What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2013-03-18 compared with 2012-03-19 · 653 added, 694 removed, 741 unchanged (65% of the section changed)

6 unchanged sentences

Controls and Procedures.

Evaluation of Disclosure Controls and

Evaluation of Disclosure Controls

and Procedures

As of December 31, 2012 (the “Evaluation

1 unchanged sentence

the Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the

Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act

Based on the foregoing, the chief executive officer and chief financial officer concluded that as of the Evaluation Date

the company’s disclosure controls and procedures were effective and designed to ensure that all material information required

to be included in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and

reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that

information required to be disclosed is accumulated and communicated to our management, including our principal executive and principal

financial officers, or persons performing similar functions, as appropriate to allow timely decision regarding required disclosure.

Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange

Act of 1934).

Based on the foregoing, the chief executive officer and chief financial officer concluded that as of the Evaluation

Date the company’s disclosure controls and procedures were effective and designed to ensure that all material information

required to be included in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized

and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure

that information required to be disclosed is accumulated and communicated to our management, including our principal executive

and principal financial officers, or persons performing similar functions, as appropriate to allow timely decision regarding required

Management’s Annual Report on Internal

1 unchanged sentence

The Company’s management is responsible

for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under

the Securities and Exchange Act of 1934, as amended.

for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f)

under the Securities and Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed

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over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the recording of transactions

of the Company’s assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements

(1) pertain to the maintenance of records that, in reasonable detail,

accurately and fairly reflect the recording of transactions of the

Company’s assets;

(2) provide reasonable assurance that transactions are recorded as

necessary to permit preparation of consolidated financial statements

in accordance with U.S.

GAAP, and that the Company’s receipts and expenditures are being made only in accordance with the

authorization of its management and directors;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the

Company’s assets that could have a material effect on the consolidated financial statements.

GAAP, and that the Company’s receipts

and expenditures are being made only in accordance with the authorization

of its management and directors;

(3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use or disposition of the Company’s

assets that could have a material effect on the consolidated financial

Because of its inherent limitations, a system

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of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the

effectiveness of its internal control over financial reporting as of December 31, 2011.

In making this assessment, management used

the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring

The Company’s management assessed

the effectiveness of its internal control over financial reporting as of December 31, 2012.

In making this assessment, management

used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission, or COSO.

Based on this assessment, the Company’s management believes that, as of

the Evaluation Date, its internal control over financing reporting is effective based on the criteria established in the Internal

Based on this assessment, the Company’s management believes that, as

of the Evaluation Date, its internal control over financing reporting is effective based on the criteria established in the Internal

Control—Integrated Framework issued by COSO.

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Other Information.

Directors, Executive Officers and Corporate

Directors, Executive Officers and Corporate Governance.

Regulation S-K Item 401:

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officers and directors, their ages and the positions held by them:

Position Held

Ping Chen (1)(2)

Chief Executive Officer and Chairman of Board of Directors

Yanying (Aileen) Qi (1)

Chief Executive Officer and Chairman

(Charles) Li (1)

Chief Financial Officer

Weibing Yang (1)(3)

Yunxiang (Phil) Fan (1)(3)(4)(5)(6)

(Phil) Fan (1)(3)(4)(5)(6)

Independent Director

Genhui Chen (1)(4)(5)(6)(7)

Chen (1)(4)(5)(6)(7)

Independent Director

Mingwei Zhang (1)(4)(5)(6)(7)

Zhang (1)(4)(5)(6)(7)

Independent Director

The individual’s business address is c/o Suite 501, Jiuzhou Plaza, 83 Fuxing Road, Haidian District, Beijing 100856 China.

(1) The individual’s business address is c/o Suite

501, Jiuzhou Plaza, 83 Fuxing Road, Haidian District, Beijing

100856 China.

(2) Class III director whose term expires in 2015.

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Prior to his service as our Chief Executive Officer, from 1993-2000, Mr.

Chen served as the CEO

of Beijing Chengcheng Medical Electronic Equipment Co.

Chen served as the

CEO of Beijing Chengcheng Medical Electronic Equipment Co.

Prior to 1993, Mr.

Chen served as an engineer at the No.

Ministry of Aeronautics and Astronautics from 1987 to 1991 and moved up to the Head of the Civilian Products Division there from

Academy, Ministry of Aeronautics and Astronautics from 1987 to 1991 and moved up to the Head of the Civilian Products Division

there from 1991-1993.

Chen founded BTL in 2001 and has served as CEO since that time.

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member of management.

Yanying (Aileen) Qi .

Qi is familiar with US GAAP and PRC GAAP reporting and has assisted Dehaier with the Company’s IPO and ongoing accounting

reporting responsibilities.

Prior to joining Dehaier, Ms.

Qi served for three years as Financial Manager at Singapore Shoubiao

Qi earned dual degrees in accounting and finance at Renmin University in China.

Jingli (Charles) Li .

Li is our Chief Financial Officer and is familiar with US GAAP, China GAAP and the Sarbanes-Oxley Act.

Li has supported Dehaier

with the establishment of its internal control system and procedures since November 2010.

He previously worked as a senior auditor

in KPMG Huazhen Beijing from September 2008 through November 2010.

Li earned his bachelor degree in Economics at Beijing University

of Technology in 2008 and is a member of the Internal Control Institute as a Certified Internal Control Specialist.

Weibing Yang.

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Yang graduated from the Medical School of SooChow University in 1989.

Yang was chosen as a director because of his

extensive experience in sales and marketing of medical equipment.

Yang was chosen as a director because of

his extensive experience in sales and marketing of medical equipment.

Yunxiang (Phil) Fan.

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Fan provided technical, engineering and management services in several U.S.

firms, including Black and Beatch, Parsons Brinckerhoff, Inc., and Chastain-Skillman, Inc.

From 2003 through 2005, Mr.

was the Asia Regional Sales Manager for Met-Pro Corporation.

Fan earned his bachelor’s and master’s degrees

in environmental engineering from Hunan University and a master’s degree in civil engineering from Louisiana State University.

engineering firms, including Black and Beatch, Parsons Brinckerhoff, Inc., and Chastain-Skillman, Inc.

From 2003 through 2005,

Fan was the Asia Regional Sales Manager for Met-Pro Corporation.

Fan earned his bachelor’s and master’s

degrees in environmental engineering from Hunan University and a master’s degree in civil engineering from Louisiana State

Fan has been a registered professional engineer in the United States since 2001.

Fan was chosen as a director

because we believe we can benefit from the guidance of the president of a Chinese company publicly traded in the U.S.

Fan was chosen

as a director because we believe we can benefit from the guidance of the president of a Chinese company publicly traded in the

Chen is president

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knowledge and experience in accounting from the perspective as an academic and a practicing accountant.

Since September 2007, Mr.

Since September 2007,

Zhang has served as Chief Financial Officer and a Director of Sino-Global Shipping America, Ltd.

2001 until December 2007, Mr.

Zhang was a partner in Baker Tilly China, an international public accounting firm.

From July 1994

through July 2010, Mr.

Zhang also served as a professor and head of the School of Accounting at Tianjin University of Finance and

From May 2001 until December 2007, Mr.

Zhang was a partner in Baker Tilly China, an international public accounting

From July 1994 to June 2003, he served as a Lecturer at Monash University in Australia.

Zhang received a Bachelor’s

degree and a Master’s degree in Accounting from Tianjin University of Finance and Economics.

to June 2003, he served as a Lecturer at Monash University in Australia.

Zhang received a Bachelor’s degree

and a Master’s degree in Accounting from Tianjin University of Finance and Economics.

He also received a Master’s

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Employment Agreements

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 employee.

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.

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 employment agreements with our executive

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Share Option Pool

In connection with our initial public offering,

we established a pool for share options for our employees.

This pool contains options to purchase up to 450,000 of our common shares.

The options will vest at a rate of 20% per year for five years and have an exercise price of the market price of our shares

on the date the options are granted.

As of the date of this report, we have issued all 450,000 options out of our employee share

In connection with our initial public

offering, we established a pool for share options for our employees.

This pool contains options to purchase up to 450,000 of our

common shares.

The options will vest at a rate of 20% per year for five years and have an exercise price of the market price

of our shares on the date the options are granted.

As of the date of this report, we have issued all 450,000 options out of our

employee share option pool.

Board of Directors and Board Committees

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years thereafter.

A director may vote in respect of any contract

or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract

or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter.

A general notice or disclosure

to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof

of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary

to give special notice relating to any particular transaction.

A director may be counted for a quorum upon a motion in respect

of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.

A director may vote in respect of any

contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such

contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter.

