What changed in this filing

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Item 1. Business

2012-03-19 compared with 2011-03-07 · 805 added, 30 removed, 3 unchanged (100% of the section changed)

The section of the

Registration Statement and IPO Prospectus entitled Our Business is incorporated herein by reference.

In addition to the matters described therein, the Companys business developed in the following ways during the year ended

Company Overview

We are a company in the business of developing

and distributing medical devices.

We have been focusing on developing respiratory and oxygen homecare products in particular since

We distribute products designed and manufactured

by other companies.

We broaden our product portfolio through distribution agreements with international manufacturers, and most

of the products we distribute are imported.

Our distribution offerings are mostly equipment used in the operating room, the intensive

care unit (“ICU”) and the emergency room.

Besides distributing medical devices, we

also design, develop and market our own proprietary products and medical components.

Because we do not run any manufacturing facilities,

we contract some of the medical components to outside manufacturers in China.

Most of our proprietary products require light assembly

by us before distribution.

We sell our products primarily through

distributors, but we also make direct sales to hospitals, clinics, government health bureaus and individual customers.

to further our market reach by introducing newer and more advanced product lines that address different end-user needs.

Recent Developments

On 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 continuous positive airway pressure (“CPAP”) and other products), thus enriching the Company’s

ventilator portfolio to address broader market needs.

On April 21, 2011, the Company signed a tripartite 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.

Pursuant to the agreement, the Company will market the oxygen therapy services in Beijing.

On July 18, 2011, the first oxygen filling

facility and first service center for home oxygen therapy service were opened in Beijing.

On May 2, 2011, supported by China Development Bank, the Company signed a cooperation agreement worth approximately $2.05 million

with Beijing Kanglian Medicines Co, Ltd, to develop, operate and implement a new rural healthcare infrastructure project in Hunan

and Anhui provinces.

In the process of this project, the Company cooperated with Phillips Medical System and Olympus.

On June 1, 2011, the Company won the bid to engage in a $1.32 million procurement contract to supply medical equipment to a

large state-owned hospital in Beijing.

The Company cooperated with German-based Leica Microsystems and U.S.-based ABI Medical in

the process of completing the contracted project.

In June 2011, the Company’s international department authorized distributors in Taiwan for its CPAP devices, which marks

the first distribution authorization outside of China.

In August 2011, the Company was granted export certificates for five homecare medical products by the State Food and Drug Administration

(“SFDA”) of the PRC, allowing for Dehaier’s sleep diagnostics product DHR-998, Dehaier CPAP products DHR-AUTO-A8,

DHR-C5, DHR-C6 and Dehaier medical air compressor to be exported without restriction.

In November 2011, the Company established a wholly-owned subsidiary in the state of Illinois, as a first step toward future

global market expansion, including North America in particular.

In December 2011, the Company signed with three Romanian companies to distribute Dehaier’s DHR-5L oxygen concentrators

This marks Dehaier’s first entry into the European homecare medical product market.

In fiscal 2011, the Company obtained multiple intellectual properties.

These include three design patents for products of sleep

diagnostic device DHR998, CPAP DHR-C5 and air compressor DHR280, and two software copyrights for CPAP devices.

During 2011, the Company was again honored as a “National High-Tech Enterprise”

and a member of the Zhongguancun

Credit Promotion Committee.

When we began

to sell our products in China, substantially all of the products we sold were distributed products from foreign suppliers.

we completed our Series A financing in 2003, we used some of the proceeds from that financing to establish a research and development

department in order to develop products of our own to address market needs.

that time, our management concluded that it could develop its own products for sale through its existing network of independent

distributors, who were already selling medical devices for our company to our desired customer base.

We made this decision based

in large part on our conclusion that we would be able to meet the needs of different markets with our proprietary products than

we already met with our distributed products.

Because our distribution team was already in place, we only needed to form research

and development and assembly teams to be able to offer its proprietary products.

As noted above, the Series A financing proceeds

allowed us to form these teams.

Based on feedback from our distribution team, our management has been able to provide guidance

to our research and development team about what needs to address with new products and what improvements to make to existing products.

This feedback has grown sales of our proprietary products.

Our proprietary

and distributed products include two major categories:

(i) medical devices (including supporting products) and (ii) respiratory

and oxygen homecare products.

Our medical devices proprietary and distributed products are mainly

used in hospitals and clinics, while our respiratory and oxygen homecare proprietary and distributed products are mainly for at-home

use by individual customers.

Our Proprietary Products

Our management

believes that our proprietary products, which are generally less expensive than products from foreign companies, tend to be more

attractive to smaller city and rural hospitals and healthcare facilities and other end-users for whom price is a significant factor

in deciding whether to purchase our products.

Our proprietary products include medical devices

and related supporting products (previously defined as technical service products) and respiratory and oxygen homecare products.

Medical Devices (Including Related Supporting

Mobile Medical X-Ray Image Devices.

We provide four types of DHR Explorer Series mobile and C-armed X-ray

X-ray is used for visualizing bone structures and other dense tissues such as tumors.

These mobile and C-armed X-ray

machines provide added convenience for use in hospitals and clinics.

