UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




x
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
                  
                  For
      the quarterly period ended June 30, 2010OR ̈
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
file number: 001-34407





DEER CONSUMER PRODUCTS,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
                
                20-5526104(State
      or other jurisdiction of incorporation
                  or
      organization)
                
                (IRS
      Employer Identification
No.)





Area
      2, 1/F, Building M-6,
                  Central
      High-Tech Industrial Park,
                  Nanshan,
      Shenzhen, China
                
                518057(Address
      of principal executive offices)
                
                (Zip
      Code)





(86)
      755-8602-8285(Registrant’s
      telephone number, including area
code)





Indicate
by checkmark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the last 90 days.    YESxNO ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer, “accelerated filer,”
“non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large accelerated filer  ̈
            Accelerated filer  ̈Non-accelerated filer  ̈
            Smaller reporting company x(do not check if a smaller
      reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).YES ̈NOx





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 33,585,058 shares of common stock
outstanding as of August 6, 2010.







TABLE
OF CONTENTS





PagePART I.
      FINANCIAL INFORMATIONItem 1.
              Financial
      Statements
              
              3Item 2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              16Item 3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              24Item 4.
              Controls
      and Procedures
              
              24PART
      II. OTHER INFORMATIONItem 1.
              Legal
      Proceedings
              
              24Item 1A.
              Risk
      Factors
              
              24Item 2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              25Item 3.
              Defaults
      Upon Senior Securities
              
              25Item 5.
              Other
      Information
              
              25Item 6.
              Exhibits
              
              25SIGNATURES
              
              25





PART I. FINANCIAL INFORMATION





Item
1. Financial Statements.





DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET




June 30,
                                  
                                  
                                  December 31,2010
                                  
                                  
                                  2009(unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                  
                                  $
                                  74,296,844
                                  
                                  
                                  $
                                  79,333,729Restricted
      cash
                                  
                                  
                                  1,830,091
                                  
                                  
                                  
                                  35,701Accounts
      receivable
                                  
                                  
                                  22,909,025
                                  
                                  
                                  
                                  17,070,781Advances
      to suppliers
                                  
                                  
                                  3,443,313
                                  
                                  
                                  
                                  3,299,107Other
      receivables
                                  
                                  
                                  393,213
                                  
                                  
                                  
                                  213,487Inventories
                                  
                                  
                                  22,600,352
                                  
                                  
                                  
                                  18,061,282Other
      current assets
                                  
                                  
                                  106,459
                                  
                                  
                                  
                                  12,500Total
      current assets
                                  
                                  
                                  125,579,297
                                  
                                  
                                  
                                  118,026,587PROPERTY
      AND EQUIPMENT, net
                                  
                                  
                                  11,350,720
                                  
                                  
                                  
                                  11,325,999CONSTRUCTION
      IN PROGRESS
                                  
                                  
                                  5,757,356
                                  
                                  
                                  
                                  3,724,337INTANGIBLE
      ASSETS, net
                                  
                                  
                                  768,227
                                  
                                  
                                  
                                  394,684OTHER
      ASSETS
                                  
                                  
                                  10,307
                                  
                                  
                                  
                                  20,073TOTAL
      ASSETS
                                  
                                  $
                                  143,465,907
                                  
                                  
                                  $
                                  133,491,680LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                  
                                  $
                                  13,140,234
                                  
                                  
                                  $
                                  13,055,110Other
      payables
                                  
                                  
                                  1,267,500
                                  
                                  
                                  
                                  1,061,460Unearned
      revenue
                                  
                                  
                                  1,036,644
                                  
                                  
                                  
                                  1,719,761Accrued
      payroll
                                  
                                  
                                  614,593
                                  
                                  
                                  
                                  1,148,663Notes
      payable
                                  
                                  
                                  7,099,328
                                  
                                  
                                  
                                  6,212,911Tax
      and welfare payable
                                  
                                  
                                  567,894
                                  
                                  
                                  
                                  862,332Total
      current liabilities
                                  
                                  
                                  23,726,193
                                  
                                  
                                  
                                  24,060,237STOCKHOLDERS'
      EQUITY:Common
      Stock, $0.001 par value; 75,000,000 shares authorized;33,585,058
      and 32,631,748 shares issued and outstandingat
      June 30, 2010 and December 31, 2009
                                  
                                  
                                  33,585
                                  
                                  
                                  
                                  32,632Additional
      paid-in capital
                                  
                                  
                                  90,962,980
                                  
                                  
                                  
                                  91,111,661Development
      funds
                                  
                                  
                                  1,711,765
                                  
                                  
                                  
                                  1,185,859Statutory
      reserve
                                  
                                  
                                  3,423,531
                                  
                                  
                                  
                                  2,371,718Other
      comprehensive income
                                  
                                  
                                  2,733,652
                                  
                                  
                                  
                                  2,335,216Retained
      earnings
                                  
                                  
                                  20,874,201
                                  
                                  
                                  
                                  12,394,357Total
      stockholders' equity
                                  
                                  
                                  119,739,714
                                  
                                  
                                  
                                  109,431,443TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
                                  $
                                  143,465,907
                                  
                                  
                                  $
                                  133,491,680






The
accompanying notes are an integral part of these consolidated financial
statements.




3


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME







Three Months Ended June 30,
                                      
                                      
                                      Six Months Ended June 30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009(unaudited)
                                      
                                      
                                      (unaudited)
                                      
                                      
                                      (unaudited)
                                      
                                      
                                      (unaudited)Revenue
                                      
                                      $
                                      34,450,687
                                      
                                      
                                      $
                                      15,310,503
                                      
                                      
                                      $
                                      58,353,144
                                      
                                      
                                      $
                                      22,182,719Cost
      of Revenue
                                      
                                      
                                      24,569,034
                                      
                                      
                                      
                                      11,519,865
                                      
                                      
                                      
                                      41,593,643
                                      
                                      
                                      
                                      16,732,569Gross
      profit
                                      
                                      
                                      9,881,653
                                      
                                      
                                      
                                      3,790,638
                                      
                                      
                                      
                                      16,759,501
                                      
                                      
                                      
                                      5,450,150Operating
      expensesSelling
      expenses
                                      
                                      
                                      1,820,456
                                      
                                      
                                      
                                      727,911
                                      
                                      
                                      
                                      3,248,420
                                      
                                      
                                      
                                      911,253General
      and administrative expenses
                                      
                                      
                                      1,089,623
                                      
                                      
                                      
                                      806,323
                                      
                                      
                                      
                                      1,764,689
                                      
                                      
                                      
                                      1,177,904Total
      operating expenses
                                      
                                      
                                      2,910,079
                                      
                                      
                                      
                                      1,534,234
                                      
                                      
                                      
                                      5,013,109
                                      
                                      
                                      
                                      2,089,157Income
      from operations
                                      
                                      
                                      6,971,574
                                      
                                      
                                      
                                      2,256,404
                                      
                                      
                                      
                                      11,746,392
                                      
                                      
                                      
                                      3,360,993Non-operating
      income (expense):Interest
      expense and financing costs
                                      
                                      
                                      (19,755
                                      )
                                      
                                      
                                      (110,522
                                      )
                                      
                                      
                                      (49,461
                                      )
                                      
                                      
                                      (225,353
                                      )Interest
      income
                                      
                                      
                                      239,139
                                      
                                      
                                      
                                      1,037
                                      
                                      
                                      
                                      331,060
                                      
                                      
                                      
                                      2,656Other
      expense
                                      
                                      
                                      22,824
                                      
                                      
                                      
                                      (2,015
                                      )
                                      
                                      
                                      8,223
                                      
                                      
                                      
                                      (3,896
                                      )Foreign
      exchange loss
                                      
                                      
                                      (92,676
                                      )
                                      
                                      
                                      (9,997
                                      )
                                      
                                      
                                      (125,810
                                      )
                                      
                                      
                                      (80,503
                                      )Total
      non-operating income (expense)
                                      
                                      
                                      149,532
                                      
                                      
                                      
                                      (121,497
                                      )
                                      
                                      
                                      164,012
                                      
                                      
                                      
                                      (307,096
                                      )Income
      before income tax
                                      
                                      
                                      7,121,106
                                      
                                      
                                      
                                      2,134,907
                                      
                                      
                                      
                                      11,910,404
                                      
                                      
                                      
