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 September 30, 2010





OR





 ̈
            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
                
                (IRS
      Employer Identification No.)or
      organization)





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





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





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





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





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





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





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 33,590,116 shares of common stock
outstanding as of November 8, 2010.





TABLE
OF CONTENTS





PagePART I.
      FINANCIAL INFORMATIONItem 1.
                    Financial
      Statements
                    
                    3Item 2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    16Item 3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    
                    24Item 4.
                    Controls
      and Procedures
                    
                    24PART
      II. OTHER INFORMATIONItem 1.
                    Legal
      Proceedings
                    
                    25Item 1A.
                    Risk
      Factors
                    
                    25Item 2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    
                    25Item 3.
                    Defaults
      Upon Senior Securities
                    
                    25Item 5.
                    Other
      Information
                    
                    25Item 6.
                    Exhibits
                    
                    25SIGNATURES
                    
                    26


2


PART I. FINANCIAL INFORMATION





Item
1. Financial Statements.





DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





September 30,
                                      
                                      
                                      December 31,2010
                                      
                                      
                                      2009(unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                      
                                      $
                                      54,377,822
                                      
                                      
                                      $
                                      79,333,729Restricted
      cash
                                      
                                      
                                      1,128,314
                                      
                                      
                                      
                                      35,701Accounts
      receivable
                                      
                                      
                                      42,119,937
                                      
                                      
                                      
                                      17,070,781Advances
      to suppliers
                                      
                                      
                                      8,576,188
                                      
                                      
                                      
                                      3,299,107Other
      receivables
                                      
                                      
                                      170,526
                                      
                                      
                                      
                                      213,487Inventories
                                      
                                      
                                      21,811,223
                                      
                                      
                                      
                                      18,061,282Other
      current assets
                                      
                                      
                                      159,583
                                      
                                      
                                      
                                      12,500Total
      current assets
                                      
                                      
                                      128,343,593
                                      
                                      
                                      
                                      118,026,587PROPERTY
      AND EQUIPMENT, net
                                      
                                      
                                      12,020,769
                                      
                                      
                                      
                                      11,325,999CONSTRUCTION
      IN PROGRESS
                                      
                                      
                                      6,035,101
                                      
                                      
                                      
                                      3,724,337INTANGIBLE
      ASSETS, net
                                      
                                      
                                      22,997,999
                                      
                                      
                                      
                                      394,684OTHER
      ASSETS
                                      
                                      
                                      448,129
                                      
                                      
                                      
                                      20,073TOTAL
      ASSETS
                                      
                                      $
                                      169,845,591
                                      
                                      
                                      $
                                      133,491,680LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                      
                                      $
                                      22,168,819
                                      
                                      
                                      $
                                      13,055,110Other
      payables
                                      
                                      
                                      1,441,269
                                      
                                      
                                      
                                      1,061,460Unearned
      revenue
                                      
                                      
                                      2,092,634
                                      
                                      
                                      
                                      1,719,761Accrued
      payroll
                                      
                                      
                                      1,459,646
                                      
                                      
                                      
                                      1,148,663Notes
      payable
                                      
                                      
                                      9,393,419
                                      
                                      
                                      
                                      6,212,911Tax
      and welfare payable
                                      
                                      
                                      2,065,358
                                      
                                      
                                      
                                      862,332Total
      current liabilities
                                      
                                      
                                      38,621,145
                                      
                                      
                                      
                                      24,060,237STOCKHOLDERS'
      EQUITY:Common
      Stock, $0.001 par value; 75,000,000 shares authorized;33,590,116
      and 32,631,748 shares issued and outstandingat
      September 30, 2010 and December 31, 2009
                                      
                                      
                                      33,590
                                      
                                      
                                      
                                      32,632Additional
      paid-in capital
                                      
                                      
                                      91,055,073
                                      
                                      
                                      
                                      91,111,661Development
      funds
                                      
                                      
                                      2,205,163
                                      
                                      
                                      
                                      1,185,859Statutory
      reserve
                                      
                                      
                                      4,410,327
                                      
                                      
                                      
                                      2,371,718Other
      comprehensive income
                                      
                                      
                                      4,860,662
                                      
                                      
                                      
