What changed in this filing

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Item 1. Financial Statements

2011-05-03 compared with 2010-11-12 · 270 added, 327 removed, 160 unchanged (79% of the section changed)

11 unchanged sentences

This section should be read together with the consolidated financial statements and related notes thereto in our Annual Report on Form

10-K for the fiscal year ended December 31, 2009, as well as the condensed consolidated financial statements for the three and nine month periods ended September 30, 2010 and accompanying notes included elsewhere in this document.

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.

10-K for the fiscal year ended December 31, 2010, as well as the condensed consolidated financial statements for the three month period ended March 31, 2011 and accompanying notes included elsewhere in this document.

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 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.

Some of these medical components are manufactured by contractors

in China because we do not have a manufacturing facility.

Some of these medical components are manufactured by contractors in China

because we do not have a manufacturing facility.

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.

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

In addition to our

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

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

We sell products primarily to distributors;

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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 nine months ended September 30, 2010 and 2009, our total revenues amounted to approximately $12.9 million and $9.42 million,

respectively.

For the three month periods ended September 30, 2010 and 2009, our total revenues amounted to approximately $5.46 million and $3.59 million, respectively.

Our revenues are subject to value added tax (VAT), sales

returns and trade discounts.

Recent Developments

On April 21, 2011, we announced that our

affiliate, Beijing Dehaier Technology Company Limited (BTL), signed a strategic cooperation agreement with Taiyo Nippon Sanso Shenwei (Shanghai) Medical Gas Co., Ltd (Taiyo-Shanghai) and Beijing Orient Medical Gas Co., Ltd

(Beijing Orient) to develop oxygen therapy services for the home use market in Beijing.

Leveraging the expertise of each company, this agreement incorporates oxygen production, filling, selling and service for home medical oxygen in

Additionally, Shanghais government launched medical insurance to subsidize cost of home oxygen therapy, and we anticipate other cities will pursue similar legislation.

If other cities pass similar legislation, we will seek to

participate in such programs.

In particular, we expect to see increased opportunities in the oxygen therapy service market in Beijing, given Beijings advances in health care technology and coverage.

On April 29, 2011, our majority-owned subsidiary, Beijing Dehaier Medical Technology Company Limited (BDL), signed a

cooperation agreement with Beijing Kanglian Medicines Co, Ltd, to develop, operate and implement a new rural healthcare construction project in Hunan and Anhui provinces.

The project is supported by China Development Bank Corp (CDB), one

of Chinas three national policy banks.

It is aimed at improving the

national healthcare system through the development and upgrade of medical facilities and health centers in nearly 2,900 counties, cities and districts across China.

BDL was selected for this

project as a result of its broad product portfolio, which includes solutions at a variety of price points, including those that meet the requirements of cost conscious facilities.

We continue to use our broad sales network to introduce additional products from leading international brands into the Chinese market.

plan to enlarge our Customer Experience Center (CEC) network penetration across China and implement our home oxygen therapy service program.

We believe favorable market conditions will increase market volume and our market expansion

strategy will position us for further business growth.

Growth Strategy

The healthcare market in China is poised for significant growth as a result of increasing government investment in improving the quality

and availability of healthcare in China to fall more closely in line with healthcare in other developed nations.

In addition, Chinese citizens are spending a growing percentage of their personal wealth on health and wellness-related initiatives.

believe that Dehaier is positioned to capitalize the growth of Chinas emerging healthcare industry and, more importantly, its nascent medical device and homecare market.

While a favorable market is necessary for sustained growth, the market alone will not be enough to propel Dehaier to the next level of success.

We constantly review and refine our business strategies in

an effort to capture additional market share, continue building brand equity and expand our business, both domestically and internationally, with the ultimate goal of increasing shareholder value.

Our primary strategic foci are currently on:

Business growth:

Building our brand domestically as both a manufacturer and a trusted partner by leveraging our relationships with healthcare

professionals, agents and distributors, to maintain and enlarge our customer resources that ensures business growth, and leveraging the customer resources to expand homecare products sales in the future.

Expanding our product portfolio through continuous investment in R&D personnel and hardware.

We are focusing on oxygen and

respiratory homecare solutions and targeting to introduce four to eight new products this year.

