Dehaier Medical fourth quarter revenues increase 126% to $6.7 million

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 fourth quarter and 12 months ended December 31, 2010.

Fourth Quarter 2010 Financial Highlights

• Revenue increased by 126% year-over-year to $6.7 million, up from $2.9 million in the fourth quarter of 2009.
• Revenue from homecare solutions grew dramatically by 998% year-over-year to $2.3 million, or 34% of total revenue, up from $209,000 in the fourth quarter of 2009.
• Gross profit increased by 119% year-over-year to $2.5 million, or 36.9% of revenue, up from $1.1 million, or 38.2% of revenue in the fourth quarter of 2009.
• Operating income and operating margin were $1.5 million and 22.8%, respectively, compared with $764,000 and 25.9%, respectively, in the fourth quarter of 2009.
• Net income attributable to the Company improved 145% to $1.5 million, or $0.32 per diluted share based on 4.7 million weighted average shares outstanding, compared with net income of $602,000, or $0.20 per diluted share based on 3.0 million weighted average shares outstanding in the fourth quarter of 2009.
• Strengthened balance sheet with $5.9 million in cash and cash equivalents, or $1.27 per diluted share, as of December 31, 2010, compared with $1.2 million as of December 31, 2009.

Full Year 2010 Financial Highlights

• Revenue increased by 58% year-over-year to $19.6 million, up from $12.4 million in 2009.
• Revenue from homecare solutions tripled to $4.5 million, up from $1.1 million in 2009.
• Gross profit increased by 57% year-over-year to $7.6 million, or 38.9% of revenue, up from $4.9 million, or 39.3% of revenue in 2009.
• Operating income and operating margin were $5.1 million and 26.2%, compared with $3.4 million and 27.1% in 2009, respectively.
• Net income attributable to the Company increased 70% to $4.5 million, or $1.09 per diluted share based on 4.2 million weighted average shares outstanding, compared with net income of $2.7 million, or $0.89 per diluted share based on 3.0 million weighted average shares outstanding in 2009.

2010 and Business Highlights

• Completed initial public offering of 1.5 million shares of common stock at $8.00 per share and commenced trading on NASDAQ in April 2010.
• Secured $2.0 million medical device distribution contract for new rural healthcare construction project supported by China Development Bank Corp.
• Enhanced third party distributed product offering through exclusive distribution agreements with Welch Allyn and HEYER Medical.
• Increased marketing to support growth of high margin homecare medical products business with the opening of 12 Customer Experience Centers (CECs).

"2010 was a record year for Dehaier. We achieved strong growth across both our branded and third party medical devices, as well as our homecare products businesses, while positioning the Company for success in 2011 and beyond," said Mr. Ping Chen, CEO of Dehaier. "Key to our growth in 2010 was the continued advancement of our homecare products business, in which we achieved triple-digit gains for both the fourth quarter and full year. While the domestic market presents a compelling growth opportunity, international expansion is a critical element of our longer-term strategy and we are making meaningful progress in this regard, with several of our respiratory therapy homecare products currently pending regulatory approval in the United States and European Union. We believe that securing these approvals and rolling out our products in targeted international markets will provide another important catalyst for our business and help propel Dehaier to the next level of top- and bottom-line growth."

Mr. Chen continued, "The overall healthcare market in China has grown significantly in recent years, and is poised for continued expansion as a result of both government initiatives and a greater emphasis on health and wellness among Chinese citizens. The government's 12th Five-Year Plan includes a number of provisions aimed at improving both the quality and availability of healthcare nationwide and giving people greater, more cost-effective access to both professional and self-administered medical treatments. Looking ahead, we plan to devote additional resources to bolster our research and development capabilities, in order to expand our product portfolio and more effectively address the needs of this growing base of potential customers. We are confident that our increased commitment to innovation, strong relationships with leading international medical device manufacturers, extensive sales, marketing and distribution network and strong brand equity will allow Dehaier to capitalize on the favorable macro trends to extend our domestic market share, while preparing the Company for a successful international expansion."

