UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended September 30, 2009





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from ________________ to _______________





333-140545


(Commission
file number)





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


(Address
of principal executive offices)





011-86-755-8602-8285


(Issuer’s telephone
number)





N/A


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark 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 past 90 days.


Yes           x           No            ̈





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” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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            ̈      No           x




As
of  November 3, 2009 there were 25,606,378shares of
common stock were outstanding.








DEER
CONSUMER PRODCUTS, INC. AND SUBSIDIARIES


TABLE
OF CONTENTS





PART
      I – FINANCIAL INFORMATION
                          
                          2Item
      1.
                          Financial
      Statements
                          
                          2Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          19Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          28Item
      4T.
                          Controls
      and Procedures
                          
                          28Part
      II.OTHER INFORMATION
                          
                          28Item
      1.
                          Legal
      Proceedings
                          
                          28Item
      1A.
                          Risk
      Factors
                          
                          29Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          
                          29Item
      3.
                          Defaults
      Upon Senior Securities
                          
                          29Item
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          
                          29Item
      5.
                          Other
      Information
                          
                          29Item
      6.
                          Exhibits
                          
                          29SIGNATURES
                          
                          30


1





DEER
CONSUMER PRODCUTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





PART
I – FINANCIAL INFORMATION





Item
1.         Financial
Statements





September 30,
                                
                                
                                December 31,2009
                                
                                
                                2008(unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                
                                $
                                17,833,183
                                
                                
                                $
                                2,782,026Restricted
      cash
                                
                                
                                -
                                
                                
                                
                                200,099Accounts
      receivable, net
                                
                                
                                11,757,169
                                
                                
                                
                                8,560,465Advances
      to suppliers
                                
                                
                                3,767,328
                                
                                
                                
                                5,015,479Other
      receivables
                                
                                
                                199,871
                                
                                
                                
                                489,286Short
      term investments
                                
                                
                                -
                                
                                
                                
                                29,340Due
      from related party
                                
                                
                                -
                                
                                
                                
                                331,267Inventories
                                
                                
                                12,334,960
                                
                                
                                
                                7,680,851Other
      current assets
                                
                                
                                -
                                
                                
                                
                                13,342Total
      current assets
                                
                                
                                45,892,511
                                
                                
                                
                                25,102,155PROPERTY
      AND EQUIPMENT, net
                                
                                
                                11,705,817
                                
                                
                                
                                11,291,202CONSTRUCTION
      IN PROGRESS
                                
                                
                                2,213,427
                                
                                
                                
                                892,897INTANGIBLE
      ASSETS, net
                                
                                
                                397,044
                                
                                
                                
                                404,125OTHER
      ASSETS
                                
                                
                                24,977
                                
                                
                                
                                39,689TOTAL
      ASSETS
                                
                                $
                                60,233,776
                                
                                
                                $
                                37,730,068LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                
                                $
                                9,687,669
                                
                                
                                $
                                8,968,088Other
      payables
                                
                                
                                1,676,026
                                
                                
                                
                                760,632Unearned
      revenue
                                
                                
                                3,258,033
                                
                                
                                
                                3,305,966Accrued
      payroll
                                
                                
                                1,028,714
                                
                                
                                
                                168,282Short
      term loans
                                
                                
                                -
                                
                                
                                
                                3,552,841Advances
      from related party
                                
                                
                                80,070
                                
                                
                                
                                274,805Notes
      payable
                                
                                
                                4,881,576
                                
                                
                                
                                3,155,348Tax
      and welfare payable
                                
                                
                                1,635,005
                                
                                
                                
                                1,533,013Total
      current liabilities
                                
                                
                                22,247,093
                                
                                
                                
                                21,718,975LONG-TERM
      LOAN
                                
                                
                                733,500
                                
                                
                                
                                733,500TOTAL
      LIABILITIES
                                
                                
                                22,980,593
                                
                                
                                
                                22,452,475STOCKHOLDERS'
      EQUITY:Common
      Stock, $0.001 par value; 75,000,000 shares authorized; 25,576,094 and
      19,652,226 shares issued and outstanding as of September 30, 2009 and
      December 31, 2008, respectively
                                
                                
                                25,576
                                
                                
                                
                                19,652Additional
      paid-in capital
                                
                                
                                24,809,942
                                
                                
                                
                                9,329,371Development
      funds
                                
                                
                                859,361
                                
                                
                                
                                542,701Statutory
      reserve
                                
                                
                                1,718,723
                                
                                
                                
                                1,085,403Other
      comprehensive income
                                
                                
                                2,340,270
                                
                                
                                
                                2,345,698Retained
      earnings
                                
                                
                                7,499,311
                                
                                
                                
                                1,954,768Total
      stockholders' equity
                                
                                
                                37,253,183
                                
                                
                                
                                15,277,593TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                
                                $
                                60,233,776
                                
                                
                                $
                                37,730,068





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


2





DEER
CONSUMER PRODCUTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME





Three Months Ended September 30,
                    
                    
                    Nine Month Ended September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Revenue
                    
                    $
                    26,541,039
                    
                    
                    $
                    11,542,215
                    
                    
                    $
                    48,723,758
                    
                    
                    $
                    32,045,142Cost
      of Revenue
                    
                    
                    20,670,731
                    
                    
                    
                    8,255,913
                    
                    
                    
                    37,403,300
                    
                    
                    
                    24,550,251Gross
      profit
                    
                    
                    5,870,308
                    
                    
                    
                    3,286,302
                    
                    
                    
                    11,320,458
                    
                    
                    
                    7,494,891Operating
      expensesSelling
      expenses
                    
                    
                    960,013
                    
                    
                    
                    672,714
                    
                    
                    
                    1,871,266
                    
                    
                    