Distribution channels:

(1) Medical devices :

Becoming a well known Chinese distributor by diversifying our base of third party distributed

products by expanding relationships with existing partners and establishing partnerships with additional well-regarded international device manufacturers.

Developing our key account sales department to participate in new rural healthcare

construction projects and other large hospital procurements.

(2) Homecare products :

Expanding our CEC concept as a marketing tool and homecare products sales platform for both consumers and medical professionals.

International market expansion:

Expanding into the US and Europe through establishment of distribution agreements, OEM partnerships and direct sales

Several of our homecare products are currently under review in the US by the Food and Drug Administration (FDA) and in Europe by Conformité

Européenne (CE).

Service implementation:

Planning to open Dehaier home oxygen therapy service center in the second half of 2011 in Beijing.

Chinas home oxygen

therapy market is fragmented and not yet supported by medical insurance programs in cities other than Shanghai.

We believe there are tremendous opportunities and more potential can be triggered in such cities once medical insurance arrives.

Moreover, we are targeting to replicate our oxygen therapy service network in other tier 1 and tier 2 cities in China to further solidify our leading market position.

Results of Operations

For the three months ended March 31, 2011 and 2010, our total revenues amounted to approximately $2.95 million and $2.64 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 was $3.07 million and $2.07 million for the nine month periods ended September 30, 2010 and

2009, respectively, and $1.41 million and $1.02 million for the three month periods ended September 30, 2010 and 2009, 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 currently operate in one business segment for all of our products we distribute.

Our net income attributable to Dehaier for the periods ended March 31, 2011 and 2010 was $0.21 million

and $0.52 million, respectively.

Such decrease in net income was mainly due to the decrease in gross margin and increase in expenses.

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 Products

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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 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.

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.

Factors Affecting Our Results of Operations Generally

the most significant factors that directly or indirectly affect our sales revenues and net income are:

We believe the most significant factors that directly or indirectly affect our sales revenues and net income are:

global economic conditions;

6 unchanged sentences

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 nine and three months ended September 30, 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.

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

For the nine months ended Sep.

For the three months ended Sep.

Costs and expenses

Cost of revenues

General and administrative expense

Selling expense

Total costs and expenses

Our total operating costs and expenses increased rapidly as a

percentage of our total revenues for the three months ended March 31, 2011 compared to the same period in 2010 primarily due to increased professional fees, mainly attorney, accounting and consulting fees, by virtue of being a public-traded

company since March 26, 2010.

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 economies of scale, our total costs of revenues are expected to increase in absolute dollars as our revenues grow.

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

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

Cost of revenues primarily includes wages, parts for assembly, handling charges, depreciation of fixed assets 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 with being a public

Selling Expenses

Selling expenses primarily consist 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.

Nine Months Ended September 30,

2010 Compared to Nine Months Ended September 30, 2009

Our total revenues increased by approximately 37% from $9.422 million for the nine months ended September 30, 2009 to $12.931 million

for the nine months ended September 30, 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 Penlon, HEYER, and Welch Allyn expanding our product lines in 2010 and contributing to our revenue growth.

Cost of Revenues

Our cost of revenues increased approximately 37% from $5.69 million for the nine months ended September 30, 2009 to $7.78 million for the nine months ended September 30, 2010.

revenues grew in U.S.

dollars in line with revenue growth.

Operating Expenses

Our operating expenses for the nine months ended September 30, 2010 were approximately $1.71 million, which increased 28% compared

with $1.33 million in the same period in 2009.

The reasons for this increase are 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 administrative expenses increased by approximately 11% from $0.79 million for the nine months ended September 30,

2009 to $0.88 million for the nine months ended September 30, 2010.

This increase is mainly due to two reasons.

First, pursuant to our market expansion strategy, we opened new CECs (Customer Experience Centers) in China during the third quarter

of 2010, which need initial investment at the very beginning.

Second, we incurred implementation expenses for Sarbanes-Oxley Section 404 compliance.

We expect that our general and administrative expenses will increase in the near term.

We anticipate using a portion of the net proceeds from our initial public offering 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 more new CECs, to strengthen our market presence in China.

These CECs could 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.