Fourth Quarter 2010 Financial Results

Revenues

Revenues for the three months ended December 31, 2010 were $6.7 million as compared to $2.9 million for the three months ended December 31, 2009, an increase of $3.7 million, or 126%. The increase in revenue was attributable to growth in Dehaier's homecare products, as well as its self-branded and third party medical devices.

Sales of self-branded and third party medical devices, including technical service products, increased 60% to $4.4 million, or 66% of total revenue, compared with $2.7 million, or 93% of revenue in the same period a year ago. Homecare products increased 998% to $2.3 million, or 34% of total revenue, compared with $209,000, or 7% of revenue in the fourth quarter of 2009.

Gross Profit

Gross profit for the three months ended December 31, 2010 was $2.5 million, an increase of 119% from $1.1 million for the three months ended December 31, 2009. As a percentage of revenue, the Company's gross margin was 36.9% for the three months ended December 31, 2010 as compared to 38.2% for the same period in 2009. The decrease in gross margin was primarily due to winning a government bid with large procurement costs and lower than average gross margin.

Income from Operations

Operating income for the three months ended December 31, 2010 totaled $1.5 million as compared to $764,000 for the three months ended December 31, 2009, an increase of 99% year-over-year. Operating expenses for the quarter totaled $969,000, compared with $460,000 for the same period a year ago. The increase in operating expenses was largely attributable to increases in marketing expense, including expansion of the Company's CEC network, and R&D investment, as well as expenses associated with Sarbanes-Oxley Section 404 compliance.

Net Income

Net income attributable to the Company for the three months ended December 31, 2010 was $1.5 million as compared to $602,000 for the three months ended December 31, 2009. Earnings per diluted share were $0.32, based on 4.7 million shares outstanding for the quarter, compared with diluted EPS of $0.20, based on 3.0 million shares outstanding for the fourth quarter of 2009. The increase in share count was due to the completion of the Company's initial public offering in April 2010.

Full Year 2010 Financial Results

Revenues

Revenues for the 12 months ended December 31, 2010 totaled $19.6 million as compared to $12.4 million in 2009, an increase of $7.2 million, or 58%. The Company's revenue growth was primarily attributable to increased sales of the Company's distributed medical devices and respiratory homecare products.

Full-year sales of third party and self-branded medical devices totaled $15.1 million, or 77% of sales, compared with $11.3 million, or 91% of sales in 2009. Revenue from homecare solutions increased 302% to $4.5 million, or 23% of total sales, compared with $1.1 million, or 9% of sales in the year-ago period.

Gross Profit

Full year gross profit in 2010 was $7.6 million, an increase of 57% over $4.9 million in 2009, primarily due to increased total revenue. As a percentage of revenue, the Company's gross margin was 38.9% for the year ended December 31, 2010, compared with 39.3% in 2009.

Income from Operations

Operating income for the year ended December 31, 2010 totaled $5.1 million as compared to $3.4 million for the same period in 2009. The increase of $1.8 million, or 53%, was primarily due to the increase in revenues. Operating expenses in 2010 totaled $2.7 million, or 13.7% of sales in 2010, up 50% from $1.8 million, or 14.5% of sales in the same period a year ago.

Net Income

Net income attributable to the Company for the year ended December 31, 2010 was $4.5 million, or $1.09 per diluted share based on 4.2 million weighted average shares outstanding. This compares with $2.7 million, or $0.89 per diluted share based on 3.0 million shares outstanding in 2009. The increase in share count was due to the completion of the Company's initial public offering in April 2010.

Liquidity and Capital Resources

As of December 31, 2010, Dehaier had $5.9 million in cash and cash equivalents, compared with $1.2 million as of December 31, 2009. The increase in cash balance was primarily due to the Company's initial public offering completed on April 22, 2010, which generated net proceeds of $9.9 million. Current assets totaled $33.4 million, with working capital of $22.6 million and shareholders' equity of $25.8 million at December 31, 2010, respectively.