What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2011-03-07 compared with 2010-03-31 · 426 added, 401 removed, 76 unchanged (92% of the section changed)

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

applicable, as the Companys registration statement was declared effective on March 26, 2010, after the end of its fiscal year.

Accordingly, the Company had not received or applied any proceeds from the offering as of the end of the fiscal

(a) Market for Our Common Shares

Our common shares are traded on the NASDAQ Stock Market under the symbol DHRM.

The high and low common stock sales prices per share during the periods indicated were as follows:

Quarter Ended

Fiscal year 2010

Price per common share:

Fiscal year 2009

Price per common share:

Approximate Number of Holders of Our Common Shares

As of the date of this report there are eight (8) holders of record of our common shares.

This number excludes our common shares

owned by shareholders holding under nominee security position listings.

Dividend Policy

We have never declared or paid any cash dividends on our common shares.

We anticipate that we will retain any earnings to support

operations and to finance the growth and development of our business.

Therefore, we do not expect to pay cash dividends in the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of our Board

of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.

(b) The section entitled Use of Proceeds from our registration statement filed

on November 12, 2009, as amended (the Registration Statement) is incorporated herein by reference.

The effective date of the Registration Statement is March 26, 2010, and the Commission file number assigned to the Registration

Statement is 333-163041.

The Registration Statement registered the offering of up to 1,500,000 common shares (the Offering).

As of December 31, 2010, the Company has spent proceeds from the Offering in accordance with the following

Description of Use

Proposed Expenditure

Actual Expenditures through

December 31, 2010

Product Research and Development

Potential Acquisitions

Working Capital

have not yet completed any acquisitions, our management determined that it was in the best interest of the company to devote IPO proceeds to continue to grow our business.

In particular, we exceeded our anticipated marketing expenditures by $913,309

and our anticipated working capital expenditures by $697,594, in part by participating in several international medical device manufacturer fairs.

To the extent we are able to engage in acquisitions, we will need to rely on a variety of sources of

funding, including but not limited to remaining offering proceeds, operating cash and debt and/or equity financing.

Selected Financial Data.

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Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains, in addition to historical information, forward-looking statements that involve risks and

uncertainties.

The following discussion contains, in addition to historical information, forward-looking statements that involve risks

and uncertainties.

Our actual results could differ materially from those described herein.

We have been focused on the development and distribution of medical devices since our inception, and we began developing our respiratory and

oxygen homecare business in 2006.

We have been focused on the development and distribution of medical devices since our inception, and we began developing our respiratory

and oxygen homecare business in 2006.

We design, develop and market our branded products in China.

We import the majority of the products and medical components we sell to our customers.

We design and develop some of the medical components that are part

of the branded products to be distributed.

We design and develop some of the medical components that are

part of the branded products to be distributed.

Some of these medical components are manufactured by contractors in China because we do not have a manufacturing facility.

Most of our branded products we sell require light assembly.

Most of our branded products require light assembly.

In addition to our branded products, we also serve as a distributor of products designed and manufactured by other companies.

products from IMD (Italy), Timesco (UK), ResMed (Australia) and JMS (Japan).

We sell products primarily to distributors;

products from HEYER (Germany), Welch Allyn (US), IMD (Italy), Timesco (UK), ResMed (Australia) and JMS (Japan).

products primarily to distributors;

however, we also sell products directly to hospitals, clinics and government health bureaus.

We continually seek to broaden our market reach by introducing new and more advanced products and new product lines that address different end-user

For the past two fiscal years ended December 31, 2008 and 2009, our total revenues amounted to

approximately $9.41 million and $12.37 million, respectively.

Our revenues are subject to value added tax (VAT), sales returns and trade discounts .We deduct these amounts from our gross revenues to arrive at our total revenues.

income attributable to Dehaier for the years ended December 31, 2008 and 2009 was $0.92 million and $2.67 million, respectively.

Our total revenues are derived from products we provide in our three product lines, (i) Medical

Devices (ii) Respiratory and Oxygen Homecare Products and (iii) Technical Service Products.

We are currently operating in one business segment for all of our products we distribute.

Medical Devices Our Branded and Distributed Products

We derive revenues from our medical devices product line from the sale of C-arm X-ray systems, anesthesia machines, patient monitors and general hospital products.

Our medical device line is our largest

business line of products and has the most extensive market penetration of our three product lines.

We anticipate that we will continue to experience revenue growth in our medical devices line as we further penetrate the market through the

development and introduction of new advanced product offerings.

Respiratory and Oxygen Homecare Products Our Branded and

Distributed Products

We derive revenues in our respiratory and oxygen homecare line from sales of oxygen concentrators,

CPAP devices, portable sleep screening and diagnostic devices and thermotherapy devices.

We anticipate that, on a percentage basis, net revenues in our respiratory and oxygen homecare product line will increase more rapidly than total net revenues

in the near term, as we introduce new and more advanced products in this product line.

We expect to increase our market distribution in the respiratory and oxygen homecare market in China and to enter the international market through the use of

distributors as well as through our direct sales platform.

We continually seek to broaden our market reach by introducing new and more advanced products and new product lines that

address different end-user populations.

For the past two fiscal years ended December 31, 2009 and 2010, our total

revenues amounted to approximately $12.37 million and $19.60 million, respectively.

Our revenues are subject to value added tax (VAT), sales returns and trade discounts.

We deduct these amounts from our gross revenues to arrive at our

total revenues.

Our net income attributable to Dehaier for the years ended December 31, 2009 and 2010 was $2.67 million and $4.54 million, respectively.

Macro-Economic Factors and Business Trends

In 2009, the Chinese government committed RMB850 billion (US$123 billion) to develop the countrys healthcare system over a

three-year period.

The plan is to create a solid platform for universal healthcare access for all by 2020.

We believe the

prospects for medical device spending in China are substantial.

The government has committed heavily in the construction of thousands of hospitals, healthcare centers, and clinics.

We expect this will lead to increase in spending on capital goods,

including medical devices, equipment and furniture in the near term.

Priority will be given to the construction and

renovation of around 2,000 county-level hospitals, so that each county will have at least one such facility.

County-level hospitals are usually the most well equipped hospitals in the country and must have at least 250 beds.

The central government

will fund the construction of 29,000 township hospitals, and the upgrading of another 5,000, according to the plan.

The government will also fund the construction of village clinics in remote areas so that every village will have at least one unit

by the end of the three-year period.

Since opening its economy to the West in the late 1970s, China has experienced rapid

For 2010, Chinas GDP is estimated at US$5.7 trillion.