A general notice

or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or

any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice

it shall not be necessary to give special notice relating to any particular transaction.

A director may be counted for a quorum

upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested

and may vote on such motion.

There are no membership qualifications for directors.

Further, there are no share ownership qualifications for directors unless

so fixed by us in a general meeting.

Further, there are no share ownership qualifications

for directors unless so fixed by us in a general meeting.

The Board of Directors maintains a majority

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Rule 4200(a)(15).

Fan, Zhang and Chen are our independent directors.

Fan, Zhang and Genhui Chen are our independent directors.

Ping Chen currently holds both

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Board Committees

Currently, three committees have been established

under the board:

Currently, three committees have been

established under the board:

the audit committee, the compensation committee and the nominating committee.

The audit committee is responsible

for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company,

including the appointment, compensation and oversight of the work of our independent auditors.

The compensation committee of the

board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all

forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the

authority to interpret those plans).

The nominating committee of the board of directors is responsible for the assessment of the

performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors

and other governance issues.

The nominating committee considers diversity of opinion and experience when nominating directors.

The audit committee

is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements

of our company, including the appointment, compensation and oversight of the work of our independent auditors.

The compensation

committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our

officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our

board retains the authority to interpret those plans).

The nominating committee of the board of directors is responsible for the

assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations

or elections of directors and other governance issues.

The nominating committee considers diversity of opinion and experience

when nominating directors.

Duties of Directors

Under British Virgin Islands law, our directors

have a duty to act honestly, in good faith and with a view to our best interests.

Our directors also have a duty to exercise the

care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances.

In fulfilling their duty

of care to us, our directors must ensure compliance with our third amended and restated memorandum and articles of association.

Under British Virgin Islands law, our

directors have a duty to act honestly, in good faith and with a view to our best interests.

Our directors also have a duty to

exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances.

In fulfilling

their duty of care to us, our directors must ensure compliance with our third amended and restated memorandum and articles of

We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors

include, among others:

appointing officers and determining the term of office of the officers;

authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed

exercising the borrowing powers of the company and mortgaging the property of the company;

executing cheques, promissory notes and other negotiable instruments on behalf of the company;

maintaining or registering a register of mortgages, charges or other encumbrances of the company.

Limitation of Director and Officer Liability

The functions and powers of our board

of directors include, among others:

appointing officers and determining the term of office of

the officers;

authorizing the payment of donations to religious, charitable,

public or other bodies, clubs, funds or associations as deemed

exercising the borrowing powers of the company and mortgaging

the property of the company;

executing checks, promissory notes and other negotiable

instruments on behalf of the company;

maintaining or registering a register of mortgages, charges

or other encumbrances of the company.

Limitation of Director and Officer

British Virgin Islands law does not limit

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and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees,

and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection

with civil, criminal, administrative or investigative proceedings to which they are party or are threatened

to be made a party by reason of their acting as our director, officer or liquidator.

To be entitled to indemnification, these persons

must have acted honestly and in good faith with a view to the best interest of the company and, in the case of criminal proceedings,

they must have had no reasonable cause to believe their conduct was unlawful.

and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative

or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director,

officer or liquidator.

To be entitled to indemnification, these persons must have acted honestly and in good faith with a view

to the best interest of the company and, in the case of criminal proceedings, they must have had no reasonable cause to believe

their conduct was unlawful.

Insofar as indemnification for liabilities

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Based solely upon a review of Forms 3

and 4 and amendments thereto furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal year and Form 5 and

amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation referred

and 4 and amendments thereto furnished to the Company under 17 CFR 240.16a-3(e) during its most recent fiscal year and Form 5

and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation referred

to in paragraph (b)(1) of this section, the Company is not aware of any director, officer, beneficial owner of more than ten percent

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Zhang qualifies as the audit committee financial expert.

The Company’s

audit committee charter was filed as Exhibit 99.2 to the Company’s annual report for the year ended December 31, 2009 and

is available on the Company’s website (www.dehaier.com.cn).

Company’s audit committee charter was filed as Exhibit 99.2 to the Company’s annual report for the year ended December

31, 2009 and is available on the Company’s website (www.dehaier.com.cn).

Executive Compensation.

Executive Compensation

The following table shows the annual compensation

paid by us for the years ended December 31, 2010 and 2011 to Ping Chen, our principal executive officer.

No other officer

had a salary during either of the previous two years of more than $100,000.

The following table shows the annual

compensation paid by us for the years ended December 31, 2011 and 2012 to Ping Chen, our principal executive officer.

other officer had a salary during either of the previous two years of more than $100,000.

Summary Executive Compensation Table

Name and principal position

Principal Executive Officer

$ 183,000 (1)

Principal Executive

(1) On December 29, 2011, 150,000 share options were awarded to

Chen, which options vest over a period of five years, the first 20% of which will vest on December 29, 2012.

The grant date

fair value of the options is $1.22.

(1) On December 29, 2011, 150,000 share options were awarded to Mr.

Chen, which options vest over a period of five years, the first

20% of which vested on December 29, 2012.

The grant date fair value of the options is $1.22.

Director Compensation

6 unchanged sentences

Employee directors do not receive any compensation for their services.

Non-employee directors are entitled to receive $4,000 per meeting for serving as directors and may receive option grants from

Non-employee directors are entitled to receive payment for serving as directors and may receive option grants from our company.

For service on our Board of Directors, Mr.

Zhang receives $4,000 per year, and Mr.

Genhui Chen receive $2,000 per

meeting attended.

Summary Director Compensation Table

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Ping Chen (2)

Zheng (Rita) Liu (2)(3)

Yunxiang (Phil) Fan

Jimin (Peter) Zhuo(3)

Genhui Chen (6)

Weibing Yang (2)

Mingwei Zhang (4)

(1) None of the directors received any common share awards, nonqualified deferred compensation earnings or non-equity

(1) None of the directors received any common share awards, option awards, nonqualified deferred compensation earnings or non-equity

incentive plan compensation in fiscal year 2012.

Ping Chen, Ms.

Ping Chen and Mr.

Yang received compensation in their capacity as officers of our company and/or subsidiaries/affiliates

but did not receive any compensation for serving as directors of our company.

Liu ceased to be an officer of our company on September 30, 2011 and ceased to be a director of our company on November

Zhuo ceased to be a director of our company on March 1, 2012.

Qiu ceased to be a director of our company on November 28, 2011.

Genhui Chen and Weibing Yang became directors of our company on November 28, 2011.

Genhui Chen received no cash

compensation in fiscal year 2011.

Zhang became a director of our company on March 1, 2012.

He received no compensation in fiscal year 2011.

Security Ownership of Certain Beneficial

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Plan category

of securities to be issued upon exercise of outstanding options, warrants and rights(a)

Number of securities to

be issued upon exercise of

outstanding options,

warrants and rights (a)

Weighted-average

exercise price of outstanding options, warrants and rights(b)

of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(c)

Equity compensation

plans approved by security holders

exercise price of

outstanding options,

warrants and rights (b)

Number of securities remaining

available for future issuance under

equity compensation plans

(excluding securities reflected in

column (a)) (c)

Equity compensation plans approved by security holders

Principal Shareholders

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with respect to beneficial ownership of our common shares as of March 18, 2013 by:

Each person who is known by us to beneficially own more than 5% of our outstanding common shares;

Each person who is known by us to beneficially own more

than 5% of our outstanding common shares;

Each of our directors and named executive officers;

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The number and percentage of common shares

beneficially owned before the offering are based on 4,565,000 common shares outstanding as of March 19, 2012.

with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common

Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have

voting or investment power with respect to securities.

In computing the number of common shares beneficially owned by a person

listed below and the percentage ownership of such person, common shares underlying options, warrants or convertible securities

held by each such person that are exercisable or convertible within 60 days of March 19, 2012 are deemed outstanding, but are not

deemed outstanding for computing the percentage ownership of any other person.

Except as otherwise indicated in the footnotes to

this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for

all common shares shown as beneficially owned by them.

Unless otherwise indicated in the footnotes, the address for each principal

shareholder is in the care of BDL, Room 501, Jiuzhou Plaza, 83 Fuxing Road, Haidian District, Beijing 100856, People’s Republic

As of the date of this filing, we have eleven (11) shareholders of record.

beneficially owned are based on 4,620,000 common shares outstanding as of March 18, 2013.

Information with respect to beneficial

ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common shares.

Beneficial ownership

is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power

with respect to securities.

In computing the number of common shares beneficially owned by a person listed below and the percentage

ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that are

exercisable or convertible within 60 days of March 18, 2013 are deemed outstanding, but are not deemed outstanding for computing

the percentage ownership of any other person.