                                      3,053,897Income
      tax
                                      
                                      
                                      1,100,566
                                      
                                      
                                      
                                      420,031
                                      
                                      
                                      
                                      1,852,841
                                      
                                      
                                      
                                      682,147Net
      income
                                      
                                      
                                      6,020,540
                                      
                                      
                                      
                                      1,714,876
                                      
                                      
                                      
                                      10,057,563
                                      
                                      
                                      
                                      2,371,750Other
      comprehensive incomeForeign
      currency translation gain (loss)
                                      
                                      
                                      363,071
                                      
                                      
                                      
                                      (42,108
                                      )
                                      
                                      
                                      398,436
                                      
                                      
                                      
                                      (62,440
                                      )Comprehensive
      Income
                                      
                                      $
                                      6,383,611
                                      
                                      
                                      $
                                      1,672,768
                                      
                                      
                                      $
                                      10,455,999
                                      
                                      
                                      $
                                      2,309,310Weighted
      average shares outstanding :Basic
                                      
                                      
                                      33,019,662
                                      
                                      
                                      
                                      21,626,413
                                      
                                      
                                      
                                      32,826,777
                                      
                                      
                                      
                                      20,817,208Diluted
                                      
                                      
                                      33,703,876
                                      
                                      
                                      
                                      21,706,167
                                      
                                      
                                      
                                      33,729,852
                                      
                                      
                                      
                                      20,876,960Earnings
      per share:Basic
                                      
                                      $
                                      0.18
                                      
                                      
                                      $
                                      0.08
                                      
                                      
                                      $
                                      0.31
                                      
                                      
                                      $
                                      0.11Diluted
                                      
                                      $
                                      0.18
                                      
                                      
                                      $
                                      0.08
                                      
                                      
                                      $
                                      0.30
                                      
                                      
                                      $
                                      0.11




The
accompanying notes are an integral part of these consolidated financial
statements.


4





DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




Six Months Ended June 30,2010
                                    
                                    
                                    2009(unaudited)
                                    
                                    
                                    (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                    
                                    $
                                    10,057,563
                                    
                                    
                                    $
                                    2,371,750Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activities:Depreciation
                                    
                                    
                                    707,571
                                    
                                    
                                    
                                    707,567Amortization
                                    
                                    
                                    9,005
                                    
                                    
                                    
                                    4,716Stock
      based compensation
                                    
                                    
                                    166,695
                                    
                                    
                                    
                                    -(Increase)
      / decrease in assets:Accounts
      receivable
                                    
                                    
                                    (5,742,579
                                    )
                                    
                                    
                                    (3,177,512
                                    )Other
      receivables
                                    
                                    
                                    (178,052
                                    )
                                    
                                    
                                    68,397Inventories
                                    
                                    
                                    (4,445,193
                                    )
                                    
                                    
                                    (678,170
                                    )Due
      from related party
                                    
                                    
                                    -
                                    
                                    
                                    
                                    330,974Advances
      to suppliers
                                    
                                    
                                    (130,127
                                    )
                                    
                                    
                                    1,980,585Other
      assets
                                    
                                    
                                    (84,155
                                    )
                                    
                                    
                                    20,792Increase
      / (decrease) in current liabilities:Accounts
      payable
                                    
                                    
                                    888,735
                                    
                                    
                                    
                                    211,143Unearned
      revenue
                                    
                                    
                                    (687,059
                                    )
                                    
                                    
                                    (847,621
                                    )Other
      payables
                                    
                                    
                                    264,989
                                    
                                    
                                    
                                    462,873Due
      to related party
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (194,491
                                    )Accrued
      payroll
                                    
                                    
                                    (536,355
                                    )
                                    
                                    
                                    441,700Tax
      and welfare payable
                                    
                                    
                                    (296,630
                                    )
                                    
                                    
                                    665,060Net
      cash provided by (used in) operating activities
                                    
                                    
                                    (5,592
                                    )
                                    
                                    
                                    2,367,763CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                                    
                                    
                                    (686,066
                                    )
                                    
                                    
                                    (532
                                    )Acquisition
      of intangible assets
                                    
                                    
                                    (379,267
                                    )
                                    
                                    
                                    -Construction
      in process
                                    
                                    
                                    (2,008,746
                                    )
                                    
                                    
                                    (907,615
                                    )Changes
      in restricted cash
                                    
                                    
                                    (1,786,204
                                    )
                                    
                                    
                                    109,304Sale
      of short-term investments
                                    
                                    
                                    -
                                    
                                    
                                    
                                    29,302Net
      cash used in investing activities
                                    
                                    
                                    (4,860,283
                                    )
                                    
                                    
                                    (769,541
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,678,439Proceeds
      from sale of common stock
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,678,000Offering
      costs paid
                                    
                                    
                                    (320,000
                                    )
                                    
                                    
                                    (338,892
                                    )Proceeds
      from the exercise of warrants
                                    
                                    
                                    6,951,527
                                    
                                    
                                    
                                    -Payment
      on short term loans
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,549,693
                                    )Purchase
      of treasury shares
                                    
                                    
                                    (6,945,950
                                    )
                                    
                                    
                                    -Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (314,423
                                    )
                                    
                                    
                                    467,854Effect
      of exchange rate changes on cash and cash equivalents
                                    
                                    
                                    143,413
                                    
                                    
                                    
                                    (44,292
                                    )NET
      INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
                                    
                                    
                                    (5,036,885
                                    )
                                    
                                    
                                    2,021,784CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                                    
                                    
                                    79,333,729
                                    
                                    
                                    
                                    2,782,026CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                                    
                                    $
                                    74,296,844
                                    
                                    
                                    $
                                    4,803,810SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    102,024Income
      taxes paid
                                    
                                    $
                                    1,251,617
                                    
                                    
                                    $
                                    440,315




The
accompanying notes are an integral part of these consolidated financial
statements.


5


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Six Months Ended June 30, 2010 and 2009


(unaudited)





Note
1 - Organization and Basis of Presentation





These
unaudited consolidated financial statements were prepared by Deer Consumer
Products, Inc. pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”).  The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) that are,
in the opinion of management, necessary to present fairly the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”) were omitted pursuant to such rules and regulations. 
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and footnotes included in the
Company’s Annual Report on Form 10-K.  The results for the six months ended
June 30, 2010, are not necessarily indicative of the results to be expected for
the full year ending December 31, 2010.





Organization and Line of
Business





Deer
Consumer Products, Inc., formerly known as Tag Events Corp., (hereinafter
referred to as the “Company” or “Deer”) was incorporated in the State of Nevada
on July 18, 2006.





On
September 3, 2008, the Company entered into a share exchange agreement and plan
of reorganization with Deer International Group Ltd. (“Deer International”), a
company incorporated under the laws of the British Virgin Islands (“BVI”) on
December 3, 2007, and acquired 100% of the shares of Winder Electric Group Ltd.
(“Winder”) on March 11, 2008. Winder has a 100% owned subsidiary, Delta
International Limited (“Delta”). Winder and Delta were formed and incorporated
in the Guangdong Province of the People Republic of China (“PRC”) on July 20,
2001 and February 23, 2006, respectively.





Pursuant
to the share exchange agreement, the Company acquired from Deer International
50,000 ordinary shares, consisting of all of its issued and outstanding capital
stock, in exchange for 15,695,706 shares of the Company’s common stock.
Concurrently with the closing of the transactions contemplated by the share
exchange agreement and as a condition thereof, the Company entered into an
agreement with Crescent Liu, its former Director and Chief Executive Officer,
pursuant to which he returned 5,173,914 shares of the Company’s common stock to
the Company for cancellation. Mr. Liu was not compensated for the cancellation
of his shares of the Company’s common stock. Upon completion of the foregoing
transactions, the Company had 19,652,226 shares of common stock issued and
outstanding. In connection with the above transaction, the Company changed its
name to Deer Consumer Products, Inc. on September 3, 2008.





The
exchange of shares with Deer International was recorded as a reverse acquisition
under the purchase method of accounting because Deer International obtained
control of the Company. Accordingly, the merger of Deer International into the
Company was recorded as a recapitalization of Deer International, with Deer
International being treated as the continuing entity. The historical financial
statements presented are the consolidated financial statements of Deer
International. The share exchange agreement was treated as a recapitalization
and not as a business combination; therefore, no pro forma information is
disclosed. At the date of this transaction, the net liabilities of the legal
acquirer were $0.