                    1,882,130General
      and administrative expenses
                    
                    
                    429,656
                    
                    
                    
                    943,467
                    
                    
                    
                    1,607,560
                    
                    
                    
                    2,182,969Total
      operating expenses
                    
                    
                    1,389,669
                    
                    
                    
                    1,616,181
                    
                    
                    
                    3,478,826
                    
                    
                    
                    4,065,099Income
      from operations
                    
                    
                    4,480,639
                    
                    
                    
                    1,670,121
                    
                    
                    
                    7,841,632
                    
                    
                    
                    3,429,792Non-operating
      income (expense):Financing
      costs
                    
                    
                    (35,882
                    )
                    
                    
                    (1,926
                    )
                    
                    
                    (156,543
                    )
                    
                    
                    (48,361
                    )Interest
      income
                    
                    
                    63,698
                    
                    
                    
                    1,693
                    
                    
                    
                    66,354
                    
                    
                    
                    8,548Interest
      expense
                    
                    
                    (14,292
                    )
                    
                    
                    (116,617
                    )
                    
                    
                    (118,984
                    )
                    
                    
                    (206,474
                    )Other
      income (expense)
                    
                    
                    8,894
                    
                    
                    
                    (1,698
                    )
                    
                    
                    4,998
                    
                    
                    
                    74,523Realized
      loss on trading securities
                    
                    
                    -
                    
                    
                    
                    (296
                    )
                    
                    
                    -
                    
                    
                    
                    (34,684
                    )Foreign
      exchange gain
                    
                    
                    288,461
                    
                    
                    
                    530,510
                    
                    
                    
                    207,958
                    
                    
                    
                    876,436Total
      non-operating income (expense)
                    
                    
                    310,879
                    
                    
                    
                    411,666
                    
                    
                    
                    3,783
                    
                    
                    
                    669,988Income
      before income tax
                    
                    
                    4,791,518
                    
                    
                    
                    2,081,787
                    
                    
                    
                    7,845,415
                    
                    
                    
                    4,099,780Income
      tax
                    
                    
                    668,745
                    
                    
                    
                    540,717
                    
                    
                    
                    1,350,892
                    
                    
                    
                    1,165,020Net
      income
                    
                    
                    4,122,773
                    
                    
                    
                    1,541,070
                    
                    
                    
                    6,494,523
                    
                    
                    
                    2,934,760Other
      comprehensive incomeForeign
      currency translation gain (loss)
                    
                    
                    57,012
                    
                    
                    
                    1,367,814
                    
                    
                    
                    (5,428
                    )
                    
                    
                    2,305,404Comprehensive
      Income
                    
                    $
                    4,179,785
                    
                    
                    $
                    2,908,884
                    
                    
                    $
                    6,489,095
                    
                    
                    $
                    5,240,164Weighted
      average shares outstanding :Basic
                    
                    
                    22,730,722
                    
                    
                    
                    16,856,898
                    
                    
                    
                    21,462,056
                    
                    
                    
                    16,087,045Diluted
                    
                    
                    23,266,256
                    
                    
                    
                    16,856,898
                    
                    
                    
                    21,908,490
                    
                    
                    
                    16,087,045Earnings
      per share:Basic
                    
                    $
                    0.18
                    
                    
                    $
                    0.09
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.18Diluted
                    
                    $
                    0.18
                    
                    
                    $
                    0.09
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.18





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


3





DEER
CONSUMER PRODCUTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Nine Month Ended September 30,2009
                      
                      
                      2008(unaudited)
                      
                      
                      (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                      
                      $
                      6,494,523
                      
                      
                      $
                      2,934,760Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
                      
                      
                      1,072,586
                      
                      
                      
                      857,170Amortization
                      
                      
                      7,076
                      
                      
                      
                      13,966Loss
      on disposal of fixed assets
                      
                      
                      -
                      
                      
                      
                      36,996Realized
      loss on short term investments
                      
                      
                      -
                      
                      
                      
                      34,684(Increase)
      / decrease in assets:Accounts
      receivable
                      
                      
                      (3,194,307
                      )
                      
                      
                      (4,015,909
                      )Other
      receivables
                      
                      
                      294,584
                      
                      
                      
                      147,815Inventories
                      
                      
                      (4,650,620
                      )
                      
                      
                      (6,234,027
                      )Due
      from stockholder
                      
                      
                      -
                      
                      
                      
                      1,446,505Due
      from related party
                      
                      
                      331,019
                      
                      
                      
                      (3,799,263
                      )Advances
      to suppliers
                      
                      
                      1,247,216
                      
                      
                      
                      (228,506
                      )Tax
      rebate receivable
                      
                      
                      -
                      
                      
                      
                      347,731Other
      assets
                      
                      
                      25,695
                      
                      
                      
                      176,343Increase
      / (decrease) in current liabilities:Accounts
      payable
                      
                      
                      719,113
                      
                      
                      
                      4,946,373Unearned
      revenue
                      
                      
                      (47,897
                      )
                      
                      
                      1,383,045Other
      payables
                      
                      
                      901,444
                      
                      
                      
                      (150,561
                      )Due
      to related party
                      
                      
                      (194,529
                      )
                      
                      
                      (791,123
                      )Accrued
      payroll
                      
                      
                      859,787
                      
                      
                      
                      113,427Tax
      and welfare payable
                      
                      
                      101,915
                      
                      
                      
                      392,629Net
      cash provided by (used in) operating activities
                      
                      
                      3,967,605
                      
                      
                      
                      (2,387,945
                      )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                      
                      
                      (1,486,891
                      )
                      
                      
                      (3,188,166
                      )Acquisition
      (disposal) of intangible assets
                      
                      
                      -
                      
                      
                      
                      8,041Construction
      in process
                      
                      
                      (1,319,539
                      )
                      
