Dehaier Medical Announces Record Third Quarter 2011 Financial Results

Homecare products revenue continued growing by 33% YoY

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Nov 14, 2011, 06:00 ET

BEIJING, Nov. 14, 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 third quarter ended September 30, 2011.

(Logo: http://photos.prnewswire.com/prnh/20100422/CNTH001LOGO )

Third Quarter 2011 Financial Highlights

Revenue of $5.69 million, up 4.2% over the $5.46 million reported in the third quarter of 2010.
Gross profit was $2.4 million, or 42.5% of revenue, compared with $2.3 million, or 41.4% of revenue in the third quarter of 2010.
Operating income and operating margin were $1.66 million and 29.2%, respectively, compared with $1.61 million and 29.4%, respectively, in the third quarter of 2010.
Net income attributable to the Company was $1.38 million or $0.31 per diluted share, which compares to net income of $1.41 million, or $0.30 per diluted share in the third quarter of 2010.

Financial Highlights for the Nine Months Ended September 30, 2011

Revenue of $16.4 million, an increase of 26.5% over the $12.9 million reported for the nine month ended September 30, 2010
Gross profit was $6.3 million, or 38.3% of revenue, compared with $5.2 million, or 39.9% of revenue in the same period in 2010.
Operating income and operating margin were $3.88 million and 23.7%, respectively, compared with $3.61 and 27.9%, respectively, in the first nine months of 2010.
Net income attributable to the Company was $3.32 million, or $0.74 per diluted share, based on weighted average shares outstanding of 4.5 million, compared with $3.07 million, or $0.77 per diluted share, based on weighted average shares outstanding of 4.0 million in the nine months of 2010.

Third Quarter 2011 and Recent Business Highlights

Since home oxygen therapy service center began operating, we made effort on marketing and constantly promoting our new business by our professional team, we have marked this service to more than 50 hospitals in Beijing. The number of potential customers for home oxygen therapy service is increasing.

Continued implementing our existing contract projects with Hospital 301 for a medical supply agreement and with Beijing Kanglian Medicine Co, Ltd for a rural healthcare project in Hunan and Anhui Province. During the third quarter, we recruited several professionals to further strengthen our team for the state-level contract projects. It is expected that we will continue to establish further cooperative relations to engage more projects.

Sustained investment on our R&D of homecare products. We began to develop our second generation respiratory homecare products. We expect to launch a brand new series of CPAP devices by the first half of 2012. Registration for CE Mark and FDA approval will follow afterwards.

Mr. Ping Chen, Chief Executive officer of Dehaier Medical, stated that: "Homecare business is our strategic focus, we are glad to see the solid increase in revenue for our homecare products as expected. As we are aiming to provide customers with an all-in-one solution in home healthcare field, we are pushing forward on our product portfolio through continued investment in research and development and acquisition of companies with proper products complementary to our core business. We are continuing to aggressively seek opportunities to increase our market penetration worldwide, and we are confident in our expansion strategy and growth prospects."

Third Quarter 2011 Financial Results

Revenues

Revenues for the three months ended September 30, 2011 were $5.69 million, compared with $5.46 million for the three months ended September 30, 2010.

Sales of self-branded and third party medical devices, including technical service products, decreased 3% to $4.2 million, or 74% of total revenue, compared with $4.3 million, or 79% of revenue in the same period a year ago. The micro sales decrease was due to the adjustment of the company's development strategy and business focus. The sales increase in the technical service segment was primarily related to the increased acceptance of Dehaier's air compressor among hospitals and other healthcare facilities
Homecare products revenue increased 33% to $1.49 million, or 26% of total revenue, compared to $1.12 or 21% in the third 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 September 30, 2011 were $2.4 million, compared with $2.3 million in the three months ended September 30, 2010. As a percentage of revenue, the Company's gross margin was 42.5% for the three months ended September 30, 2011, compared with 41.4% for the same period in 2010.

Income from Operations

Operating income for the three months ended September 30, 2011 totaled $1.66 million, compared with $1.61 million for the three months ended September 30, 2010.

Operating expenses consisting of selling expenses and general and administrative expenses, were $790,000, an increase of 11%, compared with $710,000 for the same period a year ago. In addition to the business expansion, the increase in operating expenses was primarily due to a 12% increase in G&A expenses associated with increased R&D related to clinical testing of oxygen and respiratory products and R&D of the second generation products, and expenses associated with being a publicly traded company, including expenses on hiring professional employees and retained professional consulting firms, and a 13% increase in selling expenses for marketing,

Net Income

Net income attributable to the Company for the three months ended September 30, 2011 was $1.38 million, compared with $1.41 million for the three months ended September 30, 2010. The decrease in net income was primarily due to the increase of operating expenses.

