UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              
              For
      the quarterly period ended March 31, 2010OR ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
file number: 001-34407





DEER CONSUMER PRODUCTS,
INC.


(Exact
name of registrant as specified in its charter)





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





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





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





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





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





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





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





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 32,631,748 shares of common stock
outstanding as of May 6, 2010.








TABLE
OF CONTENTS





PagePART I.
      FINANCIAL INFORMATION
            
            3Item 1.
            Financial
      Statements
            
            3Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            16Item 3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            22Item 4T.
            Controls
      and Procedures
            
            22PART
      II. OTHER INFORMATION
            
            22Item 1.
            Legal
      Proceedings
            
            22Item 1A.
            Risk
      Factors
            
            22Item 2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            23Item 3.
            Defaults
      Upon Senior Securities
            
            23Item 5.
            Other
      Information
            
            23Item 6.
            Exhibits
            
            23SIGNATURES
            
            24







PART I. FINANCIAL INFORMATION





Item
1. Financial Statements.





DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET





March
      31,
              
              
              December
      31,2010
              
              
              2009(unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              75,305,378
              
              
              $
              79,333,729Restricted
      cash
              
              
              162,057
              
              
              
              35,701Accounts
      receivable, net
              
              
              19,628,162
              
              
              
              17,070,781Advances
      to suppliers
              
              
              4,158,482
              
              
              
              3,299,107Other
      receivables
              
              
              213,624
              
              
              
              213,487Inventories
              
              
              21,206,828
              
              
              
              18,061,282Other
      current assets
              
              
              51,922
              
              
              
              12,500Total
      current assets
              
              
              120,726,453
              
              
              
              118,026,587PROPERTY
      AND EQUIPMENT, net
              
              
              11,140,018
              
              
              
              11,325,999CONSTRUCTION
      IN PROGRESS
              
              
              5,717,420
              
              
              
              3,724,337INTANGIBLE
      ASSETS, net
              
              
              769,343
              
              
              
              394,684OTHER
      ASSETS
              
              
              15,169
              
              
              
              20,073TOTAL
      ASSETS
              
              $
              138,368,403
              
              
              $
              133,491,680LIABILITIES AND
      STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              14,471,976
              
              
              $
              13,055,110Other
      payables
              
              
              1,287,600
              
              
              
              1,061,460Unearned
      revenue
              
              
              967,044
              
              
              
              1,719,761Accrued
      payroll
              
              
              871,474
              
              
              
              1,148,663Notes
      payable
              
              
              6,433,067
              
              
              
              6,212,911Tax
      and welfare payable
              
              
              1,070,063
              
              
              
              862,332Total
      current liabilities
              
              
              25,101,224
              
              
              
              24,060,237STOCKHOLDERS'
      EQUITY:Common
      Stock, $0.001 par value; 75,000,000 shares authorized;32,631,748
      and 32,631,748 shares issued and oustandingas
      of March 31, 2010 and December 31, 2009, respectively
              
              
              32,632
              
              
              
              32,632Additional
      paid-in capital
              
              
              90,875,009
              
              
              
              91,111,661Development
      funds
              
              
              1,399,818
              
              
              
              1,185,859Statutory
      reserve
              
              
              2,799,636
              
              
              
              2,371,718Other
      comprehensive income
              
              
              2,370,581
              
              
              
              2,335,216Retained
      earnings
              
              
              15,789,503
              
              
              
              12,394,357Total
      stockholders' equity
              
              
              113,267,179
              
              
              
              109,431,443TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              138,368,403
              
              
              $
              133,491,680





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




3


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME





Three
      Months Ended March 31,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Revenue
              
              $
              23,902,457
              
              
              $
              6,872,216Cost
      of Revenue
              
              
              17,024,609
              
              
              
              5,212,704Gross
      profit
              
              
              6,877,848
              
              
              
              1,659,512Operating
      expensesSelling
      expenses
              
              
              1,427,964
              
              
              
              183,342General
      and administrative expenses
              
              
              675,066
              
              
              
              371,581Total
      operating expenses
              
              
              2,103,030
              
              
              
              554,923Income
      from operations
              
              
              4,774,818
              
              
              
              1,104,589Non-operating
      income (expense):Interest
      expense and financing costs
              
              
              (29,706
              )
              
              
              (114,831
              )Interest
      income
              
              
              91,921
              
              
              
              1,619Other
      expense
              
              
              (14,601
              )
              
