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Dehaier Medical Announces 2012 Second Quarter and Six Month Financial Results

August 13, 2012

BEIJING, Aug. 13, 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 its second quarter and six months ended June 30, 2012.

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

Comments from Management

Mr. Ping Chen, Chief Executive Officer of Dehaier Medical, stated, “Throughout the first half of 2012, we continued to focus on diversifying our revenues. While we have continued to build on our medical device sales and distribution foundation, we have also devoted sales resources to growing our proprietary respiratory and oxygen homecare products, explored international expansion possibilities and put more energy into developing and researching homecare products and protecting our intellectual property. Throughout this process we have continued to report strong operating profits. We improved our gross and operating margins and continue to leverage a strong balance sheet with minimal long-term debt. We believe that our business will continue to grow at a healthy rate in the long term as we strengthen our medical device distribution network; increase the market recognition and demand for our proprietary products; research, develop and begin to sell new products; and ramp up our international expansion.”

Operating Highlights

  • In April 2012, Dehaier renewed its strategic cooperation agreement with Timesco of London Ltd (“Timesco”). The agreement appointed Dehaier as the exclusive distributor for Timesco’s CXL and Eclipse series laryngoscope products in mainland China for three years.
  • In May 2012, the Company extended its exclusive distribution authorization with INTERMEDICAL (“IMD”), to distribute IMD’s RADIUS C-arm X-ray machines in mainland China. The extended term runs through 2014.
  • In June 2012, Dehaier entered a three-year strategic mutual cooperation agreement with HEYER Medical AG (“Heyer”). According to this agreement, Dehaier will continue to be one of the key Chinese distributors for Heyer’s anesthesia machines and the exclusive distributor of its nebulizers in China.
  • Also in June 2012, the Company co-developed a “High-Efficiency Oxygen Inhaler” with Dr. Ding Jianzhang of Beijing Haidian Hospital. This inhaler is expected to begin selling in mainland China in the third quarter of 2012. The portable device is designed for use in homecare oxygen therapy, emergency treatment, disaster relief activities and high-altitude settings.
  • Between April and June 2012, the company obtained software copyrights from China’s National Copyright Administration for four of its proprietary technologies, including (1) Analysis and Monitoring Software of Adsorption Tower Oxygen Generation Process, (2) Dehaier Homecare CPAP Controlling Software, (3) Ventilator of CPAP Controlling Software and (4) Air Compressor Controlling Software. These copyrights have been approved for 50 years from the grant date.
  • In July 2012, Dehaier received approval from China’s State Food and Drug Administration (“SFDA”) for its proprietary homecare medical CPAP device, the DHR-CPAP-C5.

Second Quarter 2012 Financial Highlights

  • Total revenues were $7.0 million for the three months ended June 30, 2012, compared to $7.7 million in the prior-year quarter. The decrease was largely a result of the aforementioned change in operating strategy to focus on Dehaier’s own homecare products and larger government procurement projects.
  • The Company’s gross profit for the quarter ended June 30, 2012 was $2.7 million, or 39.2% of revenue, compared to $2.8 million, or 36.8% of revenue, in the prior-year period. Gross margin improved largely as a result of improved operating efficiencies and inventory management.
  • Dehaier’s income from operations improved slightly, or 0.1%, to $1,928,212 in the 2012 second quarter from $1,925,024 in the prior-year period, largely due to lower selling expenses for the period. The Company expects its selling expenses to grow as it invests in strengthening its distribution network, growing relationships with customers, developing the homecare device market (in particular its oxygen therapy service initiative) and driving top-line growth in these areas.
  • The Company reported net income attributable to the Company of $1.7 million, or $0.36 per diluted share in the 2012 second quarter, compared to $1.7 million, or $0.39 per diluted share in the prior year.

Fiscal 2012 Six Month Financial Highlights

  • Total revenues decreased by 3% to $10.3 million for the six months ended June 30, 2012, from $10.7 million in the prior-year period.
  • The Company’s gross profit for the six months ended June 30, 2012 was $4.0 million, or 39% of revenue, compared to $3.8 million, or 36% of revenue, in the prior-year period.
  • Dehaier’s income from operations improved 7% to $2.4 million for the six months ended June 30, 2012, from $2.2 million in the prior-year period.
  • The Company reported net income attributable to the Company of $1.8 million, or $0.39 per diluted share in the six months ended June 30, 2012, compared to $1.9 million, or $0.43 per diluted share in the prior year.

