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Dehaier Medical Announces 2011 Fourth Quarter and Year End Financial Results
Date:3/19/2012

BEIJING, March 19, 2012 /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, today announced its financial results for the fourth quarter and year ended December 31, 2011.

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

Mr. Ping Chen, Chief Executive Officer of Dehaier Medical, stated, "We were very pleased to report steady growth during 2011 as we continue to slowly transition from traditional domestic distribution of medical devices to diversified sales of homecare medical devices, both domestically and internationally. Within China, our homecare medical products, focused primarily on sleep disorder and respiratory ailments, continued to gain traction among Chinese consumers. We also have worked diligently to secure larger, State-level contracted business, as evidenced by our cooperation with China Developmental Bank for healthcare infrastructure projects in Hunan and Anhui provinces. We also worked to establish the first oxygen filling facility and service center for home oxygen therapy service in Beijing, which represents the initial step of expansion into home oxygen therapy treatment domestically."

Mr. Chen continued, "We also recently expanded outside of China, and invested time and resources during the second half of 2011 on increasing our geographic footprint. We received CE Mark certification on three of our products, our Medical Air Compressor, Oxygen Concentrator, and Sleep Diagnostic Devices. We enhanced our sales and distribution channels in international markets, most notably signing with three companies to distribute Dehaier's DHR-5L oxygen concentrators in Romania, which marked Dehaier's first entry into the European homecare medical product market. Finally, we recently established a wholly-owned subsidiary in Illinois, as part of a long-term goal of establishing sales channels in North America. Because of these strategic growth initiatives, we incurred expenses without corresponding revenue; however, as we enter 2012 we believe that these developments will begin to drive a more diverse and robust revenue stream to the Company."

Operating Highlights for Fiscal Year 2011

  • March 14, 2011: the Company signed a distribution agreement to become a regional distributor of eVent Medical's inspiration ventilators in the Chinese market. These ventilators are used for hospitals, and are supplementary to Dehaier's home use ventilators (including its CPAP and other products), allowing the Company's ventilator portfolio to address broader market needs.
  • April 21, 2011: the Company signed a three-way strategic cooperation agreement with Taiyo Nippon Sanso Shenwei (Shanghai) Medical Gas Co., Ltd and Beijing Orient Medical Gas Co., Ltd to develop oxygen therapy services for the home use market in Beijing. On July 18, 2011, the first oxygen filling facility and first service center for home oxygen therapy service was opened in Beijing, with Dehaier marketing the oxygen therapy services.
  • May 2, 2011: Supported by China Development Bank, the Company signed a cooperation agreement worth approximately $2.1 million with Beijing Kanglian Medicines Co, Ltd ("Beijing Kanglian"), to develop, operate and implement a new rural healthcare infrastructure project in Hunan and Anhui provinces.
  • June 1, 2011: the Company won a $1.3 million procurement contract to supply medical equipment to a large state-owned hospital in Beijing. The Company cooperated with German-based Leica Microsystems ("Leica") and U.S.-based ABI Medical ("ABI") on the contracted project.
  • June 2011: the Company's international department authorized distributors in Taiwan for its CPAP devices, which marks the first distribution authorization outside of China.
  • August 2011: the Company obtained export certificates for homecare medical products from the State Food and Drug Administration ("SFDA") of the PRC, allowing five of Dehaier's sleep diagnostics products to be exported without restriction.
  • November 2011: the Company established a wholly-owned subsidiary in the state of Illinois, USA. This is a long-term strategic action aimed at penetrating North American markets.
  • December 2011: the Company signed with three Romanian companies to distribute Dehaier's DHR-5L oxygen concentrators in Romania. This marks Dehaier's first entry into the European homecare medical product market.
  • In fiscal 2011, the Company received multiple intellectual property protections, including three design patents for products of sleep diagnostic device DHR998, CPAP DHR-C5, and air compressor DHR280, and two software copyrights for CPAP devices. 
  • Financial ReviewMs. Aileen Qi, Chief Financial Officer of Dehaier, commented, "We were pleased with our financial performance during the year, as we continued to gain traction with direct sales of our respiratory and oxygen homecare products and participated in frequent bids for government centralized procurement projects. Our 2011 fourth quarter and year end results were affected by Dehaier reporting a non-cash provision for doubtful accounts of approximately $0.86 million. During 2011, we experienced delays in payments from certain distributors, largely due to difficult market conditions that affected these distributors' businesses. After a thorough review, we changed the accounting estimate on the allowance for doubtful accounts. We are also continuing to work with our distributors to collect receivables efficiently and believe that we will be able to collect on these receivables in the coming quarters. We continue to expand our accounts collection department to seek prompt payment from customers and increase the likelihood that these internal payment periods are met and continue to focus on shortening our days-sales-outstanding every quarter. Despite this provision, we reported a year of strong profitability, and would have reported a profit in the fourth quarter prior to this accounting correction. We continue to focus on cost-effective expansion, and expect to see long-term benefits from the gradual shift to selling of our own proprietary product line."