                                      2,335,216Retained
      earnings
                                      
                                      
                                      28,659,631
                                      
                                      
                                      
                                      12,394,357Total
      stockholders' equity
                                      
                                      
                                      131,224,446
                                      
                                      
                                      
                                      109,431,443TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                      
                                      $
                                      169,845,591
                                      
                                      
                                      $
                                      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 September 30,
                    
                    
                    Nine Months Ended September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Revenue
                    
                    $
                    55,263,309
                    
                    
                    $
                    26,541,039
                    
                    
                    $
                    113,616,453
                    
                    
                    $
                    48,723,758Cost
      of Revenue
                    
                    
                    39,417,477
                    
                    
                    
                    20,670,731
                    
                    
                    
                    81,011,120
                    
                    
                    
                    37,403,300Gross
      profit
                    
                    
                    15,845,832
                    
                    
                    
                    5,870,308
                    
                    
                    
                    32,605,333
                    
                    
                    
                    11,320,458Operating
      expensesSelling
      expenses
                    
                    
                    2,756,357
                    
                    
                    
                    960,013
                    
                    
                    
                    6,004,777
                    
                    
                    
                    1,871,266General
      and administrative expenses
                    
                    
                    1,480,948
                    
                    
                    
                    429,656
                    
                    
                    
                    3,245,637
                    
                    
                    
                    1,607,560Total
      operating expenses
                    
                    
                    4,237,305
                    
                    
                    
                    1,389,669
                    
                    
                    
                    9,250,414
                    
                    
                    
                    3,478,826Income
      from operations
                    
                    
                    11,608,527
                    
                    
                    
                    4,480,639
                    
                    
                    
                    23,354,919
                    
                    
                    
                    7,841,632Non-operating
      income (expense):Interest
      expense and financing costs
                    
                    
                    (35,977
                    )
                    
                    
                    (50,174
                    )
                    
                    
                    (85,438
                    )
                    
                    
                    (275,527
                    )Interest
      income
                    
                    
                    188,754
                    
                    
                    
                    63,698
                    
                    
                    
                    519,814
                    
                    
                    
                    66,354Other
      income
                    
                    
                    9,227
                    
                    
                    
                    8,894
                    
                    
                    
                    17,450
                    
                    
                    
                    4,998Foreign
      exchange gain (loss)
                    
                    
                    (758,621
                    )
                    
                    
                    288,461
                    
                    
                    
                    (884,431
                    )
                    
                    
                    207,958Total
      non-operating income (expense)
                    
                    
                    (596,617
                    )
                    
                    
                    310,879
                    
                    
                    
                    (432,605
                    )
                    
                    
                    3,783Income
      before income tax
                    
                    
                    11,011,910
                    
                    
                    
                    4,791,518
                    
                    
                    
                    22,922,314
                    
                    
                    
                    7,845,415Income
      tax
                    
                    
                    1,746,286
                    
                    
                    
                    668,745
                    
                    
                    
                    3,599,127
                    
                    
                    
                    1,350,892Net
      income
                    
                    
                    9,265,624
                    
                    
                    
                    4,122,773
                    
                    
                    
                    19,323,187
                    
                    
                    
                    6,494,523Other
      comprehensive incomeForeign
      currency translation gain (loss)
                    
                    
                    2,127,010
                    
                    
                    
                    57,012
                    
                    
                    
                    2,525,446
                    
                    
                    
                    (5,428
                    )Comprehensive
      Income
                    
                    $
                    11,392,634
                    
                    
                    $
                    4,179,785
                    
                    
                    $
                    21,848,633
                    
                    
                    $
                    6,489,095Weighted
      average shares outstanding :Basic
                    
                    
                    33,585,553
                    
                    
                    
                    22,730,722
                    
                    
                    
                    33,082,481
                    
                    
                    
                    21,462,056Diluted
                    
                    
                    33,591,108
                    
                    
                    
                    23,266,256
                    
                    
                    
                    33,654,774
                    
                    
                    
                    21,908,490Earnings
      per share:Basic
                    
                    $
                    0.28
                    
                    
                    $
                    0.18
                    
                    
                    $
                    0.58
                    
                    
                    $
                    0.30Diluted
                    
                    $
                    0.28
                    
                    
                    $
                    0.18
                    
                    
                    $
                    0.57
                    
                    
                    $
                    0.30





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




4




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Nine Months Ended September 30,2010
                            