              
              (1,881
              )Foreign
      exchange loss
              
              
              (33,134
              )
              
              
              (70,506
              )Total
      non-operating income (expense)
              
              
              14,480
              
              
              
              (185,599
              )Income
      before income tax
              
              
              4,789,298
              
              
              
              918,990Income
      tax
              
              
              752,275
              
              
              
              262,116Net
      income
              
              
              4,037,023
              
              
              
              656,874Other
      comprehensive incomeForeign
      currency translation gain (loss)
              
              
              35,365
              
              
              
              (20,332
              )Comprehensive
      Income
              
              $
              4,072,388
              
              
              $
              636,542Weighted
      average shares outstanding :Basic
              
              
              32,631,748
              
              
              
              19,998,956Diluted
              
              
              33,767,212
              
              
              
              20,010,034Earnings
      per share:Basic
              
              $
              0.12
              
              
              $
              0.03Diluted
              
              $
              0.12
              
              
              $
              0.03





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




4


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Three
      Months Ended March 31,2010
              
              
              2009(unaudited)
              
              
              (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              4,037,023
              
              
              $
              656,874Adjustments
      to reconcile net income to net cashused
      in operating activities:Depreciation
              
              
              353,963
              
              
              
              349,492Amortization
              
              
              4,762
              
              
              
              2,357Stock
      based compensation
              
              
              83,348
              
              
              
              -(Increase)
      / decrease in assets:Accounts
      receivable
              
              
              (2,556,509
              )
              
              
              (573,464
              )Other
      receivables
              
              
              (137
              )
              
              
              252,241Inventories
              
              
              (3,144,474
              )
              
              
              1,936,703Advances
      to suppliers
              
              
              (859,081
              )
              
              
              (37,484
              )Other
      assets
              
              
              (34,520
              )
              
              
              10,392Increase
      / (decrease) in current liabilities:Accounts
      payable
              
              
              1,416,382
              
              
              
              (2,273,406
              )Unearned
      revenue
              
              
              (752,461
              )
              
              
              (1,541,804
              )Other
      payables
              
              
              274,644
              
              
              
              (183,644
              )Accrued
      payroll
              
              
              (277,095
              )
              
              
              18,724Tax
      and welfare payable
              
              
              207,661
              
              
              
              450,715Net
      cash used in operating activities
              
              
              (1,246,494
              )
              
              
              (932,304
              )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
              
              
              (168,091
              )
              
              
              -Acquisition
      of intangible assets
              
              
              (379,293
              )
              
              
              -Construction
      in process
              
              
              (1,992,404
              )
              
              
              (590,067
              )Changes
      in restricted cash
              
              
              (126,313
              )
              
              
              54,723Sale
      of short-term investments
              
              
              -
              
              
              
              29,302Net
      cash used in investing activities
              
              
              (2,666,101
              )
              
              
              (506,042
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes payable
              
              
              220,081
              
              
              
              1,418,859Proceeds
      from sale of common stock
              
              
              -
              
              
              
              625,500Offering
      costs paid
              
              
              (320,000
              )
              
              
              (84,515
              )Payment
      on short term loans
              
              
              -
              
              
              
              (764,550
              )Net
      cash provided by (used in) financing activities
              
              
              (99,919
              )
              
              
              1,195,294Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (15,837
              )
              
              
              (3,737
              )NET
      INCREASE IN CASH & CASH EQUIVALENTS
              
              
              (4,028,351
              )
              
              
              (246,789
              )CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
              
              
              79,333,729
              
              
              
              2,782,026CASH
      & CASH EQUIVALENTS, ENDING BALANCE
              
              $
              75,305,378
              
              
              $
              2,535,237SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
              
              $
              -
              
              
              $
              57,370Income
      taxes paid
              
              $
              489,784
              
              
              $
              -





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




5


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


Note
1 - Organization and Basis of Presentation





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





Organization and Line of
Business





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





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





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





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





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





Stock
Splits





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





6
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)




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 were 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 (“$” or
“USD”).





Foreign Currency
Translation





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





Note
2 – Summary of Significant Accounting Policies





Use of
Estimates





The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Areas that require estimates and assumptions include valuation of
accounts receivable and inventory, determination of useful lives of property and
equipment, estimation of certain liabilities and sales returns.