Our C-arm series of X-ray systems are suitable for ortho reduction

and fixation procedures, intervertebral disc imaging and treatment, spinal operation, uterine and oviduct imaging, bladder and

ureter imaging and gastric imaging.

Anesthesia Machines .

We provide two types of DHR ORSA Series anesthesia machines.

These machines are used by

anesthesiologists to support the administration of anesthesia.

These machines administer a precise and continuous supply of anesthetic

gases and vapors to the patient at accurate and safe levels of pressure and flow.

These machines maintain a continuous, closed-loop

control over the pressure of gas within a patient’s mouth or respiratory according to the selected pressure input.

these machines feature a modular design for mobility and ease of maintenance, cleaning and disinfection.

Ventilator Air Compressor.

We provide two types of air compressors to support medical ventilators in surgery

by supplying continuous airflow for the ventilator.

Where a facility lacks a central pressured air supply system, our C250 and

C280 air compressors provide a portable source of such pressured air.

Our air compressors feature oil-less motors, large locking

castors, high flow capacity, and spill-proof switches.

We have designed our air compressors to be adaptable for use with any ventilator.

Trolleys for Ventilators.

We provide three types of trolleys to hold ventilators and their accessories for

These trolleys can be fit with a monitor to further enhance the portability and utility.

Sterilizers for Ventilators.

We provide one type of sterilizer to treat the air from patients in order to

control cross-contamination and infection in a facility in general and for subsequent ventilator patients in particular.

Respiratory and Oxygen Homecare Products and

Home Oxygen Therapy Service (“HOTS”)

Oxygen Concentrating Products .

We provide two types of oxygen concentrator products, including, the DHR-3L/5L

Oxi-Fairy and the DHR-3L/5L Oxi-Pioneer.

These products use our patented advanced Pressure Swing Absorbing (“PSA”)

technology to produce highly-concentrated, therapeutic-level oxygen (approximately 90% oxygen concentration) from air at normal

temperatures.

These products are used by patients with cardiovascular disease, respiratory diseases, such as chronic obstructive

pulmonary disease, and geriatric patients.

Sleep Apnea Treatment Products.

We have designed and expect to provide several products designed for obstructive

sleep apnea therapy.

These products include our DHR CPAP C5, DHR Auto CPAP A8, and DHR Auto S-CPAP A9.

Our DHR CPAP C5, Auto CPAP

A8 and DHR S-CPAP A9 are in the process of obtaining SFDA approval and will not be available for sale until we receive such approval.

While we expect to receive this approval within the first half of 2010, we cannot guarantee that we will obtain such SFDA approval

in this timeframe or all.

These products are all non-invasive therapy products that treat symptoms of sleep apnea.

Our CPAP devices

do not cure apnea but instead use air pressure to open customers’

airways to reduce snoring and apnea disturbances during

Our automatic CPAP products provide air pressure at a customized, adjustable level, while our traditional CPAP products

provide a constant level of air pressure.

Diagnostic Products.

We have designed and expect to provide two types of screening and diagnosis products

are portable sleep respiratory recording devices that can be used in a healthcare facility or in a patient’s home to assist

physicians in determining whether the patient has obstructive sleep apnea requiring use of a CPAP device.

We have applied to SFDA

for approval of our DHR 998 and DHR 999 diagnostic products, and they will not be available for sale until we receive such approval.

While we expect to receive this approval within the first half of 2010, we cannot guarantee that we will obtain such SFDA approval

in this timeframe or all.

Home Oxygen Therapy Service.

Our home oxygen therapy service, or “HOTS”

for short, is our new business

The general concept of HOTS is to take orders from and deliver oxygen tanks to customers (patients) who need higher

concentrations of oxygen gas.

These customers generally either suffer from lung disease such as COPD or have other needs for concentrated

oxygen, such as high altitude mountain climbers or coal miners who work in tunnels.

We procure oxygen tanks from other companies

and sell or rent the tanks to our customers.

We obtain oxygen from Beijing Orient Medical Gas Corporation, China, with which we

signed a strategic cooperation agreement.

This business is still at an early stage, and we are first developing the business in

the City of Beijing.

Assuming the successful development of Beijing, we expect to apply this business model to other Chinese cities

in subsequent years.

Research and Development of Our Proprietary

to date has in part resulted from our strong research and development capabilities, which allow us to regularly introduce new and

more advanced products at more competitive prices within a shorter period of time.

We increased our annual investment

in research and development activities as a percentage of net revenues every year since 2003.

Research and development costs we re

$268,038 and $82,553 for the years ended December 31, 2011 and 2010, respectively.

Our research and development team consists

of 27 engineers, representing more than one-tenth of our employees nationwide.

selection goals focus on projects that we believe are commercially feasible, can generate significant revenue and can be introduced

into the market in the near-term.

While our research and development department may conduct research into areas that are likely

to lead to short-, medium- and long-range business opportunities for our company, we focus our development of products

on those solutions we believe are most likely to generate significant near-term revenues.

Thus, we would generally devote more

resources to a solution expected to have an immediate financial return (for example, a ventilator) than to a project with a potentially

greater overall payoff that is more distant and tenuous (for example, an artificial lung).