                            
                            2009(unaudited)
                            
                            
                            (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                            
                            $
                            19,323,187
                            
                            
                            $
                            6,494,523Adjustments
      to reconcile net income to net cash provided
      by operating activities:Depreciation
                            
                            
                            1,084,183
                            
                            
                            
                            1,072,586Amortization
                            
                            
                            102,243
                            
                            
                            
                            7,076Stock
      based compensation
                            
                            
                            250,042
                            
                            
                            
                            -(Increase)
      / decrease in assets:Accounts
      receivable
                            
                            
                            (24,271,068
                            )
                            
                            
                            (3,194,307
                            )Other
      receivables
                            
                            
                            46,505
                            
                            
                            
                            294,584Inventories
                            
                            
                            (3,321,876
                            )
                            
                            
                            (4,650,620
                            )Due
      from related party
                            
                            
                            -
                            
                            
                            
                            331,019Advances
      to suppliers
                            
                            
                            (5,119,133
                            )
                            
                            
                            1,247,216Other
      assets
                            
                            
                            (567,302
                            )
                            
                            
                            25,695Increase
      / (decrease) in current liabilities:Accounts
      payable
                            
                            
                            11,693,505
                            
                            
                            
                            719,113Unearned
      revenue
                            
                            
                            331,838
                            
                            
                            
                            (47,897
                            )Other
      payables
                            
                            
                            344,756
                            
                            
                            
                            901,444Due
      to related party
                            
                            
                            -
                            
                            
                            
                            (194,529
                            )Accrued
      payroll
                            
                            
                            282,499
                            
                            
                            
                            859,787Tax
      and welfare payable
                            
                            
                            1,164,803
                            
                            
                            
                            101,915Net
      cash provided by operating activities
                            
                            
                            1,344,182
                            
                            
                            
                            3,967,605CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                            
                            
                            (1,539,295
                            )
                            
                            
                            (1,486,891
                            )Acquisition
      of intangible assets
                            
                            
                            (22,305,052
                            )
                            
                            
                            -Construction
      in process
                            
                            
                            (2,195,791
                            )
                            
                            
                            (1,319,539
                            )Changes
      in restricted cash
                            
                            
                            (1,072,919
                            )
                            
                            
                            199,948Sale
      of short-term investments
                            
                            
                            -
                            
                            
                            
                            29,318Net
      cash used in investing activities
                            
                            
                            (27,113,057
                            )
                            
                            
                            (2,577,164
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes payable
                            
                            
                            -
                            
                            
                            
                            1,724,933Proceeds
      from sale of common stock
                            
                            
                            -
                            
                            
                            
                            17,678,000Offering
      costs paid
                            
                            
                            (320,000
                            )
                            
                            
                            (2,213,892
                            )Proceeds
      from the exercise of warrants
                            
                            
                            6,960,278
                            
                            
                            
                            22,387Payment
      on short term loans
                            
                            
                            -
                            
                            
                            
                            (3,550,177
                            )Purchase
      of treasury shares
                            
                            
                            (6,945,950
                            )
                            
                            
                            -Net
      cash provided by (used in) financing activities
                            
                            
                            (305,672
                            )
                            
                            
                            13,661,251Effect
      of exchange rate changes on cash and cash equivalents
                            
                            
                            1,118,640
                            
                            
                            
                            (535
                            )NET
      INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
                            
                            
                            (24,955,907
                            )
                            
                            
                            15,051,157CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                            
                            
                            79,333,729
                            
                            
                            
                            2,782,026CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                            
                            $
                            54,377,822
                            
                            
                            $
                            17,833,183SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                            
                            $
                            -
                            
                            
                            $
                            116,315Income
      taxes paid
                            
                            $
                            2,170,198
                            
                            
                            $
                            565,418





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 Nine Months Ended September 30, 2010 and 2009


(unaudited)





Note
1 - Organization and Basis of Presentation





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





Organization and Line of
Business





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





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





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





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





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





Stock
Splits





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


6


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





Basis of
Presentation





The
accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Deer Technology (AnHui) Co., Ltd. (“Deer
Technology”), Anlin Technology (Anhui) Co. Ltd (“Anlin”) and Deer International,
and its 100% wholly-owned subsidiary Winder and Winder’s wholly-owned subsidiary
Delta. All significant inter-company accounts and transactions were eliminated
in consolidation. Deer Technology was incorporated on April 30, 2010, in the
AnHui Province and the Company invested $29.8 million into Deer Technology.
Anlin was incorporated on April 30, 2010, in the AnHui Province and the Company
invested $10.2 million into Anlin.