ExpensesSelling Expenses

Our selling expenses increased approximately 54% from $0.54 million for the nine months

ended September 30, 2009 to $0.83 million for the nine months ended September 30, 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 for the nine months

ended September 30, 2010, mainly due to an increase in our sales staff to further strengthen our the distribution network in the second quarter of 2010.

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 near term after our series of 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 operating income of approximately $3.61 million for the nine months ended September 30, 2010, compared to approximately $2.59 million for the nine months

ended September 30, 2009.

Operating income increased approximately 39% largely due to the increase of revenues.

Our income tax expense was approximately $0.54 million for the nine months ended September 30, 2010, compared to approximately $0.41 million for the nine months ended September 30, 2009.

taxable income increased primarily due to increased taxable income.

As a result of the foregoing, we had net income of approximately $3.08 million for the nine months ended September 30, 2010, compared

to approximately $2.11 million for the nine months ended September 30, 2009.

After deduction of non-controlling interest in income, net income attributable to Dehaier was approximately $3.07 million and $2.07 million for the nine months ended

September 30, 2010 and 2009, respectively.

Three Months Ended September, 2010 Compared to Three Months Ended

September 30, 2009

Our total revenues increased by approximately 52% from $3.59 million for the three months ended September 30, 2009 to $5.46 million

for the three months ended September 30, 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 Penlon, HEYER, and Welch Allyn in expanding our product lines in the second quarter, 2010 and contributing to our revenue growth.

As our business grows fast, we are looking forward to having more opportunities in the market.

We believe that period-to-period

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

Three Months Ended March 31, 2011

Compared to Three Months Ended March 31, 2010.

Our total revenues increased by 11.8% from $2.64 million for the three months ended March 31, 2010 to $2.95 million for the

three months ended March 31, 2011.

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;

moreover, the increase in sales was mainly attributable to the increases in units sold for three months ended March 31, 2011.

We maintained good relationship with our clients in the first quarter of 2011 and that

contributed to our revenue growth.

In addition, we have further strategic development plan to create cooperation opportunity with government projects, hospitals and continue to expand our Customer Experience Centers (CEC) network in China, which

help leading to greater market presence.

Cost of Revenues

Our cost of revenues increased approximately 52% from $2.10 million for the three months ended September 30, 2009 to $3.20 million for the three months ended September 30, 2010.

revenues grew in U.S.

dollars in line with revenue growth.

Our cost of revenues increased 17.37% from $1.67 million for the three months ended March 31, 2010 to $1.96 million for the

three months ended March 31, 2011.

Our cost of revenues remained relatively constant in U.S.

dollars, thus the gross margin decreased.

The increase of registration fee for new homecare products and renewal for existing

products and fixed assets depreciation also resulted in the increase of cost.

Operating Expenses

Our operating expenses increased by approximately 129% from $0.31 million for the three months ended September 30, 2009 to $0.71

million for the three months ended September 30, 2010.

This increase was due to increase in 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 administrative expenses increased by approximately 125% from $0.16 million for the three months ended September 30,

2009 to $0.36 million for the three months ended September 30, 2010.

This increase is mainly due to three reasons:

First, market expansion strategy, we opened new CECs (Customer Experience Centers) in China during the third quarter of 2010,

which need initial investment at the very beginning.

Second, we incurred implementation expenses for Sarbanes-Oxley Section 404 compliance.

Third, we increased our research expense on our branded products as well as our distributed products.

We expect that our general and administrative expenses will increase in the near term.

We anticipate using a portion of the

net proceeds from our initial public offering 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 more new CECs, to strengthen our

market presence in China.

These CECs could 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 Expenses

Our selling expenses increased by approximately 133% from $0.15 million for the three months ended September 30, 2009 to $0.35

million for the three months ended September 30, 2010.

Our selling expenses 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 expenses increased for the three months ended September 30, 2010, mainly due to

an increase in our sales staff in further strengthening our distribution network in the third quarter of 2010.

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 near term after our series of new products are introduced in the market.

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.

Our operating expenses increased by 89.97% from $0.39 million for the three months ended March 31, 2010 to $0.74 million

for the three months ended March 31, 2011.