While this makes China one of the worlds largest economies, the size of the population means that per capita wealth was around US$4,280 in 2010.

The Chinese government expanded the health insurance program to cover all rural residents by the end of 2008.

Urban health insurance was

already well established, covering nearly all working citizens, and will be extended to cover all urban dwellers, including the unemployed and children who were not covered previously, by 2010.

China imposed lower import tariffs on more than 600 commodities effective January 1, 2010, including medical products and

pharmaceuticals, in a move to honor commitments made when it joined the WTO in 2001.

The government said it hopes the cuts will increase domestic spending on foreign products to boost industrial and rural development.

From an industry perspective,

the lower tariffs should result in lower retail prices and higher spending on foreign medical devices.

Based on the data

shown above and actions taken by Chinese government, we still believe that our company is likely to continue to grow in 2011 because our business is poised to directly benefit from Chinas increasingly enhanced investment in its health care

system as China is exerting more focus and efforts on sustaining the social development and stability.

New Opportunities in Our Business

According to Chinas Health Statistics Yearbook 2010, healthcare spending in China totaled $259 billion (5.1% of

total Chinese GDP) in 2009, which lagged behind other developed countries.

We anticipate that the increasing affluence in larger cities is likely to increase awareness of health and wellness, and desire to improve overall quality of life.

For 2010, Espicom estimates medical device market growth to be in the region of 13.6%;

one of the fastest growing markets in

High rates of growth are not uncommon in the Asian region, but on the back of a huge market size, Chinas growth is particularly pronounced.

Also according to Espicom, the medical device market in China is expected to reach $28

billion by 2014, doubled compared with the total sales in 2006.

In addition, the UN estimates that the Chinese population

over the age of 60 will increase from 167 million in 2010 to 440 million in 2050;

hence, the aging population and increasing incidence of respiratory disorders are expected to drive additional growth in respiratory homecare products in the

Chinese marketplace.

Chinese government programs are aimed at rebuilding and renovating urban health centers, and building

hospitals and medical centers in rural areas.

The government is setting up the goal of having one up-to-standard hospital in every county, one government-run medical center in every township and one clinic in every administrative village.

Recently, Shanghais government launched medical insurance to subsidize cost of homecare oxygen tanks, and we anticipate

other cities will be pushing for similar legislation.

We will seek to participate if such a program is implemented in Beijing.

Based on the data shown above, both from a market and a government perspective, we are leveraging our broad sales network in order to

introduce additional products from leading international brands into the Chinese market and planning to enlarge our Customer Experience Center (CEC) network penetration across China.

We believe that the favorable market conditions will trigger

tremendous market volume and our market expansion strategy will benefit our business growth in the future.

Growth Strategy

We will continue building our domestic brand to increase penetration of the medical device market and homecare solution from the key initiatives below:

Expand footprint of Customer Experience Centers (CECs) as a sales and marketing tool for consumers and healthcare professionals

Leverage strong relationships with healthcare professionals to increase awareness of DHRMs homecare products

Build international business through establishment of distribution agreements, OEM partnerships and direct sales force

Diversify base of third party distributed products through expansion of existing relationships and pursuit of new distribution partners

Increase portfolio of DHRM-branded medical devices and homecare products through R&D and potential strategic acquisition

Our total revenues are derived from products we provide in our three product lines, (i) Medical Devices (ii) Respiratory and Oxygen Homecare Products and (iii) Technical Service Products.

We currently operate in one business segment for all of our products we distribute.

Medical Devices Our Branded and Distributed

We derive revenues in our medical devices product line from the sale of C-arm X-ray systems, anesthesia machines,

patient monitors and general hospital products.

Our medical device line is our largest business line of products and has the most extensive market penetration of our three product lines.

We anticipate that we will continue to experience revenue

growth in our medical devices line as we further penetrate the market through the development and introduction of new advanced product offerings and the participation of favorable government policies.

Respiratory and Oxygen Homecare Products Our Branded and Distributed Products

We derive revenues in our respiratory and oxygen homecare line from sales of oxygen concentrators, CPAP devices, portable sleep

diagnostics and Rhinitis hyperthermia devices.

We anticipate that, on a percentage basis, net revenues in our respiratory and oxygen homecare product line will increase more rapidly than total net revenues in the near term, as we introduce new and

more advanced products in this product line.

We expect to increase our market penetration in the respiratory and oxygen homecare market both in China and internationally through the use of distributors as well as through our direct sales platform.

Technical Service Products Our Branded Products

We derive revenues in our technical service products line from sales of our air compressors and ventilator trolleys.

We anticipate continued

growth in revenues from our technical service products as we further penetrate this market by increasing the number of our distributors and maintaining a competitive pricing model.

Our ability to increase our revenues depends in large part on our ability to (i) increase the market penetration of our existing

products, (ii) successfully identify, develop, introduce and commercialize, in a timely and cost-effective manner, new and upgraded products and (iii) enter into international markets in the future.

Generally, we choose to devote our

resources to product development efforts that we believe are commercially feasible, can generate significant revenues and margins and can be introduced into the market quickly.

We anticipate continued growth in revenues from our technical service products as we

further penetrate this market by increasing the number of our distributors and maintaining a competitive pricing model.

ability to increase our revenues depends in large part on our ability to (i) increase the market penetration of our existing products, (ii) successfully identify, develop, introduce and commercialize, in a timely and cost-effective manner,

new and upgraded products and (iii) enter into international markets in the future.

Generally, we choose to devote our resources to product development efforts that we believe are commercially feasible, can generate significant revenues and

margins and can be introduced into the market quickly.

Factors Affecting Our Results of Operations Generally

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Operating Costs and Expenses

Our operating costs and expenses consist of cost of revenues, general and administrative expenses, selling expenses and other expenses.

Our total operating costs and expenses decreased as a percentage of our total revenues for the year

ended December 31, 2009 compared to the year ended December 31, 2008, primarily due to increased economies of scale and an increase in revenue.

Our operating costs and expenses consist of

cost of revenues, general and administrative expenses, selling expenses and other expenses.

Our total operating costs and expenses decreased a little as a percentage of our total revenues for the year ended December 31, 2010 compared to the

same period in 2009 primarily due to increased economies of scale and an increase in revenue.

The following table sets forth the components of our costs and expenses both in U.S.

amounts (in thousands) and as a percentage of total net revenues for the periods indicated.