Cash and Cash
Equivalents





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





Restricted
Cash





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





Accounts
Receivable





The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. As of March 31, 2010 and December 31, 2009,
approximately 43% and 46%, respectively, of our accounts receivable was from
overseas customers. The Company maintains a substantial amount of export
insurance that covers losses arising from customers’ rejection of its products,
political risk, losses arising from business credit and other credit risks
including bankruptcy, insolvency and delay in payment.




7
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


Investments





The
Company purchased various stocks during 2007 and in 2008 the Company was
required to purchase an equity fund for a bank loan. The investments 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
2009.





Advances to
Suppliers





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





Inventories





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





Property and
Equipment





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





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





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





March
      31, 2010
            
            
            December
      31, 2009(audited)Building
            
            $
            3,294,109
            
            
            $
            3,294,109Equipment
            
            
            14,480,247
            
            
            
            14,312,145Vehicle
            
            
            34,735
            
            
            
            34,735Office
      Equipment
            
            
            420,107
            
            
            
            420,10618,229,198
            
            
            
            18,061,095Less
      accumulated depreciation
            
            
            (7,089,180
            )
            
            
            (6,735,096
            )$
            11,140,018
            
            
            $
            11,325,999





Construction in
Progress




Construction
in progress consists of costs related to the Company's construction of a new
plant, office building and power distribution station. The Company expects to
expend an additional $2,200,000 to finish the current projects.




8
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)
  Long-Lived
Assets





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





Intangible
Assets





Intangible
assets consist of rights to use land and computer software. The Company
evaluates intangible assets for impairment, at least 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.





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





March
      31, 2010
            
            
            December
      31, 2009(audited)Right
      to use land
            
            $
            829,757
            
            
            $
            450,335Computer
      software
            
            
            76,906
            
            
            
            76,906Total
            
            
            906,663
            
            
            
            527,241Less
      Accumulated amortization
            
            
            (137,320
            )
            
            
            (132,557
            )Intangibles,
      net
            
            $
            769,343
            
            
            $
            394,684





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





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





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





9
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


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





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





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




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





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





Concentration of Credit
Risk





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





Revenue
Recognition




The
Company’s revenue recognition policies are in compliance with SEC Staff
Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers when 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 months ended March 31, 2010 and 2009 were not significant.




Research and
Development




The
Company expenses its research and development costs as
incurred. Research and development costs for the three months ended
March 31, 2010 and 2009 were $53,063 and $44,987,
respectively.





Income
Taxes





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





10
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


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





Foreign Currency
Transactions and Comprehensive Income





US GAAP
requires that recognized revenue, expenses, gains and losses be included in net
income. Certain statements, however, require entities to report specific changes
in assets and liabilities, such as gain or loss on foreign currency translation,
as a separate component of the equity section of the balance sheet. Such items,
along with net income, are components of comprehensive income.  The
functional currency of the Company’s Chinese subsidiaries is Chinese RMB.
Translation gains of $2,370,581 and $2,335,412 at March 31, 2010 and December
31, 2009, respectively, are classified as an item of other comprehensive income
in the stockholders’ equity section of the consolidated balance
sheets.





Currency
Hedging





The
Company entered into a forward exchange agreement with the Bank of China,
whereby the Company agreed to sell US dollars to the Bank of China at certain
rates. At March 31, 2010, the Company had no outstanding forward exchange
contracts.





Basic and Diluted Earnings
Per Share





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





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





Three
      months ended March 31,
            
            2010
            
            
            2009Per
      Share
            
            
            
            
            
            Per
      ShareShares
            
            
            Amount
            
            
            Shares
            
            
            AmountBasic  earnings
      per share
            
            
            32,631,748
            
            
            $
            0.12
            
            
            
            19,998,956
            
            
            $
            0.03Effect
      of dilutive stock options and warrants
            
            
            1,135,464
            
            
            
            -
            
            
            
            11,078
            
            
            
            -Diluted
      earnings per share
            
            
            33,767,212
            
            
            $
            0.12
            
            
            
            20,010,034
            
            
            $
            0.03





Statement of Cash
Flows





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





11
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


Registration Rights
Agreement




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




Recent
Pronouncements





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





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





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





Note 3 – Inventories





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





March
      31, 2010
            
            
            December
      31, 2009(audited)Raw
      material
            
            $
            11,360,797
            
            
            $
            11,113,055Work
      in process
            
            
            8,218,467
            
            
            
            5,236,692Finished
      goods
            
            
            1,627,564
            
            
            
            1,711,535Total
            
            $
            21,206,828
            
            
            $
            18,061,282





12
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


Note
4 – Notes Payable





Notes
payable at March 31, 2010 and December 31, 2009 consist of multiple bankers’
acceptances from the Bank of China. The terms of the notes range from 3-6
months, with no interest rate. The Company deposits 10% of the notes’ par value
with the Bank of China, refundable when the notes are re-paid.