Except as otherwise indicated in the footnotes to this table, or as required by

applicable community property laws, all persons listed have sole voting and investment power for all common shares shown as beneficially

owned by them.

Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of BDL,

Room 501, Jiuzhou Plaza, 83 Fuxing Road, Haidian District, Beijing 100856, People’s Republic of China.

As of the date of

this filing, we have ten (10) shareholders of record.

Named Executive Officers and Directors

4 unchanged sentences

Weibing Yang, VP of Sales and Marketing, Director

Yunxiang (Phil) Fan

Mingwei Zhang

All officers and directors as a group

1 unchanged sentence

1,104,742 (3)

De-haier Investment Holdings Ltd.

(1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect

to the common shares.

(2) The number of our common shares outstanding used in calculating the percentage for each listed person excludes the common shares

underlying options held by such person.

(3) Ping Chen has the sole power to direct the voting and disposition of the 1,104,742 shares held by Chen Ping Ltd.

(4) Milestone Capital Management Limited, the sole shareholder of De-haier Investment Holdings Ltd., has discretionary authority

to vote and dispose of the 527,693 shares held by De-haier Investment Holdings Ltd.

Yunli Lou and Mr.

in their capacities as managers of Milestone Capital Management Limited, may also be deemed to have investment discretion and voting

power over the shares held by De-haier Investment Holdings Ltd.

Qiu disclaim any such beneficial ownership

of the shares.

* Less than 1%.

(1) Beneficial ownership is determined in accordance with

the rules of the SEC and includes voting or investment

power with respect to the common shares.

(2) The number of our common shares outstanding used in

calculating the percentage for each listed person excludes

the common shares underlying options held by such person.

(3) Ping Chen has the sole power to direct the voting and

disposition of the 1,104,742 shares held by Chen Ping Ltd.

The number also includes 30,000 shares underlying options,

which will have vested within 60 days hereof.

(4) The number also includes 10,000 shares underlying options,

which will have vested within 60 days hereof.

(5) The number represents shares underlying options, which

will have vested within 60 days hereof.

Certain Relationships and Related Transactions,

and Director Independence.

The sections of the Registration Statement

and IPO Prospectus entitled “Related Party Transactions”

and “Management”

are incorporated herein by reference.

Since the beginning of Dehaier’s

last fiscal year, there have been no related party transactions required to be disclosed pursuant to Item 404(d) of Regulation

Promoters and Certain Control Persons

We did not have any promoters at any time

during the past five fiscal years.

Except as set forth in our discussion above, none of our directors or officers has been involved

in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed

pursuant to the rules and regulations of the SEC.

We did not have any promoters at any

time during the past five fiscal years.

Except as set forth in our discussion above, none of our directors or officers has been

involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required

to be disclosed pursuant to the rules and regulations of the SEC.

Director Independence

2 unchanged sentences

Rule 4200(a)(15).

Fan, Zhang and Chen are our independent directors.

Fan, Zhang and Genhui Chen are our independent directors.

Principal Accountant Fees and Services.

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Audit Related Fees

During fiscal 2011 and 2010, the Company

paid Friedman LLP $0 and $4,319, respectively, for audit-related services.

These services consisted of assurance and related services

that were reasonably related to the performance of the audit and reviews of our financial statements and are not included in “Audit

The services provided by our auditors within this category consisted of advice relating to SEC matters and the

filing of our registration statement and amendments thereto.

The Company has not paid Friedman LLP

for audit-related services in fiscal 2012 and 2011.

The Company has not paid Friedman LLP

for tax services in fiscal 2012 and 2011.

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engagement to audit our consolidated financial statements for 2012 that were attributed to work performed

by persons other than Friedman LLP’s full-time permanent employees was approximately 79%.

by persons other than Friedman LLP’s full-time permanent employees was 75%.

Exhibits, Financial Statement Schedules.

The following documents are filed herewith:

Third Amended and Restated Articles of Association of the Registrant (1)

Third Amended and Restated Memorandum of Association of the Registrant (1)

Third Amended and Restated Articles

of Association of the Registrant (1)

Third Amended and Restated Memorandum

of Association of the Registrant (1)

Specimen Share Certificate (1)

Form of Share Option Plan (1)

Translation of lease agreement for Product Center dated September 23, 2008 (1)

Translation of Production Agreement with Friend of Health (Chuzhou) Medical Technology Co., Ltd.

Mortgage Contract between ICBC and BTL (1)

Indemnification and Guarantee Contract between Ping Chen and BTL (1)

Description of oral loan contract between BTL and BDL (1)

Loss Absorption Agreement between BDL, BTL and shareholders of BTL (1)

Translation of lease agreement for

Product Center dated September 23, 2008 (1)

Translation of Production Agreement

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

Mortgage Contract between ICBC and

Indemnification and Guarantee Contract

between Ping Chen and BTL (1)

Description of oral loan contract

between BTL and BDL (1)

Loss Absorption Agreement between

BDL, BTL and shareholders of BTL (1)

Subsidiaries of the Registrant (2)

Consent of Friedman LLP, independent registered public accounting firm (2)

Certifications pursuant to Rule 13a-14(a) or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2)

Consent of Friedman LLP, independent

registered public accounting firm (2)

Certifications pursuant to Rule 13a-14(a)

or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002 (2)

Certifications pursuant to Rule 13a-14(a)

or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002 (2)

Certifications pursuant to 18 U.S.C.

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Audit Committee Charter (4)

Press release dated March 18, 2013, titled “Dehaier Medical Announces 2012 Fourth Quarter and Year

End Financial Results.”

XBRL Instance Document (3)

XBRL Taxonomy Extension Schema Document (3)

XBRL Taxonomy Extension Calculation Linkbase Document (3)

XBRL Taxonomy Extension Definition Linkbase Document (3)

XBRL Taxonomy Extension Label Linkbase Document (3)

XBRL Taxonomy Extension Presentation Linkbase Document (3)

(1) Incorporated by reference to the registrant’s registration statement on Form S-1, File no.

333-163041, filed on November 12,

2009, as amended.

XBRL Taxonomy Extension Calculation

Linkbase Document (3)

XBRL Taxonomy Extension Definition

Linkbase Document (3)

XBRL Taxonomy Extension Label Linkbase

XBRL Taxonomy Extension Presentation

Linkbase Document (3)

(1) Incorporated by reference to the registrant’s

registration statement on Form S-1, File no.

filed on November 12, 2009, as amended.

(2) Filed herewith.

(3) Furnished herewith.

(4) Incorporated by reference to the registrant’s Form 10-K, File no.

(4) Incorporated by reference to the registrant’s

Form 10-K, File no.

001-34661, filed on March 31,

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the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DEHAIER MEDICAL SYSTEMS LIMITED

DEHAIER MEDICAL SYSTEMS

March 18, 2013

/s/ PING CHEN

Chief Executive Officer

(Principal Executive Officer)

Chief Executive

Financial and Accounting Officer)

Pursuant to the requirements of the Securities

Act of 1933, as amended, this report has been signed by the following persons in the capacities and on the dates indicated:

/s/ PING CHEN

Chief Executive Officer and Director

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(Principal Executive Officer)

/s/ YANYING (AILEEN) QI

Chief Financial Officer (Principal Accounting and Financial Officer)

JINGLI (CHARLES) LI

Chief Financial Officer (Principal

Accounting and Financial Officer)

March 18, 2013

Yanying (Aileen) Qi

/s/ WEIBING YANG

Jingli (Charles)

March 18, 2013

/s/ GENHUI CHEN

March 18, 2013

/s/ MINGWEI ZHANG

MINGWEI ZHANG

March 18, 2013

Mingwei Zhang

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2012 and 2011

Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Equity for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

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DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Equity for the Years Ended December 31, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS

DEHAIER MEDICAL SYSTEMS LIMITED

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents

Accounts receivable-less allowance for doubtful accounts of $859,509 and $87,555

Other receivables

Accounts receivable

-less allowance for doubtful accounts of $865,769 and $859,509

Contract Deposits

Other receivables, net

Advances to Suppliers

Prepayment and other current assets

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Property and equipment, net

Intangible assets, net

LIABILITIES AND EQUITY

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Warranty obligation

Due to officer

Total Current Liabilities

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DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

For the years ended

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CONSOLIDATED STATEMENTS OF EQUITY

Dehaier Medical Systems Limited

Paid-in Capital

Medical Systems Limited

comprehensive

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Balance as of January 1, 2011

Issuance of shares, net of transaction costs

Foreign currency translation

Balance as of December 31, 2010

Issuance of 10,000 shares to non-employees.