Our management

seeks feedback from our distribution network to learn about needs for future products and improvements to existing products that

our research and development department can seek to address.

Once we identify a product opportunity, our sales and service ,

research and development, and assembly teams work closely together to determine potential market demand for a product and how it

fits with our current design and assembly capabilities.

We organize regular meetings in which our sales and service, research and

development and assembly teams review progress and, if necessary, adjust the emphasis of our research and development projects.

new product to be commercially feasible, our research and development team will work closely with our assembly team to move

assembly forward.

This integrated approach allows us to identify potential difficulties in commercializing our proprietary product

or product improvement.

Furthermore, it enables us to make adjustments as necessary and develop cost-efficient assembly processes

prior to distribution.

We believe these abilities can significantly shorten the time it takes to launch a commercialized product.

In the last three years, we have developed and brought to market 5 new products, which appeal to a wide range of end-users.

We maintain a 5,400 square foot

research and development center in our facility in Beijing, which allows us to compete for skilled research and development

technicians and managers.

In addition, we are enhancing our research and development ability by cooperating with the research

institutes of two top ranking universities in China:

Beijing University of Aeronautics & Astronautics and University

of Science & Technology Beijing.

Principal Suppliers –

Our Proprietary

We use the following

principal suppliers to manufacture the components in the products we develop and assemble:

Friend of Health (Chuzhou) Medical Technology Co., Ltd.

China Medical Equipment Co., Ltd.

Dalian Wande Co., Ltd.

Beijing Jianfa Co., Ltd.

IMD Beijing Medical Equipment Co., Ltd.

We believe the components provided by our

suppliers are widely available and do not anticipate that we will be unable to obtain these components from other suppliers in

the event our principal suppliers are unable or unwilling to supply us.

We provide the technical specifications and files needed

for our suppliers to manufacture components.

We purchase the same components from a wide variety of suppliers.

the production of some of our oxygen concentrators and air compressors to Friend of Health under

production agreements.

We provide the technical specifications and files needed for Friend of Health to manufacture these proprietary

We provide separately outsourced core parts to Friend of Health to incorporate into the components they assemble and

distribute for us.

We test and approve each part produced by Friend of Health before they begin mass production.

We require Friend

of Health to maintain minimum supplies of our proprietary products and components for use in our proprietary products, and we permit

them to sell our proprietary products only in Chuzhou.

Friend of Health delivers products to us on credit, and we are required

to make payment within 45 days after the date of delivery.

Friend of Health is the only supplier that also assembles and distributes

finished proprietary products for us.

Assembly of Our Proprietary Products

After our research

and development team designs the technical specifications and computer models for our proprietary products, we typically work with

an independent contractor to fabricate working prototypes before we commence with the production run of a product.

We test prototypes

to confirm that they operate as expected and with the quality we require.

During the prototyping

process, we apply for SFDA approval as necessary.

Once both of these processes are completed, we commission a production run of

components for assembly into our proprietary products.

component and product manufacturing and logistical services provided by third parties.

All of our proprietary products are manufactured

in whole or in part by a variety of third-party manufacturers.

While these arrangements may lower operating costs, they

also reduce our direct control over production.

It is uncertain what effect such diminished control

will have on the quality or quantity of products or services, or on our flexibility to respond to changing conditions.

We maintain a 32,000 square foot product center in Changping

Science Park in Beijing.

This product center contains our research and development area and our assembly facilities.

Final assembly

of our products is currently performed in this facility by our 37 employees in assembly and by some of our external vendors, such

as Friend of Health.

Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party

vendors in China.

Proprietary Rights for Our Proprietary Products

We are developing

a portfolio of intellectual property rights in China to protect the technologies, inventions and improvements that we believe are

significant to our business in China.

We have two practical patents issued in China for oxygen concentrators.

We have five design

patents related to our CPAP devices (2), portable sleep screening (2) and diagnostic services (1).

Moreover, we possess proprietary

technology and know-how in assembly processes, design and engineering.

We have not filed for any patent protection outside of China.

To protect our brand name recognition, we have registered the brand name “Dehaier”

for trademark

protection in China.

in the medical equipment industry depends in substantial part on effective management of both intellectual property assets and

infringement risks.

In particular, we must be able to protect our own intellectual property

as well as minimize the risk that any of our proprietary products may infringe upon the intellectual property rights of others.

enter into agreements with all our employees involved in research and development, under which all intellectual property generated

during their employment belongs to us, and they waive all relevant rights or claims to such intellectual property.

All our employees

involved in research and development are also bound by a confidentiality obligation and have agreed to disclose and assign to

us all inventions conceived by them during their term of employment.

We believe that we have successfully established

our brand in China.

We have registered trademarks in China for the Dehaier name and logo used on our proprietary products.

of our overall strategy to protect and enhance the value of our brand, we actively enforce our registered trademarks against any

unauthorized use by a third party.

Our Distributed Products

management believes that our distributed products, which are generally more expensive than products from Chinese companies,

tend to be more attractive to larger city hospitals and more affluent healthcare facilities and other end-users for whom

perceived quality is a significant factor in deciding which products to purchase.