                      
                      (617,887
                      )Changes
      in restricted cash
                      
                      
                      199,948
                      
                      
                      
                      (147,634
                      )Sale
      of short-term investments
                      
                      
                      29,318
                      
                      
                      
                      114,235Net
      cash used in investing activities
                      
                      
                      (2,577,164
                      )
                      
                      
                      (3,831,411
                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes payable
                      
                      
                      1,724,933
                      
                      
                      
                      2,969,781Proceeds
      from issuance of short term loans
                      
                      
                      -
                      
                      
                      
                      4,176,723Proceeds
      from sale of common stock
                      
                      
                      17,678,000
                      
                      
                      
                      -Offering
      costs paid
                      
                      
                      (2,213,892
                      )
                      
                      
                      -Proceeds
      from exercise of warrants
                      
                      
                      22,387
                      
                      
                      
                      -Payment
      on notes short term loans
                      
                      
                      (3,550,177
                      )
                      
                      
                      -Change
      in advance to shareholder, net
                      
                      
                      -
                      
                      
                      
                      (532,470
                      )Change
      in advance to related party, net
                      
                      
                      -
                      
                      
                      
                      114,695Net
      cash provided by financing activities
                      
                      
                      13,661,251
                      
                      
                      
                      6,728,729Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      (535
                      )
                      
                      
                      111,982NET
      DECREASE IN CASH & CASH EQUIVALENTS
                      
                      
                      15,051,157
                      
                      
                      
                      621,355CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                      
                      
                      2,782,026
                      
                      
                      
                      1,511,545CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                      
                      $
                      17,833,183
                      
                      
                      $
                      2,132,900SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                      
                      $
                      116,315
                      
                      
                      $
                      113,356Income
      taxes paid
                      
                      $
                      565,418
                      
                      
                      $
                      112,743





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


4




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


Note
1 - Organization and Basis of Presentation





The
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) which are, in the opinion of management, necessary to fairly
present 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 were omitted pursuant to such rules and
regulations.  These 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 nine months ended September 30, 2009 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2009.





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 Limited (“Deer International”),
a company incorporated under the laws of British Virgin Islands (“BVI”) on
December 3, 2007 and acquired 100% of the shares of Winder Electrical Company,
Ltd. (“Winder”) on March 11, 2008.  Winder has a 100% owned
subsidiary, Delta International, Ltd., (“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, 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 accounted for as a reverse
acquisition under the purchase method of accounting since Deer International
obtained control of the Company. Accordingly, the merger of the Deer
International into the Company was recorded as a recapitalization of Deer
International, 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 manufacture, marketing, distribution and sale of 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.


5


Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


Stock
Split





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.





Basis of
Presentation





The
accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, 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.





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“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.





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 the U.S. Dollar
(USD).   The accounts of the Chinese subsidiaries were translated
into USD in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Foreign Currency Translation," (codified in Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830)
with the RMB as the functional currency for the Chinese subsidiaries. According
to the Statement, all assets and liabilities were translated at the exchange
rate on the balance sheet date, stockholders’ equity are translated at the
historical rates and statement of operations 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
SFAS No. 130, "Reporting Comprehensive Income” (codified in FASB ASC Topic
220).





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.


6




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


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.  As of September 30,
2009 and December 31, 2008, total restricted cash was $0 and $200,099 (interest
rate of 0.36%), respectively.





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 September 30, 2009, approximately 79% 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.




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
are 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 the nine months ended September 30, 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 &
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


7




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


The
following are the details of property and equipment:





September 30, 2009
                    
                    
                    December 31, 2008Building
                    
                    $
                    3,294,109
                    
                    
                    $
                    1,889,916Equipment
                    
                    
                    14,325,687
                    
                    
                    
                    14,232,539Vehicle
                    
                    
                    34,735
                    
                    
                    
                    34,735Office
      Equipment
                    
                    
                    419,138
                    
                    
                    
                    430,177Total
                    
                    
                    18,073,669
                    
                    
                    
                    16,587,367Less
      accumulated depreciation
                    
                    
                    (6,367,852
                    )
                    
                    
                    (5,296,165
                    )$
                    11,705,817
                    
                    
                    $
                    11,291,202





Long-Lived
Assets





The
Company applies the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” (“SFAS 144”) (codified in FASB ASC Topic 360),
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 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 market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of September 30, 2009 there were no significant impairments 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 on an annual basis 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.


8




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


Net
intangible assets consisted of the following:





September 30, 2009
                  
                  
                  December 31, 2008Right
      to use land
                  
                  $
                  450,335
                  
                  
                  $
                  450,335Computer
      software
                  
                  
                  76,906
                  
                  
                  
                  76,906Total
                  
                  
                  527,241
                  
                  
                  
                  527,241Less
      Accumulated amortization
                  
                  
                  (130,197
                  )
                  
                  
                  (123,116
                  )Intangibles,
      net
                  
                  $
                  397,044
                  
                  
                  $
                  404,125





Pursuant
to People's Republic of China's (“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





The
Company discloses estimated fair values of financial instruments. The carrying
amounts reported in the statements of financial position for current assets and
current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(codified in FASB ASC Topic 820).  SFAS No. 157 defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosures requirements for fair value measures. The
carrying amounts reported in the balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable estimate
of fair value 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 are defined as follow:




·
              Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) 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.




As of
September 30, 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.


9




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


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 a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, 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
three and nine months ended September 30, 2009 and 2008 were not
significant.





Income
Taxes





The
Company utilizes SFAS No. 109, “Accounting for Income Taxes” (codified in FASB
ASC Topic 740), which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.





When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any.  Tax positions taken are
not offset or aggregated with other positions.  Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon
examination.  Interest associated with unrecognized tax benefits are
classified as interest expense and penalties are classified in selling, general
and administrative expenses in the statements of income.


