of 42.7% over the $7.5 million reported in the first half of 2010.
• Gross profit was $3.8 million, or 36.0% of revenue, compared with $2.9 million, or 38.7% of revenue in the same period in 2010.
• Operating income and operating margin were $2.2 million and 20.8%, respectively, compared with $2.0 and 26.8%, respectively, in the first half of 2010.
• Net income attributable to the Company was $1.9 million, or $0.43 per diluted share, based on weighted average shares outstanding of 4.5 million, compared with $1.7 million, or $0.46 per diluted share, based on weighted average shares outstanding of 3.6 million in the first six months of 2010.

Second Quarter 2011 and Recent Business Highlights

• Launched home oxygen therapy service program in Beijing through a strategic cooperation agreement with leading medical oxygen provider, Taiyo Nippon Sanso Shenwei Medical Gas ("Taiyo-Shanghai") and Beijing Orient Medical Gas ("Beijing Orient"), and opened the Company's first oxygen filling facility and first service center in the Haidian District, Beijing, China.
• Signed exclusive agreement with distributor in Taiwan to distribute Dehaier Continuous Positive Airway Pressure ("CPAP") devices, marking the Company's first distribution authorization outside of the PRC.
• Strengthened intellectual property portfolio with grant by PRC State Intellectual Property Office ("SIPO") for three design patents related to Dehaier's sleep diagnostic products, CPAP products and medical-grade air compressors.
• Won a bid and signed a medical equipment supply agreement valued at approximately $1.3 million with Beijing Hospital 301, one of the largest and most prominent medical facilities in China.
• Signed a cooperation agreement with Beijing Kanglian Medicines Co., Ltd. to develop, operate and implement a new rural healthcare construction project in Hunan and Anhui provinces, which is supported by China Development Bank Corporation.
• Appointed Dr. Xiaoqing Wang as the Company's Chief Technology Officer. Dr. Wang brings more than 20 years of biomedical engineering experience to Dehaier, and will be focused on leading the development of second-generation oxygen concentrators and second-generation PAP ventilators, such as CPAP, BiPAP, etc.

"Increased acceptance of Dehaier products by hospitals and other healthcare facilities, as well as growth in government projects were the primary catalysts behind our strong top and bottom line performance in the second quarter," said Mr. Ping Chen, CEO of Dehaier. "We are building our brand domestically as both a distributor and a trusted partner, and making progress toward the expansion of our homecare business beyond China. Our strong intellectual property portfolio continues to distinguish Dehaier in the marketplace, and we believe the addition of Dr. Wang will contribute tremendously to our R&D capabilities as well as our product development.  Dehaier remains committed to investing in ongoing innovation and enriching our product portfolio as we strive to provide customers with an all-in-one solution to meet their individual needs. We believe such initiatives will drive future financial gains and help to secure our growth over the longer term."

Mr. Chen added "Our cooperation agreement with Taiyo-Shanghai and Beijing Orient for home oxygen therapy service was a milestone for our homecare business, as were the opening of our first oxygen filling facility and first service center in July. Since launching this service in late April, we have received favorable reviews and gathered valuable customer feedback that is yielding tangible benefits that support our ongoing development and marketing efforts. In addition, we are developing a customer database that will provide us with cross-selling opportunities for our other homecare products.  We are pleased with the early results of this cooperation, and believe that this segment of our business can achieve tremendous growth once legislation is passed in Beijing to provide insurance reimbursement eligibility for home oxygen therapy services. Our plan to expand this business into other cities in China remains on track, enabling Dehaier to benefit from its first-mover advantage and capture sizeable share within this emerging market.

"We believe there are significant opportunities to further penetrate the market and are confident that our innovative products, diversified marketing channels and network, growing customer database, and geographic expansion efforts collectively position Dehaier to accelerate growth among China's developing healthcare industry," concluded Mr. Chen.