The
Company is engaged in the manufacture, marketing, distribution and sale of small
home and kitchen electric appliances (blenders, food processors, choppers,
juicers, etc.). The Company manufactures its products in YangJiang, China and
has corporate functions in Nanshan, Shenzhen, China.





Stock
Splits





On April
24, 2009, the Company effected a 1 for 2.3 reverse stock split of its common
stock and on October 2, 2009, the Company effected a 2 for 1 forward stock split
of its common stock. All share information for common shares was retroactively
restated for these stock splits.




6




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)




Basis of
Presentation





The
accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Deer Technology (AnHui) Co., Ltd. (“Deer
Technology”) and Deer International, and its 100% wholly-owned subsidiary Winder
and Winder’s wholly-owned subsidiary Delta. All significant inter-company
accounts and transactions were eliminated in consolidation.  Deer
Technology was incorporated on April 30, 2010, in the AnHui Province.  The
Company invested $10 million in Deer Technology and committed to invest another
$19.8 million.





The
accompanying consolidated financial statements were prepared in conformity with
US GAAP. The Company’s Chinese subsidiaries functional currency is the Chinese
Yuan Renminbi (RMB); however the accompanying consolidated financial statements
were translated and presented in United States Dollars (“$” or
“USD”).





Foreign Currency
Translation





The
accounts of the Company’s Chinese subsidiaries are maintained in the RMB and the
accounts of the U.S. parent company are maintained in USD. The accounts of the
Chinese subsidiaries were translated into USD in accordance with Accounting
Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the
RMB as the functional currency for the Chinese subsidiaries. According to Topic
830, all assets and liabilities were translated at the exchange rate on the
respective balance sheet dates, stockholders’ equity is translated at the
historical rates and statement of income items are translated at the weighted
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with ASC Topic 220,
“Comprehensive Income.” Gains and losses resulting from the translations of
foreign currency transactions and balances are reflected in the statements of
income.





Note
2 – Summary of Significant Accounting Policies





Use of
Estimates





The
preparation of 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 date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Areas that require estimates and assumptions include valuation of
accounts receivable and inventory, determination of useful lives of property and
equipment, estimation of certain liabilities and sales returns.





Cash and Cash
Equivalents





Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.





Restricted
Cash





Restricted
cash consists of monies restricted by the Company’s lender and monies restricted
under a letter of credit and a bank acceptance.





Accounts
Receivable





The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. As of June 30, 2010 and December 31, 2009,
approximately 48% and 46%, respectively, of our accounts receivable was from
overseas customers. The Company maintains a substantial amount of export
insurance that covers losses arising from customers’ rejection of its products,
political risk, losses arising from business credit and other credit risks
including bankruptcy, insolvency and delay in payment.




7
 
  DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)


Investments





The
Company purchased various stocks during 2007 and in 2008 the Company was
required to purchase an equity fund for a bank loan. The investments were
trading securities that were bought and held principally for the purpose of
selling them in the near term and are reported at fair value, with unrealized
gains and losses included in earnings. All of these stocks were sold during
2009.





Advances to
Suppliers





The
Company makes advances to certain vendors to purchase its material. The advances
are interest free and unsecured.





Inventories





Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Company compares the cost of inventories with the market value and
allowance is made for writing down the inventories to their market value, if
lower.





Property and
Equipment





Property
and equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives as follows:





Buildings
              5-20
      yearsEquipment
              5-10
      yearsVehicles
              5
      yearsOffice
      equipment
              5-10
      years





The following are the details of property and
equipment at June 30, 2010 and December 31, 2009:





June 30, 2010
                    
                    
                    December 31, 2009(audited)Building
                    
                    $
                    3,411,281
                    
                    
                    $
                    3,294,109Equipment
                    
                    
                    14,762,156
                    
                    
                    
                    14,312,145Vehicle
                    
                    
                    215,395
                    
                    
                    
                    34,735Office
      Equipment
                    
                    
                    435,286
                    
                    
                    
                    420,10618,824,118
                    
                    
                    
                    18,061,095Less
      accumulated depreciation
                    
                    
                    (7,473,398
                    )
                    
                    
                    (6,735,096
                    )$
                    11,350,720
                    
                    
                    $
                    11,325,999





Construction in
Progress




Construction
in progress consists of costs related to the Company's construction of a new
plant, office building and power distribution station. The Company expects to
expend an additional $1,770,000 to finish the current projects.




8
 
  DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)


Long-Lived
Assets





The
Company applies the provisions of ASC Topic 360, “Property, Plant, and
Equipment,” which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. ASC 360 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event,
a loss is recognized based on the amount by which the carrying amount exceeds
the fair value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair values are
reduced for the cost of disposal. Based on its review, the Company believes that
as of June 30, 2010 and December 31, 2009, there was no significant impairment
of its long-lived assets.





Intangible
Assets





Intangible
assets consist of rights to use land and computer software. The Company
evaluates intangible assets for impairment, at least annually and whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable from its estimated future cash flows. Recoverability of intangible
assets is measured by comparing their net book value to the related projected
undiscounted cash flows from these assets, considering a number of factors
including past operating results, budgets, economic projections, market trends
and product development cycles. If the net book value of the asset exceeds the
related undiscounted cash flows, the asset is considered impaired, and a second
test is performed to measure the amount of impairment loss.





The
following are the details of intangible assets at June 30, 2010 and December 31,
2009:





June 30, 2010
                  
                  
                  December 31, 2009(audited)Right
      to use land
                  
                  $
                  833,151
                  
                  
                  $
                  450,335Computer
      software
                  
                  
                  77,221
                  
                  
                  
                  76,906Total
                  
                  
                  910,372
                  
                  
                  
                  527,241Less
      Accumulated amortization
                  
                  
                  (142,145
                  )
                  
                  
                  (132,557
                  )Intangibles,
      net
                  
                  $
                  768,227
                  
                  
                  $
                  394,684





Pursuant
to PRC governmental regulations, the Government owns all land. The Company
recognized the amounts paid for the rights to use land as an intangible asset.
The Company amortizes these rights over their respective periods, which range
from 45 to 50 years and computer software is amortized over 1-2
years.





Fair Value of Financial
Instruments





Certain
of the Company’s financial instruments, including cash and cash equivalents,
restricted cash, accounts receivable, accounts payable, accrued liabilities and
short-term loans and notes payable, have carrying amounts that approximate their
fair values due to their short maturities.





ASC Topic
820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair
value of financial instruments held by the Company. ASC Topic 825, “Financial
Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure
requirements for fair value measures.  The carrying amounts reported in the
consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The
three levels of valuation hierarchy are defined as follows:





§
            Level
      1 inputs to the valuation methodology are quoted prices for identical
      assets or liabilities in active
markets.





§
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





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




9




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)




The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC
815.





As of
June 30, 2010 and December 31, 2009, the Company did not identify any assets and
liabilities that are required to be presented on the balance sheet at fair
value.





Concentration of Credit
Risk





Cash
includes cash on hand and demand deposits in accounts maintained within China.
Certain financial instruments, which subject the Company to concentration
of credit risk, consist of cash. Balances at financial institutions within China
are not covered by insurance.  The Company has not experienced any losses
in such accounts.





Revenue
Recognition




The
Company’s revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers when no other significant obligations of the Company exist
and collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.





Unearned
Revenue





The
Company records payments for goods before all relevant criteria for revenue
recognition are satisfied under unearned revenue.





Advertising
Costs





The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place.  Advertising costs for the six
months ended June 30, 2010 and 2009 were not significant.




Research and
Development




The
Company expenses its research and development costs as
incurred. Research and development costs for the six months ended June
30, 2010 and 2009, were $285,657 and $57,527,
respectively.





Stock-Based
Compensation




The
Company records stock-based compensation in accordance with ASC Topic 718,
“Compensation – Stock Compensation.” ASC 718 requires companies to measure
compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the employee’s requisite service
period. The Company recognizes in the statement of operations the grant-date
fair value of stock options and other equity-based compensation issued to
employees and non-employees. There were 130,000 options outstanding as of June
30, 2010.





Income
Taxes





The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes.” ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of, the
deferred tax assets will not be realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.





10
 
  DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)


Under ASC
740, a tax position is recognized as a benefit only if it is “more likely than
not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption had no effect on the Company’s consolidated financial
statements.