For the years ended December 31,

(in thousands)

dollar amounts (in thousands) and as a percentage of total net

revenues for the years indicated.

For the year ended December 31,

Costs and expenses

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Cost of revenues

Cost of revenues primarily includes wages, parts for assembly, handling charges, and other expenses associated with the assembly and

distribution of product.

While our costs of revenues may decrease as a percentage of our total revenues due to economics of scale, our total costs of revenues are expected to increase in absolute dollars as our revenues grow.

Cost of revenues primarily includes wages, parts for assembly, handling charges, and other expenses associated with the assembly and distribution of product.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management, fees and expenses of our outside advisers, including legal, audit and valuation expenses,

expenses associated with our administrative offices and the depreciation of equipment used for

administrative purposes.

We expect that our general and administrative expenses will increase, both on an absolute basis and as a percentage of revenue, as we hire additional personnel and incur

costs related to the anticipated growth of our business.

In addition, we expect to incur additional general and administrative expenses associated being a public company.

General and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management, fees and expenses of our outside advisers, including

legal, audit and valuation expenses, expenses associated with our administrative offices and the depreciation of equipment used for administrative purposes.

We expect that our general and administrative expenses will increase, both on an absolute

basis and as a percentage of revenue, as we hire additional personnel and incur costs related to the anticipated growth of our business.

In addition, we expect to incur additional general and administrative expenses as a public company.

Selling Expenses

Selling expenses consist primarily of compensation and

benefits for our sales and marketing staff, expenses for promotional, advertising, travel and entertainment activities, lease payments for our sales offices, and depreciation expenses related to equipment used for sales and marketing activities.

Going forward, we expect our selling expenses to increase, both on an absolute basis and as a percentage of revenue, as we increase our efforts to promote our products, especially our new respiratory and oxygen homecare products.

Selling expenses consist primarily of compensation and benefits for our sales and marketing staff, expenses for promotional, advertising,

travel and entertainment activities, lease payments for our sales offices, and depreciation expenses related to equipment used for sales and marketing activities.

Going forward, we expect our selling expenses to increase, both on an absolute basis

and as a percentage of revenue, as we increase our efforts to promote our products, especially our new respiratory and oxygen homecare products.

Results of Operations

Our limited operating history makes it difficult to predict future operating results.

We believe that period-to-period comparisons of

operating results should not be relied upon as indicative of future performance.

Fiscal Year Ended December 31, 2010 Compared to

Fiscal Year Ended December 31, 2009.

Our total revenues increased by 58.45% from $12.37 million for the fiscal year ended December 31, 2009 to $19.60 million for the

fiscal year ended December 31, 2010.

The increase in revenues was due to the increased acceptance of our products among hospitals and other healthcare facilities as many of our end users such as hospitals became repeat customers when they

needed new medical equipment.

We also signed exclusive distribution agreements with HEYER and Welch Allyn, expanding our product lines in 2010 and contributing to our revenue growth.

In addition, we have further expanded our Customer Experience

Centers (CEC) network in China, which help leading to greater market presence in 2010.

Cost of Revenues

Our cost of revenues increased 59.52% from $7.51 million for the fiscal year ended December 31, 2009 to $11.98

million for the fiscal year ended December 31, 2010.

Our cost of revenues grew in U.S.

dollars as our revenues grew.

Our gross margin decreased slightly because of the increase of labor cost.

Operating Expenses

Our operating expenses increased by 49.72% from $1.79 million for the fiscal year ended December 31, 2009 to $2.68 million for the fiscal year ended December 31, 2010.

This increase was due to

increase in general and administrative and selling expenses, for the reasons described below.

ExpensesGeneral and Administrative Expenses

General and administrative expenses consist primarily of salaries

and benefits and related costs for our administrative personnel and management and expenses associated with our research and development and the registration of foreign exchange certificate.

Our general and administration expenses increased by 15.60% from $1.09 million for the fiscal year ended December 31, 2009 to $1.26

million for the fiscal year ended December 31, 2010.

This increase was small and mainly because of three reasons.

First, in accordance with our market expansion strategy, we opened new CECs (Customer Experience Centers) in China during 2010,

which require an initial investment before we expect them to generate any revenues.

Second, we incurred implementation expenses for Sarbanes-Oxley Section 404 compliance, as we hired an employee to carry out these functions, which did not apply

to us before our initial public offering.

Third, our labor costs increased as a result of our employee reward policy, which is designed to improve company culture and morale.

We expect that our general and administration expenses will increase in the near future as a result of expansion of business.

We anticipate using a portion of the net proceeds from our initial public

offering to expand our marketing efforts to continue to grow our revenues in China and internationally.

Among other strategies to expand our business, we plan to open more CECs, in order to strengthen our market presence in China.

These CECs give

our potential customers an opportunity to experience our products first-hand in an environment that is similar to the environment in which they will use the products, whether that is a home or healthcare facility.

Operating ExpensesSelling Expense

Our selling expense increased by 102.86% from $0.70 million for the fiscal year ended December 31, 2009 to $1.42 million for the fiscal year ended December 31, 2010.

Our selling expenses primarily consist of salaries and related expenses for personnel

engaged in sales, marketing and customer support functions and costs associated with advertising and other marketing activities.

Our selling expenses increased in 2010, mainly due to an increase in our sales staff in further strengthening our

distribution network.

We also participated in several medical exhibitions in and outside of China to network with our old and new customers.

We expect that our selling expenses will increase in the next year after new products are introduced in the market.

We tend to promote our new products by different advertising methods, such as to

participate in domestic and overseas medical exhibitions to show our products to the public and potential purchasers.

Operating Income

As a result of the foregoing, we generated an operating income of approximately $5.13 million in 2010, compared to approximately $3.35 million in 2009.

Operating income increased 53.13% largely due to the

increase of revenue.

Our income tax expense was approximately $0.85 million in 2010, compared to approximately $0.53 million in 2009.

Our taxable income increased primarily due to the increase in net income.

As a result of the foregoing, we had net income of approximately $4.56 million in 2010, compared to approximately $2.73 million in 2009.

After deduction of non-controlling interest in income, net income

attributable to Dehaier was approximately $4.54 million and $2.67 million in 2010 and 2009, respectively.

On March 22, 2010, the founders of the Company placed an aggregate of 600,000 common shares of the Company

Such shares equaled 40% of the maximum number of shares which were sold in the initial public offering (IPO).

The shares were required to remain in escrow until the Company files 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 will not recognize any compensation expense upon the return of such Make-Good

Shares to the holders.