Note 5 –
Stockholders’ Equity





Stock
Options





Following
is a summary of the options activity:





Options
      outstanding
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      average remaining contractual life
            
            
            Aggregate
      Intrinsic ValueOutstanding,
      December 31, 2009
            
            
            130,000
            
            
            $
            10.96
            
            
            
            4.98
            
            
            $
            45,500Granted
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Outstanding,
      March 31, 2010
            
            
            130,000
            
            
            $
            10.96
            
            
            
            4.73
            
            
            $
            153,400Exercisable,
      March 31, 2010
            
            
            56,666
            
            
            $
            10.96
            
            
            
            4.73
            
            
            $
            66,866





The
exercise price for options outstanding at March 31, 2010 is as
follows:





Number
      of
              Options
            
            Exercise
              Price130,000
            
            $10.96130,000





Warrants





Following
is a summary of warrant activity:





Warrants
      outstanding
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      average remaining contractual life
            
            
            Aggregate
      Intrinsic ValueOutstanding,
      December 31, 2009
            
            
            1,759,118
            
            
            $
            3.96
            
            
            
            2.61
            
            
            $
            12,931,146Granted
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Outstanding,
      March 31, 2010
            
            
            1,759,118
            
            
            $
            3.96
            
            
            
            2.36
            
            
            $
            14,391,214Exercisable,
      March 31, 2010
            
            
            1,759,118
            
            
            $
            3.96
            
            
            
            2.36
            
            
            $
            14,391,214





13
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


The
exercise price for warrants outstanding at March 31, 2010 is as
follows:





Number
      of
              Warrants
            
            Exercise
              Price559,118
            
            $1.731,200,000
            
            $5.001,759,118





Note
6 - Employee Welfare Plan





The total expense for the employee common welfare was $18,819 and
$4,536 for the three months ended March 31, 2010 and
2009, respectively.  The Chinese government abolished the 14%
welfare plan policy during 2007.  The Company is not required to
establish welfare and common welfare reserves.





Note
7 - Statutory Reserve and Development Fund





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





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





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





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





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





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 $427,918 and $78,635, respectively as reserve for the
statutory surplus reserve and $213,959 and $39,635 for the development fund for
the three  months ended March 31, 2010 and  2009,
respectively.





14
 
 DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended March 31, 2010 and 2009
 (unaudited)


Note
8 - Geographical Sales





Geographical
distribution of sales is as follows:





Three
      Months EndedMarch
      31,Geographical
      Areas
            
            2010
            
            
            2009North
      America
            
            $
            3,552,177
            
            
            $
            1,707,305China
            
            
            6,394,880
            
            
            
            455,211South
      America
            
            
            4,540,651
            
            
            
            1,378,527Europe
            
            
            2,573,225
            
            
            
            1,311,117Middle
      East
            
            
            2,291,817
            
            
            
            1,319,590Asia
            
            
            4,384,399
            
            
            
            660,125Africa
            
            
            165,308
            
            
            
            40,341$
            23,902,457
            
            
            $
            6,872,216





15


CAUTIONARY
STATEMENT FOR FORWARD-LOOKING STATEMENTS




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





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





Overview





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





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





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





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





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





We
operate through our two wholly-owned subsidiaries, Winder, which is a
wholly-owned foreign enterprise (“WOFE”) and responsible for research,
production and delivery of goods, and Delta, which has transferred all of its
material former operations to Winder. We have traditionally acted as both an
original equipment manufacturer (“OEM”) and original design manufacturer (“ODM”)
for the export market.





16


Critical
Accounting Policies





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





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





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





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





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





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





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





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





17


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




Revenue Recognition. Our
revenue recognition policies are in compliance with SEC Staff Accounting
Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
customers when 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. US GAAP generally requires that recognized revenue,
expenses, gains and losses be included in net income. Certain statements,
however, require entities to report specific changes in assets and liabilities,
such as gain or loss on foreign currency translation, as a separate component of
the equity section of the balance sheet. Such items, along with net income, are
components of comprehensive income. The functional currency of the Company is
Chinese Renminbi. The unit of Renminbi is in Yuan. Translation gains are
classified as an item of other comprehensive income in the stockholders’ equity
section of the balance sheet. Other comprehensive income in the statements of
income and other comprehensive income includes translation gains recognized each
period.