Second Quarter 2011 Financial Results

Revenues

Revenues for the three months ended June 30, 2011 were $7.7 million, compared with $4.8 million for the three months ended June 30, 2010, an increase of $2.9 million, or 60%. The increase in revenue was attributable to sales growth from the Company's medical devices and homecare solutions businesses.

• Sales of self-branded and third party medical devices, including technical service products, increased 38% to $5.9 million, or 77% of total revenue, compared with $4.3 million, or 89% of revenue in the same period a year ago. The sales increase in the medical devices segment was primarily related to the expansion of the Company's portfolio of third-party-branded products, an increase in follow-on orders from key customers, and Dehaier's extensive marketing network.
• Homecare products revenue more than tripled to $1.8 million, or 23% of total revenue, compared to $534,000, or 11% of revenue in the second quarter of 2010. The increase in sales from homecare products was primarily attributable to additional market penetration and expansion of Dehaier's homecare products.

Gross Profit

Gross profit for the three months ended June 30, 2011 increased to $2.8 million, compared with $1.9 million in the three months ended June 30, 2010. As a percentage of revenue, the Company's gross margin was 36.8% for the three months ended June 30, 2011, compared with 39.7% for the same period in 2010. This fluctuation in gross margin is normal for the Company because we adjust our products portfolio according to customer requirements and market conditions, etc.

Income from Operations

Operating income for the three months ended June 30, 2011 totaled $1.9 million, compared with $1.4 million for the three months ended June 30, 2010.

Operating expenses for the quarter totaled $967,000, an increase of 58%, compared with $612,000 for the same period a year ago. In addition to the business expansion, the increase in operating expenses was attributable to a $0.2 million increase in G&A expenses associated with increased R&D related to oxygen and respiratory products, and, expenses associated with being a publicly traded company, including costs of maintaining and enhancing our internal controls, and a $0.1 million increase in selling expenses for marketing and network building.

Net Income

Net income attributable to the Company for the three months ended June 30, 2011 was $1.7 million, compared with $1.1 million for the three months ended June 30, 2010. The increase in net income was primarily due to robust top line growth. Earnings per diluted share were $0.39, based on 4.5 million shares outstanding for the quarter, compared with diluted EPS of $0.27, based on 4.3 million shares outstanding for the second quarter of 2010.

Liquidity and Capital Resources

As of June 30, 2011, Dehaier had $3.0 million in cash and cash equivalents, compared with $5.9 million as of December 31, 2010. The decrease was primarily to the result of an increase in prepayments due to more distribution agreements requiring prepayment for products. Current assets totaled $39.0 million, with working capital of $25.1 million and total shareholders' equity of $27.0 million at June 30, 2011, respectively.

Conference Call and Webcast

Management will host a conference call to discuss these financial results on Monday, August 15, 2011 at 8:00 a.m. EDT.

To participate in the call please dial (877) 941-8416 in the U.S. and Canada, or (480) 629-9808 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found on the Company's website at http://www.chinadhr.com.

A replay of the call will be available approximately 2 hours after the conclusion of the live call, through August 29, 2011. The replay can be accessed by dialing (800) 406-7325 in the U.S. and Canada, or (303) 590-3030 internationally and entering the passcode: 4462671. In addition, a recording of the call will be available via the company's website at http://www.chinadhr.com for one year.

About Dehaier Medical Systems Ltd.

Dehaier is an emerging leader in the development, assembly, marketing and sale of medical products in China, including respiratory and oxygen homecare medical products. The company develops and assembles its own branded medical devices and homecare medical products from third-party components. The company also distributes products designed and manufactured by other companies, including medical devices from IMD (Italy), Welch Allyn (USA), HEYER (Germany), Timesco (UK), eVent Medical (US) and JMS (Japan). Dehaier's technology is based on six patents and five software copyrights; additionally, we have two pending patents and six pending software copyrights, and proprietary technology. More information may be found at http://www.chinadhr.com.

Forward-looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

SOURCE Dehaier Medical Systems Ltd.