Foreign Currency
Transactions and Comprehensive Income





US GAAP
requires that recognized revenue, expenses, gains and losses be included in net
income. Certain statements, however, require entities to report specific changes
in assets and liabilities, such as gain or loss on foreign currency translation,
as a separate component of the equity section of the balance sheet. Such items,
along with net income, are components of comprehensive income.  The
functional currency of the Company’s Chinese subsidiaries is Chinese RMB.
Translation gains of $2,733,652 and $2,335,216 at June 30, 2010 and December 31,
2009, respectively, are classified as an item of other comprehensive income in
the stockholders’ equity section of the consolidated balance
sheets.





Currency
Hedging





The
Company entered into a forward exchange agreement with the Bank of China,
whereby the Company agreed to sell US dollars to the Bank of China at certain
rates. At June 30, 2010, the Company had no outstanding forward exchange
contracts.





Basic and Diluted Earnings
Per Share





Earnings
per share is calculated in accordance with the ASC Topic 260, “Earnings Per
Share.”  Basic earnings per share is based upon the weighted average number
of common shares outstanding. Diluted earnings per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.





The
following is a reconciliation of the number of shares (denominator) used in the
basic and diluted earnings per share computations:





Three months ended June 30,
                
                2010
                
                
                2009Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic earnings
      per share
                
                
                33,019,662
                
                
                $
                0.18
                
                
                
                21,626,413
                
                
                $
                0.08Effect
      of dilutive stock options and warrants
                
                
                684,214
                
                
                
                -
                
                
                
                79,754
                
                
                
                -Diluted
      earnings per share
                
                
                33,703,876
                
                
                $
                0.18
                
                
                
                21,706,167
                
                
                $
                0.08





Six months ended June 30,
                
                2010
                
                
                2009Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic earnings
      per share
                
                
                32,826,777
                
                
                $
                0.31
                
                
                
                20,817,208
                
                
                $
                0.11Effect
      of dilutive stock options and warrants
                
                
                903,075
                
                
                
                (0.01
                )
                
                
                59,752
                
                
                
                -Diluted
      earnings per share
                
                
                33,729,852
                
                
                $
                0.30
                
                
                
                20,876,960
                
                
                $
                0.11




11




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)


Statement of Cash
Flows





In
accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.





Registration Rights
Agreement




The
Company accounts for payment arrangements under a registration rights agreement
in accordance with ASC Topic 825, “Financial Instruments,” which requires the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, be separately recognized and measured in accordance with ASC Topic
450, “Contingencies.”




Recent
Pronouncements





On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01 re-defines
authoritative GAAP for nongovernmental entities to be only comprised of the FASB
Accounting Standards Codification (“Codification”) and, for SEC registrants,
guidance issued by the SEC.  The Codification is a reorganization and
compilation of all then-existing authoritative GAAP for nongovernmental
entities, except for guidance issued by the SEC.  The Codification is
amended to effect non-SEC changes to authoritative GAAP.  Adoption of
ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to
the Consolidated Financial Statements.





On
February 25, 2010, the FASB issued ASU No. 2010-09 Subsequent Events Topic 855
“Amendments to Certain Recognition and Disclosure Requirements,” effective
immediately. The amendments in the ASU remove the requirement for an SEC filer
to disclose a date through which subsequent events have been evaluated in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of US GAAP. The FASB believes these amendments remove
potential conflicts with the SEC’s literature. The adoption of this ASU did not
have a material impact on the Company’s consolidated financial
statements.





On March
5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815
“Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the
guidance within the derivative literature that exempts certain credit related
features from analysis as potential embedded derivatives requiring separate
accounting. The ASU specifies that an embedded credit derivative feature related
to the transfer of credit risk that is only in the form of subordination of one
financial instrument to another is not subject to bifurcation from a host
contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives —
Recognition. All other embedded credit derivative features should be analyzed to
determine whether their economic characteristics and risks are “clearly and
closely related” to the economic characteristics and risks of the host contract
and whether bifurcation is required. The ASU is effective for the Company on
July 1, 2010. Early adoption is permitted. The adoption of this ASU will not
have a material impact on the Company’s consolidated financial
statements.





In April
2010, the FASB codified the consensus reached in Emerging Issues Task Force
Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU
No. 2010-17 provides guidance on defining a milestone and determining when
it may be appropriate to apply the milestone method of revenue recognition for
research and development transactions. FASB ASU No. 2010-17 is
effective for fiscal years beginning on or after June 15, 2010, and is
effective on a prospective basis for milestones achieved after the adoption
date. The Company does not expect this ASU will have a material impact on
its financial position or results of operations when it adopts this update on
January 1, 2011.





12
 
  DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)


Note 3 – Inventories





Inventories
consisted of the following at June 30, 2010 and December 31, 2009:





June 30, 2010
                    
                    
                    December 31, 2009(audited)Raw
      material
                    
                    $
                    10,974,211
                    
                    
                    $
                    11,113,055Work
      in process
                    
                    
                    9,066,496
                    
                    
                    
                    5,236,692Finished
      goods
                    
                    
                    2,559,645
                    
                    
                    
                    1,711,535Total
                    
                    $
                    22,600,352
                    
                    
                    $
                    18,061,282





Note
4 – Notes Payable





Notes
payable at June 30, 2010 and December 31, 2009, consist of multiple bankers’
acceptances from the Bank of China. The terms of the notes range from 3-6
months, bear no interest and pays the bank 0.05% of the note balance as an
acceptance fee. The Company deposits 10% of the notes’ par value with the Bank
of China, refundable when the notes are re-paid.





Note 5 –
Stockholders’ Equity





Treasury
Stock





During
the quarter ended June 30, 2010, the Company purchased 798,300 shares of its
common stock on the open market (treasury shares) for $6,945,950.  The
Company accounted for the purchase of these treasury shares using the cost
method.  The Company has retired the 798,300 shares that were
purchased.





Stock
Options





Following
is a summary of the options activity:





Options
                        outstanding
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Weighted
                        average
                        remaining
                        contractual life
                      
                      
                      Aggregate
                        Intrinsic ValueOutstanding,
      December 31, 2009
                      
                      
                      130,000
                      
                      
                      $
                      10.96
                      
                      
                      
                      4.98
                      
                      
                      $
                      45,500Granted
                      
                      
                      -
                      
                      
                      
                      -Forfeited
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Outstanding,
      June 30, 2010
                      
                      
                      130,000
                      
                      
                      $
                      10.96
                      
                      
                      
                      4.48
                      
                      
                      $
                      -Exercisable,
      June 30, 2010
                      
                      
                      56,666
                      
                      
                      $
                      10.96
                      
                      
                      
                      4.48
                      
                      
                      $
                      -





The
exercise price for options outstanding at June 30, 2010 is as
follows:





Number
      of
                            Options
                          
                          Exercise
                            Price130,000
                          
                          $
                          10.96130,000




13




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Six Months Ended June 30, 2010 and 2009
 (unaudited)




Warrants





Following
is a summary of warrant activity:





Warrants
                              Outstanding
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price
                            
                            
                            Weighted
                              average
                              remaining
                              contractual life
                            
                            
                            Aggregate
                              Intrinsic ValueOutstanding,
      December 31, 2009
                            
                            
                            1,759,118
                            
                            
                            $
                            3.96
                            
                            
                            
                            2.61
                            
                            
                            $
                            12,931,146Granted
                            
                            
                            -
                            
                            
                            
                            -Forfeited
                            
                            
                            -
                            
                            
                            
                            -Exercised
                            
                            
                            (1,751,610
                            )
                            
                            
                            3.97Outstanding,
      June 30, 2010
                            
                            
                            7,508
                            
                            
                            $
                            1.73
                            
                            
                            
                            1.70
                            
                            
                            $
                            49,365Exercisable,
      June 30, 2010
                            
                            
                            7,508
                            
                            
                            $
                            1.73
                            
                            
                            
                            1.70
                            
                            
                            $
                            49,365





The
exercise price for warrants outstanding at June 30, 2010 is as
follows:





Number
      of
                              Warrants
                            
                            Exercise
                              Price7,508
                            
                            $
                            1.737,508




During
the three months ended June 30, 2010, certain warrant holders exercised
1,751,610 warrants that resulted in gross proceeds of $6,951,527 to the
Company.