While we believe that the quality of our

proprietary products is also strong, we understand that some consumers in China associate

higher quality more with well-known international brands than with domestic brands.

We serve as a significant distributor

in China for several foreign producers of medical devices and respiratory and oxygen homecare products, including IMD, Timesco,

HEYER and eVent.

We believe this extensive platform allows us to be responsive to local market demand.

We distribute medical devices

and respiratory and oxygen homecare products for these companies.

Mobile Medical X-Ray Image Devices.

We provide two types of X-ray machines developed by other companies:

the IMD Radius Series mobile and C-armed X-ray machine and the IMD Compact Series mobile-X-ray machine.

Medical Ventilators.

We provide one type of ventilators developed by other companies:

the Inspiration Ventilators

The Inspiration Series of medical ventilators mechanically move breathable air to and from the lungs to support breathing

support for patients who are physically unable to breathe or who are breathing insufficiently.

Anesthesia Machines .

We provide two types of anesthesia machines developed by other companies:

the Nakomat and

Modular models from HEYER.

These machines are used by anesthesiologists to support the administration of anesthesia.

These machines

administer a precise and continuous supply of anesthetic gases and vapors to the patient at accurate and safe pressure and flow

These machines maintain a continuous, closed-loop control over the pressure of gas within a patient’s respiratory

system according to the selected pressure input.

In addition, these machines feature a modular design for mobility and ease of

maintenance, cleaning and disinfection.

Ultrasonic Nebulizers.

We provide one type of ultrasonic nebulizers developed by other companies:

model from HEYER.

These devices are used to treat patients with respiratory disease such as asthma, bronchitis and pneumonia.

ultrasonic nebulizers convert low viscosity liquid drug into fine like particles so that the particles can reach to infectious

area in the respiratory tract.

Our distributed model –the Cumulus is the only model in the market to effectively treat infection

in the lower respiratory tract area.

Laryngoscopes .

We provide four types of laryngoscopes developed by other companies:

the Optima, Optima XL and

Eclipse lines of laryngoscopes from Timesco.

Laryngoscopes are flexible lighted tubes that are used to look at the inside of the

Anesthesiologists make use of laryngoscopes to assist with intubation in surgery.

Our Relationships with Suppliers of Our Distributed

While we develop, assemble, market and

sell our proprietary products, we also serve as the distributor for a number of international companies looking to sell their brands

of products in China.

We are a distribution agent for some or all products marketed in China by IMD (Italy), Timesco (UK), HEYER

(Germany) and eVent (USA).

In this capacity, we are responsible for sales, marketing and after-sale services of these products.

We sign agency agreements with these international

suppliers annually with the aim of settling marketing promotion modes, costs, product training and resolution of customer service

The agency agreements cover purchasing price, purchasing intervals, order quantity, transportation and type of payment,

spare part supply and after-sale service terms.

We negotiate renewal of these agency agreements as they expire to confirm ongoing

distributor expectations.

We seek to enlarge the scope of products

we are able to sell as agent for these companies and constantly try to identify competitive suppliers and products on the international

market to assist them with marketing and selling their products in China.

Principal Suppliers –

Our Distributed

In addition to the products we design,

we distribute products designed and manufactured by the following companies:

HEYER (Germany)

The exact products

from these suppliers are available only from such suppliers;

however, we do not anticipate that we will be unable to obtain similar

products from other suppliers in the event our principal suppliers are unable or unwilling to supply us.

We maintain a 24-hour customer service

center in Beijing for technical support and repair.

We staff our customer service center with senior technical support engineers

who provide preliminary support.

Our engineers attempt to quickly diagnose and assist in repairing problems over the phone, or

determine whether a service visit to the customer’s premises is necessary.

In some instances, our engineers will provide

on-site operating guidance and repair service.

We periodically review customer calls to ensure that any issues raised by our customers

are resolved to their satisfaction.

We have three

categories of customers:

distributors, hospitals and government agencies, and individual consumers to whom we sell directly.

customer base is widely dispersed on both a geographic and revenues basis.

Our distributors.

to our distributors make up the substantial majority of our revenues as over 90% of our sales are to distributors.

expected use of products sold to distributors, we estimate that they sell approximately 60% of our products to hospitals, 20% to

clinics and 10% to individuals.

As a result, we estimate that approximately 67% of our products (on a revenue basis, rather than

unit basis) are sold to hospitals, approximately 21% to clinics and approximately 12% to individuals.

We have contractual distribution

relationships with over 2,000 independent distributors.

We do not own, employ or control these independent distributors.

Hospital and governmental agency

Our hospital and governmental agency customers primarily include hospitals

as well as provincial level public health bureaus and population and family planning bureaus.

We also refer to these customers

as our “Key Accounts.”

These customers typically place large volume orders that are awarded based on bids submitted

by competing medical equipment companies through a state-owned bidding agent.

Individual consumers.

sell our home respiratory therapy products directly to consumers through our customer experience centers, or “CECs,”

and through E-commerce platforms.

Dependence on major customers.

the year ended December 31, 2011, approximately 13% of our revenue was received from each of two customers.