Issuance of 50,000 shares to non-employees.

Issuance of 450,000 5 years options to employees at $1.45 per share

Issuance of 450,000 options to employees, officers and directors

Foreign currency translation

Balance as of December 31, 2011

Issuance of 5,000 shares to non-employee

Issuance of 20,000 shares to non-employee

Issuance of 10,000 shares to non-employee

Stock based Compensation

Foreign currency translation

Balance as of December

The accompanying notes are an integral part

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Cash flows from operating activities

Adjustments to reconcile net income to net cash used in operating activities

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Stock-based compensation expense

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(Recovery of) Provision for doubtful accounts

(Recovery of) Provision for inventory obsolescence

Gain on sale of equipment

Provision for doubtful accounts - other receivables

Provision for warranty reserve

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Changes in assets and liabilities:

Increase in accounts receivable

Decrease (Increase) in accounts receivable

Increase in prepayments and other current assets

Decrease (Increase) in other receivables

Decrease (Increase) in inventories

Decrease ( Increase) in tax receivable

Increase (Decrease) Increase in accounts payable

Increase in advances from customers

(Decrease) Increase in accrued expenses and other current liabilities

(Decrease) Increase in tax payable

Net cash used in operating activities

Decrease in inventories

Decrease in tax receivable

Increase in accounts payable

(Decrease)Increase in advances from customers

Increase in accrued expenses and other current liabilities

Decrease in taxes payable

Net cash provided by (used in) operating activities

Cash flows from investing activities

Proceeds from sale of equipment

Capital expenditures and other additions

Software Copyrights

Advances to related parties

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Repayment of bank loan

Net proceeds from issuance of common stock

Net cash provided by financing activities

Effect of exchange rate fluctuations on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Limited (“BDL”) and its affiliate Beijing Dehaier Technology Limited (“BTL”).

On October 23, 2003, Dehaier established a wholly-owned subsidiary in Hong Kong, De-haier Medical System (Hong Kong) Limited (“DHK”),

DHK was shut down on December 19, 2011 due to a change in business strategy.

On November 9, 2011, Dehaier established a wholly-owned

subsidiary in the United States, Breathcare LLC (“Breathcare”).

On November 9, 2011, Dehaier established a wholly-owned subsidiary in the United States, Breathcare LLC (“Breathcare”).

Both BDL and BTL were incorporated in the People’s Republic of China (“PRC”).

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inter-company transactions and balances are eliminated in consolidation.

A group of shareholders, including the Chief

Executive Officer, originally held more than 50% of the voting ownership interest of Dehaier, BDL and BTL.

BTL is a variable interest

entity (“VIE”), and BDL is the primary beneficiary.

BTL owns a building which is pledged as collateral for BDL’s

A group of shareholders, including the

Chief Executive Officer, originally held more than 50% of the voting ownership interest of Dehaier, BDL and BTL.

BTL owns a building

which is pledged as collateral for BDL’s bank loans.

In exchange, BDL loans money to BTL to finance its operations.

BTL’s primary operation is to provide repairs

and transportation services to BDL’s customers.

Because of these arrangements, BDL is the primary beneficiary of BTL, as

the entity that is most closely associated with BTL.

Dehaier has included BTL in its consolidated financial statements through

the consolidation with BDL since December 31, 2006.

Dehaier, BDL and BTL were under common control until October 31,

2009, when each share of preferred share was converted into a common share.

Because the Chief Executive Officer held more than

50% of the voting ownership interest of each of Dehaier, BDL and BTL at December 31, 2006, the Company initially measured

the assets, liabilities and non-controlling interest of the VIE at the amounts at which they were carried in the accounts of the

reporting entity that controls the VIE.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Consolidation - Continued

On October 31, 2009, BDL reconsidered whether

it is the primary beneficiary of BTL when Dehaier’s preferred stock was converted into common shares.

While such conversion

dilutes the Chief Executive Officer's interest in BDL such that BDL and BTL are not under common control after October 31, 2009,

BDL still has the obligation to absorb the expected losses of BTL.

BTL is still a VIE because all of its activities either involve

or are conducted on behalf of the reporting enterprise and its related parties.

BDL is BTL’s only customer referral source.

On March 3, 2010, BDL entered into a Loss Absorption Agreement memorializing the understanding that BDL would continue to loan

money to BTL as needed to fund its working capital such that BDL would absorb BTL’s losses.

Management makes ongoing reassessments

of whether BDL is the primary beneficiary of BTL.

The carrying amount and classification of BTL’s

assets and liabilities included in the Consolidated Balance Sheets are as follows:

primary operation is to provide repairs and transportation services to BDL’s customers.

Because of these arrangements, BDL

is the primary beneficiary of BTL, as the entity that is most closely associated with BTL.

BTL is considered a variable interest

entity(“VIE”).

Management makes ongoing reassessments of whether BDL is the primary beneficiary of BTL.

The carrying amount and classification

of BTL’s assets and liabilities included in the Consolidated Balance Sheets are as follows:

Total current assets

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Total liabilities

The accounts of BTL are consolidated in the

accompanying financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10, “Consolidation”.

The accounts of BTL are consolidated in

the accompanying financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10, “Consolidation”.

As a VIE, BTL’s revenues are included in the Company’s service income, and its income from operations is consolidated

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of the Company’s and BTL’s financial statements.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

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Estimates are adjusted to reflect actual experience when necessary.

accounting estimates reflected in the Company's consolidated financial statements include revenue recognition, allowance for doubtful

accounts, warranty obligation, warrants liability, Stock-based compensation and useful lives of property and equipment.

results could differ from those estimates.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, allowance

for doubtful accounts, warranty obligation, warrants liability, stock-based compensation and useful lives of intangible assets,

and property and equipment.

Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on

hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or

less when purchased.

The Company maintains uninsured cash and cash equivalents with various financial institutions mainly in the

PRC and the States.

Cash and cash equivalents consist of cash

on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months

or less when purchased.

The Company maintains uninsured cash and cash equivalents with various financial institutions mainly in

the PRC and the States.

Accounts Receivable

Accounts receivable are recorded at net realizable

Accounts receivable terms typically are net 60-180 days from the end of the month in which the services were provided, or

when goods were delivered.

The company generally does not require collateral or other security to support accounts receivable.

An allowance, if required, is based on a combination of historical experience, aging analysis, and an evaluation of the collectibility

of specific accounts, Prior to 2011, receivables were considered past due after 3 years.

In 2011, after assessing the distributors’

economic factors and Company’s historic experience, management decided that receivables over 1 year will be considered past

Management has determined that an allowance of $859,509 (RMB5,419,725) and $87,555 (RMB578,068) was appropriate at December

31, 2011 and 2010, respectively.

Accounts receivable are recorded at net

realizable value.

Accounts receivable terms typically are net 60-180 days from the end of the month in which the services were

provided, or when goods were delivered.

The Company generally does not require collateral or other security to support accounts

An allowance, if required, is based on a combination of historical experience, aging analysis, and an evaluation of

the collectibility of specific accounts.

Management considers that receivables over 1 year to be past due.

Management has determined

that an allowance of $865,769 (RMB5,394,874) and $859,509 (RMB5,419,725) was appropriate at December 31, 2012 and 2011, respectively.

Other Receivables, Net

Other receivables primarily include advances

to employees and advance to suppliers.

Management regularly reviews aging of receivables and changes in payment trends and records

a reserve when management believes collection of amounts due are at risk.

Accounts considered uncollectible are written off after

exhaustive efforts at collection.

Management has determined that an allowance of $598,747 was appropriate at December 31, 2012.

Advances to Suppliers and Advances from

The Company, as is the common practice in the

PRC, often makes advance payments to suppliers for unassembled parts, or receives advance payments from customers.

suppliers were $6,653,890 and $4,515,737 as of December 31, 2011 and 2010, respectively, which were included in prepayments and

other current assets.

Advances from customers were $303,000 and $269,189 as of December 31, 2011 and 2010, respectively.

The Company, as is the common practice

in the PRC, often makes advance payments to suppliers for unassembled parts, or receives advance payments from customers.

to suppliers were $4,470,756 and 4,348,847 as of December 31, 2012 and 2011, respectively.

Advances from customers were $248,940

and $303,000 as of December 31, 2012 and 2011, respectively.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments

The carrying amounts reported in the

consolidated financial statements for current assets and current liabilities approximate fair value due to the short-term nature

of these financial instruments.

The Company adopted the provisions of ASC topic

815, “Derivatives and Hedging”.