The
accompanying consolidated financial statements were prepared in conformity with
US GAAP. The functional currency of the Company’s China subsidiaries 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 China subsidiaries are maintained in RMB and the
accounts of the U.S. parent company are maintained in USD. The accounts of the
China 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 China subsidiaries. According to Topic
830, all assets and liabilities were translated at the exchange rate on the
respective balance sheet dates, stockholders’ equity is translated at the
historical rates and statement of income items are translated at the weighted
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with ASC Topic 220,
“Comprehensive Income.” Gains and losses resulting from the translations of
foreign currency transactions and balances are reflected in the statements of
income.





Note
2 – Summary of Significant Accounting Policies





Use of
Estimates





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





Cash and Cash
Equivalents





Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of six
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 September 30, 2010 and December 31, 2009,
approximately 42% 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 Nine Months Ended September 30, 2010 and 2009


(unaudited)





Investments





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





Advances to
Suppliers





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





Inventories





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





Property and
Equipment





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





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





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





September 30, 2010
                    
                    
                    December 31, 2009(audited)Building
                    
                    $
                    3,466,862
                    
                    
                    $
                    3,294,109Equipment
                    
                    
                    15,841,670
                    
                    
                    
                    14,312,145Vehicle
                    
                    
                    218,905
                    
                    
                    
                    34,735Office
      equipment
                    
                    
                    469,507
                    
                    
                    
                    420,10619,996,944
                    
                    
                    
                    18,061,095Less
      accumulated depreciation
                    
                    
                    (7,976,175
                    )
                    
                    
                    (6,735,096
                    )$
                    12,020,769
                    
                    
                    $
                    11,325,999





Construction in
Progress





Construction
in progress consists of costs related to the Company's construction of a new
plant, office building and power distribution station. The Company expects to
expend an additional $1,650,000 to finish the current projects.


8


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





Long-Lived
Assets





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





Intangible
Assets





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





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





September 30, 2010
                  
                  
                  December 31, 2009(audited)Right
      to use land
                  
                  $
                  23,158,839
                  
                  
                  $
                  450,335Computer
      software
                  
                  
                  78,478
                  
                  
                  
                  76,906Total
                  
                  
                  23,237,317
                  
                  
                  
                  527,241Less
      accumulated amortization
                  
                  
                  (239,318
                  )
                  
                  
                  (132,557
                  )Intangibles,
      net
                  
                  $
                  22,997,999
                  
                  
                  $
                  394,684





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





Fair Value of Financial
Instruments





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





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





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





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


9


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





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





Concentration of Credit
Risk





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





Revenue
Recognition





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





Unearned
Revenue





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





Advertising
Costs





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





Research and
Development





The
Company expenses its research and development costs as
incurred. Research and development costs for the three months ended
September 30, 2010 and 2009, were $244,380 and $5,377,
respectively, and for the nine months ended September 30, 2010 and 2009,
were $500,963 and $62,904, respectively.





Stock-Based
Compensation





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


10


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





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.





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 China subsidiaries is Chinese RMB. Translation gains
of $4,860,662 and $2,335,216 at September 30, 2010 and December 31, 2009,
respectively, are classified as an item of other comprehensive income in the
stockholders’ equity section of the consolidated balance sheets.





Currency
Hedging





The
Company from time-to-time may enter into forward exchange agreements with the
Bank of China, whereby the Company agrees to sell US dollars to the Bank of
China at certain rates. At September 30, 2010, the Company had no
outstanding forward exchange contracts.