10




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


Foreign Currency
Transactions and Comprehensive Income





Accounting
principles generally require 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 $2,340,270 and
$2,345,698 at September 30, 2009 and December 31, 2008, respectively, are
classified as an item of other comprehensive income in the stockholders’ equity
section of the consolidated balance sheet.





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 a certain
contractual rates. Since the contractual rate at which the Company sells US
dollars to the Bank of China was greater than the exchange rate on the date of
each exchange transaction, the Company recognized foreign exchange gains of
$207,958 and $876,436 for the nine months ended September 30, 2009 and 2008,
respectively.  At September 30, 2009, the Company had no outstanding
forward exchange contracts.





Basic and Diluted Earnings
Per Share





Earnings
per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”.
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15)
(codified in FASB ASC Topic 260).  Net earnings per share for all
periods presented has been restated to reflect the adoption of SFAS No.
128.  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
                  September 30,
                
                2009
                
                
                2008Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic  earnings
      per share
                
                
                22,730,722
                
                
                $
                0.18
                
                
                
                16,856,898
                
                
                $
                0.09Effect
      of dilutive stock options
                
                
                535,534
                
                
                
                -
                
                
                
                -
                
                
                
                -Diluted
      earnings per share
                
                
                23,266,256
                
                
                $
                0.18
                
                
                
                16,856,898
                
                
                $
                0.09


11




Deer
Consumer Products, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 2009 and 2008
 (unaudited)


Nine months ended
                  September 30,
                
                2009
                
                
                2008Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic  earnings
      per share
                
                
                21,462,056
                
                
                $
                0.30
                
                
                
                16,087,045
                
                
                $
                0.18Effect
      of dilutive stock options
                
                
                446,434
                
                
                
                -
                
                
                
                -
                
                
                
                -Diluted
      earnings per share
                
                
                21,908,490
                
                
                $
                0.30
                
                
                
                16,087,045
                
                
                $
                0.18





Statement of Cash
Flows





In
accordance with SFAS No. 95, “Statement of Cash Flows” (codified in FASB ASC
Topic 230), cash flows from the Company’s operations are calculated based upon
the local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheet.





Registration Rights
Agreement




The
Company accounts for payment arrangements under registration rights agreement in
accordance with FASB Staff Position EITF 00-19-2 (codified in FASB ASC Topic
825), 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 SFAS No. 5, Accounting for Contingencies (codified in FASB ASC
Topic 450).




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 CodificationTM 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 CodificationTM (“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.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009.
This FSP had no material impact on the Company’s financial position, results of
operations or cash flows.


12





Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)




In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulated other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.




In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. The Company
has evaluated subsequent events through the time of filing these financial
statements with the SEC on November 5, 2009.





In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.


13


Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.





Note
3 – Inventories





Inventories
consisted of the following:





September
                    30,
      2009
                  
                  
                  December
      31, 2008Raw
      material
                  
                  $
                  7,644,972
                  
                  
                  $
                  3,960,022Work
      in process
                  
                  
                  2,678,931
                  
                  
                  
                  1,326,719Finished
      goods
                  
                  
                  2,011,057
                  
                  
                  
                  2,394,110Total
                  
                  $
                  12,334,960
                  
                  
                  $
                  7,680,851





Note
4 – Short Term Loans





Short
term loans consisted of the follows:





September
      30,
                                    2009
                                  
                                  
                                  December
      31, 2008Short
      term bank loans with the Bank of China.  As of December 31,
      2008, the term of the loan was 5 months, with interest of
      5.990%.  The loans were collateralized by buildings and land use
      rights.
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  487,544Short
      term loans with Agricultural Bank of China.    This
      loan was due on June 20, 2009 and accrued interest of
      8.21%.  The loan was collateralized by
equipment.
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,065,297$
                                  -
                                  
                                  
                                  $
                                  3,552,841





Note
5 – Notes Payable





Notes
payable at September 30, 2009 and December 31, 2008 consist of multiple banker's
acceptances from the Bank of China. The terms of the notes range from 3-6
months, with no interest rate. The Company deposits 10% of the notes’ par value
with the Bank of China, refundable when the notes paid.  Notes payable
at September 30, 2009 and December 31, 2008 amounted to $4,881,576 and
$3,155,348, respectively.


14


Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)





Note
6 – Long-Term Loan





On
November 14, 2008, the Company entered into a long-term loan with an unrelated
party.  The loan was for $733,500 at 8.10%, due October 20, 2010 and
is secured by certain property and equipment.





Note
7 – Stockholders’ Equity





Common
Stock





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





In May
2009, the Company completed two private placements of Units (as defined below)
pursuant to which the Company sold 2,100,000 Units at $0.92 per Unit for gross
proceeds of $1,932,000. Each "Unit" consisted of one share of Company common
stock and a three-year warrant to purchase 15% of one share of common stock at
$1.73 per share. The total warrants issued to investors were 315,000. The
Company also issued warrants to purchase 210,000 shares of common stock to the
placement agents.





The
Company also issued a Registration Rights Agreement requiring that the Company
file a registration statement covering shares of common stock issued and the
shares issuable upon exercise of the warrants. The Company is required to file
the registration statement with the SEC within 60 days of the closing of the
offering. The registration statement must be declared effective by the SEC
within 180 days of the final closing of the offering. Subject to certain grace
periods, the registration statement must remain effective and available for use
until the purchasers can sell all of the securities covered by the registration
statement without restriction pursuant to Rule 144. If the Company fails to meet
the filing or effectiveness requirements of the registration statement, it is
required to pay liquidated damages of 1% of the aggregate purchase price paid by
such purchaser for any registerable securities then held by such purchaser on
the date of such failure and on each anniversary of the date of such failure
until such failure is cured. On June 3, 2009, the registration statement to
register the above mentioned shares and shares underlying the exercise of the
warrants was declared effective.