    Fourth Quarter 2011 Financial Highlights

  • For its fourth quarter ended December 31, 2011, the Company reported revenue of $5.4 million, compared to $6.7 million in the prior year period. The decrease was largely due to the adjustment of business strategies that company made in the fourth quarter and second half of 2011 (referenced above), which focused on expanding market penetration of its home oxygen therapy service and international expansion. The Company is spending significant resources on upgrading products and accumulating market insight for these initiatives and expects corresponding revenues from these business areas in the near future.
  • The Company's gross profit for the quarter ended December 31, 2011 was $1.8 million, or 33.6% of revenue, compared to $2.5 million, or 37% of revenue in the prior year period. The decrease in gross margin was largely due to increased expenses related to marketing and pursuing our new business initiatives.
  • As discussed above, the Company incurred a non-cash charge due to an increase in provision for doubtful accounts of approximately $0.86 million for the year ended December 31, 2011. As a result, the Company reported an operating loss of $46,139 for the period, compared to operating income of $1.5 million in the prior year. The Company also reported a net loss attributable to the Company of $36,104, or negative $0.01 per diluted share, compared to net income of $1.5 million, or $0.32 per diluted share, in the fourth quarter of 2010.
  • 2011 Financial Review

  • For the year ended December 31, 2011, Dehaier reported revenue of $21.6 million, an increase of 10.4% compared to $19.6 million in 2010.  In 2011, the Company expanding its business model from a traditional medical device distributor, to direct sales to the growing respiratory and oxygen homecare product market in China. The Company also began to bid on larger government procurement projects. In 2011, revenues from traditional medical devices, including government procurement projects, was 89.5% of the annual revenues, while respiratory and oxygen homecare was 10.5% of revenues. In 2010, revenues from traditional medical devices was 97.8%, and respiratory and oxygen homecare revenues comprised 2.25% of total revenues. This shift in revenue mix reflects management's efforts to drive growth in homecare medical device sales.
  • Gross profit was $7.9 million, or 36.7% of revenue, compared to $7.6 million, or 38.9% of revenue, in the prior year.  The Company's gross margin decreased because of a market-wide increase the pricing of products and assembly parts, in addition to higher labor costs. However, this was offset by increasing sales of the Company's higher margin proprietary homecare products.
  • As a result of increased operating expenses associated with developing the Company's new business initiatives, Dehaier generated operating income of approximately $3.6 million in 2011, compared to approximately $5.1 million in 2010.
  • Net income attributable to the Company was $3.1 million, or $0.69 per diluted share, based on weighted average shares outstanding of 4.56 million, compared with $4.5 million, or $1.09 per diluted share, based on weighted average shares outstanding of 4.5 million for the full year of 2010.
  • Balance Sheet Highlights(in millions except for percentages)

     

    12/31/2011

     

    12/31/2010

    % ChangeCash and Cash Equivalents

    $

    3.7

    $

    5.9

    -37.6%Working Capital

     

    27.0

     

    22.6

    19.5%Total Long-term Debt

     

    0

     

    0

    N/AStockholders' Equity

     

    30.2

     

    25.8

    17.0%The Company believes that its currently available working capital of $27.0 million, including cash of $3.7 million, should be adequate to meet its anticipated cash needs and sustain its current operations for at least 12 months.

    Outlook for 2012Mr. Chen concluded, "We continue to see strong market trends on the consumer level in the homecare medical device sector in China and expect government expansion and vigorous promotion of healthcare projects by the newly-released state policies over the next five years.  We remain confident about the long-term growth prospects for the healthcare sector in China and look forward to continuing to expand our unique product lines and distribution abilities throughout the country. We are also supported by a moderate balance sheet, with $27.0 million in working capital and no long-term debt. As a result, we feel that the Company is in an excellent position to expand into new markets."

    Conference Call and WebcastDehaier's management team will host a conference call for investors tomorrow morning on Tuesday, March 20, 2012 at 8:30 a.m. ET.

    Interested parties may access the call by dialing:

    Live Participant Dial In (Toll Free):

    877-407-8033Live Participant Dial In (International):

    001-201-689-8033For those unable to participate, the call will be available as a live, listen-only webcast on the Company's website at http://www.dehaier.com.cn/IR/index.html or by clicking the following link:
    http://www.investorcalendar.com/IC/CEPage.asp?ID=167810

    About Dehaier Medical Systems Ltd.Dehaier is an emerging leader in the development, assembly, marketing and sale of medical products, 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), HEYER (Germany), Timesco (UK) and eVent Medical (US). Dehaier's technology is based on six patents and five software copyrights; additionally Dehaier has two pending software copyrights and proprietary technology. More information may be found at http://www.dehaier.com.cn.