Note
6 - Employee Welfare Plan





The total expense for the employee common welfare was $18,733 and
$17,726 for the six months ended June 30, 2010 and
2009, respectively.  The Chinese government abolished the 14% welfare
plan policy during 2007.  The Company is not required to establish welfare
and common welfare reserves.





Note
7 - Statutory Reserve and Development Fund





As
stipulated by the Company Law of the PRC, net income after taxation can only be
distributed as dividends after appropriation has been made for the
following:





i.
            Making
      up cumulative prior years’ losses, if
any;





ii.
            Allocations
      to the “Statutory surplus reserve” of at least 10% of income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company’s registered
  capital;





iii.
            Allocations
      of 5-10% of income after tax, as determined under PRC accounting rules and
      regulations, to the Company’s “Statutory common welfare fund” (“SCWF”),
      which is established for the purpose of providing employee facilities and
      other collective benefits to the Company’s employees;
  and





iv.
            Allocations
      to the discretionary surplus reserve, if approved in the stockholders’
      general meeting.  The Company allocates 5% of income after tax as
      development fund. The fund is for enlarging its business and increasing
      capital.




14




Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only one
"Statutory surplus reserve" requirement. The reserve is 10 percent of income
after tax, not to exceed 50 percent of registered capital.





The
Company appropriated $1,051,813 and $253,395, respectively as reserve for the
statutory surplus reserve and $525,906 and $126,697 for the development fund for
the six months ended June 30, 2010 and 2009,
respectively.





Note
8 - Geographical Sales





Geographical
distribution of sales is as follows:





Three Months Ended
                    
                    
                    Six Months EndedJune 30,
                    
                    
                    June 30,Geographical Areas
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009China
                    
                    $
                    11,376,532
                    
                    
                    $
                    1,674,260
                    
                    
                    $
                    17,771,412
                    
                    
                    $
                    2,129,471South
      America
                    
                    
                    6,886,774
                    
                    
                    
                    1,902,283
                    
                    
                    
                    11,427,425
                    
                    
                    
                    3,280,810Asia
                    
                    
                    5,641,665
                    
                    
                    
                    1,909,456
                    
                    
                    
                    10,026,064
                    
                    
                    
                    2,569,581Europe
                    
                    
                    4,723,182
                    
                    
                    
                    2,570,618
                    
                    
                    
                    7,296,407
                    
                    
                    
                    3,881,735Middle
      East
                    
                    
                    4,359,474
                    
                    
                    
                    2,029,455
                    
                    
                    
                    6,651,291
                    
                    
                    
                    3,349,045North
      America
                    
                    
                    1,033,543
                    
                    
                    
                    5,171,476
                    
                    
                    
                    4,585,720
                    
                    
                    
                    6,878,781Africa
                    
                    
                    429,517
                    
                    
                    
                    52,955
                    
                    
                    
                    594,825
                    
                    
                    
                    93,296$
                    34,450,687
                    
                    
                    $
                    15,310,503
                    
                    
                    $
                    58,353,144
                    
                    
                    $
                    22,182,719




15





CAUTIONARY
STATEMENT FOR FORWARD-LOOKING STATEMENTS




This
Quarterly Report on Form 10-Q  includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  We based
these forward-looking statements on our current expectations and projections
about future events.  These forward-looking statements are subject to known
and unknown risks, uncertainties and assumptions about us that may cause our
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.  In
some cases, you can identify forward-looking statements by terminology such as
“may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “continue,” or the negative of such terms or other
similar expressions.  Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those listed under the heading
“Risk Factors” and those listed in our other Securities and Exchange
Commission filings.  The following discussion should be read in conjunction
with our Financial Statements and related Notes thereto included elsewhere in
this report. Throughout this Quarterly Report, we will refer to Deer Consumer
Products, Inc. as "Deer," the "Company," "we," "us," and "our."





Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Overview





On
September 3, 2008, we entered into a share exchange agreement and plan of
reorganization with Deer International Group Ltd. (“Deer International”), a
company incorporated under the laws of the British Virgin Islands (“BVI”) on
December 3, 2007, and holder of 100% of the shares of Winder Electric Group Ltd.
(“Winder”) since March 11, 2008.  Winder has a 100% owned subsidiary, Delta
International Limited (“Delta”).  Winder and Delta were formed and
incorporated in the Guangdong Province of the PRC on July 20, 2001 and February
23, 2006, respectively.





Pursuant
to the share exchange agreement, we acquired from Deer International 50,000
ordinary shares, consisting of all of its issued and outstanding capital stock
in exchange for 15,695,706 shares of our common stock.





Concurrently
with the closing of the transactions contemplated by the share exchange
agreement and as a condition thereof, we entered into an agreement with Crescent
Liu, our former Director and Chief Executive Officer, pursuant to which he
returned 5,173,914 shares of our common stock for cancellation. Mr. Liu was not
compensated for the cancellation of his shares of our common stock. Upon
completion of the foregoing transactions, we had 19,652,226 shares of common
stock issued and outstanding.  In connection with the above transaction we
changed our name to Deer Consumer Products, Inc. on September 3,
2008.





The
exchange of shares with Deer International was recorded as a reverse acquisition
under the purchase method of accounting because Deer International obtained
control of our company. Accordingly, the merger of Deer International into
us was recorded as a recapitalization of Deer International, with Deer
International being treated as the continuing entity. The historical financial
statements presented are the consolidated financial statements of Deer
International. The share exchange agreement has been treated as a
recapitalization and not as a business combination; therefore, no pro forma
information is disclosed. At the date of this transaction, the net liabilities
of the legal acquirer were $0.





We are
engaged in the manufacture, marketing, distribution and sale of small home and
kitchen electric appliances (blenders, food processors, choppers, juicers,
etc.).  The Company manufactures its products in YangJiang, China and has
corporate functions in Nanshan, Shenzhen, China.





We
operate through our two wholly-owned subsidiaries, Winder, which is a
wholly-owned foreign enterprise (“WOFE”) and responsible for research,
production and delivery of goods, and Delta, which has transferred all of its
material former operations to Winder. We have traditionally acted as both an
original equipment manufacturer (“OEM”) and original design manufacturer (“ODM”)
for the export market.  On April 30, 2010, we incorporated Deer Technology
(AnHui) Co., Ltd. (“Deer Technology”) in the AnHui Province.  We invested
$10 million in Deer Technology and have committed to invest another $19.8
million. Deer Technology is engaged in the manufacture and sales of household
electric appliances.





16


Critical
Accounting Policies





In
presenting our financial statements in conformity with accounting principles
generally accepted in the United States (“US GAAP”), we are required to make
estimates and assumptions that affect the amounts reported therein. Several of
the estimates and assumptions we are required to make relate to matters that are
inherently uncertain as they pertain to future events. However, events that are
outside of our control cannot be predicted and, as such, they cannot be
contemplated in evaluating such estimates and assumptions. If there is a
significant unfavorable change to current conditions, it will likely result in a
material adverse impact to our results of operations, financial position and in
liquidity. We believe the estimates and assumptions we used when preparing our
financial statements were the most appropriate at that time. Presented below are
those accounting policies we believe require subjective and complex judgments
that could potentially affect reported results.





Use of Estimates. Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which were prepared in accordance with US
GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to impairment of long-lived assets, and allowance for doubtful accounts.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.





Areas
that require estimates and assumptions include valuation of accounts receivable
and inventory, determination of useful lives of property and equipment,
estimation of certain liabilities and sales returns.





Accounts Receivable. We
maintain reserves for potential credit losses on accounts receivable. Management
reviews the composition of accounts receivable and analyzes historical bad
debts, customer concentrations, customer credit worthiness, current economic
trends and changes in customer payment patterns to evaluate the adequacy of
these reserves.





Advances to Suppliers. We
make advances to certain vendors for purchase of its material. The advances to
suppliers are interest free and unsecured.





Inventory. Inventory is
valued at the lower of cost (determined on a weighted average basis) or market.
We compare the cost of inventories with the market value and allowance is made
for writing down the inventories to their market value, if lower.





Long-Lived Assets. We
periodically assess potential impairments to our long-lived assets. We perform
an impairment review whenever events or changes in circumstances indicate that
the carrying value may not be fully recoverable. Factors we considered include,
but are not limited to: significant underperformance relative to expected
historical or projected future operating results; significant changes in the
manner of use of the acquired assets or the strategy for our overall business;
and significant negative industry or economic trends. When we determine that the
carrying value of a long-lived asset may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we estimate the
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future undiscounted cash
flows and eventual disposition is less than the carrying amount of the asset, we
recognize an impairment loss. An impairment loss is reflected as the amount by
which the carrying amount of the asset exceeds the fair market value of the
asset, based on the fair market value if available, or discounted cash flows. To
date, there has been no impairment of long-lived assets.