Currency
Hedging.  We entered into a forward exchange agreement with the
Bank of China, whereby we have agreed to sell US dollars to the Bank of China at
certain rates. Since the contractual rate at which we sell US dollars to the
Bank of China was greater than the exchange rate on the date of each exchange
transaction, we have recognized foreign exchange gains. At March 31, 2010, we
had no outstanding forward exchange contracts.




Recent Accounting
Pronouncements





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





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





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





18


Results of
Operations





Three
Months Ended March 31, 2010, Compared to the Three Months Ended March 31,
2009:





Three
      Months Ended March 31,
            
            
            $
            
            
            %2010
            
            
            2009
            
            
            Change
            
            
            ChangeRevenue
            
            $
            23,902,457
            
            
            $
            6,872,216
            
            
            $
            17,030,241
            
            
            
            247.8Cost
      of revenue
            
            
            17,024,609
            
            
            
            5,212,704
            
            
            
            11,811,905
            
            
            
            226.6Gross
      profit
            
            
            6,877,848
            
            
            
            1,659,512
            
            
            
            5,218,336
            
            
            
            314.5Operating
      expenses
            
            
            2,103,030
            
            
            
            554,923
            
            
            
            1,548,107
            
            
            
            279.0Interest
      and financing costs
            
            
            29,706
            
            
            
            114,831
            
            
            
            (85,125
            )
            
            
            (74.1
            )Interest
      income
            
            
            91,921
            
            
            
            1,619
            
            
            
            90,302
            
            
            
            5,577.6Income
      tax expense
            
            
            752,275
            
            
            
            262,116
            
            
            
            490,159
            
            
            
            187.0Net
      income
            
            
            4,037,023
            
            
            
            656,874
            
            
            
            3,380,149
            
            
            
            514.6





Revenues





Our
revenue for the three months ended March 31, 2010, was $23.9 million an increase
of $17.3 million or 248% from $6.9 million for the three months ended March 31,
2009. The increase in revenues was a result of us aggressively expanding our
sales in the China domestic market and increasing our market shares in the
Asian, South American, U.S. and European markets. We increased our China
domestic market sales from approximately $.5 million for the three months ended
March 31, 2009 to approximately $6.4 million for the same period in 2010, a
1,305% increase. Beginning in the latter half of 2009, we increased sales of our
products to a prominent national electric appliance retail chain in China with
roughly 900 stores. In the first quarter of 2010, we started selling to Wal-Mart
stores in the Guandong Province and began ramping up sales to another prominent
national electronic appliance retail chain in China with over 1,100 stores. We
also added retail locations in other channels such as regional electric
appliance retailers and department stores. We increased our product sales over
internet portals, into hotels and restaurants, and via reward programs with
large Chinese banks, telecommunication firms, and postal offices. The results
are on pace with management’s plan to capture the fast growth experienced in the
domestic Chinese small appliance market.





Our sales
in Asia were $4.4 million for the three months ended March 31, 2010, a $3.7
million or 564% increase over the same period in 2009, year over year. Our sales
in South America were $4.5 million for the three months ended March 31, 2010, a
$3.1 million or 229% increase over the same period in 2009. We believe that the
increase in sales in Asia and South America were largely due to emerging wealth
in the regions and because those regions experienced less of an impact from the
recent financial crisis. In the longer term, we are optimistic about our Asian
and South American markets because of their GDP growth and large
populations.





Our sales
in the U.S. were $3.6 million for the three months ended March 31, 2010, a $1.8
million or 108% increase over the same period in 2009. Our sales in Europe were
$2.6 million for the three months ended March 31, 2010, a $1.3 million or 96%
increase over the same period in 2009.  Our sales gains in the U.S.
and Europe were largely due to Deer gaining market share following the financial
crisis.  We believe that many smaller suppliers with limited capital
resources had gone out of business, leading to further consolidation in the
industry.  In addition, we noticed that buyers increasingly favored
companies with strong financial strength, higher quality, sufficient plant
capacity, and a track record of prompt delivery.  Buyers placed even
greater emphasis on being able to source quality supplies without delays or
interruptions.  We utilized this market opportunity to add new
accounts and increase sales volume with our existing customers.