To the extent the Companys earnings per share for the year ended December 31, 2010 were

less than $0.80, the Company would have been required to redeem, pro rata, such shares in order to cause the effective earnings per share to equal $0.80.

For the year ended December 31, 2010, however, the earnings per share of the company was

$1.09, or approximately 36% higher than the per share price upon which the Companys initial public offering valuation was based.

Thus, the Company does not need to redeem or prorate such shares.

The shares will be returned to the founders 45

days after the filing of this Form 10-K.

These shares are included as part of the calculation of the basic and diluted earnings per share for all the periods presented in the accompanying consolidated financial statements.

Liquidity and Capital Resources

Cash Flows and Working Capital

In 2009, we financed our operations

primarily through cash flows from operations.

In 2010, we financed our operations primarily from proceeds of common stock issuances.

As of December 31, 2010, we had approximately $5.92 million in cash and cash equivalents.

As a result of the

total cash activities, net cash increased from $1,151,721 at December 31, 2009 to $5,923,386 at December 31, 2010.

We believe that our currently available working capital of $22,618,735, including cash of $5,923,386, should be adequate to

meet our anticipated cash needs and sustain our current operations for at least 12 months.

Operating Activities

Net cash used in operating activities was $4,977,955 for the year ended December 31, 2010 as compared to $1,789,967 net cash provided

in operating activities for the same period in 2009.

Cash flow due to increase of $1,829,219 in net income .

Our net income increased primarily because of a growth in sales volume in 2010.

Cash outflow due to increase of $3,609,438 in prepayment .

The increase in prepayment is attributable to signing some large new sales contracts in fourth quarter

of 2010, which required us to order and pay for products in advance.

Cash outflow due to increase of $1,665,312 in other receivables .

The increase in other receivable is mainly caused by our contract bidding deposits and guaranty.

As we begin to expand our business and our product lines, we need to pay a portion of the contract amounts to our customers as bidding deposits or guaranty, and our customers will return these deposits to us, generally in 3-6 months.

Cash outflow due to increase of $4,042,481 in inventories .

The increase in inventories is attributable to the following two reasons:

1) We increased inventory on

hand to meet anticipated sales needs.

2) As we signed some exclusive distribution agreements with HEYER, and Welch Allyn to expand our product line in third quarter of 2010, we had to stock our inventories with these manufacturers products.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2010 was $878,702, compared to net cash used in investing activities of $914,527 for the year ended December 31, 2009.

cash used in investing activities was mainly attributable to capital expenditures for the purchase of new equipment.

Financing Activities

Net cash provided by financing activities for the year 2010 and 2009 was $9,944,207 and $0, respectively.

The cash provided by financing activities for year ended December 31, 2010 was due to net

proceeds from our IPO.

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations as of December 31, 2010:

Contractual obligations

Payments due by period

Operating Lease Obligations

Short-term borrowings

The leased properties

are principally located in the PRC, and we use such properties for administration and warehouse facilities.

The leases are renewable subject to negotiation.

Short-term borrowings represent short-term loans from a bank which is due in June 2011.

Capital Expenditures

We made capital expenditures of approximately

$0.89 million and $0.92 million in 2010 and 2009, respectively, representing 4.54%, 7.44%, of our total revenues, respectively.

In the past, our capital expenditures were used to purchase machines for our assembly line.

Our capital expenditures may

increase in the near term as our business continues to grow and as we expand and improve our financial and accounting systems and infrastructure.

Off-Balance Sheet Commitments and Arrangements

We have not entered

into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.

We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders equity or that are

not reflected in our consolidated financial statements.

Furthermore, we do not have

any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

We do not have any variable interest

in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Tax Matters Applicable to Our Company

Dehaier is a tax-exempt company incorporated in the British

Virgin Islands.

Dehaier is a tax-exempt company incorporated in the

British Virgin Islands.

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

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British Virgin Islands Tax

We are exempt from all provisions of the Income Tax Act of the British Virgin Islands, including with respect to all dividends, interests, rents, royalties, compensation and other amounts payable by or to persons who are not resident in the

British Virgin Islands.

Capital gains realized with respect to any of our shares, debt obligations or other securities by persons who are not resident in the British Virgin Islands are also exempt from all provisions of the Income Tax Act of the

British Virgin Islands.

No estate, inheritance tax succession or gift tax rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any of our shares, debt obligations, or other

persons who are not resident in the British Virgin Islands.

Capital gains realized with respect to any of our shares, debt obligations or other securities by persons who are not resident in the British Virgin Islands are also exempt from all

provisions of the Income Tax Act of the British Virgin Islands.

No estate, inheritance tax succession or gift tax rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any of our

shares, debt obligations, or other securities.

No stamp duty is payable in the British Virgin Islands in relation to a transfer of shares in a British Virgin Islands Business Company.

PRC Enterprise Income Taxes

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.

Enterprises established

prior to March 16, 2007 eligible for preferential tax treatment in accordance with the currently prevailing tax laws and administrative regulations shall, under the regulations of the State Council, gradually become subject to the EIT Law rate

over a five-year transition period starting from the date of effectiveness of the EIT Law.

The details of the transitional arrangement for the five-year period from January 1, 2008 to December 31, 2012 applicable to enterprises approved

for establishment prior to March 16, 2007, such as our company, were adopted in January 2008.

Furthermore, under the EIT

Law, an enterprise established outside of the PRC with de facto management bodies within the PRC is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25% on its global income.

the PRC tax authorities subsequently determine that we or any of our non-PRC subsidiaries should be classified as a PRC resident enterprise, then such entitys global income will be subject to PRC income tax at a tax rate of 25%.

under the EIT Law, payments from BDL to us may be subject to a withholding tax.

PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles.

In accordance with the Enterprise Income Tax Law (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.

Enterprises established prior to March 16, 2007 eligible for preferential tax treatment

in accordance with the currently prevailing tax laws and administrative regulations shall, under the regulations of the State Council, gradually become subject to the EIT Law rate over a five-year transition period starting from the date of

effectiveness of the EIT Law.

The details of the transitional arrangement for the five-year period from January 1, 2008 to December 31, 2012 applicable to enterprises approved for establishment prior to March 16, 2007, such as our

company, were adopted in January 2008.

Furthermore, under the EIT Law, an enterprise established outside of the PRC with

de facto management bodies within the PRC is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25% on its global income.

If the PRC tax authorities subsequently determine that we or

any of our non-PRC subsidiaries should be classified as a PRC resident enterprise, then such entitys global income will be subject to PRC income tax at a tax rate of 25%.