The carrying amounts reported in the consolidated

financial statements for current assets and current liabilities approximate fair value due to the short-term nature of these financial

The Company follows the provisions of ASC

topic 815, “Derivatives and Hedging”.

ASC topic 815 provides a framework for determining whether an instrument is indexed

to an entity's own stock.

ASC topic 815 became effective for the Company when warrants were issued in connection with the Company's

initial public offering.

Such warrants are indexed to the Company's stock, which is traded in US dollars.

Warrants are indexed to the Company's stock, which is traded in US dollars.

Since the Company's functional

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The fair value of the warrants liability is measured each reporting

period with the resulting change in fair value recorded in the consolidated statement of income and comprehensive income (see Note

The accounting standards regarding fair value

of financial instruments and related fair value measurements define fair value, establish a three-level valuation hierarchy for

disclosures of fair value measurement, and enhance disclosure requirements for fair value measures.

period with the resulting change in fair value recorded in the consolidated statements of income and comprehensive income (see

The accounting standards regarding fair

value of financial instruments and related fair value measurements define fair value, and establish a three-level valuation hierarchy

for disclosures of fair value.

The three levels are defined as follows:

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Level 3 inputs to the valuation methodology are unobservable and significant to the fair value

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments-Continued

Warrants liabilities qualify as financial instruments,

and are carried on the balance sheet at its fair value.

Financial assets and liabilities are classified

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The fair value of

the warrants was determined using the Black Scholes Model, with level 2 inputs, and the change is recorded in earnings.

Inventories are stated at the lower of cost

or market and consist of assembled and unassembled parts relating to medical devices.

the warrants was determined using the Black Scholes Model, with level 2 inputs.

Inventories are stated at the lower of

cost or market and consist of assembled and unassembled parts relating to medical devices.

The Company reviews its inventory annually

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The reserve for obsolescence was $51,764 (RMB322,556)

and $48,855 (RMB322,556) for 2011 and 2010, respectively, and the provision is included in the operating expenses in the consolidated

statements of operations.

for each of 2012 and 2011, and the provision, when necessary, is included in the operating expenses in the consolidated statements

of income and comprehensive income.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment are recorded at cost

less accumulated depreciation and amortization.

Depreciation and amortization are calculated on a straight-line basis over the

following estimated useful lives:

Property and equipment are recorded at

cost less accumulated depreciation and amortization.

Depreciation and amortization are calculated on a straight-line basis over

the following estimated useful lives:

Leasehold improvements

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Motor vehicles

Intangible Assets

Intangible assets are recorded at cost

less accumulated amortization.

Amortization is calculated on a straight-line basis over the following estimated useful lives:

Leasehold improvements

Shorter of the useful lives or the lease term

Software copyrights

Other software

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for

impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.

When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated

undiscounted future cash flows expected to result from the use of the asset and eventual disposition.

If the sum of the expected

future cash flows is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount

over the fair value of the asset, is recognized.

Management has determined no impairment exists at the balance sheet dates.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company reviews its long-lived assets

for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.

When these events occur, the Company compares the carrying value of the long-lived assets to the estimated undiscounted future

cash flows expected to result from the use of the asset and eventual disposition.

If the sum of the expected future cash flows

is less than the carrying amount of the asset, the Company applies a discount rate to the estimated cash flows, and an impairment

loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

Management has determined no

impairment exists at the balance sheet dates.

Revenue Recognition

The Company recognizes revenues when all the

followings conditions have been satisfied:

*Persuasive evidence of

an arrangement exists;

The Company recognizes revenues when all

the followings conditions have been satisfied:

*Persuasive evidence

of an arrangement exists;

*Delivery and/or installation

has occurred (e.g.,risks and rewards of ownership has passed);

*The sales price is fixed

or determinable;

has occurred (e.g., risks and rewards of ownership have passed);

*The sales price is

fixed or determinable;

*Collectibility is reasonably

All revenues are based on firm customer orders

with fixed terms and conditions.

All revenues are based on firm customer

orders with fixed terms and conditions.

Because the products are assembled to the customers’

specification, there is no right of

specification, there is no right

The Company does not provide its customers with price protection or cash rebates.

For products which include software,

For products that include software,

the software is an off-the-shelf package and an integral part of the products being delivered.

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the revenue upon the completion of the repairs when the equipment has been returned to and accepted by the customers.

In the PRC, value added tax (VAT) of 17% of

the invoice amount is collected in respect of the sales of goods on behalf of tax authorities.

In the PRC, value added tax (VAT) of 17%

of the invoice amount is collected in respect of the sales of goods on behalf of tax authorities.

The VAT collected is not revenue

1 unchanged sentence

instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the authorities.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cost of Revenues

Cost of revenues primarily includes wages to

assemble parts and the costs of unassembled parts, handling charges, and other expenses associated with the assembly and distribution

Cost of revenues primarily includes wages

to assemble parts and the costs of unassembled parts, handling charges, and other expenses associated with the assembly and distribution

Service income and expense

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related to repair services provided for the customers by BTL.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translation

The accounts of Dehaier, BDL, BTL and

DHK are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).

The accounts of Dehaier, BDL, BTL and Breathcare

are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).

The accompanying consolidated financial statements are presented in US dollars.

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from the settlement of such transactions are recognized in the consolidated statements of income and comprehensive income.

foreign currency accounts of DHK, BDL and BTL are translated in accordance with ASC 830-10, “Foreign Currency Matters”.

foreign currency accounts of BDL and BTL are translated in accordance with ASC 830-10, “Foreign Currency Matters”.

Assets and liabilities are translated at current exchange rates quoted by the People’s Bank of China at the balance sheet

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The term of the product warranty is generally twelve months.

The reserve for warranty costs was $334,680, $301,464 at

December 31, 2011 and 2010, respectively.

The reserve for warranty costs was $338,671 and $334,680

at December 31, 2012 and 2011, respectively.

Warranty expense for the years ended December 31, 2012 and 2011 was $97,937 and $18,926,

8 unchanged sentences

and $91,017 for the years ended December 31, 2012 and 2011 were included in the operating expenses in the consolidated statements

of operations, respectively.

of income and comprehensive income, respectively.

Advertising Costs

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Earnings per Share

The Company follows the provisions of

ASC 260-10, “Earnings per Share”.

Basic earnings per share is computed by dividing net income attributable to holders

of common shares by the weighted average number of common shares outstanding during the years.

The Company follows the provisions of ASC

260-10, “Earnings per Share”.

Basic earnings per share is computed by dividing net income attributable to holders of

common shares by the weighted average number of common shares outstanding during the years.

Diluted earnings per share reflect

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common shares.

The average stock price for the year of 2011 did not exceed the exercise price of the outstanding warrants, therefore

none of the outstanding warrants were included in the diluted earnings per share.

Common stock equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation

of diluted earnings per share.

Value Added Tax

2 unchanged sentences

Stock-Based Compensation

The Company follows the provisions of

ASC 718-10, “Compensation-Stock Compensation”.

The Company has a share incentive plan which authorizes the issuance

of up to 10% of the number of shares outstanding.

The Company follows the provisions of ASC

718-10, “Compensation-Stock Compensation”.

The Company has a share incentive plan which authorizes the issuance of

up to 10% of the number of shares outstanding.

Pursuant to the plan, the Company may issue options to purchase its common shares

2 unchanged sentences

Accordingly, compensation is measured on the grant date using appropriate valuation models.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company uses the asset and liability

method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.”

method, income tax expense is recognized for the amount of:

Under this method,

income tax expense is recognized for the amount of:

(i) taxes payable or refundable for the current year;

deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s

financial statements or tax returns.

Deferred tax assets and liabilities are measured using enacted tax rates expected to

apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that

includes the enactment date.

A valuation allowance is provided to reduce the deferred tax assets reported if, based on the

weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax

assets will not be realized.

As of December 31, 2011, the Company recorded a deferred tax assets for the temporary

differences arising from allowance for doubtful accounts and certain accrued expenses (Note 14).

The Company believes it can

utilize the deferred tax assets to offset future taxable income.

Therefore, no valuation allowance has been provided as of

December 31, 2011.

The Company had no deferred tax assets or liabilities as of December 31, 2010.

and, (ii) deferred tax

consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements

or tax returns.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in

the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities

of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.

allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence,

it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recorded a deferred

tax asset for the temporary differences arising from allowance for doubtful accounts and certain accrued expenses.

believes it can utilize the deferred tax asset to offset future taxable income.

Therefore, no valuation allowance has been provided

as of December 31, 2012 and 2011.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (Continued)

ASC 740-10 prescribes a recognition threshold

11 unchanged sentences

if any, are included as components of income tax expense and income taxes payable.