Property and Equipment:
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives as
follows:




17




Buildings
                5-20
      yearsEquipment
                5-10
      yearsVehicles
                5
      yearsOffice
      equipment
                5-10
      years




Revenue Recognition. Our
revenue recognition policies are in compliance with SEC Staff Accounting
Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when no other significant obligations exist and collectability is
reasonably assured. Payments received before all of the relevant criteria for
revenue recognition are satisfied are recorded as unearned revenue.





Foreign Currency Transactions and
Comprehensive Income. US GAAP generally requires that recognized revenue,
expenses, gains and losses be included in net income. Certain statements,
however, require entities to report specific changes in assets and liabilities,
such as gain or loss on foreign currency translation, as a separate component of
the equity section of the balance sheet. Such items, along with net income, are
components of comprehensive income. The functional currency of the Company is
Chinese Renminbi. The unit of Renminbi is in Yuan. Translation gains are
classified as an item of other comprehensive income in the stockholders’ equity
section of the balance sheet. Other comprehensive income in the statements of
income and other comprehensive income includes translation gains recognized each
period.





Currency Hedging.  We
entered into a forward exchange agreement with the Bank of China, whereby we
have agreed to sell US dollars to the Bank of China at certain rates. Since the
contractual rate at which we sell US dollars to the Bank of China was greater
than the exchange rate on the date of each exchange transaction, we have
recognized foreign exchange gains. At June 30, 2010, we had no outstanding
forward exchange contracts.





Recent
Accounting Pronouncements





On July
1, 2009, we adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic
105 - Generally Accepted Accounting Principles - amendments based on Statement
of Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles”
(“ASU No. 2009-01”).  ASU No. 2009-01 re-defines authoritative GAAP for
nongovernmental entities to be only comprised of the FASB Accounting Standards
Codification (“Codification”) and, for SEC registrants, guidance issued by the
SEC.  The Codification is a reorganization and compilation of all
then-existing authoritative GAAP for nongovernmental entities, except for
guidance issued by the SEC.  The Codification is amended to effect non-SEC
changes to authoritative GAAP.  Adoption of ASU No. 2009-01 only changed
the referencing convention of GAAP in Notes to the Consolidated Financial
Statements.





On
February 25, 2010, the FASB issued ASU No. 2010-09 Subsequent Events Topic 855
“Amendments to Certain Recognition and Disclosure Requirements,” effective
immediately. The amendments in the ASU remove the requirement for an SEC filer
to disclose a date through which subsequent events have been evaluated in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of US GAAP. The FASB believes these amendments remove
potential conflicts with the SEC’s literature. The adoption of this ASU did not
have a material impact on our consolidated financial statements.





On March
5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815
“Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the
guidance within the derivative literature that exempts certain credit related
features from analysis as potential embedded derivatives requiring separate
accounting. The ASU specifies that an embedded credit derivative feature related
to the transfer of credit risk that is only in the form of subordination of one
financial instrument to another is not subject to bifurcation from a host
contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives —
Recognition. All other embedded credit derivative features should be analyzed to
determine whether their economic characteristics and risks are “clearly and
closely related” to the economic characteristics and risks of the host contract
and whether bifurcation is required. The ASU is effective for the Company on
July 1, 2010. Early adoption is permitted. The adoption of this ASU will not
have a material impact on our consolidated financial statements.





18


In April
2010, the FASB codified the consensus reached in Emerging Issues Task Force
Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU
No. 2010-17 provides guidance on defining a milestone and determining when
it may be appropriate to apply the milestone method of revenue recognition for
research and development transactions. FASB ASU No. 2010-17 is
effective for fiscal years beginning on or after June 15, 2010, and is
effective on a prospective basis for milestones achieved after the adoption
date. We do not expect this ASU will have a material impact on our
financial position or results of operations when we adopt this update on
January 1, 2011.





Results of
Operations





Three
Months Ended June 30, 2010, Compared to the Three Months Ended June 30,
2009:





Three Months Ended June 30,
                
                
                $
                
                
                %2010
                
                
                2009
                
                
                Change
                
                
                ChangeRevenue
                
                $
                34,450,687
                
                
                $
                15,310,503
                
                
                $
                19,140,184
                
                
                
                125.0Cost
      of revenue
                
                
                24,569,034
                
                
                
                11,519,865
                
                
                
                13,049,169
                
                
                
                113.3Gross
      profit
                
                
                9,881,653
                
                
                
                3,790,638
                
                
                
                6,091,015
                
                
                
                160.7Selling,
      general and administrative expenses
                
                
                2,910,079
                
                
                
                1,534,234
                
                
                
                1,375,845
                
                
                
                89.7Interest
      and financing costs, net
                
                
                19,755
                
                
                
                110,522
                
                
                
                (90,767
                )
                
                
                (82.1
                )Other
      income (expense)
                
                
                22,824
                
                
                
                (2,015
                )
                
                
                24,839
                
                
                
                (1,232.7
                )Foreign
      exchange (loss)
                
                
                (92,676
                )
                
                
                (9,997
                )
                
                
                (82,679
                )
                
                
                827.0Income
      tax expense
                
                
                1,100,566
                
                
                
                420,031
                
                
                
                680,535
                
                
                
                162.0Net
      income
                
                
                6,020,540
                
                
                
                1,714,876
                
                
                
                4,305,664
                
                
                
                251.1





Revenues





Our
revenue for the three months ended June 30, 2010, was $34.5 million, an increase
of $19.1 million or 125.0% from $15.3 million for the three months ended June
30, 2009. The increase in revenues was a result of us aggressively expanding our
sales in the China domestic market and increasing our market shares in the South
American, Asian, European and Middle East markets. We increased our China
domestic market sales from approximately $1.7 million for the three months ended
June 30, 2009 to approximately $11.4 million for the same period in 2010, a 579%
increase. Beginning in the latter half of 2009, we increased sales of our
products to a prominent national electric appliance retail chain in China with
roughly 900 stores. In the first quarter of 2010, we started selling to Wal-Mart
stores in the Guandong Province and began ramping up sales to another prominent
national electronic appliance retail chain in China with over 1,100 stores. We
also added retail locations in other channels such as regional electric
appliance retailers and department stores. We increased our product sales over
internet portals, into hotels and restaurants, and via reward programs with
large Chinese banks, telecommunication firms, and postal offices. The results
are on pace with management’s plan to capture the fast growth experienced in the
domestic Chinese small appliance market.





Our sales
in South America were $6.9 million for the three months ended June 30, 2010, a
$4.9 million or 262% increase over the same period in 2009.  Our sales in
Asia were $5.6 million for the three months ended June 30, 2010, a $3.7 million
or 195% increase over the same period in 2009. We believe that the increase in
sales in Asia and South America were largely due to emerging wealth in the
regions and because those regions experienced less of an impact from the recent
financial crisis. In the longer term, we are optimistic about our Asian and
South American markets because of their GDP growth and large
populations.





Our sales
in Europe were $4.7 million for the three months ended June 30, 2010, a $2.2
million or 84% increase over the same period in 2009.  Our sales in the
Middle East were $4.4 million for the three months ended June 30, 2010, a $2.3
million or 115% increase over the same period in 2009. Our sales gains in
the Europe and the Middle East were largely due to Deer gaining market share
following the financial crisis.  Our sales in the U.S. were $1.0 million
for the three months ended June 30, 2010, a $4.1 million or 80% decrease over
the same period in 2009.  The decrease is due to seasonality of order
placement and delivery schedules of our U.S. customers.  On an annual
basis, we do not expect to see a slowdown in U.S. sales.





19


Following
the financial crisis, we believe that many smaller suppliers with limited
capital resources have gone out of business, leading to further consolidation in
the industry.  In addition, we noticed that buyers increasingly favored
companies with strong financial strength, higher quality, sufficient plant
capacity, and a track record of prompt delivery.  Buyers placed even
greater emphasis on being able to source quality supplies without delays or
interruptions.  We utilized this market opportunity to add new accounts and
increase sales volume with our existing customers.