Nine Months Ended September 30, 2011 Financial Results

Revenues

Revenues for the nine months ended September 30, 2011 were $16.4 million as compared to $12.9 million for the nine months ended September 30, 2010. The increase of $3.4 million, or 26.5%. This was primarily due to increased acceptance of our products resulting in additional units sold among hospital and other health facilities, and we keep good relationship with clients. We continue to expand our homecare business domestically and internationally, which promotes a greater market presence for our self branded products, and we have engaged in several provincial or government level healthcare procurement projects.

Gross Profit

Gross profit for the nine months ended September 30, 2011 was $6.3 million, up 21.4% from $5.2 million for the nine months ended September 30, 2010. Costs of revenue were $10.1 million for the nine-month period, up 30% from $7.8 million in the same period a year ago. The Company's gross margin was 38.3% and 39.9%, respectively, for the nine months ended September 30, 2011 and 2010. Decrease of gross profit margin was primarily due to that our cost of revenues grew slightly faster than our revenues. The cost of medical components and parts are the major cause for the increase in cost of revenues.

Income from Operations

Operating income for the nine months ended September 30, 2011 amounted to $3.88 million as compared to $3.61 million for the nine months ended September 30, 2010. The increase of $0.27 million, or 7.6%, was primarily due to the increase in revenues.

Net Income

Net income for the nine months ended September 30, 2011 was $3.32 million as compared to $3.08 million for the nine months ended September 30, 2010. Earnings per diluted share were $0.74 for the nine-month period, compared with diluted EPS of $0.77 for the same period in 2010.

Liquidity and Capital Resources

As of September 30, 2011, Dehaier had $2.6 million in cash and cash equivalents, compared with $5.9 million as of December 31, 2010. The decrease was primarily due to the result of an increase in accounts receivable, and prepayment due to more distribution agreements requiring prepayment for products. Working capital was $26.8 million, compared with $22.6 million, respectively, as of December 31, 2010.

Conference Call and Webcast

Management will host a conference call to discuss these financial results on Monday, November 14, 2011 at 7:30 a.m. EST.

To participate in the call please dial + 86 10-5137-7322 for international calls, and enter account No.: 16833078#, passcode: 999999#, 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.

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 five patents and five software copyrights; additionally, we have three 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.

Contact Us

Dehaier Medical Systems Limited
Surie Liu
+86 10-5166-0080
[email protected]

Dehaier Medical Systems Limited
Lisa Zhou
+86 10-5166-0080
[email protected]

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
	September 30,	December 31,
	2011	2010
	US$	US$

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	2,600,907	5,923,386
Accounts receivable-less allowance for doubtful accounts of $90,546 and $87,555 at September 30, 2011 and December 31, 2010, respectively	15,032,529	9,112,077
Other receivables	3,705,809	3,164,423
Prepayment and other current assets	8,372,633	5,300,825
Inventories, net	6,436,764	6,374,363
Tax receivable	4,789,318	3,518,919
Total Current Assets	40,937,960	33,393,993

Property and equipment, net	3,366,266	3,488,947
Total Assets	44,304,226	36,882,940

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings	1,566,350	1,514,620
Accounts payable	38,750	29,318
Advances from customers	465,848	269,189
Accrued expenses and other current liabilities	357,501	330,601
Tax payable	11,356,652	8,327,708
Warranty obligation	311,760	301,464
Due to officer	-	2,358
Total Current Liabilities	14,096,861	10,775,258

OTHER LIABILITIES
Warrants liability	140,751	318,109
Total Liabilities	14,237,612	11,093,367
Commitments and Contingency
Equity
Common shares, $0.002731 par value, 18,307,038 shares authorized, 4,510,000 and 4,500,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively	12,317	12,290
Additional paid in capital	13,196,357	13,137,085
Retained earnings	13,161,198	9,838,452
Accumulated other comprehensive income	2,312,524	1,474,455
Total Dehaier Medical Systems Limited shareholders' equity	28,682,396	24,462,282
Non-controlling interest	1,384,218	1,327,291
Total equity	30,066,614	25,789,573
Total liabilities and equity	44,304,226	36,882,940
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
	For the nine months ended September 30,		For the three months ended September 30,
	2011	2010	2011	2010
	US$	US$	US$	US$
Revenue	16,354,533	12,930,769	5,689,043	5,458,818

