Dehaier Medical Systems Ltd. Announces 2011 Fourth Quarter and Year End Financial Results

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.

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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 Review

Ms. 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

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 2012

Mr. 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 Webcast

Dehaier'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:

For 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.