Cost
of Revenue





Our cost
of revenue for the three months ended June 30, 2010, increased by $13.0 million
or 113.3% from $11.5 million for the three months ended June 30, 2009, to $24.6
million for the three months ended June 30, 2010.  The increased cost of
revenue in 2010 was due to the increase in sales.





Gross
Profit





Our gross
margin for the three months ended June 30, 2010, was 28.7% compared to 24.8% for
the same period in 2009. The increase in gross margin for the three months ended
June 30, 2010, compared to the same period in 2009, was due to increased sales
in the China domestic market, which has higher margins. Our gross margin is
substantially higher in the China domestic market because of the lower household
penetration of small household products and trends of emerging wealth. In
addition, our higher manufacturing efficiency as a result of higher revenue
volume contributed to the increase in gross margin.





Operating
Expenses





Selling,
general and administrative expenses for the three months ended June 30, 2010,
increased by $1.4 million or 89.7%, from $1.5 million for the three months ended
June 30, 2009, to $2.9 million for the three months ended June 30, 2010. 
Selling expenses for the three months ended June 30, 2010, increased by 150.1%
or $1.1 million in comparison to the same period in 2009 due to the associated
selling costs incurred to generate the significant increase in revenue. 
General and administrative expenses for the three months ended June 30, 2010,
increased by 35.1% or $0.3 million in comparison to the same period in 2009 due
to an increase in research and development, employee welfare, insurance and
travel expenses.





Interest
and Financing Costs





Interest
and financing costs for the three months ended June 30, 2010, was $19,755
compared to $110,522 for the three months ended June 30, 2009, a decrease of
$90,767 or 82.1%. The change is principally due to lower interest expense due to
lower borrowings in 2010.





Interest
Income





Interest
income for the three months ended June 30, 2010, was $239,139 compared to $1,037
for the three months ended June 30, 2009, an increase of $238,102. The change is
principally due to the excess cash invested in interest bearing
accounts.





Income
Tax Expense





Our
effective tax rate for the three months ended June 30, 2010, was 15.5%, as
opposed to 19.7% for the three months ended June 30, 2009. In 2009, the PRC
government granted the Company this special tax rate because of its high tech
enterprise status. These special tax benefits last for three years and can be
renewed prior to expiration.





20


Six
Months Ended June 30, 2010, Compared to the Six Months Ended June 30,
2009:





Six Months Ended June 30,
                
                
                $
                
                
                %2010
                
                
                2009
                
                
                Change
                
                
                ChangeRevenue
                
                $
                58,353,144
                
                
                $
                22,182,719
                
                
                $
                36,170,425
                
                
                
                163.1Cost
      of revenue
                
                
                41,593,643
                
                
                
                16,732,569
                
                
                
                24,861,074
                
                
                
                148.6Gross
      profit
                
                
                16,759,501
                
                
                
                5,450,150
                
                
                
                11,309,351
                
                
                
                207.5Selling,
      general and administrative expenses
                
                
                5,013,109
                
                
                
                2,089,157
                
                
                
                2,923,952
                
                
                
                140.0Interest
      and financing costs, net
                
                
                49,461
                
                
                
                225,353
                
                
                
                (175,892
                )
                
                
                (78.1
                )Other
      income (expense)
                
                
                8,223
                
                
                
                (3,896
                )
                
                
                12,119
                
                
                
                (311.1
                )Foreign
      exchange gain (loss)
                
                
                (125,810
                )
                
                
                (80,503
                )
                
                
                (45,307
                )
                
                
                56.3Income
      tax expense
                
                
                1,852,841
                
                
                
                682,147
                
                
                
                1,170,694
                
                
                
                171.6Net
      income
                
                
                10,057,563
                
                
                
                2,371,750
                
                
                
                7,685,813
                
                
                
                324.1





Revenues





Our
revenue for the six months ended June 30, 2010, was $58.4 million, an increase
of $36.2 million or 163.1% from $22.2 million for the six months ended June 30,
2009. The increase in revenues was a result of us aggressively expanding our
sales in the China domestic market and increasing our market shares in the South
American, Asian, European and Middle East markets. We increased our China
domestic market sales from approximately $2.2 million for the six months ended
June 30, 2009 to approximately $17.8 million for the same period in 2010, a 735%
increase. Beginning in the latter half of 2009, we increased sales of our
products to a prominent national electric appliance retail chain in China with
roughly 900 stores. In the first quarter of 2010, we started selling to Wal-Mart
stores in the Guandong Province and began ramping up sales to another prominent
national electronic appliance retail chain in China with over 1,100 stores. We
also added retail locations in other channels such as regional electric
appliance retailers and department stores. We increased our product sales over
internet portals, into hotels and restaurants, and via reward programs with
large Chinese banks, telecommunication firms, and postal offices. The results
are on pace with management’s plan to capture the fast growth experienced in the
domestic Chinese small appliance market.





Our sales
in South America were $11.4 million for the six months ended June 30, 2010, an
$8.1 million or 248% increase over the same period in 2009.  Our sales in
Asia were $10.0 million for the six months ended June 30, 2010, a $7.5 million
or 290% increase over the same period in 2009. We believe that the increase in
sales in Asia and South America were largely due to emerging wealth in the
regions and because those regions experienced less of an impact from the recent
financial crisis. In the longer term, we are optimistic about our Asian and
South American markets because of their GDP growth and large
populations.





Our sales
in Europe were $7.3 million for the six months ended June 30, 2010, a $3.4
million or 88% increase over the same period in 2009.  Our sales in the
Middle East were $6.7 million for the six months ended June 30, 2010, a $3.3
million or 99% increase over the same period in 2009. Our sales gains in
the Europe and the Middle East were largely due to Deer gaining market share
following the financial crisis.  Our sales in the U.S. were $4.6 million
for the six months ended June 30, 2010, a $2.3 million or 33% decrease over the
same period in 2009.  The decrease is due to seasonality of order placement
and delivery schedules of our U.S. customers.  On an annual basis, we do
not expect to see a slowdown in U.S. sales.





Following
the financial crisis, we believe that many smaller suppliers with limited
capital resources have gone out of business, leading to further consolidation in
the industry.  In addition, we noticed that buyers increasingly favored
companies with strong financial strength, higher quality, sufficient plant
capacity, and a track record of prompt delivery.  Buyers placed even
greater emphasis on being able to source quality supplies without delays or
interruptions.  We utilized this market opportunity to add new accounts and
increase sales volume with our existing customers.





21


Cost
of Revenue





Our cost
of revenue for the six months ended June 30, 2010, increased by $24.9 million or
149% from $16.7 million for the six months ended June 30, 2009, to $41.6 million
for the six months ended June 30, 2010.  The increased cost of revenue in
2010 was due to the increase in sales.





Gross
Profit





Our gross
margin for the six months ended June 30, 2010, was 28.7% compared to 24.6% for
the same period in 2009. The increase in gross margin for the six months ended
June 30, 2010, compared to the same period in 2009, was due to increased sales
in the China domestic market, which has higher margins. Our gross margin is
substantially higher in the China domestic market because of the lower household
penetration of small household products and trends of emerging wealth. In
addition, our higher manufacturing efficiency as a result of higher revenue
volume contributed to the increase in gross margin.





Operating
Expenses





Selling,
general and administrative expenses for the six months ended June 30, 2010,
increased by $2.9 million or 140%, from $2.1 million for the six months ended
June 30, 2009, to $5.0 million for the six months ended June 30, 2010. 
Selling expenses for the six months ended June 30, 2010, increased by 257% or
$2.3 million in comparison to the same period in 2009 due to the associated
selling costs incurred to generate the significant increase in revenue. 
General and administrative expenses for the six months ended June 30, 2010,
increased by 50% or $0.6 million in comparison to the same period in 2009 due to
an increase in research and development, employee welfare, insurance and travel
expenses.





Interest
and Financing Costs





Interest
and financing costs for the six months ended June 30, 2010, was $49,461 compared
to $225,353 for the six months ended June 30, 2009, a decrease of $175,892 or
78.1%. The change is principally due to lower interest expense due to lower
borrowings in 2010.





Interest
Income





Interest
income for the six months ended June 30, 2010, was $331,060 compared to $2,656
for the six months ended June 30, 2009, an increase of $328,404. The change is
principally due to the excess cash invested in interest bearing
accounts.