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

Operating 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 127.00% from $0.22 million for the three months ended March 31, 2010 to

$0.50 million for the three months ended March 31, 2011.

This increase was mainly because of three reasons:

Market Expansion Expenses .

We started to build five additional CECs (Customer Experience Centers) in the reporting

period, which require an upfront investment at commencement of construction.

Public Company Expense .

After listing on NASDAQ market on April 22, 2010, we incurred implementation expenses for

Sarbanes-Oxley Section 404 compliance.

In order to improve our visibility and exposure on the capital market, we also hired professional employees and retained professional consulting firms.

Labor Expenses .

Our labor costs increased as we implemented an employee reward policy to strengthen our corporate

We expect that our general and administration expenses will increase in the near period as a

result of expansion of business.

We anticipate expanding 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 more CECs.

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 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

Our selling expenses increased by 41.18% from $0.17 million for the three months ended March 31, 2010 to $0.24 million for the three months ended March 31, 2011, mainly due to an increase in our sales staff to

strengthen our distribution network.

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

We expect that our selling expenses in absolute numbers will continue to increase in the near term after our series of new products are introduced in the market.

We expect 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 operating income of approximately $1.61 million for the three months ended September 30, 2010, compared to approximately $1.24 million for the three months

ended September 30, 2009.

Operating income increased approximately 30% largely due to the increase of revenues.

Our income tax expense was approximately $0.25 million for the three months ended September 30, 2010, compared to approximately $0.18 million for the three months ended September 30, 2009.

taxable income increased primarily due to increased taxable income.

As a result of the foregoing, we had net income of approximately $1.41 million for the three months ended September 30, 2010,

compared to approximately $1.03 million for the three months ended September 30, 2009.

After deduction of non-controlling interest in income, net income attributable to Dehaier was approximately $1.41 million and $1.02 million for the three

months ended September 30, 2010 and 2009, respectively.

As a result of the foregoing, we generated an

operating income of approximately $0.30 million in the first three months of 2011, compared to approximately $0.65 million in the same period of 2010.

Operating income decreased 55.38%, largely due to the decrease in gross margin and

increase in expenses.

Our income tax expense was approximately $0.08 million during the first three months of 2011, compared to approximately $0.09 million in the same period of 2010.

Our taxable income decreased

primarily due to the decrease in gross margin and increase in expenses.

As a result of the foregoing, we had net income of approximately $0.21 million in the first three months of 2011, compared to

approximately $0.53 million in the same period of 2010.

After deduction of non-controlling interest in income, net income attributable to Dehaier was approximately $0.21 million and $0.52 million in the first quarters of 2011 and

2010, respectively.

Liquidity and Capital Resources

Cash Flows and Working Capital

To date, we have financed our operations primarily through cash flows from issuance of common shares.

As of September 30, 2010, we had approximately $4.96 million in cash and cash equivalents.

result of the total cash activities, net cash increased from $1,151,721 at December 31, 2009 to $4,964,450 at September 30, 2010.

We believe that our currently available working capital of $18,011,309, including cash of $4,964,450, should

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

Net cash used in operating activities was $5,696,022 for the nine months ended September 30, 2010 as

compared to $1,573,390 net cash provided by operating activities for the same period in 2009.

Increase of $971,480 in net income .

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

To date, we have financed our operations primarily through cash flows from operations, short-term borrowings and, after completion of our initial public offering, proceeds from that offering.

March 31, 2011, we had approximately $3.37 million in cash and cash equivalents.

As a result of the total cash activities, net cash decreased from $5,923,386 on December 31, 2010 to $3,372,673 on March 31, 2011.

We believe that

our currently available working capital of $23,148,929, including cash of $3,372,673, 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 $2,113,734 for the three months ended March 31, 2011 as compared to $663,988 net cash provided by operating activities for the same period in 2010.

reasons for this change are as follows:

Decrease of $324,228 in net income .

Our net income decreased primarily due to the decrease in gross margin and increase in expenses for the three months ended

March 31, 2011.

Increase of $2,884,433 in prepayment .

The increase in prepayment is attributable to signing some large new sales contracts in second quarter of 2010, which

The increase in prepayment is attributable to signing some large new sales contracts in first quarter of 2011, which

required us to order and pay for products in advance.