Balance Sheet Highlights

    (in millions)             6/30/2012 12/31/2011
    ------------              --------- ----------
    Cash and Cash Equivalents      $1.1       $3.7
    Working Capital                25.9       27.0
    Total Long-term Debt              0          0
    Stockholders' Equity           31.9       30.2
  • As a result of the total cash activities, net cash decreased from $3.7 million at December 31, 2011 to $1.1 million at June 30, 2012. This is mainly because we invested in obtaining copyright protection for our software, for our future development.
  • The Company believes that its currently available working capital of $25.9 million, including cash of $1.1 million, should be adequate to meet its anticipated cash needs and sustain its current operations for at least 12 months.

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 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, 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 Us

Dehaier 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

(Tables to Follow)

                                                              DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE
                                                             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                               (UNAUDITED)
                                                                                             For the six months ended             For the three months ended
                                                                                                     June 30,                             June 30,
                                                                                                     2012                   2011                 2012               2011
                                                                                                     ----                   ----                 ----               ----
                                                                                                  US$                    US$                  US$                US$
    Revenue                                                                                    10,299,059             10,665,490            6,983,128          7,712,784

    Costs of revenue                                                                           (6,317,316)            (6,826,494)         (4,242,660)        (4,871,247)
                                                                                               ----------             ----------           ----------         ----------

    Gross profit                                                                                3,981,743              3,838,996            2,740,468          2,841,537
    Service income                                                                                132,915                156,428               92,518             71,595
    Service expenses                                                                              (37,272)               (61,372)             (19,812)           (20,675)
    General and administrative expense                                                         (1,031,502)            (1,016,167)            (540,789)          (512,641)
    Selling expense                                                                              (662,852)              (694,493)            (344,173)          (454,792)
                                                                                                 --------               --------             --------           --------

    Operating Income                                                                            2,383,032              2,223,392            1,928,212          1,925,024

    Financial expenses (including interest expense of $64,904, $26,993,
     $37,741 and $10,816 for the six and three months ended June 30, 2012
     and 2011, respectively)                                                                      (65,969)               (27,472)             (38,320)           (11,859)
    Non-operating Income                                                                              395                      -                  395                  -
    Change in fair value of warrants liability                                                    (92,067)               149,867              107,441            140,341
                                                                                                  -------                -------              -------            -------

    Income before provision for income taxes and non-controlling interest                       2,225,391              2,345,787            1,997,728          2,053,506

    Provision for income tax                                                                     (416,468)              (396,642)            (319,420)          (314,105)
                                                                                                 --------               --------             --------           --------

    Net income                                                                                  1,808,923              1,949,145            1,678,308          1,739,401

    Non-Controlling interest in (income) loss                                                       7,478                 (5,654)              12,072             (1,324)
                                                                                                    -----                 ------               ------             ------

    Net income attributable to Dehaier Medical Systems Limited                                  1,816,401              1,943,491            1,690,380          1,738,077
                                                                                                =========              =========            =========          =========

    Net Income                                                                                  1,808,923              1,949,145            1,678,308          1,739,401

    Other comprehensive income
    Foreign currency translation adjustments                                                     (226,067)               511,375             (268,862)           324,095
                                                                                                 --------                -------             --------            -------

    Comprehensive Income                                                                        1,582,856              2,460,520            1,409,446          2,063,496
    Comprehensive income attributable to the non-controlling interest                              21,019                (28,591)              13,253            (17,685)
                                                                                                   ------                -------               ------            -------

    Comprehensive income attributable to Dehaier Medical Systems Limited                        1,603,875              2,431,929            1,422,699          2,045,811
                                                                                                =========              =========            =========          =========

    Earnings per share
    -Basic                                                                                           0.40                   0.43                 0.37               0.39
    -Diluted                                                                                         0.39                   0.43                 0.36               0.39

    Weighted average number of common shares used in computation
    -Basic                                                                                      4,566,160              4,506,354            4,569,722          4,510,000
    -Diluted                                                                                    4,714,077              4,506,354            4,717,639          4,510,000

                                                                        DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE
                                                                            CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                                         (UNAUDITED)
                                                                                                                    June 30,           December 31,
                                                                                                                    --------           ------------
                                                                                                                                  2012                    2011
                                                                                                                                  ----                    ----
                                                                                                                       US$                 US$

    ASSETS
    CURRENT ASSETS:
    Cash and cash equivalents                                                                                                1,107,942               3,694,486
    Accounts receivable                                                                                                     12,414,588              12,159,842
    -less allowance for doubtful accounts of $880,587 and $859,509
    Other receivables                                                                                                        4,192,759               2,522,136
    Prepayment and other current assets                                                                                      7,288,515               6,714,001
    Inventories, net                                                                                                         4,799,302               5,532,311
    Tax receivable                                                                                                             503,853                 888,452
    Deferred tax asset                                                                                                         117,110                 118,030
                                                                                                                               -------                 -------
    Total Current Assets                                                                                                    30,424,069              31,629,258