On
September 21, 2009, the Company 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
the Company's common stock, par value $.001 per share and a three-year warrant
to purchase 30% of one share of the Company’s 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 the Company 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, the Company paid an additional 3% advisory fee
in connection with this private placement offering. The investors received
registration rights. The Company issued the shares pursuant to an exemption from
registration under Regulation S promulgated under the Securities Act of 1933, as
amended.


15


Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)





Warrants





Following
is a summary of the warrant activity:





Options
                            outstanding
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                          
                          
                          Weighted
                            average
                            remaining
                            contractual life
                          
                          
                          Aggregate
                            IntrinsicValueOutstanding,
      December 31, 2008
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          $
                          -Granted
                          
                          
                          1,927,750
                          
                          
                          $
                          3.76Forfeited
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          (12,978
                          )
                          
                          $
                          1.73Outstanding,
      September 30, 2009
                          
                          
                          1,914,772
                          
                          
                          $
                          3.78
                          
                          
                          
                          2.82
                          
                          
                          $
                          10,670,137Exercisable,
      September 30, 2009
                          
                          
                          1,914,772
                          
                          
                          $
                          3.78
                          
                          
                          
                          2.82
                          
                          
                          $
                          10,670,137





The
exercise price for warrants outstanding at September 30, 2009 is as
follows:





Number
      of
                          Warrants
                        
                        Exercise
                          Price714,772
                        
                        $
                        1.731,200,000
                        
                        $
                        5.001,914,772





Note
8 - Employee Welfare Plan





The total
expense for the employee common welfare was $32,510 and $52,982 for the nine
months ended September 30, 2009 and 2008, 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
9 - 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


16


Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)





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.





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 $633,320 and $349,506, and $316,660 and $174,753 as reserve
for the statutory surplus reserve and development fund for the three and nine
months ended September 30, 2009 and 2008, respectively.





Note
10 - Taxes





Local PRC
Income Tax





Pursuant
to the tax laws of China, general enterprises are subject to income tax at an
effective rate of 25%.





A
reconciliation of tax at United States federal statutory rate to provision for
income tax recorded in the financial statements is as follows:





For the three months ended
                    September30,2009
                  
                  
                  2008Tax
      provision at statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      tax rate difference
                  
                  
                  (9
                  )%
                  
                  
                  (9
                  )%Current
      operating losses not utilized
                  
                  
                  -
                  
                  
                  
                  1
                  %Effect
      of tax holiday
                  
                  
                  (10
                  )%
                  
                  
                  -Utilization
      of NOLs
                  
                  
                  (1
                  )%
                  
                  
                  -14
                  %
                  
                  
                  26
                  %





For the nine months ended
                    September30,2009
                  
                  
                  2008Tax
      provision at statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      tax rate difference
                  
                  
                  (9
                  )%
                  
                  
                  (9
                  )%Current
      operating losses not utilized
                  
                  
                  -
                  
                  
                  
                  3
                  %Effect
      of tax holiday
                  
                  
                  (8
                  )%
                  
                  
                  -17
                  %
                  
                  
                  28
                  %





The
effect of the change of tax status was accounted for in accordance with SFAS No.
109, par. 28 (codified in FASB ASC Topic 740), which states that the effect of a
change in tax status is computed as of the date of change and is included in the
tax provision for continuing operations. Management believes that the local tax
authorities would not have waived past taxes had it not been for the change in
the Company’s subsidiary’s tax status.


17


Deer
Consumer Products, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Nine Months Ended September 30, 2009 and 2008


(unaudited)





Foreign
pretax earnings approximated $8,100,000 for the nine months ended September 30,
2009. Pretax earnings of a foreign subsidiary are subject to U.S. taxation when
effectively repatriated. The Company provides income taxes on the undistributed
earnings of non-U.S. subsidiaries except to the extent that such earnings are
indefinitely invested outside the United States. At September 30, 2009,
approximately $7,700,000 of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At the existing U.S. federal income tax
rate, additional taxes of $697,000 would have to be provided if such earnings
were remitted currently.




The
Chinese government has offered favorable tax treatment to companies in the
high-tech industry. The Company’s Chinese subsidiaries qualify for this
favorable tax treatment and effective July 1, 2009 enjoyed a reduced corporate
tax rate of 15%. If the Company had not enjoyed this favorable tax treatment,
net income for both the three and nine months ended September 30, 2009 would be
lowered by approximately $500,000 and earning per share would have been reduced
by $0.02.




Note
11 - Related Party Transactions





There was
no related party transactions during the nine months ended September 30,
2009.  As of September 30, 2009, a certain entity previously reported
as a related party is no longer considered to be related party due to an
ownership changes within that entity.





Note
12 - Geographical Sales





Geographical
distribution of sales is as follows:





Three
      Months Ended
                      
                      
                      Nine
      Months EndedSeptember
      30,
                      
                      
                      September
      30,Geographical
                        Areas
                      
                      2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008North
      America
                      
                      $
                      9,456,088
                      
                      
                      $
                      4,914,061
                      
                      
                      $
                      16,334,869
                      
                      
                      $
                      10,929,232South
      America
                      
                      
                      3,845,583
                      
                      
                      
                      2,226,709
                      
                      
                      
                      7,126,393
                      
                      
                      
                      5,995,099Middle
      East
                      
                      
                      3,601,564
                      
                      
                      
                      1,496,409
                      
                      
                      
                      6,950,609
                      
                      
                      
                      4,637,643Europe
                      
                      
                      4,047,740
                      
                      
                      
                      1,467,179
                      
                      
                      
                      7,929,475
                      
                      
                      
                      5,533,411Asia
                      
                      
                      2,364,182
                      
                      
                      
                      970,305
                      
                      
                      
                      4,933,763
                      
                      
                      
                      3,594,978China
                      
                      
                      2,888,011
                      
                      
                      
                      357,628
                      
                      
                      
                      5,017,482
                      
                      
                      
                      701,409Africa
                      
                      
                      337,871
                      
                      
                      
                      109,924
                      
                      
                      
                      431,167
                      
                      
                      
                      653,370$
                      26,541,039
                      
                      
                      $
                      11,542,215
                      
                      
                      $
                      48,723,758
                      
                      
                      $
                      32,045,142





Note
13 – Subsequent Event





During
the period from October 1, 2009 to November 4, 2009, the Company issued 30,284
shares of common stock in connection with the exercise of
warrants.