In addition, under the EIT Law, payments from BDL to us may be subject

to a withholding tax.

The EIT Law currently provides for a withholding tax rate of 20%.

If Dehaier is deemed to be a non-resident enterprise, then it will be subject to a withholding tax at

the rate of 10% on any dividends paid by its Chinese subsidiaries to Dehaier.

In practice, the tax authorities typically impose the withholding tax rate of 10%, as prescribed in the implementation regulations;

however, there can be no guarantee that

this practice will continue as more guidance is provided by relevant government authorities.

If Dehaier is deemed to be a non-resident enterprise, then it will be subject to a withholding tax at the rate of 10% on any dividends paid by its Chinese

subsidiaries to Dehaier.

In practice, the tax authorities typically impose the withholding tax rate of 10% rate, as prescribed in the implementation regulations;

however, there can be no guarantee that this practice will continue as more guidance is

provided by relevant government authorities.

We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact.

The State Council issued the Notice on Implementation of the Transition Period for Preferential Enterprise Income

Tax, or the Transition Implementation Notice, on December 26, 2007, which provides detailed rules on how preferential tax rates under previous income tax laws or regulations would transition to the uniform 25% EIT rate.

addition, entities that qualify as high and new technology enterprises will enjoy a 15% preferential tax rate

under the EIT Law.

The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation issued the Measures on Qualification of High and New Technology

Enterprises, or Circular 172, on April 14, 2008, which provides detailed standards for high and new technology enterprises. In addition, according to the Notice on Prepayment of Enterprise Income Tax issued by the

State Administration of Taxation, enterprises that have been certified as high and new technology enterprises shall pre-pay EIT at the rate of 25% temporarily until re-certified as high and new technology enterprises under

Circular 172.

Under the current PRC laws, BDL and BTL are subject to EIT and VAT.

BDL was classified as a high and new

technology company and operates in an approved economic-technological development area.

Given this classification, it was entitled to an EIT rate of 15%, compared to the statutory rate of 30% for most companies in China.

This classification reduced

BDLs EIT rate by 50% to 7.5% for the three calendar years ended December 31, 2007, 2008 and 2009.

The State Council issued the Notice on Implementation of the Transition Period for Preferential Enterprise Income Tax, or the

Transition Implementation Notice, on December 26, 2007, which provides detailed rules on how preferential tax rates under previous income tax laws or regulations would transition to the uniform 25% EIT rate.

In addition, entities

that qualify as high and new technology enterprises will enjoy a 15% preferential tax rate under the EIT Law.

The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation issued the

Measures on Qualification of High and New Technology Enterprises, or Circular 172, on April 14, 2008, which provides detailed standards for high and new technology enterprises. In addition, according

to the Notice on Prepayment of Enterprise Income Tax issued by the State Administration of Taxation, enterprises that have been certified as high and new technology enterprises shall

pre-pay EIT at the rate of 25% temporarily until re-certified as high and new technology enterprises under Circular 172.

Under the current PRC laws, PRC government grants a preferential income tax rate of 15% to government-certified high technology companies, and under the new standard the period of validity for the

certification of high technology companies is three years.

In 2009, BDL updated its certification for high technology company.

Therefore, BDL used a 15% income tax rate to calculate the income tax expense for periods ended

December 31, 2010 and 2009.

The tax rate for BTL is 25% in 2009 and 2010.

PRC Value Added Tax

Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and

Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, issued in December 1993, all entities and

individuals that are engaged in the businesses of sales of goods, provision of repair and placement services and importation of goods into China are generally subject to a VAT at a rate of 17% (with the exception of certain goods which are subject

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PRC Business Tax

Companies in China are generally subject to business tax and related surcharges by various local tax authorities at rates ranging from 3% to 20% on revenue generated from providing services and income

generated from the transfer of intangibles.

Critical Accounting Policies

Presentation in Accordance with US GAAP

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP).

These accounting

principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period.

We continually

evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to

be reasonable.

Basis of Consolidation

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and balances are eliminated in consolidation.

A group of shareholders, including the Chief Executive officer, holds more than

50% of the voting ownership interest of Dehaier, BDL and BTL.

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, and BDL is the primary beneficiary.

BTL owns a building, which is pledged as collateral for BDLs bank loans.

In exchange, BDL loans money to BTL to

finance its operations.

In exchange, BDL loans

money to BTL to finance its operations.

BTLs primary operation is to provide repairs and transportation services to BDLs customers.

Because of these arrangements, BDL is the primary beneficiary of BTL, as the entity that is most closely associated with

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, BTL and DHK at December 31, 2006, the Company initially measured the assets, liabilities and non

controlling interest of the variable interest entity at the amounts at which they were carried in the accounts of the reporting entity that controls the variable interest entity pursuant to FASB ASC 810-10.

On October 31, 2009, BDL reconsidered whether it is the primary beneficiary of BTL when Dehaiers preferred stock was converted

into common shares.

While such conversion dilutes Mr.

Chens 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.

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, BTL and DHK at December 31, 2006, the Company initially measured the assets,

liabilities and noncontrolling interest of the variable interest entity at the amounts at which they were carried in the accounts of the reporting entity that controls the variable interest entity pursuant to FASB ASC 810-10.

On October 31, 2009, BDL reconsidered whether it was the primary beneficiary of BTL when Dehaiers preferred stock was

converted into common shares.

While such conversion dilutes the Chief Executive Officers 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

BTL is still a variable interest entity because all of its activities either involve or are conducted on behalf of the reporting enterprise and its related parties.

BTLs 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 BTLs losses.

The carrying amount and classification of BTLs assets and liabilities included in the

accompanying consolidated balance sheets are as follows:

Total current assets

Total current liabilities

Total liabilities

The accounts of BTL

are consolidated in the accompanying financial statements pursuant to Accounting Standards Codification (ASC) 810-10, Consolidation.

As a VIE, BTLs revenues are included in the Companys service income, and its

income from operations is consolidated with the Companys.

Because of the arrangements, the Company had a pecuniary interest in BTL that requires consolidation of the Companys and BTLs financial statements.

On January 1, 2009, the Company adopted the transition rules within ASC 810-10-65, regarding accounting and reporting standards for the

non-controlling interest in a subsidiary.

BDL is BTLs 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 BTLs losses.

The accounts of BTL are consolidated in the accompanying financial statements pursuant to Accounting Standards Codification

(ASC) 810-10, Consolidation.