    Forward-looking StatementsThis 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, government approvals 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, future developments in payment for and demand for medical equipment and services, implementation of and performance under the joint venture agreement by all parties, 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 UsDehaier Medical Systems Limited
    Surie Liu
    +86 10-5166-0080
    lius@dehaier.com.cn

    Dehaier Medical Systems Limited
    Tina He
    +86 10-5166-0080
    hexw@dehaier.com.cn

    The Equity Group Inc.
    Katherine Yao
    +86 10-6587-6435
    kyao@equityny.com

    In AmericaThe Equity Group Inc.
    Adam Prior
    (212) 836-9606
    aprior@equityny.com

     DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATECONSOLIDATED STATEMENTS OF OPERATIONS 

     

     

      For the quarter ended  For the years ended
    December 31,  2011 2010 2011 2010 US$ US$ US$ US$Revenue 5,415,064

     

    6,667,691

     

    21,639,283

     

    19,598,460Costs of revenue (3,594,955)

     (4,204,953) 

    (13,696,743)

     

    (11,981,820) 

     

     

     

     

     

     

     Gross profit 1,820,109

     

    2,462,737

     

    7,942,540

     

    7,616,640 

     

     

     

     

     

     

     Service income

    66,587

     

    65,225

     

    281,656

     

    339,379Service expenses (30,506) (39,191) 

    (113,861)

     

    (148,016)General and administrative expense

    (1,206,793)

     (381,681) 

    (2,620,845)

     

    (1,257,520)Selling expense (695,536) (587,136) 

    (1,877,303)

     

    (1,421,415) 

     

     

     

     

     

     

     Operating Income (loss)(46,139)

     

    1,519,955

     

    3,612,187

     

    5,129,068 

     

     

     

     

     

     

     Financial expenses (including interest expense)(29,023) (27,353) 

    (86,712)

     

    (125,764)Other income

    34,965

     

    455,950

     

    34,965

     

    455,950Other expense(232) 

    -

     

    (232)

     

    -Change in fair value of warrants liability 44,282 

    (162,915)

     

    221,640

     

    (48,109) 

     

     

     

     

     

     

     Income before provision for income tax and non-controlling interest  2,660

     

    1,785,638

     

    3,781,848

     

    5,411,145 

     

     

     

     

     

     

     Provision for income tax (27,724) (306,285) 

    (656,297)

     

    (850,034) 

     

     

     

     

     

     

     Net income (loss)(25,064) 

    1,479,353

     

    3,125,551

     

    4,561,111 

     

     

     

     

     

     

     Non-Controlling interest in income (11,040) (6,841) 

    (22,431)

     

    (21,401) 

     

     

     

     

     

     

     Net income (loss) attributable to Dehaier Medical Systems Limited(36,104)

     

    1,472,512

     

    3,103,120

     

    4,539,710 

     

     

     

     

     

     

     Net income (loss)(25,064)

     

    1,479,353

     

    3,125,551

     

    4,561,111 

     

     

     

     

     

     

     Other comprehensive income 

     

     

     

     

     

     Foreign currency translation adjustments

    335,975

     

    332,779

     

    1,174,044

     

    744,829 

     

     

     

     

     

     

     Comprehensive Income127,388

     

    1,812,132

     

    4,299,595

     

    5,305,940Comprehensive income attributable to the non-controlling interest(28,515) 

    (24,031)

     

    (85,442)

     

    (64,902) 

     

     

     

     

     

     

     Comprehensive income attributable to Dehaier Medical Systems Limited98,873

     

    1,788,101

     

    4,214,153

     

    5,241,038 

     

     

     

     

     

     

     Earnings per share 

     

     

     

     

     

     -Basic

    (0.01)

     

    0.33

     

    0.69

     

    1.12-Diluted

    (0.01)

     

    0.32

     

    0.69

     

    1.09Weighted average number of common shares used in computation 

     

     

     

     

     

     -Basic

    4,516,164

     

    4,500,000

     

    4,514,329

     

    4,043,836-Diluted

    4,516,164

     

    4,657,500

     

    4,514,329

     

    4,153,438 DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATECONSOLIDATED BALANCE SHEETS 

      December 31,  2011 2010 US$ US$ 

     

     

     ASSETS 

     

     CURRENT ASSETS:

     

     

     Cash and cash equivalents

    3,694,486

     

    5,923,386Accounts receivable
    -less allowance for doubtful accounts of $859,509 and $87,555

    12,159,842

     

    9,112,077Other receivables

    2,522,136

     