18





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 Limited (“Deer International”), a
company incorporated under the laws of British Virgin Islands (“BVI”) on
December 3, 2007 and holder of 100% of the shares of Winder Electrical Company,
Ltd. (“Winder”) since March 11, 2008. Winder has a 100% owned subsidiary, Delta
International, Ltd., (“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 accounted for as a reverse
acquisition under the purchase method of accounting since Deer International
obtained control of our company. Accordingly, the merger of the Deer
International into us was recorded as a recapitalization of Deer International,
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.


19





We are
engaged in the manufacture, marketing, distribution and sale of 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 Electric Co. Ltd.
(“Winder”), which is a wholly-owned foreign enterprise (“WOFE”) and responsible
for research, production and delivery of goods, and Delta International Limited
(“Delta”), which is a wholly owned subsidiary of Winder and primarily
responsible for sales. We have traditionally acted as both an original equipment
manufacturer (“OEM”) and original design manufacturer (“ODM”) for international
markets.





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 have been 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.


20


Long-Lived Assets. We apply
the provisions of Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”)
(codified in FASB ASC Topic 360), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of,” and the accounting and reporting
provisions of APB Opinion No. 30, “Reporting the Results of Operations for a
Disposal of a Segment of a Business.” We periodically evaluate the carrying
value of long-lived assets to be held and used in accordance with SFAS 144. SFAS
144 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 market value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Based on our review, we believe that to date there were no significant
impairments of its 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:





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 a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, 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. Accounting principles generally require 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 a certain contractual
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.


21


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
CodificationTM 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
CodificationTM (“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.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP No. SFAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP No. SFAS 157-4, which is
codified in FASB ASC Topics 820-10-35-51 and 820-10-50-2, provides additional
guidance for estimating fair value and emphasizes that even if there has been a
significant decrease in the volume and level of activity for the asset or
liability and regardless of the valuation technique(s) used, the objective of a
fair value measurement remains the same. The Company adopted FSP No. SFAS 157-4
beginning April 1, 2009. This FSP had no material impact on our financial
position, results of operations or cash flows.




In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments,” which is codified in FASB ASC
Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulated other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on our
financial position, results of operations or cash flows.




In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, we adopted this pronouncement during the second quarter of
2009. SFAS 165 requires that public entities evaluate subsequent events through
the date that the financial statements are issued. We have evaluated subsequent
events through the time of filing these financial statements with the SEC on
November 5, 2009.


22





In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. We do not believe the adoption of SFAS 166
will have an impact on our financial condition, results of operations or cash
flows.





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. We do not believe the adoption of SFAS 167
will have an impact on our financial condition, results of operations or cash
flows.





Results of
Operations





Three
months ended September 30, 2009 compared to Three months ended September 30,
2008:





Three
      Months Ended September 30,
                                  
                                  
                                  $
                                  
                                  
                                  %2009
                                  
                                  
                                  2008
                                  
                                  
                                  Change
                                  
                                  
                                  ChangeRevenue
                                  
                                  $
                                  26,541,039
                                  
                                  
                                  $
                                  11,542,215
                                  
                                  
                                  $
                                  14,998,824
                                  
                                  
                                  129.9Cost
      of revenue
                                  
                                  
                                  20,670,731
                                  
                                  
                                  
                                  8,255,913
                                  
                                  
                                  
                                  12,414,818
                                  
                                  
                                  150.4Gross
      profit
                                  
                                  
                                  5,870,308
                                  
                                  
                                  
                                  3,286,302
                                  
                                  
                                  
                                  2,584,006
                                  
                                  
                                  78.6Selling,
      general and administrative expenses
                                  
                                  
                                  1,389,669
                                  
                                  
                                  
                                  1,616,181
                                  
                                  
                                  
                                  (226,512
                                  )
                                  
                                  (14.0
                                  )Interest
      and financing costs, net
                                  
                                  
                                  (13,524
                                  )
                                  
                                  
                                  116,850
                                  
                                  
                                  
                                  (130,374
                                  )
                                  
                                  (111.6
                                  )Other
      income (expense)
                                  
                                  
                                  8,894
                                  
                                  
                                  
                                  (1,698
                                  )
                                  
                                  
                                  10,592
                                  
                                  
                                  (623.8
                                  )Foreign
      exchange gain (loss)
                                  
                                  
                                  288,461
                                  
                                  
                                  
                                  530,510
                                  
                                  
                                  
                                  (242,049
                                  )
                                  
                                  (45.6
                                  )Income
      tax expense
                                  
                                  
                                  668,745
                                  
                                  
                                  
                                  540,717
                                  
                                  
                                  
                                  128,028
                                  
                                  
                                  23.7Net
      income
                                  
                                  
                                  4,122,773
                                  
                                  
                                  
                                  1,541,070
                                  
                                  
                                  
                                  2,581,703
                                  
                                  
                                  167.5





Revenues





Our
revenue for the three months ended September 30, 2009 was $26,541,039 an
increase of $14,998,824 or 129.9% from $11,542,215 for the three months ended
September 30, 2008.  The increase in revenues was due to us expanding
our sales in the U.S. market and putting significant efforts into increasing our
sales to the Chinese and European markets.  Our sales for the three
months ended September 30, 2009 compared to the same period in 2008 increase in
the U.S., Europe and Chinese markets by approximately $4.5 million, $2.6 million
and $2.5 million, respectively.  We have also fulfilled larger volume
promotional order for our existing and new customers at lower per unit sales
prices that have allowed us to increase our market share.