19


Cost
of Revenue





Our cost
of revenue for the three months ended March 31, 2010, increased by $11.8 million
or 227% from $5.2 million for the three months ended March 31, 2009, to $17.0
million for the three months ended March 31, 2010.  The increased cost
of revenue in 2010 was due to the increase in sales.





Gross
Profit





Our gross
margin for the three months ended March 31, 2010, was 28.8% compared to 24.1%
for the same period in 2009. The increase in gross margin for the three months
ended March 31, 2010, compared to the same period in 2009, was due to increased
sales in the China domestic market, which has higher margins. Our gross margin
is substantially higher in the China domestic market because of the lower
household penetration of small household products and trends of emerging wealth.
In addition, our higher manufacturing efficiency as a result of higher revenue
volume contributed to the increase in gross margin.





Operating
Expenses





Selling,
general and administrative expenses for the three months ended March 31, 2010,
increased by $1.5 million or 279%, from $0.6 million for the three months ended
March 31, 2009, to $2.1 million for the three months ended March 31, 2010. 
Selling expenses for the three months ended March 31, 2010, increased by 679% or
$1.2 million in comparison to the same period in 2009 due to the associated
selling costs incurred to generate the significant increase in
revenue.  General and administrative expenses for the three months
ended March 31, 2010, increased by 82% or $0.3 million in comparison to the same
period in 2009 due to an increase in research and development, employee welfare,
insurance and travel expenses.





Interest
and Financing Costs





Interest
and financing costs for the three months ended March 31, 2010, was $29,706
compared to $114,831 for the three months ended March 31, 2009, a decrease of
$85,125 or 74.1%. The change is principally due to lower interest expense due to
lower borrowings in 2010.





Interest
Income





Interest
income for the three months ended March 31, 2010, was $91,921 compared to $1,619
for the three months ended March 31, 2009, an increase of $90,302 or 5,558%. The
change is principally due to the excess cash invested in interest bearing
accounts.





Income
Tax Expense





Our
effective tax rate for the three months ended March 31, 2010, was 15.7%, as
opposed to 28.5% for the three months ended March 31, 2009. In 2009, the PRC
government granted the Company this special tax rate because of its high tech
enterprise status. These special tax benefits last for three years and can be
renewed prior to expiration.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the three months ended March 31,
2010, that have, or are reasonably likely to have, a current or future affect on
our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests.





20


Liquidity
and Capital Resources





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





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





On May 1,
2009, we completed a closing of a private placement offering of 1,040,000 Units
at an offering price of $0.92 per Unit for aggregate gross proceeds of
$956,800 to two non-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.  We also issued warrants to purchase 104,000
shares of common stock to the placement agents.





On May
20, 2009, we completed a closing of a private placement offering of 1,060,000
Units at an offering price of $0.92 per Unit for aggregate gross proceeds
of $975,200 to two non-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.  We also issued warrants to purchase 106,000
shares of common stock to the placement agents.





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





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





Cash
Flows





At March
31, 2010, we had $75.3 million in cash and cash equivalents on
hand.  Our principal demands for liquidity are to increase sales in
China, adding capacity, inventory purchase, sales distribution, and general
corporate purposes.  We anticipate that the amount of cash we have on
hand as of the date of this report as well as the cash that we will generate
from operations will satisfy these requirements.





Net cash
flows used in operating activities for the three months ended March 31, 2010,
was $1.2 million compared to $0.9 million for the three months ended March 31,
2009. The cash flows from operating activities was principally attributed to the
net income generated during the three months ended March 31, 2010, an increase
in current liabilities, offset by an increase in our accounts receivable,
inventories and advances to suppliers.





We used
$2.7 million in investing activities during the three months ended March 31,
2010, principally for construction in process and land use rights (intangible
assets).





Cash used
in financing activities in the three months ended March 31, 2010, was $0.1
million, which included proceeds from a notes payable and payment of offering
costs.





21


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





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




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





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





Item 3. Quantitative and
Qualitative Disclosures about Market Risk




Not
required.





Item
4T. Controls and Procedures




Disclosure
Controls and Procedures





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





Changes
in Internal Control over Financial Reporting





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





PART
II. OTHER INFORMATION





Item
1. Legal Proceedings





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




Item
1A. Risk Factors




Not
required.





22


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




None





Item
3. Defaults Upon Senior Securities




None.





Item 5. Other
Information




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





Item
6. Exhibits





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





23


SIGNATURES





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




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





24