The Company is awaiting resolution of certain

complex tax issues and has not yet filed its 2008 and 2009 Value Added Tax (“VAT”) returns for some of its customers.

However, all the potential VAT liabilities on these VAT returns were accrued and included in the accompanying consolidated financial

The implementation of ASC 740-10 resulted in

no material liability for unrecognized tax benefits.

As of December 31, 2011 and 2010, the Company did not have a liability for

any unrecognized tax benefits.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income

tax expense in the statement of operations.

During the years ended December 31, 2011 and 2010, the Company did not incur any interest

or penalties.

The Company had filed its 2008 and 2009 Value

Added Tax (“VAT”) returns for some of its customers during the year ended December 31, 2011 and 2012.

All the potential

VAT liabilities on these VAT returns occurred in current period were also accrued as incurred and included in the accompanying

consolidated financial statements.

The implementation of ASC 740-10 resulted

in no material liability for unrecognized tax benefits.

The Company recognizes interest and penalties, if any, related to unrecognized

tax benefits as income tax expense in the statements of income and comprehensive income.

During the years ended December 31, 2012

and 2011, the Company did not incur any interest or penalties.

Income tax returns for the year prior to

2010 are no longer subject to examination by tax authorities.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassification

Certain reclassifications have been made to

the prior year financial statements to conform to the current year presentation.

Certain reclassifications have been made

to the prior year financial statements to conform to the current year presentation.

Recently Issued Accounting Standards

On June 16, 2011,

the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update 2011-05 (“ASU 2011-05”),

Comprehensive Income (Topic 220)-Presentation of Comprehensive Income.

ASU 2011-05 eliminates the current option to report

other comprehensive income and its components in the statement of changes in equity, and requires that all nonowner changes in

stockholders’

equity be presented either in a single continuous statement of comprehensive income or in two separate but

consecutive statements.

The amendments in ASU 2011-05 should be applied retrospectively.

For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December

The adoption of this accounting standard is not expected to have a material effect on the Company’s consolidated

financial statements.

December 2011, FASB issued Accounting Standards Update No.

2011-12, “Comprehensive Income Topic 220:

Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of

Accumulated Other Comprehensive Income in Accounting Standards Update No.

Among the new provision in ASU

2011-05”

was a requirement for entities to present reclassification adjustments out of accumulated other comprehensive

income by component in both the statement in which the net income is presented and the statement in which other comprehensive

income is presented (for both interim and annual financial statements);

however this reclassification requirement is

indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date.

The adoption of

this accounting standard is not expected to have a material effect on the Company’s consolidated financial

MEDICAL SYSTEMS LIMITED AND AFFILIATE

The FASB has issued Accounting Standards

Update (ASU) No.

2013-02, Comprehensive Income (Topic 220):

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive

Income, to improve the transparency of reporting these reclassifications.

Other comprehensive income includes gains and losses

that are initially excluded from net income for an accounting period.

Those gains and losses are later reclassified out of accumulated

other comprehensive income into net income.

The amendments in the ASU do not change the current requirements for reporting net

income or other comprehensive income in financial statements.

All of the information that this ASU requires already is required

to be disclosed elsewhere in the financial statements under U.S.

The amendments are effective for reporting periods beginning

after December 15, 2012, for public companies and are effective for reporting periods beginning after December 15, 2013, for private

Early adoption is permitted.

The adoption will not have any material impact on the Company’s consolidated financial

The FASB has issued Accounting Standards

Update (ASU) No.

2013-01, Balance Sheet (Topic 210):

Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.

The main objective in developing this Update is to address implementation issues about the scope of Accounting Standards Update

2011-11, Balance Sheet (Topic 210):

Disclosures about Offsetting Assets and Liabilities.

The objective of this Update is to

clarify the scope of the offsetting disclosures and address any unintended consequences.

The amendments clarify that the scope

of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated

embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending

transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master

netting arrangement or similar agreement.

The amendments in this Update affect entities that have derivatives accounted for in

accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements,

and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section

815-10-45 or subject to an enforceable master netting arrangement or similar agreement.

Entities with other types of financial

assets and financial liabilities subject to a master netting arrangement or similar agreement also are affected because these amendments

make them no longer subject to the disclosure requirements in Update 2011-11.

An entity is required to apply the amendments for

fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods.

The adoption of this accounting

standard will not have any material impact on the Company’s consolidated financial statements.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

OTHER RECEIVABLES

OTHER RECEIVABLES, NET

Other receivables consist of the following:

Due from suppliers

Deposits for ongoing contracts

Staff advance

Employee advances

Allowance for doubtful accounts

PREPAYMENT AND OTHER CURRENT ASSETS

and other current assets consist of the following:

Advances to suppliers

Prepayment for equipment purchase

Other prepaid expenses

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT, NET

5 unchanged sentences

Property and equipment, net

At December 31,

2011 and 2010, BTL’s building was pledged to a bank as collateral for short-term borrowings of RMB10,000,000 (US$1,585,890),

RMB10,000,000(US$1,514,620), respectively (see Note 7).

At December 31, 2012 and 2011, BTL’s

building was pledged to a bank as collateral for short-term borrowings of RMB15,000,000 (US$2,407,200) and RMB10,000,000(US$1,585,890),

respectively (see Note 8).

Depreciation and amortization expense was

$471,727 and $450,518, for the years ended December 31, 2012 and 2011 , respectively.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Land Use Rights

There is no private ownership of land in China.

There is no private ownership of land in

Land is owned by the government and the government grants land use rights for specified terms.

The Company’s land use rights

are reported at the purchase price (RMB1,944,000 in 2002).

MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s land

use rights are reported at the purchase price (RMB1,944,000 in 2002).

INTANGIBLE ASSETS, NET

Software Copyright

Accumulated and amortization

Intangible assets, net

Amortization expense for the years ended

December 31, 2012 and 2011 was $80,359 and $0, respectively.

Annual future amortization expense at December 31, for each of the

next five years is $265,000 and $1,369,000 thereafter.

TAX RECEIVABLE

10 unchanged sentences

SHORT-TERM BORROWINGS

The Company has a line of credit for RMB10,000,000

with a commercial bank in China to finance its working capital.

The credit line bears interest at a variable rate and is renewed

annually on May 18th.

Average interest rates for the years ended December 31, 2011 and 2010 were 5.78% and 5.84%, respectively.

The Company has a line of credit for $1,604,800

(RMB10,000,000) with a commercial bank in China to finance its working capital.

The credit line bears interest at a variable rate

and is renewed annually.

Average interest rates for the year ended December 31, 2012 and 2011 were 6.60% and 5.78%, respectively.

Pursuant to the terms of the agreement, the line of credit is secured by BTL’s building (see note 5) and guaranteed by BDL

and an officer of the Company.

On June 14, 2011, the bank renewed the Company's

credit line that bears interest at a variable rate with payments due on January 20, 2012 and June 14, 2012 for RMB4,000,000 and

RMB6,000,000, respectively.

On January 19, 2012, RMB 4,000,000 was paid.

On May 14, 2012, the bank renewed the Company's

credit line that bears interest at a variable rate with payments due on March 14, 2013 and May 14, 2013 for RMB3,000,000 and RMB7,000,000,

respectively.

On February 2, 2012, the Company entered

into a new loan agreement with Nanjing Bank Company Limited (Beijing Branch) in the amount of $802,400 (RMB5,000,000) with floating

interest rate which was approximately 8.2% per year, due on January 30, 2013 (See note 19).

Pursuant to the terms of the agreement,

the line of credit is guaranteed by an officer of the Company.

Interest expense on short-borrowings for

the years ended December 31, 2012 and 2011 amounted to $149,488 and 82,136, respectively.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

8 unchanged sentences

TAXES PAYABLE

Taxes payable consists of the following:

Taxes payable consist of the following:

Value added tax

13 unchanged sentences

These non-cancelable leases have lease terms expiring

through December 2012 for one year.

Approximate future minimum lease payments under these leases at December 31, 2011, are as follows:

Year Ending December 31,

through December 2014.

Approximate future minimum lease payments under these leases at December 31, 2012, are $97,589 for the twelve

months ending December 31, 2013 and $46,862 for the twelve months ending December 31, 2014.

Rent expense for the year ended December

31, 2012 and 2011 was $124,373 and $161,362, respectively.

Rent expense paid to the spouse of the Chief

Executive Officer for the years ended December 31, 2011 and 2010 was nil and $10,047, respectively.

The company and Chief Executive

Officer agreed to terminate the lease agreement by April 30, 2010.