    Property and equipment, net                                                                                              3,063,366               3,348,533
    Intangible assets, net                                                                                                   2,393,781                       -
                                                                                                                             ---------                     ---
    Total Assets                                                                                                            35,881,216              34,977,791
                                                                                                                            ==========              ==========

    LIABILITIES AND EQUITY
    CURRENT LIABILITIES:
    Short-term borrowings                                                                                                    2,360,295               1,585,890
    Accounts payable                                                                                                            39,040                  32,925
    Advances from customers                                                                                                    237,653                 303,000
    Accrued expenses and other current liabilities                                                                             319,836                 349,158
    Taxes payable                                                                                                              425,089               2,042,048
    Warranty obligation                                                                                                        332,072                 334,680
    Total Current Liabilities                                                                                                3,713,985               4,647,701

    OTHER LIABILITIES
    Warrants liability                                                                                                         286,041                  96,469
                                                                                                                               -------                  ------
    Total Liabilities                                                                                                        4,000,026               4,744,170
                                                                                                                             ---------               ---------

    Commitments and Contingency

    Equity
    Common shares, $0.002731 par value, 18,307,038 shares authorized, 4,570,000 and
     4,560,000 shares issued and outstanding at June 30, 2012 and December 31, 2011,
     respectively                                                                                                               12,481                  12,454
    Additional paid in capital                                                                                              13,359,602              13,281,374
    Retained earnings                                                                                                       14,757,972              12,941,572
    Accumulated other comprehensive income                                                                                   2,359,421               2,585,488
                                                                                                                             ---------               ---------
    Total Dehaier Medical Systems Limited shareholders' equity                                                              30,489,476              28,820,888
    Non-controlling interest                                                                                                 1,391,714               1,412,733
                                                                                                                             ---------               ---------
    Total equity                                                                                                            31,881,190              30,233,621
                                                                                                                            ----------              ----------
    Total liabilities and equity                                                                                            35,881,216              34,977,791
                                                                                                                            ==========              ==========

                    DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (UNAUDITED)
                                                          For the six months ended
                                                                  June 30,
                                                                  --------
                                                                 2012                   2011
                                                                 ----                   ----
                                                              US$                    US$
    Cash flows from
     operating activities

    Net income                                              1,808,923              1,949,145
    Adjustments to
     reconcile net income
     to net cash used in
     operating activities
    Stock-based
     compensation expense                                     124,077                 59,300
    Depreciation and
     amortization                                             246,448                219,976
    Change in fair value
     of warrants
     liability                                                 92,067               (149,867)
    Recovery of doubtful
     accounts                                                  27,942                      -
    Changes in assets and
     liabilities:
    Increase in accounts
     receivable                                              (282,688)           (3,451,269)
    Increase in
     prepayments and
     other current assets                                    (522,831)           (4,240,759)
       Decrease (Increase)
        in other receivables                              (1,670,623)                  2,810
       Decrease (Increase)
        in inventories                                        733,009                 96,299
       Decrease in tax
        receivable                                            384,599               (911,942)
       Increase (Decrease)
        in accounts payable                                     6,115              1,153,882
       Decrease in advances
        from customers                                        (65,347)              (116,220)
       Increase in accrued
        expenses and other
        current liabilities                                   (31,931)                 9,502
       Increase in tax
        payable                                           (1,616,959)              2,022,812
                                                           ----------              ---------
    Net cash used in
     operating activities                                    (767,199)           (3,356,331)

    Cash flows from
     investing activities
    Acquisition of
     machinery and
     software copyrights                                  (2,405,707)                (62,302)
    Advances to related
     parties                                                        -                 (2,358)
                                                                  ---                 ------
    Net cash used in
     investing activities                                 (2,405,707)                (64,660)

    Cash flows from
     financing activities
    Proceeds from bank
     loan                                                   2,373,145              1,542,680
    Repayment of bank
     loan                                                 (1,580,436)            (1,533,604)
    Net cash provided by
     financing activities                                     792,709                  9,076

    Effect of exchange
     rate fluctuations on
     cash and cash
     equivalents                                             (206,347)               496,552
                                                             --------                -------

    Net decrease in cash
     and cash equivalents                                 (2,586,544)            (2,915,363)

    Cash and cash
     equivalents at
     beginning of period                                    3,694,486              5,923,386

    Cash and cash
     equivalents at end
     of period                                              1,107,942              3,008,023
                                                            =========              =========

    Supplemental cash
     flow information
    Income tax paid                                           779,678                 13,260
    Interest paid                                              64,904                 26,993

SOURCE Dehaier Medical Systems Ltd.


Source: PR Newswire