For the year ended

December 31, 2010, approximately 8% of our revenue was received from one customer.

Concentration

of receivables .

At December 31, 2011 and 2010, receivables from four of our customers were approximately 12%,

10%, 9%, 9% and 12%, 11%, 11%, 9%, respectively .

The medical device industry is characterized

by rapid product development, technological advances, intense competition and a strong emphasis on proprietary information.

all product lines and product tiers, we face direct competition from both domestic and international competitors.

We compete based

on factors such as price, value, customer support, brand recognition, reputation, and product functionality, reliability and compatibility.

Each of our proprietary products competes against functionally similar products from domestic and international companies.

Our competitors include publicly traded

and privately held multinational companies, such as Respironics, Inc., ResMed Inc., and Covidien, as well as domestic Chinese companies

such as Beijing Aoji, Beijing Ya’ao, Jiangsu Yuyue and Zhejiang Longfei.

We believe that we can continue to compete successfully

in China because our established domestic distribution network and customer support and service network allows us significantly

better access to China’s small and medium-sized hospitals.

In addition, our strong investment in research and development,

coupled with our low-cost operating model, allows us to compete effectively for sales to large hospitals.

We believe our competitive position in

China varies depending on the product in question.

While we are a much smaller company overall than, for example, General Electric,

Siemens or Philips and are unable to offer the range or depth of products each of those companies offers, we believe our market

position is favorable in several segments.

The following charts provide our marketing department’s estimations of our primary

competitors by product, both as to our proprietary products and as to our distributed products:

Proprietary Product

Primary Competitors in China

Dehaier’s Estimated Competitive Position

DHR Explorer Series C-armed X-ray machine

Nanjing Pulang, Beijing Wantong, Beijing Smart, Shenzhen Nanyun

DHR ORSA Series anesthesia machines

Drugg, GE, Spacelab

C250 and C280 air compressors

Beijing Yi’an, Guangdong Puling

Greater than average

An OEM business model, N/A

DHR oxygen concentrator

Beijing Aoji, Beijing Ya’ao, Jiangsu Yuyue and Zhejiang Longfei

Smaller than average

DHR CPAP C5, DHR Auto CPAP A8, DHR Auto S-CPAP A9

Foreign companies such as Respironics, ResMed, and Covidien

Not on the market yet

DHR 998 and DHR 999 screening and diagnosis products

Foreign companies such as Respironics, ResMed, and Covidien

Greater than average

Distributed Product

Primary Competitors in China

Dehaier’s Estimated Competitive Position

IMD C-armed X-ray machine

Philips, GE, Siemens

Smaller than average

eVent Ventilators

Drugg (GER), GE, TYCO (USA), Newport (USA)

Smaller than average

HEYER Anaesthesia Machine

Drager (GER), Datex-Ohmeda (US), Primas (UK)

Smaller than average

HEYER Ultrasonic Nebulizer

PARI (GER), YUYUE (China)

Timesco laryngoscope

Kirchner & Wilhelm (GER), WelchAllyn (USA)

Greater than average

A “greater than average”

indicates Dehaier estimates its competitive position in the top third of all competitors.

“Average”

indicates Dehaier

estimates its competitive position in the middle third of all competitors.

“Smaller than average”

indicates Dehaier

estimates its competitive position in the bottom third of all competitors.

As we expand into international markets,

our competitors will include publicly traded and privately held multinational companies such as Respironics, and Covidien.

companies typically focus on the premium segments of the market.

We believe we can successfully penetrate certain international

markets by offering products of comparable quality at lower prices.

We will also face competition in international sales from companies

that have local operations in the markets in which we sell our proprietary products.

We believe that we can compete successfully

with these companies by offering high quality proprietary products at comparable prices.

Methods of Competition

China’s medical device market currently

features a significant number of small distributors.

We seek to distinguish our company from our competitors by being able to offer

proprietary and distributed products that address the device needs of customers that may have very different needs.

For example, China is currently investing

heavily in health care nationwide;

however, money for healthcare is currently unevenly distributed.

There are a number of large

hospitals that have significant resources and a number of rural clinics that have extremely limited budgets.

We are able to provide

distributed products that reach the more affluent customers, as these customers frequently tend to ascribe more perceived value

to products made by well-known foreign companies, such as Timesco and HEYER.

We are also able to supply our proprietary products

to customers who tend to care less about perceived value and more about functionality.

One of our strategies in competing in this

market is to make our products as mobile as possible.

For this reason, our air compressors, mobile X-ray devices, trolleys and

the like are all portable.

This portability addresses the budgetary limitations of, for instance, a rural clinic that can only

afford to purchase a single air compressor.

We currently compete on three levels.

we have well-established distribution channels and close relations with more than 2,000 dealers and distributors, reaching an estimated

3,000 hospitals.

We maintain relationships with healthcare bureaus as well as other key accounts to actively participate in state-level

contracted procurement projects.

Second, our proprietary homecare medical products are designed to provide an all-in-one solution

for end users.

Together with our new home oxygen therapy service, we provide homecare medical solutions that combine products and

Third, we have emphasized international growth, including seeking approval to sell our products in Europe and other countries

and establishing a U.S.

subsidiary to enable us to compete in North America.

