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Item 1. Business

2013-03-18 compared with 2012-03-19 · 542 added, 468 removed, 340 unchanged (75% of the section changed)

9 unchanged sentences

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.

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.

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

We continue 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.

Conformité

Européenne

certification

Timesco’s

authorization

(“IMD”),

(“Heyer”).

Heyer’s

“High-Efficiency

Inhaler”

high-altitude

China’s

Administration

(“SFDA”)

China’s

Administration

technologies,

In September 2012, the Company won a 3-year procurement

agreement for its proprietary air compressors and customized

trolleys from a major medical equipment manufacturer in Ukraine.

In September 2012, the Company entered into a two-year distribution

agreement with GCE group, a leading global compressed gas-equipment

company, to become the exclusive distributor for GCE's EASE

II product in Mainland China.

The newly-distributed product

can be widely used in many fields including disaster relief

efforts, national defense, emergency rooms, ambulances, and

medical institutions.

In September 2012, the Company signed three medical equipment

procurement agreements with Beijing's Hospitals 304 and 307,

two of China's most well-known first-tier hospitals, and with

Beijing Kanglian Medicines Co.

for the China Development Bank

Rural Medical and Health Construction Project.

In September 2012, the Company obtained Megapixels software

copyrights for its DHR C-Arm X Ray Machine.

The upgraded technology

can produce optimized images with minimal user involvement through

its advanced imaging technology.

In October 2012, the Company won a government procurement

contract with Xinjiang Province to distribute medical equipments

to Hospitals in Xinjiang.

The contract will be implemented by

the end of 2012.

In October 2012, the Company renewed its status of National

High Technology Enterprises and received government subsidies

of RMB118,100 for short-term bank loan interest, as a result

of favorable treatment granted to High Technology Enterprises.

In December 2012, the Company was awarded a credit of A-

from Beijing Zhongguancun Enterprises Credit Promotion Association,

as a result of its improved performance of competitiveness in

the industry, relatively strong enterprise system, sustainable

business model and low credit risk.

In December 2012, the Company signed a medical equipment

procurement agreement with Hebei province for the China

Development Bank Rural Medical and Health Construction Project.

In December 2012, the Company presented its newly-developed

Efficient Oxygen Supplement System ("EOS System")

at the 2012 Military Surgical Symposium, held in Tianjin from

November 30 to December 2, 2012.

The symposium featured with

highest level of forward-looking medical concepts & theories

and best practice.

Our proprietary and distributed products

include two major categories:

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

therapy products (previously defined as respiratory and oxygen homecare products).

Our medical devices proprietary and distributed

products are mainly used in hospitals and clinics, while the sleep respiratory and oxygen therapy products are mainly for hospitals,

sleep centers, at-home use by individual, emergency center, national defense and national disaster relief circumstances.

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.

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/technical service products, and

sleep respiratory and oxygen therapy 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.

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

X-ray machines.

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

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.

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.

In addition, 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.

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

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.

three types of trolleys to hold ventilators and their accessories

for mobility.

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”)

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.

Sleep Respiratory and Oxygen Therapy

Oxygen Concentrating Products .

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

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.

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.

designed and expect to provide several products designed for

obstructive sleep apnea (“OSA”) therapy.

These products

include our DHR CPAP C5, DHR Auto CPAP A8, and DHR Auto S-CPAP

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

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 sleep.

Our automatic CPAP products provide air pressure at a customized,

adjustable level, while our traditional CPAP products provide

a constant level of air pressure.

Sleep Apnea Diagnostic Products.

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

Effective Oxygen Supplement System.

an effective oxygen supplement system on the basis of newly-distributed

oxygen valve and portable oxygen tanks.

This enhanced system

can be widely applied to particular circumstances including

hospital, emergency treatment, disaster relief, national defense,

homecare and homecare oxygen therapy service (“HOTS”).

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.

Our success 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

competitive prices.

We increased our annual investment in research and development activities as a percentage of net revenues

every year since 2003.

Research and development costs were $230,854 and $268,038 for the years ended December 31, 2012 and

2011, respectively.

Our research and development team consists of 27 engineers, representing more than one-tenth of our employees.

Our project 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.

If we deem a 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.

it enables us to make adjustments as necessary and develop cost-efficient assembly processes prior to distribution.

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 7 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 Beijing University of Technology

Principal Suppliers –

Our Proprietary

We use the following

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

We us 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.

China Medical Equipment Co.

China National Electronic Device Corp.

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

1 unchanged sentence

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.

We outsource 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 products.

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.

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.

We depend on 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.

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 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

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 five design patents related to our CPAP

devices (2), portable sleep screening (2) and diagnostic services (1).

In addition, we obtained 9 software copyrights to

our C-arm X-Ray machine (1), CPAP machine (5), air compressor (1) and air concentrator (2).

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.

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

for trademark protection in China.

Our success 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.

We 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.

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

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

1 unchanged sentence

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.

Our 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 more well-known international brands with higher quality than they associate with domestically produced 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.

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

HEYER, eVent and GCE.

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.

We distribute medical

devices and sleep respiratory and oxygen therapy products for these companies.

Medical Devices

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.

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.

We provide one type

of ventilator developed by another company:

the Inspiration

Ventilators from eVent.

