Dehaier Medical first quarter revenue increases 12% to $2.95 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 first quarter ended March 31, 2011.

First Quarter 2011 Financial Highlights

• Revenue increased by 12% year-over-year to $2.95 million, up from $2.64 million in the first quarter of 2010.
• Gross profit was $1.00 million, or 34% of revenue, compared with $0.97 million, or 37% of revenue in the first quarter of 2010.
• Operating income and operating margin were $0.30 million and 10%, respectively, compared with $0.65 million and 25%, respectively, in the first quarter of 2010.
• Net income attributable to the Company was $0.21 million, or $0.04 per diluted share based on 4.7 million weighted average shares outstanding, compared with net income of $0.52 million, or $0.17 per diluted share based on 3.0 million weighted average shares outstanding in the first quarter of 2010.
• As of March 31, 2011 cash and cash equivalents were $3.37 million, working capital was $23.15 million, compared with $5.92 million and $22.62 million, respectively, as of December 31, 2010.

First Quarter 2011 and Recent Business Highlights

• Signed cooperation agreement for rural healthcare construction project in Hunan and Anhui Provinces, which is sponsored by the China Development Bank.
• Entered the home oxygen therapy service market in Beijing through a strategic cooperation agreement between Dehaier's wholly owned subsidiary and leading global and regional medical oxygen providers, Taiyo Nippon Sanso Shenwei (Shanghai) and Beijing Orient.
• Broadened portfolio of agent products becoming a regional distributor of eVent Medical's Inspiration® ventilator in China.  
• Expanded marketing through the introduction of one new Customer Experience Center (CEC) in Shenyang and began construction on four new CECs in Chinese provincial capital cities Beijing, Shanghai, Lanzhou and Xi'an.
• Strengthened marketing team with key sales hires that hold significant industry experience and strong industry relationships within the medical device market.

"Despite the seasonally low first quarter as hospitals and government-sponsored organizations finalize their spending budgets for the year, we increased our sales by 12% from the same period last year. Primary drivers of our year-over-year top line gains included favorable market momentum, as well as increased sales of our medical device products and strong partnerships with third party brand names," said Mr. Ping Chen, CEO of Dehaier. "During the quarter, we made critical investments to build our infrastructure that best position our Company to capture the burgeoning market opportunity for both our medical device and homecare medical products. We continued to dedicate resources to R&D, introducing innovative products for the oxygen and respiratory homecare market, and established a seasoned marketing team to support our expansion initiatives. Although these efforts affected our bottom line in the first quarter, we believe these investments in our future will contribute to sales growth and bolster our profits in 2011 as we continue build on our solid base of customers in both the professional and homecare medical product markets."

"To complement our established and growing medical device business and foster the growth of our homecare offering, we are beginning to utilize our CEC network to accelerate our sales, and increase our brand recognition among the domestic industry. With 13 centers currently open, four under construction and a goal to open a total of 32 CECs by the end of the year, we expect to establish a strong national presence, presenting us with a considerable first mover advantage as an integral part of the infrastructure for the emerging medical homecare business and a potential additional sales point for our devices for the professional market."

"With our recent investments, partnerships, geographic expansion, new CEC centers and strategic growth initiatives in place, we believe we now have the infrastructure to accelerate our growth among China's developing healthcare industry that is driving demand for higher levels of medical care in both urban and rural areas. Our recent distribution agreement for regional distribution of eVent's inspiration ventilators, our strategic cooperation agreement with two major medical gas providers to distribute home oxygen therapy service in Beijing, and our two agreements to supply new rural healthcare projects sponsored by China Development Bank, bode well for our future growth as we continue to expand our geographic reach, build our brand equity and grow our business." Mr. Chen concluded.

First Quarter 2011 Financial Results

Revenues

Revenues for the three months ended March 31, 2011 were $2.95 million, compared with $2.64 million for the three months ended March 31, 2010, an increase of $0.31 million, or 12%. The increase in revenue was attributable to growth in sales of Dehaier's medical devices.

• Sales of self-branded and third party medical devices, including technical service products, increased 21% to $2.7 million, or 93% of total revenue, compared with $2.3 million, or 86% of revenue in the same period a year ago. The sales increase of medical devices was primarily due to expansion of third-party-branded products offering.
• Homecare products decreased to $0.21 million, or 7% of total revenue, compared with $0.37 million, or 14% of revenue in the first quarter of 2010. The decrease in sales from homecare products was primarily attributable to the discontinuation of our distributed homecare products to focus on its branded products. As the Company gains additional market traction and launches new branded products for the homecare market later this year, Dehaier expects its homecare product sales to increase.

Gross Profit

Gross profit for the three months ended March 31, 2011 increased slightly to $1.00 million, compared with $0.97 million for the three months ended March 31, 2010. As a percentage of revenue, the Company's gross margin was 34% for the three months ended March 31, 2011, compared with 37% for the same period in 2010. The decrease in gross margin was primarily due to the increase of registration fees for new homecare products and renewal for existing products and fixed assets depreciation.

Income from Operations

Operating income for the three months ended March 31, 2011 totaled $298,000, compared with $648,000 for the three months ended March 31, 2010.

Operating expenses for the quarter totaled $0.74 million, an increase of 90%, compared with $0.39 million for the same period a year ago. The increase in operating expenses was largely attributable to a $0.28 million increase in general and administrative expense associated with being a publicly traded company, including costs of maintaining and enhancing our internal controls and other public company-related expenses, and associated with the build of five new CECs.

Net Income

Net income attributable to the Company for the three months ended March 31, 2011 was $0.21 million, compared with $0.52 million for the three months ended March 31, 2010. The decrease in net income was primarily due to increased operating expenses as the Company made investments in its infrastructure during the first quarter to support its expected growth. Earnings per diluted share was $0.04, based on 4.7 million shares outstanding for the quarter, compared with diluted EPS of $0.17, based on 3.0 million shares outstanding for the first quarter of 2010. 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 March 31, 2011, Dehaier had $3.37 million in cash and cash equivalents, compared with $5.92 million as of December 31, 2010. The decrease was primarily due to an increase in prepayments. Current assets totaled $33.90 million, with working capital of $23.15 million and total shareholders' equity of $26.26 million at March 31, 2011, respectively.