23




Cost
of Revenue





Our cost
of revenue for the three months ended September 30, 2009 increased by
$12,414,818 or 150.4% from $8,255,913 for the three months ended September 30,
2008 to $20,670,731 for the three months ended September 30,
2009.  The increased cost of revenue in 2009 was due to the increase
in sales.





Gross
Profit





Our gross
margin for the three months ended September 30, 2009 was 22.1% compared to 28.5%
for same period in 2008. The decrease in gross margin is due to the fulfillment
of larger volume promotional orders that resulted in a lower per unit sales
price. Although we have experienced lower gross margins we have reduced our
general and administrative expenses to maintain our operating
profits.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the three months ended September 30,
2009 decreased by $226,512 or 14.0%, from $1,616,181 for the nine months ended
September 30, 2008 to $1,389,669 for the three months ended September 30,
2009.  Selling expenses for the three months ended September 30, 2009
increased by 42.7% or $287,299 in comparison to the same period in 2008 due to
increased selling efforts that resulted in higher revenues.  General
and administrative expenses for the three months ended September 30, 2009
decreased by 54.5% or $513,811 in comparison to the same period in
2008.  Operating expenses include overhead expenses such as rent,
management and staff salaries, general insurance, marketing, accounting, legal
and offices expenses.  We have scaled and consolidated back our
operations thus reducing general and administrative expenses to withstand the
effect of global financial crisis. Also we have contracted our Delta subsidiary
beginning in 2009 whereby all Delta operations have been run through our Winder
subsidiary.  As a result of these cost cutting efforts our operating
expenses have increased by a much smaller percentage than our growth in
revenue.





Interest
and Financing Costs (net)





Interest
and financing costs, net for the three months ended September 30, 2009 was
$(13,524) compared to $116,850 for the three months ended September 30, 2008 a
decrease of $130,374 or 111.6%. The change is principally due to a decreased
borrowings and higher interest income due to the excess cash invested in
interest bearing accounts.





Other
Income (Expense)





Other
income (expense) for the three months ended September 30, 2009 was $8,894, an
increase of $10,592 or 623.8%, from $(1,698) for the three months ended
September 30, 2008. The increase is not significant.





Foreign
Exchange Gain (loss)





Foreign
exchange gain (loss) for the three months ended September 30, 2009 was $288,461,
a decrease of $242,049 or 45.6%, from $530,510 for the three months ended
September 30, 2008.  The decrease is due to the fluctuation in
exchange rates between the RMB and US dollar.





Income
Tax Expense





Our
effective tax rate for the three months ended September 30, 2009 was 14.0%
as opposed to 26.0% for the three months ended September 30,
2008.


24





Nine
Months Ended September 30, 2009 Compared to the Nine Months Ended September 30,
2008:





Nine Months Ended September 30,
                    
                    
                    $
                    
                    
                    %2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    ChangeRevenue
                    
                    $
                    48,723,758
                    
                    
                    $
                    32,045,142
                    
                    
                    $
                    16,678,616
                    
                    
                    
                    52.0Cost
      of revenue
                    
                    
                    37,403,300
                    
                    
                    
                    24,550,251
                    
                    
                    
                    12,853,049
                    
                    
                    
                    52.4Gross
      profit
                    
                    
                    11,320,458
                    
                    
                    
                    7,494,891
                    
                    
                    
                    3,825,567
                    
                    
                    
                    51.0Selling,
      general and administrative expenses
                    
                    
                    3,478,826
                    
                    
                    
                    4,065,099
                    
                    
                    
                    (586,273
                    )
                    
                    
                    (14.4
                    )Interest
      and financing costs, net
                    
                    
                    209,173
                    
                    
                    
                    246,287
                    
                    
                    
                    (37,114
                    )
                    
                    
                    (15.1
                    )Other
      income (expense)
                    
                    
                    4,998
                    
                    
                    
                    74,523
                    
                    
                    
                    (69,525
                    )
                    
                    
                    (93.3
                    )Foreign
      exchange gain (loss)
                    
                    
                    207,958
                    
                    
                    
                    876,436
                    
                    
                    
                    (668,478
                    )
                    
                    
                    (76.3
                    )Income
      tax expense
                    
                    
                    1,350,892
                    
                    
                    
                    1,165,020
                    
                    
                    
                    185,872
                    
                    
                    
                    16.0Net
      income
                    
                    
                    6,494,523
                    
                    
                    
                    2,934,760
                    
                    
                    
                    3,559,763
                    
                    
                    
                    121.3





Revenues





Our
revenue for the nine months ended September 30, 2009 was $48,723,758 an increase
of $16,678,616 or 52.0% from $32,045,142 for the nine months ended September 30,
2008.  The increase in revenues was due to a strong second and third
quarter as a result of us expanding our sales in the U.S. market and putting
significant efforts into increasing our sales to the Chinese and European
markets.  Our sales for the nine months ended September 30, 2009
compared to the same period in 2008 increase in the U.S. Chinese and European
markets by approximately $5.4 million, $4.3 and $2.4 million,
respectively.  We have also fulfilled larger volume promotional order
for our existing and new customers at lower per unit sales prices that have
allowed us to increase our market share.