Costs of revenue	(10,098,506)	(7,776,867)	(3,272,012)	(3,199,072)

Gross profit	6,256,027	5,153,902	2,417,031	2,259,746
Service income	215,069	274,154	58,641	92,648
Service expenses	(83,355)	(108,825)	(21,983)	(40,479)
General and administrative expense	(1,412,859)	(875,840)	(396,692)	(355,431)
Selling expense	(1,093,013)	(834,279)	(398,520)	(351,469)

Operating Income	3,881,869	3,609,112	1,658,477	1,605,015

Financial expenses (including interest expense of $53,915, $48,255, $26,922 and $21,452 for the nine and three months ended September 30, 2011 and 2010, respectively)	(57,689)	(98,411)	(30,217)	(43,725)
Change in fair value of warrants liability	177,358	114,806	27,491	96,412

Income before provision for income taxes and non-controlling interest	4,001,538	3,625,507	1,655,751	1,657,702

Provision for income tax	(667,400)	(543,749)	(270,758)	(245,569)

Net income	3,334,138	3,081,758	1,384,993	1,412,133

Non-Controlling interest in income	(11,392)	(14,561)	(5,738)	(4,570)

Net income attributable to Dehaier Medical Systems Limited	3,322,746	3,067,197	1,379,255	1,407,563


Net Income	3,334,138	3,081,758	1,384,993	1,412,133

Other comprehensive income
Foreign currency translation adjustments	838,069	412,050	326,694	284,892

Comprehensive Income	4,172,207	3,493,808	1,711,687	1,697,025
Comprehensive income attributable to the non-controlling interest	(56,927)	(40,871)	(22,682)	(22,334)

Comprehensive income attributable to Dehaier Medical Systems Limited	4,115,280	3,452,937	1,689,005	1,674,691

Earnings per share
-Basic	0.74	0.79	0.31	0.31
-Diluted	0.74	0.77	0.31	0.30

Weighted average number of common shares used in computation
-Basic	4,507,582	3,887,868	4,510,000	4,500,000
-Diluted	4,507,582	3,981,094	4,510,000	4,657,500
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	For the nine months ended September 30,
	2011	2010
	US$	US$
Cash flows from operating activities

Net income	3,334,138	3,081,758
Adjustments to reconcile net income to net cash used in operating activities
Stock-based compensation expense	59,300	-
Depreciation and amortization	333,580	261,438
Change in fair value of warrants liability	(177,358)	114,806
Recovery of doubtful accounts	-	(30,336)
Recovery of inventory obsolescence	-	(5,756)
Provision for warranty reserve	-	3,689
Changes in assets and liabilities:
Increase in accounts receivable	(5,920,452)	(2,153,214)
Increase in prepayments and other current assets	(3,071,808)	(4,433,546)
Increase in other receivables	(541,386)	(1,608,240)
Increase in inventories	(62,401)	(1,969,143)
Increase in tax receivable	(1,270,399)	(1,088,309)
Increase (Decrease) in accounts payable	9,432	(56,675)
Increase in advances from customers	196,659	262,372
Increase (Decrease) in accrued expenses and other current liabilities	26,900	(80,286)
Increase in tax payable	3,028,944	2,005,420
Net cash used in operating activities	(4,054,851)	(5,696,022)

Cash flows from investing activities
Capital expenditures and other additions	(95,742)	(839,456)
Advances to related parties	(2,358)	(3,861)
Net cash used in investing activities	(98,100)	(843,317)

Cash flows from financing activities
Proceeds from bank loan	1,542,680	-
Repayment of bank loan	(1,533,604)	-
Net proceeds from issuance of common shares	-	9,944,207
Net cash provided by financing activities	9,076	9,944,207

Effect of exchange rate fluctuations on cash and cash equivalents	821,396	407,861

Net (decrease) increase in cash and cash equivalents	(3,322,479)	3,812,729

Cash and cash equivalents at beginning of period	5,923,386	1,151,721

Cash and cash equivalents at end of period	2,600,907	4,964,450

Supplemental cash flow information
Income tax paid	13,344	17,197
Interest paid	53,915	48,255
Non-Cash transaction of investing and financing activities
Issuance of common shares for investment relations activities	59,300	-
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.