As a VIE, BTLs revenues are included in the Companys

service income, and its income from operations is consolidated with the Companys.

Because of the arrangements, the Company had a pecuniary interest in BTL that requires consolidation of the

Companys and BTLs financial statements.

Use of Estimates

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Significant accounting estimates reflected in the Companys consolidated financial statements include revenue recognition, allowance for doubtful accounts, inventory

obsolescence, warranty obligation, impairment of long-lived assets and useful lives of property and equipment.

obsolescence, warranty obligation, warrants liability and useful lives of 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.

Our company maintains uninsured cash and cash equivalents with various financial institutions mainly

in the PRC and Hong Kong.

Accounts Receivable

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 services are provided or goods are delivered.

typical trade receivable terms vary based on the type of customer.

We general require 100% prepayment before delivering our products to individual clients.

Our contract terms general require 10%-30% prepayment for our hospital and healthcare center

clients, and the trade receivable term in contracts for those clients is generally between 60 and 90 days.

Our contract terms generally require 10% prepayment from our distributor clients, and the trade receivable term in contracts for those clients

is generally between 60 and 180 days.

With the exception of the prepayments we require in some cases, our 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 collectability of specific accounts.

Accounts receivable are recorded at net

realizable value.

Accounts receivable terms typically are 60-180 days from the end of the month in which services are provided or goods are delivered.

Our typical trade receivable terms vary based on the type of customer.

We general require 100%

prepayment before delivering our products to individual clients.

Our contract terms general require 10%-30% prepayment for our hospital and healthcare center clients, and the trade receivable term in contracts for those clients is generally between

60 and 90 days.

Our contract terms general require 10% prepayment from our distributor clients, and the trade receivable term in contracts for those clients is generally between 60 and 180 days.

With the exception of the prepayments we require in

some cases, our 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 collectability of

specific accounts.

Receivables are considered past due after 3 years and written off.

Management has determined this write-off policy by reviewing the decrease in likelihood of collection as a function of time and concluded that collectability of accounts

receivable after three years was significantly impaired compared with collectability prior to such time.

At December 31, 2009 and 2008, an allowance for doubtful accounts has been provided based on historical experience and managements

analysis of performance and current aging of accounts receivable.

Based on this analysis, management believes that its historical bad debt rates and long-term accounts receivable (over one year) are relatively low and that, as a result, the

allowance for doubtful accounts is adequate.

Management has determined this

write-off policy by reviewing the decrease in likelihood of collection as a function of time and concluded that collectability of accounts receivable after three years was significantly impaired, compared with collectability prior to such time.

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.

In 2008, the Company adopted ASC 820-10, Fair Value

Measurements and Disclosures, which establishes a single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements for both financial and nonfinancial assets and

This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.

This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market

approach (comparable market prices), the income approach (present value of future income or cash flows) and the cost approach (cost to replace the service capacity of an asset or replacement cost).

For purposes of ASC 820-10-15, nonfinancial assets

and nonfinancial liabilities would include all assets and liabilities other than those meeting the definition of a financial asset or financial liability as defined in ASC 820-10-15-15-1A.

Management elected the deferral option available for one

year for nonfinancial assets and liabilities as permitted by ASC 820-10.

On August 26, 2009, the FASB issued Accounting

Standard Update (ASU) 2009-05, Measuring Liabilities at Fair Value, to clarify how entities should estimate the fair value of liabilities under the FASB ASC Topic 820, Fair Value Measurements and Disclosures.

The amendments in ASU 2009-05 reduce

potential ambiguity in financial reporting when measuring the fair value of liabilities.

Therefore, preparers, investors, and other users of financial statements will have a better understanding of how the fair value of liabilities was measured,

helping to improve consistency in the application of Topic 820.

The FASB issued ASU 2009-05 as a result of expressed concern that there may be a lack of observable market information to measure the fair value of a liability.

For example, in the

hypothetical transfer of an asset subject to a restriction there will be no observable data available to measure the liability because it is restricted from being transferred.

This guidance is effective for the first reporting period (including

interim periods) beginning after issuance.

Also in 2008, the Company decided not to elect the fair value option allowed by

Financial Accounting Standards Board (FASB) ASC 825-10 for its financial assets and liabilities.

Inventory is stated at the lower of cost or market and consists of assembled and unassembled parts relating to medical devices.

reviews its inventory annually for possible obsolete goods and to determine if any reserves are necessary.

At December 31, 2008, no reserve for obsolescence was considered necessary.

At December 31, 2009, the reserve for obsolescence was

$52,989, and the provision is included in the operating expenses in the consolidated statements of operations.

Impairment of Long-Lived

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 market value of the asset, is

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

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 follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which establishes a

single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements for both financial and nonfinancial assets and liabilities.

This standard defines fair value, provides guidance

for measuring fair value and requires certain disclosures.

This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value

of future income or cash flows) and the cost approach (cost to replace the service capacity of an asset or replacement cost).

For purposes of ASC 820-10-15, nonfinancial assets and nonfinancial liabilities would include all assets and liabilities

other than those meeting the definition of a financial asset or financial liability as defined in ASC 820-10-15-15-1A.

Company adopted the provisions of ASC Topic 815 (formerly Emerging Issue Task Force 07-5), Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock.

ASC Topic 815 provides a framework for

determining whether an instrument is indexed to an entitys own stock.

ASC Topic 815 became effective for the Company this period when warrants were issued in connection with the Companys initial public offering (IPO).

warrants are indexed to the Companys common shares, which is traded in US dollars.

Since the Companys functional currency is the RMB, such warrants are considered liabilities.

The fair value of the warrant liabilities is measured each

reporting period with the resulting change in fair value recorded in the statement of operations.

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 market value of the asset, is recognized.

Revenue Recognition

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The sales price is fixed or determinable;

Collectibility is reasonably assured.

Collectability is reasonably assured.

All revenues are based on firm customer orders with fixed terms and conditions.

products are assembled to the customers specification, there is no right of return.

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

For products which include software, the software is an off-the-shelf package

and an integral part of the products being delivered.

The Company does not provide any significant post-sale customer support services and does not provide customers with upgrades.

Because the products are assembled to the customers specification, there is no right of return.

The Company does not

provide its customers with price protection or cash rebates.

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

The Company does not provide any significant post-sale

customer support services and does not provide customers with upgrades.

The software is incidental to the product as a whole.

that do not require installation, revenues are recognized when the products are delivered.

For products that require installation, revenues are recognized when the installation is completed.