The Company received an overpayment of rent of $1,591 from the

Chief Executive Officer after the termination agreement was signed.

Employment Contracts

Under the PRC labor law, all employees have

signed employment contracts with the Company.

Management employees have employment contracts with terms up to three years and non-management

employees have a one year employment contract renewable on an annual basis.

Under the PRC labor law, all employees

have signed employment contracts with the Company.

Management employees have employment contracts with terms up to three years

and non-management employees have a one year employment contract renewable on an annual basis.

The Labor Contract Law of the People’s

5 unchanged sentences

Common Shares

At December 31, 2008, the Company’s Memorandum

and Articles of Association authorized share capital of US$50,000 comprised of 4,500,000 common shares and 500,000 preferred shares

(120,000 shares of Series A preferred shares and 380,000 shares of Series B preferred shares) with US$0.01 par value.

On October 31, 2009, the board of directors

approved a 3.6614-for-1 stock split of the Company’s common shares.

Accordingly, all common share and per share information

in the accompanying consolidated financial statements give retroactive effect of the stock split.

Prior to the stock split, there

were 516,722 common shares issued and outstanding at December 31, 2008.

The authorized share capital remains at US$50,000.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EQUITY (CONTINUED)

Common Shares (Continued)

On March 22, 2010, the founders of the

Company placed an aggregate of 600,000 common shares of the Company into escrow.

Such shares equaled 40% of the maximum

number of shares which were sold in the initial public offering (“IPO”).

The shares remained in escrow until the

Company filed its Form 10-K with the Securities and Exchange Commission for the year ended December 31, 2010.

The shares in

escrow (Make-Good Shares) were accounted for as an element in the IPO and the Company did not recognize any compensation

expense upon the return of such Make-Good Shares to the holders.

To the extent the Company’s earnings per share for the

year ended December 31, 2010 were less than $0.80, the Company would have redeemed the Make Good Shares, pro rata.

Alternatively, if the closing price of the common shares was equal to at least 2.5 times of the IPO offering price for five

trading days in any ten trading day period, then the Make-Good Shares would be returned to the founders.

At December 31,

2010, the earnings per share of the Company were $1.09.

Thus, the Company did not need to redeem any of the Make-Good Shares.

During the period from the IPO date to December 31, 2010, there was no such period in which the closing price of the common

shares was higher than 2.5 times of the IPO offering.

The shares were returned to the founders on May 5, 2011 and are

included as part of the calculation of the basic and diluted earnings per share in the accompanying consolidated financial

On March 8, 2011, Dehaier issued 10,000 unregistered

common shares to an investment relationship firm.

The fair value of the shares on the issuance date based on the closing price

On March 8, 2011, Dehaier issued 10,000

unregistered common shares to an investment relations firm in connection with the investment advice rendered for the Company.

fair value of the shares on the grant date based on the closing price was $59,300.

On November 16, 2011, Dehaier issued 50,000

unregistered common shares for capital market relationship activities.

The fair value of the shares on the issuance date based

on the closing price was $84,250.

Convertible Preferred Shares

In October 2003, the Company issued 120,000

Series A convertible preferred shares (“Series A Preferred Shares”) for total proceeds of $1,200,000.

During 2007, the Company issued in aggregate

182,635 Series B convertible preferred shares (“Series B Preferred Shares”) for total proceeds of $2,000,000.

31, 2009, each share of preferred stock was converted into common shares on a 1-to-1 basis.

Series A Preferred Shares and Series

B Preferred Shares were collectively referred to as the “Preferred Shares”.

Preferred Shares had priority over the

common stock “Common Shares”.

Certain rights, preferences and privileges of the Preferred Shares are

listed below:

The holders of Preferred Shares were entitled

to receive noncumulative dividends, when and if declared by the board of directors.

Dividends are not mandatory and shall not accrue.

Preferred Shares Series A and B had a liquidation

preference of $10 and $10.95074 per share, respectively.

The holders of Preferred Shares were entitled

to one vote for each share of common stock the Preferred Shares could be converted to.

Preferred Shares were non-redeemable.

On October 31, 2009 all the Preferred Shares

in authorized capital were re-designated as common shares.

unregistered common shares to a consulting firm in connection with the financial advisory services rendered for the Company.

fair value of the shares on the grant date based on the closing price was $84,250.

During 2012, Dehaier issued 60,000 restrict

unregistered common shares to independent consultants in connection with investment counseling and financial advisory services

rendered for the Company.

The fair value of the shares on the grant date based on the closing price was approximately $109,000.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

18 unchanged sentences

reserve provisions will be determined by its board of directors.

As of December 31, 2010, BDL’s board of directors has not

yet made such determination.

As of March 18, 2013, BDL’s board of directors has not yet

made such determination.

Therefore, no amount was allocated to the statutory surplus reserve account.

BTL appropriated 10% of its net profits as

statutory surplus reserve, which is included as part of the non-controlling interest in the equity section.

BTL appropriated 10% of its net profits

as statutory surplus reserve, which is included as part of the non-controlling interest in the equity section.

For the years ended

5 unchanged sentences

Stock Option Plan

Under the employee stock option plan, the Company’s

stock options expire five years from the date of grant.

On December 29, 2011, the Company entered into five-year agreements with

its employees and directors.

In connection with their services, the Company issued an aggregate of 450,000 options to acquire the

Company’s common shares at an exercise price of $1.45 per share.

The options vest in equal annual installments over the

five years of the agreements.

As of December 29, 2011, all of the 450,000 options have not been fully vested.

The Company valued the stock options using the

Black-Scholes model with the following assumptions:

Under the employee stock option plan, the

Company’s stock options expire five years from the date of grant.

On December 29, 2011, the Company entered into five-year

agreements with its employees and directors.

In connection with their services, the Company issued an aggregate of 450,000 options

to acquire the Company’s common shares at an exercise price of $1.45 per share.

The options vest in equal annual installments

over the five years of the agreements ending December 31, 2016.

As of December 31, 2012, 360,000 options have not been vested.

The Company valued the stock options using

the Black-Scholes model with the following assumptions:

Interest Rate

11 unchanged sentences

Outstanding as of December 31, 2011

Outstanding as of December 31, 2012

Following is a summary of the status of options

outstanding and exercisable at December 31, 2012:

Outstanding options Exercisable options

Outstanding options

Exercisable options

Average remaining

2 unchanged sentences

contractual life

For the years ended December 31, 2011 and 2010,

the Company recognized $903 and $0, respectively, as compensation expenses under its stock option plan.

For the year ended December 31, 2012 and 2011,

the Company recognized $110,163 and $903, respectively, as compensation expense under its stock option plan.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On April 21, 2010, the Company issued to Anderson &

Strudwick Incorporated (“A&S”) 150,000 warrants, as a portion of the placement commission for the IPO.

day, the Company granted a total of 7,500 warrants to Hawk Associates Inc.(“Hawks”), the Company’s investor relations

The Company had 157,500 warrants outstanding as of December 31, 2011.

On April 21, 2010, the Company issued to

Anderson & Strudwick Incorporated (“A&S”) 150,000 warrants, as a portion of the placement commission for

On the same day, the Company granted a total of 7,500 warrants to Hawk Associates Inc.(“Hawks”), the Company’s

investor relations consultancy.

On January 10, 2012, the Company issued 100,000 warrants to FirsTrust Group, Inc., (“FirsTrust”),

the Company’s investor relations consultancy totaling 257,500 warrants.

All the warrants

4 unchanged sentences

price of $9.60 per share with a term of 5 years.

The fair value of the outstanding warrants

at December 31, 2011 for A&S was calculated using the Black Scholes Model with the following assumptions:

Fair value per share (USD/share)

Exercise price (USD/share)

Risk free rate

Dividend yield

Expected term/Contractual life (years)

Expected volatility

All the warrants granted to FirsTrust have the right to purchase one share of

common stock for an exercise price of $4.00 per share with a term of 5 years.

The fair value of the outstanding warrants

at December 31, 2011 for Hawks was calculated using the Black Scholes Model with the following assumptions:

Fair value per share (USD/share)

at December 31, 2012 was calculated using the Black Scholes Model with the following assumptions:

Market price per share (USD/share)

Exercise price (USD/share)

$4.00, $9.60, $10.00

Risk free rate

0.25%, 0.25%, 0.75%

Dividend yield

Expected term/Contractual life (years)

2.30, 2.30, 4.02

Expected volatility

The following table sets forth by level within

the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of

December 31, 2011 and 2010.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

WARRANTS (CONTINUED)

The following table sets forth by level

within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis

as of December 31, 2012 and 2011.