We focus on maintaining a high quality to price ratio

in our proprietary products.

In addition, being a NASDAQ-listed company has helped to build our brand image and reputation with

potential customers and business partners.

As of March 10, 2012, we had 167 full-time

employees and no part-time employees.

Out of that total, 37 were employed in assembly, 27 were in research and development, 15

were in general administration, 80 were in marketing, sales, and customer support and service, and 8 were in procurement and supply

As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and

provincial governments, including pension, work-related injury benefits, maternity insurance, and medical and unemployment benefit

We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries,

bonuses, housing funds and certain allowances of our employees, up to a maximum amount specified by the local government from time

We make contributions to the employee benefit 10% of employee salaries.

Generally, we enter into a three-year standard

employment contract with all of our officers, managers and other key employees and a one-year standard employment contract with

all other employees.

According to these employment contracts, all of our employees are prohibited from engaging in any activities

that compete with our business during the period of their employment with us.

Under Chinese law, we may only terminate

employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which

the employment agreement is scheduled to expire.

If we fail to provide this notice or if we wish to terminate an employment agreement

in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the

We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has

committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.

Our products are medical devices and are

subject to regulatory controls governing medical devices.

As a distributor of medical equipment and supplies we are subject to

regulation and oversight by different levels of the food and drug administration in China, in particular the SFDA.

subject to other PRC government laws and regulations.

SFDA requirements include obtaining certifications, permits, compliance with

clinical testing standards, assembly practices, quality standards, applicable industry standards and adverse event reporting, and

advertising and packaging standards.

China’s Regulation of Medical Devices

Classification of Medical Devices

In China, medical devices are classified

by the SFDA into three different categories, Class I, Class II and Class III, depending on the degree of risk associated

with each medical device and the extent of control needed to ensure safety and effectiveness.

Classification of a medical device

is important because the class to which a medical device is assigned determines, among other things, whether a company needs to

obtain a permit and the level of regulatory authority involved in obtaining such permit.

Classification of a device also determines

the types of registration required and the level of regulatory authority involved in effecting the product registration.

Class I devices require product certification

and are those with low risk to the human body and are subject to “general controls.”

Class I devices are regulated

by the city level food and drug administration where the company is located.

Class II devices are those with medium risk to

the human body and are subject to “special controls.”

Class II devices require product certification, usually

through a quality system assessment, and are regulated by the provincial level food and drug administration where the company is

Class III devices are those with high risk to the human body, such as life-sustaining, life-supporting or implantable

Class III devices also require product certification and are regulated by the SFDA under the strictest regulatory

The majority of our products are classified

as Class II or Class III devices.

Our anesthesia machines and ventilators are classified as Class III medical devices,

while the remainder of our products are either classified as Class II or, in the case of our ventilator trolleys and sterilizers,

not categorized devices.

Assembly Permit

A company must obtain a permit from the

provincial level food and drug administration before commencing the assembly of Class II and Class III medical devices.

No assembly permit is required for Class I devices, but the company must notify the provincial level food and drug administration

where the company is located and file for record with it.

An assembly permit, once obtained, is valid for five years and is renewable

upon expiration.

We have a single assembly permit, which

covers all products we assemble and is scheduled to expire on September 15, 2013.

To renew an assembly permit, a company needs

to submit to the provincial level food and drug administration an application to renew the permit, along with required information

nine months before the expiration date of the permit.

Distribution License

A manufacturer or distributor must obtain

a distribution license in order to engage in sales and distribution of Class II and Class III medical devices in China.

A distribution license is valid for five years and is renewable upon expiration.

Our distribution license will expire on September

Registration Requirement

Before a medical device can be manufactured

for commercial distribution, a company must effect medical device registration by proving the safety and effectiveness of the medical

device to the satisfaction of respective levels of the food and drug administration.

In order to conduct a clinical trial on a

Class II or Class III medical device, the SFDA requires companies to apply for and obtain in advance a favorable inspection

result for the device from an inspection center jointly recognized by the SFDA and the Administration of Quality Supervision, Inspection

and Quarantine.

The application to the inspection center must be supported by appropriate data, such as animal and laboratory testing

If the inspection center approves the application for clinical trial, and the respective levels of the food and drug administration

approve the institutions which will conduct the clinical trials, the company may begin the clinical trial.

A registration application

for a Class II or Class III device must provide required pre-clinical and clinical trial data and information about the

device and its components regarding, among other things, device design, production and labeling.

The provincial level food and

drug administration, within 60 days of receiving an application for the registration of a Class II device, and the SFDA,

within 90 days of receiving an application for the registration of a Class III device, will notify the applicant whether

the application for registration is approved.

If approved, a registration certificate will be issued within ten days of written

If the food and drug administration requires supplemental information, the approval process may take much longer.

registration is valid for four years.

The SFDA may change its policies, adopt

additional regulations, revise existing regulations or tighten enforcement, each of which could block or delay the approval process

for a medical device.

The following table discloses the current

registration expiration dates for the products we sell.

It is the obligation of that produces the product to seek registration

and any renewals.