Increase of $1,608,240 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.

Increase of $1,969,143 in inventories .

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

1) We incurred inventory to meet anticipated

2) As we signed some exclusive distribution agreements with Penlon, 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 nine months ended September 30, 2010 was $843,317, compared to net cash used in investing activities of $913,717 for the nine months ended

September 30, 2009.

Net cash used in investing activities for the three months ended March 31, 2011 was $10,632, compared to net cash used in investing

activities of $8,439 for same period of 2010.

The 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 nine months ended September 30, 2010 and 2009 was $9,944,207 and $0, respectively.

The cash provided by financing activities for the nine months ended September 30, 2010 was due to net proceeds from our IPO.

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations as of September 30, 2010:

Payments due by period

Contractual obligations

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 September 2011.

Net cash used in financing activities for the

three months ended March 31, 2011 and 2010 were $610,816 and $585,764, respectively.

The cash used in financing activities for the three months ended March 31, 2011 and 2010 was attributable to repayment of bank loans.

Capital Expenditures

Our capital expenditures were $839,456 and

$915,693 for the nine months ended September 30, 2010 and 2009, respectively, representing 6.49% and 9.72% of our total revenues, respectively.

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

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

We made capital expenditures of approximately $8,274 and $4,578 in the first three months ended March 31, 2011 and 2010, respectively, representing 0.28% and 0.17%, of our total revenues,

respectively.

Our capital expenditures are mainly used to purchase machines for our R&D projects and our assembly line.

The capital expenditures may increase in the near term as our business continues to grow and as expand.

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.

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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.

updated its certification for high technology company.

Therefore, BDL used a 15% income tax rate to calculate the income tax expense for periods ended September 30, 2010 and 2009.

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

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 March 31, 2011 and 2010.

The tax rate for BTL is 25% for periods ended March 31, 2011 and 2010.

PRC Value Added Tax

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 to a rate of 13%) of the gross sales proceeds received, less any

VAT already paid or borne by the taxpayer on the goods or services purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds.

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

to a rate of 13%) of the gross sales proceeds received, less any VAT already paid or borne by the taxpayer on the goods or services purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales

PRC Business Tax

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Critical Accounting Policies

Presentation in Accordance with US GAAP

We prepared the accompanying condensed 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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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.

Use of Estimates

The preparation of the condensed consolidated

financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the

consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the

reporting periods.

Estimates are adjusted to reflect actual experience when necessary.

Significant accounting estimates reflected in the Companys

consolidated financial statements include revenue recognition, allowance for doubtful accounts and impairment of long-lived assets.

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

accounts, inventory obsolescence, warranty obligation, warrants liability, stock-based compensation 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.

company maintains uninsured cash and cash equivalents with various financial institutions mainly in the PRC and Hong Kong.

Accounts Receivable

Accounts Receivabl e

Accounts receivable are recorded at net realizable value.

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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 September 30, 2010 and

December 31, 2009, 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.

March 31, 2011, our accounts receivable aging was as follows:

Total Accounts Receivable

1 to 3 months

3 to 6 months

6 months to 1 year

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 March 31, 2011 and December 31, 2010, 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.

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 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.

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.

The 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).

Such 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.

Inventories are stated at the lower of cost or market and consist of assembled and unassembled parts relating to medical devices.

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

The 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).

Such 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.

The fair value of warrants is $308,583, an

increase of $9,526 since the grant date.

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.

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

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.

Management has

determined no impairment exists at the balance sheet dates.

Revenue Recognition

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

Value Added Tax

In the PRC, a VAT rate of 17% of the invoice amount is collected in respect of the sales of goods on behalf of tax authorities.

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.

The Company reports revenues net of PRCs value added tax for all the periods presented in

the consolidated statements of operations.

Service Income and Expense

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

Warranty Costs

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.

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:

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 September 30,

2010 and December 31, 2009, the Company was not required to record any deferred tax assets or liabilities.

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.

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 September 30, 2010 and December 31, 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.

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 March 31, 2011 and December 31, 2010, 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.

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.

As of March 31, 2011 and December 31, 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.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 1. Financial Statements