Carrying Value at

3 unchanged sentences

Warrants liability

The following is a reconciliation of the beginning

and ending balances of warrants liability measured at fair value on a recurring basis using Level 2 inputs:

Carrying Value at

December 31, 2011

Fair Value Measurement at

December 31, 2011

Warrants liability

The following is a reconciliation of the

beginning and ending balances of warrants liability measured at fair value on a recurring basis using Level 2 inputs:

Beginning balance

2 unchanged sentences

Ending balance

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

WARRANTS (CONTINUED)

(1) Fair Value of Underlying

Ordinary Shares

$1.42 was the close price

of the Company’s Common Shares on December 31, 2011.

(2) Exercise price

The exercise price of the warrants

was determined by the Company’s board of directors.

(3) Risk-free interest rate

Risk-free interest rate was estimated

based on the yield to maturity of U.S.

Treasury notes with a maturity period close to the term of the warrants.

(4) Dividend yield

Dividend yield of 0% was estimated

by management of the Company.

(5) Life to Expiration

Life to expiration was based on contractual

term of the warrants.

(6) Volatility

The volatility of the underlying

ordinary shares during the life of the warrants was estimated based on the historical stock price volatility of listed comparable

companies over a period comparable to the expected term of the warrants.

The fair value of each A&S warrant at December 31,

2011 was $0.64.

The total fair value of such warrants was $96,469 at December 31, 2011.

The fair value of the warrants for A&S was $270,000

on the date of grant which was recognized as IPO expense.

The decrease in the fair value of the warrants during the period was

recognized as a change in fair value of warrants liability which was included in statements of operations.

The fair value of each Hawks warrant at December 31, 2011

The total fair value of such warrants was $4,894, which has not been reflected in the Company’s consolidated financial

statements due to immateriality.

The fair value of the warrants for Hawk at the grant date

The increase in fair value of the warrants resulted in a loss of $11,478, which has not been reflected in the Company’s

consolidated financial statements due to immateriality.

Following is a summary of the warrants activity:

Exercise Price

Weighted Average Remaining

Weighted Average

Contractual Life

Outstanding as of December 31, 2009

Outstanding as of January 1, 2011

Outstanding as of December 31, 2011

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

The following is a reconciliation of the

basic and diluted earnings per share computation for the years ended December 31, 2012 and 2011:

Basic earnings per share

Net income available to the company’s common shareholders

Weighted average shares outstanding - Basic

Earnings per share - Basic

Diluted earnings per share

Net income available to the company’s common shareholders

Weighted average shares outstanding - Basic

Weighted shares outstanding - Diluted

Earnings per share - Diluted

For the year ended December 31, 2012, 23,756

shares of the 450,000 stock options were exercisable and included in the diluted EPS calculation.

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

British Virgin Islands

2 unchanged sentences

BDL and BTL were incorporated in the PRC and are governed by the PRC laws.

DHK is subject to Hong Kong profits tax at a rate

of 17.5% on its assessable profits.

No Hong Kong profits tax has been provided as the Company did not have any taxable profit that

was earned in or derived from Hong Kong during the years presented.

PRC enterprise income tax is calculated based

on the Enterprise Income Tax Law (the “EIT Law”).

Under the EIT Law, a unified enterprise income tax rate of 25% and

unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises.

PRC enterprise income tax is calculated

based on the Enterprise Income Tax Law (the “EIT Law”).

Under the EIT Law, a unified enterprise income tax rate of

25% and unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises.

Under the current PRC laws, PRC government

1 unchanged sentence

period of validity for the certification of high technology companies is three years.

In 2009, BD L updated

its certification for “high technology”

Therefore, BDL used a 15% income tax rate to calculate the income

tax expense for the years ended December 31, 2011 and 2010.

The high technology certification will expire and be renewed by 2012.

The tax rate for

BTL is 25% in 2011 and 2010.

A reconciliation of income tax expense and

the amount computed by applying the statutory income tax rate to the income before income tax provision is as follows:

In 2009 and 2012 BD L

updated its certification for “high technology”

Therefore, BDL used a 15% income tax rate to calculate the

income tax expense for the years ended December 31 , 2012 and 2011 .

for BTL is 25% in 2012 and 2011

A reconciliation of income tax expense

and the amount computed by applying the statutory income tax rate to the income before income tax provision is as follows:

Year Ended December 31

1 unchanged sentence

Decrease in income taxes resulting from temporary differences

Permanent differences

The tax provision consists of a

current provision of $774,327 and $850,034 for 2011 and 2010, respectively, and a deferred benefit of $118,030 and $0,

for 2011 and 2010, respectively.

Provision (Benefit) for income taxes consists

Year Ended December 31

Current provision

Deferred provision (benefit)

Total provision for income taxes

United States

Breathcare is a limited liability company and

is not subject to federal income tax.

As of December 31, 2011, Breathcare was inactive.

RELATED PARTY TRANSACTIONS

At December 31 2010, the amount due to an officer

was $2,358 representing expenses paid by an officer of the Company.

This amount was repaid in the first three months of 2010 and

no amount was due at December 31, 2011.

Breathcare is a limited liability company

and, such as, is not subject to federal income tax.

Moreover, as of December 31, 2012, Breathcare was inactive and generate no

DEHAIER MEDICAL SYSTEMS LIMITED AND AFFILIATE

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2010, the

Company received approximately $443,000 (RMB 3,000,000) from the local government in China as a reward for the Company

successfully going public and listing on a U.S.

For the year ended December 31, 2011, the Company

received approximately $27,423 (RMB 177,200) from the local government in China as subsidy.

For the years ended December 31, 2012 and

2011, the Company received approximately $23,871 (RMB150,600) and $27,423 (RMB177,200), respectively, from the local government

in China as subsidy income.

CONCENTRATIONS

Major Customers

For the year ended December 31, 2011, approximately

13% of the Company’s revenues was received from each of two customers.

For the year ended December 31, 2010, approximately

8% of the Company’s revenues was received from one customer.

At December 31, 2011 and 2010, receivables

from four customers were approximately 12%, 10%, 9%, 9% and 12%, 11%, 11%, 9%, respectively.

For the years ended December 31, 2012 and

the Company’s three top selling products accounted, in the aggregate, for approximately 27% and 53%, respectively, of its

total net revenues.

2011, approximately 13% of the Company’s revenues were received from each of two customers.

At December 31, 2011, receivables from

two customers were approximately 12% and 10%, respectively.

No customer represented more than 10% of amounts receivable at December

Major Suppliers

At December 31, 2012 and 2011, payables

due to three suppliers were approximately 34%, 33%, 19% and 50%, 8%, 6%, respectively.

For the years ended December 31, 2012 and

2011, the Company’s top three selling products accounted, in the aggregate, for approximately 68% and 27%, respectively,

of its total net revenues.

The following represents the revenues by

1 unchanged sentence

For the years ended

Product Lines

Products Line

Medical Devices

1 unchanged sentence

SUBSEQUENT EVENTS

On January 10, 2012, the

Company entered into a warrant purchase agreement with the Company’s investment consultant, Firs Trust Group, Inc.,

pursuant to which, the Company issued 100,000 warrants expiring January 10, 2017 to purchase Company’s common shares at

$4.00 a share, as compensation for the services.

The fair value of the warrants was

approximately $98,000, which was calculated by using a fair value option model.

On January 9, 2012, the Company

entered into a consulting agreement with an investor relationship consultant, pursuant to which, the Company will grant this consultant

5,000 shares of restricted stock every quarter as compensation for services rendered.

The first 5,000 shares were granted on February

The fair value of the shares granted on February 13, 2012 was approximately $11,000 based on the closing price on that

On February 2, 2012, the Company

entered into a new loan agreement with Nanjing Bank Company Limited (Beijing Branch) in the amount of $792,945 (RMB

5,000,000) with floating interest rate which was approximately 8.2% per year, due on January 30, 2013.

4, 2013, the Company repaid the loan in the amount of $802,400 (RMB5,000,000) with Nanjing Bank Company Limited (Beijing

On March 5, 2013, the Company entered into

a new loan agreement with Nanjing Bank Company Limited (Beijing Branch) in the amount of $802,400 (RMB5,000,000) with a floating

interest rate which will be approximately 7.5% in 2013.

The loan is due on March 4, 2014.

Pursuant to the terms of the agreement,

the line of credit is guaranteed by an officer of the Company.

On March 14, 2013, the Company repaid the

credit line in the amount of $481,440 (RMB3,000,000) with a commercial bank in China as documented in Note 8.

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 8. Financial Statements and Supplementary Data