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Dehaier Medical Announces Record Third Quarter 2011 Financial Results

November 14, 2011

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
lius@dehaier.com.cn

Dehaier Medical Systems Limited
Lisa Zhou
+86 10-5166-0080
zhouyj@dehaier.com.cn

                    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,
                                                   -------------
                                                    2011             2010
                                                     ---              ---
                                                 US$              US$
    Revenue                                   16,354,533       12,930,769

    Costs of revenue                         (10,098,506)      (7,776,867)
                                             -----------       ----------

    Gross profit                               6,256,027        5,153,902
    Service income                               215,069          274,154
    Service expenses                             (83,355)        (108,825)
    General and administrative expense        (1,412,859)        (875,840)
    Selling expense                           (1,093,013)        (834,279)
                                              ----------         --------

    Operating Income                           3,881,869        3,609,112

    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)
    Change in fair value of warrants
     liability                                   177,358          114,806
                                                 -------          -------

    Income before provision for income
     taxes and non-controlling interest        4,001,538        3,625,507

    Provision for income tax                    (667,400)        (543,749)
                                                --------         --------

    Net income                                 3,334,138        3,081,758

    Non-Controlling interest in income           (11,392)         (14,561)
                                                 -------          -------

    Net income attributable to Dehaier
     Medical Systems Limited                   3,322,746        3,067,197

    Net Income                                 3,334,138        3,081,758

    Other comprehensive income
    Foreign currency translation
     adjustments                                 838,069          412,050
                                                 -------          -------

    Comprehensive Income                       4,172,207        3,493,808
    Comprehensive income attributable to
     the non-controlling interest                (56,927)         (40,871)
                                                 -------          -------

    Comprehensive income attributable to
     Dehaier Medical Systems Limited           4,115,280        3,452,937

    Earnings per share
    -Basic                                          0.74             0.79
    -Diluted                                        0.74             0.77

    Weighted average number of common
     shares used in computation
    -Basic                                     4,507,582        3,887,868
    -Diluted                                   4,507,582        3,981,094


                                               For the three months
                                                      ended
                                                  September 30,
                                                  -------------
                                                   2011             2010
                                                    ---              ---
                                                US$              US$
    Revenue                                   5,689,043        5,458,818

    Costs of revenue                         (3,272,012)      (3,199,072)
                                             ----------       ----------

    Gross profit                              2,417,031        2,259,746
    Service income                               58,641           92,648
    Service expenses                            (21,983)         (40,479)
    General and administrative expense         (396,692)        (355,431)
    Selling expense                            (398,520)        (351,469)
                                               --------         --------

    Operating Income                          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)                              (30,217)       (43,725)
    Change in fair value of warrants
     liability                                   27,491           96,412
                                                 ------           ------

    Income before provision for income
     taxes and non-controlling interest       1,655,751        1,657,702

    Provision for income tax                   (270,758)        (245,569)
                                               --------         --------

    Net income                                1,384,993        1,412,133

    Non-Controlling interest in income           (5,738)          (4,570)
                                                 ------           ------

    Net income attributable to Dehaier
     Medical Systems Limited                  1,379,255        1,407,563

    Net Income                                1,384,993        1,412,133

    Other comprehensive income
    Foreign currency translation
     adjustments                                326,694          284,892
                                                -------          -------

    Comprehensive Income                      1,711,687        1,697,025
    Comprehensive income attributable to
     the non-controlling interest               (22,682)         (22,334)
                                                -------          -------

    Comprehensive income attributable to
     Dehaier Medical Systems Limited          1,689,005        1,674,691

    Earnings per share
    -Basic                                         0.31             0.31
    -Diluted                                       0.31             0.30

    Weighted average number of common
     shares used in computation
    -Basic                                    4,510,000        4,500,000
    -Diluted                                  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.

SOURCE Dehaier Medical Systems Ltd.


Source: PR Newswire