We are responsible for registering our proprietary products but must rely on the suppliers of other products

to seek registration for those products.

We will either cease to sell such product or seek comparable products from other suppliers

in the event the registration is not renewed on expiration.

Medical Devices (Including Related Supporting

Product Model

Registration Expiration

Mobile Medical X-Ray Image Devices

Explorer Series mobile and C-armed X-ray machine

IMD Compact Series mobile-X-ray machine

December 2012

On April 22, 2010, the Company completed an initial public offering of 1,500,000 common shares.

The offering was completed at an issuance price of

$8.00 per share.

Prior to the offering, the Company had 3,000,000 issued and outstanding shares, and after the offering, the Company had 4,500,000 issued and outstanding shares.

The Company issued (a) to the placement agent in the initial

public offering, warrants to purchase 150,000 common shares for an exercise price of $10.00 per share and (b) to the Companys investor relations firm, warrants to purchase 7,500 common shares at an exercise price of $9.60 per share.

the placement agents warrants and the investor relations firms warrants have a term of five years.

On May 17, 2010, the Company became the exclusive China distributor of Welch Allyns patient monitors.

In addition, the Company also

distributed Welch Allyns other products including otoscopes, ophthalmoscopes and laryngoscopes.

On May 22, 2010, the Company signed an exclusive distributor agreement with HEYER Medical for its Cumulus ultrasonic nebulizer in China.

Company is authorized to distribute all models of this product.

On July 6, 2010, the Company signed a contract to sell 10,000 oxygen-chip units to Beijing C&D Co., Ltd.

for RMB 11 million

(approximately $1.58 million).

On August 11, 2010, the Company participated in the International FIME 2010 Show for medical manufacturers at the Miami Beach Convention Center in

FIME draws medical distributors, hospital purchasing agents as well as clinicians and physicians from the U.S.

and over 110 countries around the world including China.

On October 12, 2010, the Company exhibited its self-branded homecare products and a variety of products for which it serves as exclusive

distributor at the China International Medical Equipment Fair held in Shenyang, China.

The Fair is the largest exhibition of medical equipment and related products and services in the Asia-Pacific region and is held twice per year.

On November 5, 2010, the Company won a $2 million medical device distribution bid for a new rural healthcare construction project supported by

China Development Bank Corp (CDB).

CDB is a major Chinese state-owned bank focusing on Chinas national infrastructure development initiatives, basic industries, and pillar industries, in support of the State Councils

Agriculture, Farmer and Village policy to improve rural living conditions.

Anesthesia Machines

DHR ORSA Series anesthesia machine

February 2014

Ventilator Air Compressor

DHR280 Air Compressor for Ventilators

September 2013

Trolleys for Ventilators

Not a medical device

Sterilizers for Ventilators

Not a medical device

Anesthesia Machines

DHR ORSA Series anesthesia machine

September 2013

Respiratory and Oxygen Homecare Products

Product Model

Registration Expiration

Oxygen Concentrating Products

Oxygen concentrator

Sleep Apnea Treatment Products

Auto S-CPAP A9

Application stage

Diagnostic Products

Application stage

Continuing SFDA Regulation

We are subject to continuing regulation

In the event of significant modification to an approved medical device, its labeling or its assembly process, a new

premarket approval or premarket approval supplement may be required.

Our products are subject to, among others, the following regulations:

SFDA’s quality system regulations which require companies to create, implement and follow certain design, testing, control,

documentation and other quality assurance procedures;

medical device reporting regulations, which require that companies report to the SFDA certain types of adverse reaction and

other events involving their products;

SFDA’s general prohibition against promoting products for unapproved uses.

Class II and III devices may also

be subject to special controls applicable to them, such as supply purchase information, performance standards, quality inspection

procedures and product testing devices which may not be required for Class I devices.

We believe we are in compliance with

the applicable SFDA guidelines, but we could be required to change our compliance activities or be subject to other special controls

if the SFDA changes or modifies its existing regulations or adopts new requirements.

We are also subject to inspection and market

surveillance by the SFDA to determine compliance with regulatory requirements.

If the SFDA decides to enforce its regulations and

rules, the agency can institute a wide variety of enforcement actions such as:

fines, injunctions and civil penalties;

recall or seizure of our products;

the imposition of operating restrictions, partial suspension or complete shutdown of assembly;

criminal prosecution.

China Compulsory Certification Requirements

China Compulsory Certification, or CCC,

inclusive of a certificate and a mark, serves as evidence that the covered products can be imported, marketed or used in China.

The CCC mark is administered by the China National Certification and Accreditation Administration, which designates the China Quality

Certification Center to process CCC mark applications.

Some medical devices are required to have a CCC mark.

We have received a

certificate and a mark for each of our proprietary products for which a CCC mark is required.

Other National and Provincial Level Laws and Regulations

Beyond those laws and regulations we consider

material to our business, we are subject to evolving regulations under many other laws and regulations administered by governmental

authorities at the national, provincial and city levels, some of which are, or may be, applicable to our business.

customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships

Laws regulating the conduct of business

in our industry cover a broad array of subjects.