For all service income, the Company recognizes 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.

The VAT collected is not revenue of the Company;

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

Service Income and Expense

Service income and expense represents activities related to repairs and transportation services provided for the customers by BTL.

For products that do not require installation, revenues are recognized when the products are delivered.

For products that

require installation, revenues are recognized when the installation is completed.

Warranty Costs

The Company provides for the estimated cost of product warranties at the time revenue is

Warranty costs are included in general and administrative expenses.

The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Warranty costs are included in

general and administrative expenses.

The Companys warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting product failure.

actual product failure rates, material usage or service delivery costs differ from the Companys estimates, the Company may be required to revise its estimated product warranty liability.

The term of the product warranty is generally twelve

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, Accounting for Income Taxes. Under this method, income tax expense is recognized for the amount of:

payable or refundable for the current year;

Should actual product failure rates, material

usage or service delivery costs differ from the Companys estimates, the Company may be required to revise its estimated product warranty liability.

The term of the product warranty is generally twelve months.

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, Accounting for Income Taxes. Under this method, income tax expense is recognized

for the amount of:

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

and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entitys 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.

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, 2009 and 2008, the Company was not required to record any deferred tax assets or liabilities.

ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or

expected to be taken on a tax return.

Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is more likely than not that the position is sustainable upon examination,

based on its technical merits.

The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full

knowledge of all the relevant information.

A liability (including interest and penalties, if applicable) is established in the financial statements to the extent a current benefit has been recognized on a tax return for matters that are considered

contingent upon the outcome of an uncertain tax position.

Related interest and penalties, 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) tax returns for some of its customers.

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.

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.

740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return.

Under ASC 740-10, a tax benefit from an uncertain tax position taken or

expected to be taken may be recognized only if it is more likely than not that the position is sustainable upon examination, based on its technical merits.

The tax benefit of a qualifying position under ASC 740-10 would equal the largest

amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information.

A liability (including interest and penalties, if applicable) is

established in the financial statements to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position.

Related interest and penalties, 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) tax 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 statements.

The implementation of ASC 740-10 resulted in no material liability for unrecognized tax benefits and no material change to

the beginning retained earnings of the Company.

The implementation of ASC 740-10 resulted in no material liability for unrecognized tax

benefits and no material change to the beginning retained earnings of the Company.

As of December 31, 2010 and 2009, 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, 2009 and 2008, the Company did not incur any interest or penalties.

Income tax returns for the year prior to 2005 are no longer subject to examination by tax

Results of Operations

Our limited operating history makes it difficult to predict future operating results.

We believe that period-to-period comparisons of operating results should not be relied upon as indicative of future

Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008.

Our total revenues increased by 31.4% from $9.41 million for the fiscal year ended December 31, 2008 to $12.37 million for the fiscal year ended December 31, 2009.

The increase in revenues was due to the increased acceptance of

our products among hospitals and other healthcare facilities as many of our end users such as hospitals became repeat customers when they needed new medical equipment.

In addition, in 2009, we developed our distribution network in China, which led

to greater market penetration and more robust growth for the year ended December 31, 2009.

Cost of Revenues

Our cost of revenues increased 26.62% from $5.93 million for the fiscal year ended December 31, 2008 to $7.51

million for the fiscal year ended December 31, 2009.

Our cost of revenues grew in U.S.

dollars as our revenues grew, but our gross margin increased largely because we were able to leverage a stronger relationship with an original equipment

manufacturer, or OEM, supplier, and take advantage of economies of scale.

We were able to purchase assembled products from this supplier for less than it would cost us to assemble them ourselves.

As our business with this supplier grew, our gross

margin subsequently increased.

Operating Expenses

Our operating expenses decreased by 20.75% from $2.41 million for the fiscal year ended December 31, 2008 to $1.91 million for the

fiscal year ended December 31, 2009.

This decrease was due to decrease in general and administrative and selling expenses, for the reasons described below.

Operating ExpensesGeneral and Administrative Expenses

and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management and expenses associated with our research and development and the registration of foreign exchange certificate.

Our general and administration expenses decreased by 17.42% from $1.32 million for the fiscal year ended December 31,

2008 to $1.09 million for the fiscal year ended December 31, 2009.

This decrease was largely because our professional expenses for the fiscal year ended December 31, 2008 were $0.31 million consisting primarily of audit fees relating to

our 2006 and 2007 financial statements, compared with professional expenses for the same period in 2009 of $0.18 million.

In addition, our meeting, entertainment and some miscellaneous expense decreased by about $0.10 million for the year ended

December 31, 2009 compared with the fiscal year ended December 31, 2008.

However, we expect that our general and

administration expenses will increase in the near term as a result of Sarbanes-Oxley Section 404 compliance and business expansion upon completion of this offering.

Upon completion of this offering, we anticipate using a portion of the net

proceeds to expand our marketing efforts in order to continue to grow our revenues in China and internationally.

Among other strategies to expand our business, we plan to open new CECs (Customer Experience Center), in strengthen our market presence

These CECs give our potential customers an opportunity to experience our products first-hand in an environment that is similar to the environment in which they will use the products, whether that is a home or healthcare facility.

Our Business Our Strategies.

Operating ExpensesSelling Expense

Our selling expense decreased by 27.83% from $0.97 million for the fiscal year ended December 31, 2008 to $0.7 million for the fiscal

year ended December 31, 2009.

Our selling expense primarily consists of salaries and related expenses for personnel

engaged in sales, marketing and customer support functions and costs associated with advertising and other marketing activities.

Our selling expense decreased in both U.S.

dollars and as a percentage of our total net revenues for the fiscal year

ended December 31, 2009, mainly due to exhibition expenses to promote our products both inside and outside China for the fiscal year ended December 31, 2008 that did not recur in 2009.

Operating Income

As a result of the foregoing, we generated an operating income of approximately $3.35 million in 2009, compared to approximately $1.5 million in 2008.

Operating income increased 123.33% largely due to the

increase of revenues and gross profit margin.

Our income tax expense was approximately $0.53 million in 2009, compared to approximately $0.42 million in 2008.

Our taxable income increased

primarily due to increased revenues while our tax rate decreased.

In 2008, the income tax rate applicable for BDL is 25%.

While in 2009, BDL successfully reapplied and obtained such high technology certification.

As a result, BDL uses a 15% income

tax rate to calculate the income tax expense in 2009.

As a result of the foregoing, we had net income of approximately $2.73 million in 2009, compared to approximately $0.98 million in 2008.