    3,164,423Prepayment and other current assets

    6,714,001

     

    5,300,825Inventories, net

    5,532,311

     

    6,374,363Tax receivable

    888,452

     

    3,518,919Deferred tax asset

    118,030

     

    -Total Current Assets 31,629,258

     

    33,393,993 

     

     

     Property and equipment, net

    3,348,533

     

    3,488,947Total Assets 34,977,791

     

    36,882,940 

     

     

     LIABILITIES AND EQUITY  

     

     CURRENT LIABILITIES:

     

     

     Short-term borrowings

    1,585,890

     

    1,514,620Accounts payable 

    32,925

     

    29,318Advances from customers

    303,000

     

    269,189Accrued expenses and other current liabilities

    349,158

     

    330,601Taxes payable

    2,042,048

     

    8,327,708Warranty obligation

    334,680

     

    301,464Due to officer

    -

     

    2,358Total Current Liabilities 4,647,701

     

    10,775,258 

     

     

     OTHER LIABILITIES 

     

     Warrants liability

    96,469

     

    318,109Total Liabilities4,744,170

     

    11,093,367 

    Commitments and Contingency 

     

     Equity  

     

     Common shares, $0.002731 par value, 18,307,038 shares authorized, 4,560,000 and 4,500,000 shares issued and
    outstanding at December 31, 2011 and 2010, respectively

    12,454

     

    12,290Additional paid in capital

    13,281,374

     

    13,137,085Retained earnings

    12,941,572

     

    9,838,452Accumulated other comprehensive income

    2,585,488

     

    1,474,455Total Dehaier Medical Systems Limited shareholders' equity 28,820,888

     

    24,462,282Non-controlling interest

    1,412,733

     

    1,327,291Total equity 30,233,621

     

    25,789,573Total liabilities and equity 34,977,791

     

    36,882,940 DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATECONSOLIDATED STATEMENTS OF CASH FLOWS 

     

      

     For the years ended December 31, 

     2011 2010 

     US$ US$Cash flows from operating activities 

     

     

      

     

     

     

     Net income

     

    3,125,551

     

    4,561,111Adjustments to reconcile net income to net cash used in operating activities

     

     

     

     Stock-based compensation expense

     

    144,453

     

    -Depreciation and amortization

     

    450,518

     

    365,336Change in fair value of warrants liability

     

    (221,640)

     

    318,109(Recovery of) Provision for doubtful accounts

     

    749,280

     

    (18,311)(Recovery of) Provision for inventory obsolescence

     

    -

     

    (5,756)Gain on sale of equipment

     

    -

     

    (3,894)Provision for warranty reserve

     

    37,303

     

    122,709Deferred tax benefit

     

    (118,030)

     

    -Changes in assets and liabilities:

     

     

     

     Increase in accounts receivable

     

    (3,797,045)

     

    (2,202,475)Increase in prepayments and other current assets

     

    (1,413,176)

     

    (3,609,438)Decrease (Increase) in other receivables

     

    642,287

     

    (1,665,312)Decrease (Increase) in inventories

     

    842,052

     

    (4,042,481)Decrease (Increase) in tax receivable

     

    2,630,467

     

    (2,156,547)Increase (Decrease) Increase in accounts payable

     

    3,607

     

    (64,452)Increase in advances from customers

     

    33,811

     

    94,936(Decrease) Increase in accrued expenses and other current liabilities

     

    14,470

     

    (5,811)(Decrease) Increase in tax payable

     

    (6,285,660)

     

    3,334,321Net cash used in operating activities 

    (3,161,752)

     

    (4,977,955) 

     

     

     

     Cash flows from investing activities 

     

     

     Proceeds from sale of equipment

     

    -

     

    10,342Capital expenditures and other additions

     

    (153,061)

     

    (887,541)Advances to related parties

     

    (2,358)

     

    (1,503)Net cash used in investing activities 

    (155,419)

     

    (878,702) 

     

     

     

     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 stock

     

    -

     

    9,944,207Net cash provided by financing activities 

    9,076

     

    9,944,207 

     

     

     

     Effect of exchange rate fluctuations on cash and cash equivalents

     

    1,079,195

     

    684,115 

     

     

     

     Net increase (decrease) in cash and cash equivalents 

    (2,228,900)

     

    4,771,665 

     

     

     

     Cash and cash equivalents at beginning of year

     

    5,923,386

     

    1,151,721 

     

     

     

     Cash and cash equivalents at end of year

     

    3,694,486

     

    5,923,386 

     

     

     

     Supplemental cash flow information 

     

     

     Income tax paid

     

    1,906,763

     

    24,813Interest paid

     

    82,136

     

    70,343


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    SOURCE Dehaier Medical Systems Ltd.
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