We must comply with numerous additional state and local laws relating to matters

such as safe working conditions, environmental protection and fire hazard control, which affect all companies doing business in

We believe we are currently in compliance with these laws and regulations in all material respects.

We may be required to

incur significant costs to comply with these laws and regulations in the future.

Unanticipated changes in existing regulatory requirements

or adoption of new requirements could have a material adverse effect on our business, financial condition and results of operations.

Restriction on Foreign Ownership

The principal regulation governing foreign

ownership of medical device businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue, effective as of December 11,

2007 (the “Catalogue”).

The Catalogue classifies the various industries into four categories:

encouraged, permitted,

restricted and prohibited.

As confirmed by the government authorities, BDL is engaged in an encouraged industry.

Such a designation

offers businesses distinct advantages.

For example, businesses engaged in encouraged industries:

are not subject to restrictions on foreign investment, and, as such, foreign can own a majority in Sino-foreign joint ventures

or establish wholly-owned foreign enterprises in the PRC;

provided such company has total investment of less than $100 million, the company is subject to regional (not central) government

examination and approval which are generally more efficient and less time-consuming;

may import certain equipment while enjoying a tariff and import-stage value-added tax exemption.

The National Development and Reform Commission

and the Ministry of Commerce periodically jointly revise the Foreign Investment Industrial Guidance Catalogue.

As such, there is

a possibility that our company’s business may fall outside the scope of the definition of an encouraged industry in the future.

Should this occur, we would no longer benefit from such designation.

Regulation of Foreign Currency Exchange

The principal regulations governing foreign

currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended, and the Administration Rules

of the Settlement, Sale and Payment of Foreign Exchange (1996).

Under these regulations, Renminbi are freely convertible for current

account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions,

but not for most capital account items, such as direct investment, loan, repatriation of investment and investment in securities

outside China, unless the prior approval of SAFE or its local counterparts is obtained.

In addition, any loans to an operating

subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective

approved total investment amount and its respective approved registered capital amount.

Furthermore, any foreign loan must be registered

with SAFE or its local counterparts for the loan to be effective.

Any increase in the amount of the total investment and registered

capital must be approved by the PRC Ministry of Commerce or its local counterpart.

We may not be able to obtain these government

approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.

The dividends paid by the subsidiary to

its shareholder are deemed shareholder income and are taxable in China.

Pursuant to the Administration Rules of the Settlement,

Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject

to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE.

Foreign exchange transactions

under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant

PRC governmental authorities.

Regulation of Dividend Distribution

The principal regulations governing the

distribution of dividends by foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the

Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment

enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting

standards and regulations.

In addition, foreign investment enterprises in China are required to allocate at least 10% of their

respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered

capital of the enterprises.

These reserves are not distributable as cash dividends.

On October 21, 2005, SAFE issued Notice

75, which became effective as of November 1, 2005.

According to Notice 75, prior registration with the local SAFE branch

is required for PRC residents to establish or to control an offshore company for the purposes of financing that offshore company

with assets or equity interests in an onshore enterprise located in the PRC.

An amendment to registration or filing with the local

SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the

offshore company or overseas funds raised by such offshore company, or any other material change involving a change in the capital

of the offshore company.

Moreover, Notice 75 applies retroactively.

As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in

the PRC in the past are required to complete the relevant registration procedures with the local SAFE branch.

Under the relevant

rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed

on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment

of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity, and may also

subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

PRC residents who control our company are

required to register with SAFE in connection with their investments in us.

Such individuals completed this registration in 2007,

and 2008, as amended.

If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents

in the future, such PRC residents will be subject to the registration procedures described in Notice 75.

Trademark Rights

The PRC Trademark Law, adopted in 1982

and revised in 2001, with its implementation rules adopted in 2002, protects registered trademarks.

The Trademark Office of the

State Administration of Industry and Commerce (“SAIC”), handles trademark registrations and grants trademark registrations

for a term of ten years.

Regulations on Offshore Parent Holding Companies’

Investment in and Loans to Their PRC Subsidiaries

An offshore company may invest equity in

a PRC company, which will become the PRC subsidiary of the offshore holding company after investment.

Such equity investment is

subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the

Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture

Enterprise Law, all as amended from time to time, and their respective implementing rules;

the Tentative Provisions on the Foreign

Exchange Registration Administration of Foreign-Invested Enterprise;

and the Notice on Certain Matters Relating to the Change of

Registered Capital of Foreign-Invested Enterprises.

Under the aforesaid laws and regulations,

the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original approval

authority of its establishment.

In addition, the increase of registered capital and total investment amount shall both be registered

with SAIC and SAFE.

Shareholder loans made by offshore parent

holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to

a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration

on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the

Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.

Under these regulations, the shareholder

loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE.

Furthermore, the total

amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference

between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to the

governmental approval.

Risk Factors.

The Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

The Company is not required to provide

the information required by this Item because the Company is a smaller reporting company.

Unresolved Staff Comments.

Company is not required to provide the information required by this Item because the Company is a smaller reporting company.

The Company is not required to provide

the information required by this Item because the Company is a smaller reporting company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business