13.

EQUITY

Common Shares

On March 8, 2011, Dehaier issued 10,000 unregistered common shares to an investment relations firm in connection with the investment advice rendered for the Company. The fair value of the shares on the grant date based on the closing price was $59,300.

On November 16, 2011, Dehaier issued 50,000 unregistered common shares to a consulting firm in connection with the financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was $84,250.

During 2012, Dehaier issued 60,000 restricted unregistered common shares to independent consultants in connection with investment counseling and financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was approximately $109,000.

On October 10, 2013, Dehaier issued 94,000 options to employees for the Company’s incentive plan. The fair value of the shares on the grant date based on the closing price was approximately $209,574.

On November 14, 2013, Dehaier issued 40,000 restricted common shares to independent consultants in connection with investment counseling and financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was approximately $145,600.

On December 29, 2013, Dehaier issued 8,000 ordinary shares to individuals upon exercises of share-based awards.

On January 11, 2014, Dehaier issued 68,000 ordinary shares to individuals upon exercises of share-based awards.

On January 15, 2014, Dehaier issued 40,000 restricted common shares to independent consultants in connection with investment counseling and financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was approximately $145,600.

On February 21, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional investors for the sale of 734,700 common shares in a registered offering at the price of $9.12 per common share. The net cash proceeds received from the stock offering, after deducting underwriter commission and other associated fees, were approximately $6.1 million. In addition, the Company issued 220,410 warrants to the institutional investors aggregately. The warrants are exercisable immediately as of the date of issuance at an exercise price of $11.86 per common share and expire forty-two months from the date of issuance. The Company also issued warrants to purchase 73,470 ordinary shares to the placement agent (“Placement Agent Warrant”). The Placement Agent Warrants are on substantially the same terms as the warrants issued pursuant to the Purchase Agreement.

On April 24, 2014, Dehaier issued 40,000 restricted common shares to independent consultants in connection with investment counseling and financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was approximately $145,600.

On April 8, 2014, Dehaier issued 62,000 ordinary shares to individuals upon exercises of share-based awards.

On May 29, 2014, Dehaier issued 4,000 ordinary shares to individuals upon exercises of share-based awards.

On August 16, 2014, Dehaier issued 11,975 ordinary shares to individuals for the Company’s incentive plan. The fair value of the shares on the grant date based on the closing price was approximately $72,808.

On August 20, 2014, Dehaier issued 131,000 options to employees for the Company’s incentive plan. The fair value of the options on the grant date based on the closing price was approximately $674,570.

On October 22, 2014, Dehaier issued 100,000 ordinary shares to employees for the Company’s incentive plan. The fair value of the shares on the grant date based on the closing price was approximately $531,000.

On October 22, 2014, Dehaier issued 80,000 ordinary shares to independent consultants in connection with investment counseling and financial advisory services rendered for the Company. The fair value of the shares on the grant date based on the closing price was approximately $352,800.

Statutory Surplus Reserves

A PRC company is required to make appropriations to statutory surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve is required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s’ registered capital.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issue is not less than 25% of the registered capital.

Since Dehaier is a British Virgin Islands company, it will not be subject to the statutory surplus reserve provisions. BDL is a joint-venture company and the statutory surplus reserve provisions will be determined by its board of directors. As of December 31, 2014, BDL’s board of directors has not yet made such determination. Therefore, no amount was allocated to the statutory surplus reserve account.

BTL appropriated 10% of its net profits as statutory surplus reserve, which is included as part of the non-controlling interest in the equity section. For the years ended December 31, 2014, 2013 and 2012, statutory surplus reserve activity was as follows:

	December 31,
	2014		2013		2012
	US$		US$		US$

Balance – beginning of year		76,260		75,489		74,469
Addition to statutory reserves		(33,999)		771		1,020
Balance –end of year		42,261		76,260		75,489

Stock Option Plan

Under the employee stock option plan, the Company’s stock options expire five years from the date of grant. On December 29, 2011, the Company entered into five-year agreements with its employees and directors, pursuant to which, the Company issued an aggregate of 450,000 options at an exercise price of $1.45 per share. The options vest in equal annual installments over the five years of the agreements ending December 31, 2016. On October 7, 2013, pursuant to the Company’s Share Incentive Plan, the Company granted a non-statutory option to acquire 94,000 of the Company’s common shares at an exercise price of $2.30 per share to Chen Ping, the CEO of the Company. The options vest in equal annual installments over the five years of the agreement ending October 7, 2018. On August 20, 2014, pursuant to the Company’s Share Incentive Plan, the Company granted additional option to acquire 131,000 of the Company’s common shares at an exercise price of $5.31 per share to Chen Ping. The options vest in equal annual installments over the five years of the agreement ending August 20, 2019. As of December 31, 2014, 328,200 options have not been vested.

The Company valued the stock options using the Black-Scholes model with the following assumptions:

					Grant Date
Expected	Expected	Dividend		Risk Free	Fair Value
Terms (years)	Volatility	Yield		Interest Rate	Per share
5	126% - 192%		0%	0.83% - 1.65%	$1.22 - $5.15

The following is a summary of the option activity:

			Weighted Average		Aggregate
Stock options	Shares		Exercise Price		Intrinsic Value
Outstanding as of December 31, 2012		450,000	$	1.45	$	400,500
Granted		94,000
Forfeited		(94,000)
Exercised		(8,000)
Outstanding as of December 31, 2013		442,000	$	1.63	$	994,160
Granted		131,000
Forfeited		(31,000)
Exercised		(134,000)
Outstanding as of December 31, 2014		408,000	$	2.89	$	(63,320)

Following is a summary of the status of options outstanding and exercisable at December 31, 2014:

Outstanding options						Exercisable options
Average Exercise price		Number		Average remaining contractual life(years)		Average Exercise price		Number		Average remaining contractual life(years)
$	1.45		183,000		2	$	1.45		61,000		2

$	2.3		94,000		3.77	$	2.3		18,800		3.77

$	5.31		131,000		4.64	$	5.31		-		4.64

For the years ended December 31, 2014, 2013 and 2012, the Company recognized $160,613, $94,271 and $110,163, respectively, as compensation expense under its stock option plan.