Cost
of Revenue





Our cost
of revenue for the nine months ended September 30, 2009 increased by $12,853,049
or 52.4% from $24,550,251 for the nine months ended September 30, 2008 to
$37,403,300 for the nine months ended September 30, 2009.  The
increased cost of revenue in 2009 was due to the increase in sales.





Gross
Profit





Our gross
margin for the nine months ended September 30, 2009 was 23.2% compared to 23.4%
for same period in 2008. The decrease in gross margin for the nine months ended
September 30, 2009 compared to the same period in 2008 is not
significant.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the nine months ended September 30, 2009
decreased by $586,273 or 14.4%, from $4,065,099 for the nine months ended
September 30, 2008 to $3,478,826 for the nine months ended September 30,
2009.  Selling expenses for the nine months ended September 30, 2009
decreased by 0.6% or $10,864 in comparison to the same period in
2008.  General and administrative expenses for the nine months ended
September 30, 2009 decreased by 26.4% or $575,409 in comparison to the same
period in 2008.  Operating expenses include overhead expenses such as
rent, management and staff salaries, general insurance, marketing, accounting,
legal and offices expenses.  We have scaled and consolidated back our
operations thus reducing selling, general and administrative expenses to
withstand the effect of global financial crisis. Also we have contracted our
Delta subsidiary beginning in 2009 whereby all Delta operations have been run
through our Winder subsidiary. As a result of these cost cutting efforts we have
been able to reduce our operating expenses while at the same time increasing our
growth in revenue.


25





Interest
and Financing Costs (net)





Interest
and financing costs, net for the nine months ended September 30, 2009 was
$209,173 compared to $246,287 for the nine months ended September 30, 2008 a
decrease of $37,114 or 15.1%. The change is principally due to higher interest
income due to the excess cash invested in interest bearing
accounts.





Other
Income (Expense)





Other
income (expense) for the nine months ended September 30, 2009 was $4,998, a
decrease of $69,525 or 93.3%, from $74,523 for the nine months ended September
30, 2008. The decrease is due to a reduction in government subsidy
income.





Foreign
Exchange Gain (loss)





Foreign
exchange gain (loss) for the nine months ended September 30, 2009 was $207,958,
a decrease of $668,478 or 76.3%, from $876,436 for the nine months ended
September 30, 2008. The decrease is due to the fluctuation in exchange rates
between the RMB and US dollar.





Income
Tax Expense





Our
effective tax rate for the nine months ended September 30, 2009 was 17.2% as
opposed to 28.4% for the nine months ended September 30, 2008.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the nine months ended September
30, 2009 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 retroactively restated
for these stock splits.





On March
30, 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-US 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.


26





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-US 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.





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.





Cash
Flows





At
September 30, 2009, we had $17,833,183 in cash and cash equivalents on
hand.  Our principal demands for liquidity are to increase 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 provided by operating activities for the nine months ended September 30,
2009 was $3,967,605 compared to cash used in operating activities of $2,387,945
for the nine months ended September 30, 2008. The cash flows from operating
activities was principally attributed to the net income generated during the
nine months ended September 30, 2009, a reduction in advances to suppliers,
offset by an increase in our accounts receivable and
inventories.





We used
$2,577,164 in investing activities during the nine months ended September 30,
2009 principally for property and equipment and construction in
process.





Cash
provided from financing activities in the nine months ended September 30, 2009
was $13,661,251 which included proceeds from a notes payable and sale of shares
of common stock, offset by payment on short-term loans.





Assets





As of
September 30, 2009, our accounts receivable increased by $3,196,704 compared
with the balance as of December 31, 2008. The increase in accounts receivable on
nine months ended September 30, 2009 was due primarily to increased
sales.  We intend to continue our efforts to maintain accounts
receivable at reasonable levels in relation to our sales.  Inventories
increased by $4,654,109 from the balance at December 31, 2008 due to the need to
increase our inventory levels to keep up with the increase in
sales.


27


Liabilities





Our
accounts payable increased by $719,581 during the nine months ended September
30, 2009 compared with the balance as of December 31, 2008.  Other
payables increased by $915,394 and accrued payroll increased by $860,432
for the same period. Unearned revenues (payments received before all the
relevant criteria for revenue recognition are satisfied) decreased by $47,933
and short-term loans decreased by $3,552,841over the same
period.  Notes payable and tax and welfare payable increased by
$1,726,228 and $101,992, respectively, due to the receipt of proceeds from new
loans entered into during the nine months ended September 30, 2009.





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
private placement offerings of our securities, if and when the Company
determines such offerings are required.





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 and expenses were denominated primarily in RMB, the
currency of the PRC.





There is
no assurance that exchange rates between the RMB and the USD will remain stable.
We do 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
4T. Controls and Procedures




An
evaluation was conducted 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) as of September 30, 2009. Based on that
evaluation, the CEO and CFO concluded that the Company’s disclosure controls and
procedures were effective as of such date 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.




There was
no change in the Company’s internal control over financial reporting that
occurred during the Company’s most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
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


28




Item
      1A.
            Risk
      Factors




Not required.





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




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, par value $.001 per share 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 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. We issued the shares pursuant to an exemption from
registration under Regulation S promulgated under the Securities Act of 1933, as
amended.





Item
      3.
            Defaults
      Upon Senior Securities




None.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders




None.





Item
      5.
            Other
      Information




None.





Item
      6.
            Exhibits





Exhibit
      Number
                            
                            Description
      of Exhibit31.1
                            
                            Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.31.2
                            
                            Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.32.1
                            
                            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
  Officer).32.2
                            
                            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer).


29




SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Deer
      Consumer Products, IncNovember
      5, 2009
                  By:
                  /s/ Ying HeYing
      He
                    Chairman
      & Chief Executive Officer
                    (Principal
      Executive Officer)November
      5, 2009
                  By:
                  /s/ Zongshu NieZongshu
      NieChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


30