Income
Tax Expense





Our
effective tax rate for the six months ended June 30, 2010, was 15.6%, as opposed
to 22.3% for the six months ended June 30, 2009. In 2009, the PRC government
granted the Company this special tax rate because of its high tech enterprise
status. These special tax benefits last for six years and can be renewed prior
to expiration.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the six months ended June 30,
2010, that have, or are reasonably likely to have, a current or future affect on
our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests.





Liquidity
and Capital Resources





On April
24, 2009, we effected a 1 for 2.3 reverse stock split of our common stock and on
October 2, 2009, the Company effected a 2 for 1 forward stock split of our
common stock. All share information for common shares was restated retroactively
for these stock splits.





22


On March
31, 2009, we completed a closing of a private placement offering of Units (as
defined below) pursuant to which we sold an aggregate of 810,690 Units at
an offering price of $0.92 per Unit for aggregate gross proceeds of
$746,000.  Each "Unit" consisted of one share of our common stock and a
three-year warrant to purchase 15% of one share of common stock at an exercise
price of $1.73 per share. The total warrants issued to investors were
121,660.  We also issued warrants to purchase 81,090 shares of common stock
to the placement agents.





On May 1,
2009, we completed a closing of a private placement offering of 1,040,000 Units
at an offering price of $0.92 per Unit for aggregate gross proceeds of
$956,800 to two non-U.S. investors.  Each Unit consisted of one share of
our common stock and a three-year warrant to purchase 15% of one share of common
stock, or an aggregate of 156,000 shares of common stock, at an exercise price
of $1.73 per share.  We also issued warrants to purchase 104,000 shares of
common stock to the placement agents.





On May
20, 2009, we completed a closing of a private placement offering of 1,060,000
Units at an offering price of $0.92 per Unit for aggregate gross proceeds
of $975,200 to two non-U.S. investors.  Each Unit consisted of one share of
our common stock and a three-year warrant to purchase 15% of one share of common
stock, or an aggregate of 159,000 shares of common stock, at an exercise price
of $1.73 per share.  We also issued warrants to purchase 106,000 shares of
common stock to the placement agents.





On
September 21, 2009, we completed a private placement offering of 3,000,000 Units
at an offering price of $5.00 per Unit for aggregate offering price of
$15,000,000 to non-U.S. investors.  Each Unit consisted of one share of our
common stock, and a three-year warrant to purchase 30% of one share of our
common stock, or an aggregate of 900,000 shares of common stock, at an exercise
price of $5.00 per share. A non-U.S. advisor to us received fees of 9% of
the gross proceeds and warrants to purchase 300,000 shares of common stock on
the same terms as the non-U.S. investors.  In addition, we paid an
additional 3% advisory fee in connection with this private placement
offering.





On
December 17, 2009, we completed a public offering of 6,900,000 shares of our
common stock at a public offering price of $11.00 per share for gross
proceeds of $75,900,000.  We paid commissions and fees associated with this
offering of $9,931,296 in 2009.  We also paid offering cost of $320,000
related to this offering in 2010.





During
the three months ended June 30, 2010, certain warrant holders exercised
1,751,610 warrants that resulted in gross proceeds of $6,951,527.  Also
during the three months ended June 30, 2010, we purchased 798,300 shares of our
common stock on the open market (treasury shares) for $6,945,950.





Cash
Flows





At June
30, 2010, we had $74.3 million in cash and cash equivalents on hand.  Our
principal demands for liquidity are to increase sales in China, adding capacity,
inventory purchase, sales distribution, and general corporate purposes.  We
anticipate that the amount of cash we have on hand as of the date of this report
as well as the cash that we will generate from operations will satisfy these
requirements.





Net cash
flows used in operating activities for the six months ended June 30, 2010, was
$5,592 compared to cash provided by operating activities of $2.4 million for the
six months ended June 30, 2009. The cash flows from operating activities was
principally attributed to the net income generated during the six months ended
June 30, 2010, an increase in accounts and other payables, offset by an increase
in our accounts receivable and inventories and a decrease in current
liabilities.





We used
$4.9 million in investing activities during the six months ended June 30, 2010,
principally for construction in process and land use rights (intangible assets)
and an increase in restricted cash.





Cash used
in financing activities for the six months ended June 30, 2010, was $0.3
million, which included proceeds from the exercise of warrants offset by the
payment of offering costs and the purchase of treasury shares.





We intend
to meet our liquidity requirements, including capital expenditures related to
the purchase of equipment, purchase of raw materials, and the expansion of our
business, through cash flow provided by operations and funds raised through
offerings of our securities, if and when the Company determines such offerings
are required.





23


We
maintain export insurance that covers losses arising from customers’ rejection
of our products, political risk, losses arising from business credit and other
credit risks including bankruptcy, insolvency and delay in payment.




The
majority of our revenues were denominated in USD and expenses were denominated
primarily in RMB, the currency of the PRC. As we increase our sales in China, we
expect a significant component of our revenue to be denominated in
RMB.





There is
no assurance that exchange rates between the RMB and the USD will remain stable.
We currently do not engage in currency hedging. Inflation has not had a material
impact on our business.





Item 3. Quantitative and
Qualitative Disclosures about Market Risk




Not
required.





Item
4. Controls and Procedures




Disclosure
Controls and Procedures





As of the
end of the period covered by this report, the Company conducted an evaluation
under the supervision and with the participation of the Company’s management,
including the Chief Executive Officer (“CEO”), its principal executive officer,
and Chief Financial Officer (“CFO”), its principal financial officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act).  Based on that evaluation, the CEO and CFO concluded that the
Company’s disclosure controls and procedures were effective as of the date of
that evaluation to ensure that information required to be disclosed in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.





Changes
in Internal Control over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during its most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, its internal control over
financial reporting.





PART
II. OTHER INFORMATION





Item
1. Legal Proceedings





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business.  However, litigation is subject
to inherent uncertainties and an adverse result in these or other matters may
arise from time to time that may have an adverse affect on our business,
financial conditions, or operating results.  We are currently not aware of
any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results




Item
1A. Risk Factors




Not
required.




24




Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds




Unregistered
Sales of Securities





There
were no sales of unregistered equity securities during the period covered by
this report.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





On May
17, 2010, the Board of Directors authorized the Company to repurchase up to $20
million of the Company’s common stock.  After taking into account all
shares repurchased through August 6, 2010, the Company has approximately $13.05
million in aggregate remaining repurchase capacity under the Company’s
outstanding repurchase authorization.  The timing and actual number of
shares repurchased will depend on a variety of factors, including the stock
price, corporate and regulatory requirements and other market and economic
conditions.  The Company’s stock repurchase program may be suspended or
discontinued at any time, and expires two years following the date of
authorization.  The following table provides information with respect to
purchases made by the Company of shares of the Company’s common stock during the
three-month period ended June 30, 2010:





Issuer Purchases of Equity SecuritiesPeriod
                          
                          Total Number of
                            Shares Purchased
                          
                          
                          Average Price
                            Paid per Share
                          
                          
                          Total Number of
                            Shares Purchased as
                            Part of Publicly
                            Announced Plans or
                            Programs
                          
                          
                          Maximum Number
                            (or Approximate
                            Dollar Value) of
                            Shares that May Yet
                            Be Purchased Under
                            the Plans or ProgramsApril
      1 through April 30, 2010
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          20,000,000May
      1 through May 31, 2010
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          20,000,000June
      1 through June 30, 2010
                          
                          
                          798,300
                          
                          
                          
                          8.70
                          
                          
                          
                          798,300
                          
                          
                          
                          13,054,050Total
                          
                          
                          798,300
                          
                          
                          $
                          8.70
                          
                          
                          
                          798,300





Item
3. Defaults Upon Senior Securities




None.





Item 5. Other
Information




All
information required to be reported in a Current Report on Form 8-K during the
period covered by this Form 10-Q has been reported.





Item
6. Exhibits





Exhibit No.
            
            Description of Exhibit31.1
            
            Certification
      of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            
            Certification
      of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, as signed by the Chief Executive
      Officer32.2
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, as signed by the Chief Financial
      Officer




25


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




DEER
      CONSUMER PRODUCTS, INC.(Registrant)Date:
      August 10, 2010
                By:
                /s/
      Ying HeYing
      He
                  Chief
      Executive Officer
                  (Principal
      Executive Officer)





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