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.

We provide two types

of anesthesia machines developed by other companies:

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

administer a precise and continuous supply of anesthetic gases

and vapors to the patient at accurate and safe pressure and

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.

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:

We provide one type

of ultrasonic nebulizer developed by another company:

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.

These devices are used to treat patients with

respiratory disease such as asthma, bronchitis and pneumonia.

The 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.

We provide three 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 larynx.

Anesthesiologists make use of laryngoscopes to assist with intubation

Sleep Respiratory and Oxygen Therapy Products

Oxygen Valve.

We offer a high-flow oxygen

device named EASE from Gas Control Equipment Corp.

connected with a portable oxygen tank or medical gas pipeline

system to deliver high flows of oxygen to patients with minimal

breathing resistance.

In addition, it helps to deliver high-flow,

minimal resistance oxygen to patients.

This device effectively

increases the degree of blood oxygen saturation and accelerates

the recovery of cell functions when patients experience severe

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.

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), eVent (USA) and GCE (Sweden).

In this capacity, we are responsible for sales, marketing and after-sale services

of these products.

We sign agency agreements with these international

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Our Distributed

In addition to the products we design,

we distribute products designed and manufactured by the following companies:

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.

The exact products from these suppliers

are available only from such suppliers;

however, we believe that we will be able to obtain similar products from other suppliers

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

Our Service Centers

We maintain a 24-hour customer service

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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.

We have three categories of customers:

(i) distributors, (ii) hospitals and government agencies and (iii) individual consumers to whom we sell directly.

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.

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.

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.

and plan to sell through third-party 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 years ended December 31, 2012 and 2011, approximately 13% of the Company’s revenues were received from each of two customers.

Concentration of Receivables .

December 31, 2011, receivables from two customers were approximately 12% and 10%, respectively.

No customer represented more than

10% of amounts receivable at December 31, 2012.

Dependence on Major Suppliers.

December 31, 2012 and 2011, payables due to three suppliers were approximately 34%, 33%, 19% and 50%, 8%, 6%, respectively.

The medical device industry is characterized

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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.

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

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Proprietary Product

Primary Competitors in China

Dehaier’s Estimated Competitive Position

Primary Competitors

Dehaier’s

Estimated Competitive Position*

DHR Explorer Series C-armed X-ray machine

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DHR oxygen concentrator

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

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

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

Not in market yet

DHR Homecare CPAP * DHR Homecare APAP * DHR Homecare S * DHR

Foreign companies such as Respironics, ResMed, and

Updated product line not in the market yet

DHR 998* and DHR 999* screening and diagnosis products

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Distributed Product

Primary Competitors in China

Dehaier’s Estimated Competitive Position

Primary Competitors

Dehaier’s

Estimated Competitive Position

IMD C-armed X-ray machine

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Smaller than average

HEYER Anaesthesia Machine

HEYER Anesthesia Machine

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

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*A “greater than average”

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

position 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.

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.

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

As we expand into international markets,

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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.

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

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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.

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

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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.

First, 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 services.

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.

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 18, 2013, we have 165 full-time

employees, of which, 37 are employed in assembly;

27 are in research and development;

15 are in general administration;

in marketing, sales, and customer support and service;

and 8 are in procurement and supply management.

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 plans.

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 to time.

We make contributions

to employee benefits equal to 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

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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.

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

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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 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

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

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

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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.

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

six months before the expiration date of the permit.

If we are unable to renew the permit before it expires, we could lose our

ability to assemble our medical devices until the situation is rectified.

Although we have not yet renewed our permit, we anticipate

filing our renewal application in the near future.

Distribution License

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Our distribution license will expire on September

If we are unable to renew the permit before it expires, we could lose our ability to distribute medical devices until

the situation is rectified.

Although we have not yet renewed our permit, we anticipate filing our renewal application in the near

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.

for commercial distribution, a company must affect 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 results.

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

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 approval.

If the food and drug administration requires supplemental information, the approval process may

take much longer.

The registration is valid for four years.

The SFDA may change its policies, adopt

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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

Explorer Series mobile and C-armed

X-ray machine

IMD Compact Series mobile-X-ray

Anesthesia Machines.

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September 2013

Timesco Laryngoscope

September 2014

Injection Pump

JMS Injection Pump SP-500

Anesthesia Machine

Heyer Narkomat

Trolleys for Ventilators.

Not a medical device

Not applicable

Not a medical

Sterilizers for Ventilators.

Not a medical device

Anesthesia Machines

DHR ORSA Series anesthesia machine

September 2013

Not applicable

Not a medical

Respiratory and Oxygen Homecare Products

Product Model

Registration Expiration

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Auto S-CPAP A9

Application stage

Diagnostic Products.

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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,

Our products are subject to, among others, the following

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.

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

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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:

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;

the imposition of operating restrictions, partial suspension

or complete shutdown of assembly;

criminal prosecution.

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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.

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.

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

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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.

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”).

ownership of medical device businesses in the PRC is the 2011 Foreign Investment Industrial Guidance Catalogue (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.

encouraged, permitted, restricted and prohibited.

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

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.

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.

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

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

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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.

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

The dividends paid by the subsidiary to

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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.

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.

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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.

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.

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

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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.

Direct 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,

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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