After deduction of non-controlling interest in income, net income attributable to Dehaier was approximately $2.67 million and $0.92 million in 2009 and 2008, respectively.

Liquidity and Capital Resources

Cash Flows and Working Capital

We have financed our operations primarily through cash flows from operations and short-term borrowings.

December 31, 2009, we had approximately $1.15 million in cash and cash equivalents.

As a result of the total cash activities, net cash increased from $282,603 on December 31, 2008 to $1,151,721 on December 31, 2009.

We believe that

our currently available working capital of $6,314,428, including cash of $1,151,721, should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months.

We are in the process of repaying our loan from International and Commercial Bank of China (ICBC), and our final payment of RMB

6,000,000 in principal is due on May 20, 2010.

We are relying on our projected cash flow for such repayment, and we believe that such projected cash flow will be sufficient to repay the ICBC loan as it becomes due.

We do expect, however, that

the repayment of the ICBC loan will significantly decrease our working capital and materially decrease our liquidity generally.

We believe, however, that the completion of this offering is likely to mitigate this decreased liquidity, as we have

allocated 25% of the offering proceeds to our working capital needs.

If we are unable to complete this offering or if our cash flow is insufficient to repay the ICBC loan as it becomes due, we may seek to refinance the ICBC loan.

If we are unable to

do so on terms that are satisfactory to us or at all, then our liquidity and capital resources may be significantly harmed.

See Risk Factors We may be unable to pay our bank loan as it becomes due and Repayment of the

ICBC loan may significantly reduce our working capital and harm our liquidity.

Currently available working capital,

especially cash, may not be sufficient to fund our anticipated expansion or to repay our ICBC loan as it becomes due.

In order to meet the working capital needs for our anticipated expansion, we may take the following actions:

(i) continue to

improve our collection of accounts receivable;

(ii) if necessary, raise additional capital through sale of equity;

and (iii) enter into new, or refinance existing, short- and/or long-term commercial loans.

We cannot assure you that

financing will be available in the amounts we need or on terms acceptable to us, if at all.

The sale of additional equity securities, including convertible debt securities, would dilute our shareholders.

The incurrence of debt would divert cash from

working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that would restrict our operations and our ability to pay dividends to our shareholders.

If we are unable to obtain additional

equity or debt financing as required, our business, operations and prospects may suffer.

Operating Activities

Net cash provided by operating activities was $1,789,967 for the year ended December 31, 2009 as compared to $802,964 net cash used in

operating activities for the same period in 2008.

The cash generated from operating activities for the year ended December 31, 2009 was approximately $2.59 million more than 2008 primarily due to the following:

(i) Increase of $1,751,541 in net income .

Our net income increased because of a growth in both sales volume and

gross margin in 2009.

(ii) Increase of $803,887 in inventory .

We have purchased more inventory in

2009 to meet expected demand for our products in the future.

(iii) Increase of $1,429,001 in accounts

The increase in accounts receivable is attributable to the growth in our revenues.

Increase of $1,941,250 in taxes payable .

The increase is due to an increase in VAT because of increased sales subject to VAT and an increase in EIT due to an increase in taxable income.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2009 was $914,517, compared to net cash used in investing activities of $637,811 for the year ended December 31, 2008.

cash used in investing activities was mainly attributable to capital expenditures for the purchase of new equipment.

Financing Activities

Net cash provided by financing activities for the year ended December 31,

2009 was nil mainly because we did not incur any new bank loan or other financing activities.

Net cash provided by financing activities for the year ended December 31, 2008 totaled $231,948.

The cash provided by financing activities for year

ended December 31, 2008 was attributable to proceeds received from a bank loan.

Contractual Obligations and

Commercial Commitments

The following table sets forth our contractual obligations as of December 31, 2009:

Payments due by period

Contractual obligations

Operating Lease Obligations

The leased properties are principally located in the PRC, and we use such properties for administration and warehouse facility.

The leases are renewable subject to negotiation.

Rent expense for the year ended December 31, 2009 and 2008

was $56,788 and $32,011, respectively.

Rent expense paid to the spouse of the chief executive officer for the years ended December 31, 2009 and 2008 was $27,375 and $0, respectively.

Capital Expenditures

We made capital expenditures of approximately $0.92 million and $0.71 million in 2009 and 2008, respectively, representing 7.41%, 7.53%, of our total revenues, respectively.

In the past, our capital

expenditures were used to purchase machines for our assembly line.

Our capital expenditures may increase in the near term as our business continues to grow and as we expand and improve our financial and accounting systems and infrastructure.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.

entered into any derivative contracts that are indexed to our shares and classified as shareholders equity or that are not reflected in our consolidated financial statements.

Furthermore, we do not have any retained or contingent interest in

assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit

support to us or engages in leasing, hedging or research and development services with us.

Recently Issued Accounting Standards

In June 2009, the FASB issued a statement establishing the FASB Accounting Standards Codification as the source of the

authoritative accounting principles recognized by the FASB to be applied by nongovernmental

entities in the preparation of financial statements in conformity with GAAP.

interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.

This statement is effective for financial statements issued for interim and annual periods ending after

September 15, 2009.

On the effective date of this statement, all then existing non-SEC accounting and reporting standards were superseded.

In June 2009, the FASB issued an amendment to its Interpretation, Consolidation of Variable Interest Entities. The statement requires an entity to perform an analysis to determine whether

the entitys variable interest give it a controlling financial interest in a variable interest entity by rationalizing characteristics that would give it power to direct the activities of a variable interest entity and the obligation to absorb

losses or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.

The statement is effective for years beginning after November 15, 2009 and is not expected to have a material effect

on the Companys consolidated financial statements.

On January 21, 2010, the Financial

Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements.

The ASU reports on new disclosure requirements and clarifications of existing requirements

under Accounting Standards Codification (ASC) Subtopic 820-10 (originally issued as FAS 157).

The new disclosure requirements apply to interim and annual reporting periods beginning after Dec.

15, 2009, with one exception:

The new rules regarding

purchases, sales, issuances and settlements associated with Level 3 measurements will be effective for fiscal years beginning after Dec.

15, 2010, and for interim periods within those fiscal years.

The adoption of this accounting standard is not

expected to have a material effect on the Companys consolidated financial statements.

The Company recognizes interest and penalties, if any,

related to unrecognized tax benefits as income tax expense in the statement of operations.

Quantitative and Qualitative Disclosures about Market Risk.

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

The Company is not required to provide the information

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

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 5. Market for Registrant’s Common Equity