Basic and Diluted Earnings
Per Share





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





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





Three months ended
                    September 30,
                  
                  2010
                  
                  
                  2009Per Share
                  
                  
                  
                  
                  
                  Per ShareShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  AmountBasic
      earnings per share
                  
                  
                  33,585,553
                  
                  
                  $
                  0.28
                  
                  
                  
                  22,730,722
                  
                  
                  $
                  0.18Effect
      of dilutive stock options and warrants
                  
                  
                  5,555
                  
                  
                  
                  -
                  
                  
                  
                  535,534
                  
                  
                  
                  -Diluted
      earnings per share
                  
                  
                  33,591,108
                  
                  
                  $
                  0.28
                  
                  
                  
                  23,266,256
                  
                  
                  $
                  0.18




11


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





Nine months ended
                    September 30,
                  
                  2010
                  
                  
                  2009Per Share
                  
                  
                  
                  
                  
                  Per ShareShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  AmountBasic
      earnings per share
                  
                  
                  33,082,481
                  
                  
                  $
                  0.58
                  
                  
                  
                  21,462,056
                  
                  
                  $
                  0.30Effect
      of dilutive stock options and warrants
                  
                  
                  572,293
                  
                  
                  
                  (0.01
                  )
                  
                  
                  446,434
                  
                  
                  
                  -Diluted
      earnings per share
                  
                  
                  33,654,774
                  
                  
                  $
                  0.57
                  
                  
                  
                  21,908,490
                  
                  
                  $
                  0.30





Statement of Cash
Flows





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





Registration Rights
Agreement





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





Recent
Pronouncements





On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 – Generally Accepted Accounting Principles – amendments
based on Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01 re-defines
authoritative US 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 US GAAP for nongovernmental
entities, except for guidance issued by the SEC. The Codification is amended to
effect non-SEC changes to authoritative US GAAP. Adoption of ASU No.
2009-01 only changed the referencing convention of US GAAP in the 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. The adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.


12


DEER CONSUMER PRODUCTS, INC. AND
SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





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





Note 3 – Inventories





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





September 30, 2010
                  
                  
                  December 31, 2009(audited)Raw
      material
                  
                  $
                  8,123,122
                  
                  
                  $
                  11,113,055Work
      in process
                  
                  
                  10,743,961
                  
                  
                  
                  5,236,692Finished
      goods
                  
                  
                  2,944,140
                  
                  
                  
                  1,711,535Total
                  
                  $
                  21,811,223
                  
                  
                  $
                  18,061,282





Note
4 – Notes Payable





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





Note 5 –
Stockholders’ Equity





Treasury
Stock





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





Stock
Options





Following
is a summary of the options activity:





Options
                      outstanding
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Weighted
                      average
                      remaining
                      contractual life
                    
                    
                    Aggregate
                      Intrinsic ValueOutstanding,
      December 31, 2009
                    
                    
                    130,000
                    
                    
                    $
                    10.96
                    
                    
                    
                    4.98
                    
                    
                    $
                    45,500Granted
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Outstanding,
      September 30, 2010
                    
                    
                    130,000
                    
                    
                    $
                    10.96
                    
                    
                    
                    4.23
                    
                    
                    $
                    -Exercisable,
      September 30, 2010
                    
                    
                    56,666
                    
                    
                    $
                    10.96
                    
                    
                    
                    4.23
                    
                    
                    $
                    -




13


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





The
exercise price for options outstanding at September 30, 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
                    
                    
                    1,759,114
                    
                    
                    $
                    3.96
                    
                    
                    
                    2.61
                    
                    
                    $
                    12,931,146Granted
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    (1,756,668
                    )
                    
                    $
                    3.96Outstanding,
      September 30, 2010
                    
                    
                    2,446
                    
                    
                    $
                    1.73
                    
                    
                    
                    1.50
                    
                    
                    $
                    19,287Exercisable,
      September 30, 2010
                    
                    
                    2,446
                    
                    
                    $
                    1.73
                    
                    
                    
                    1.50
                    
                    
                    $
                    19,287





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





Number of
                    Warrants
                  
                  Exercise
                    Price2,446
                  
                  $
                  1.732,446





During
the nine months ended September 30, 2010, certain warrant holders exercised
1,756,668 warrants that resulted in gross proceeds of $6,960,278 to the
Company.





Note
6 - Employee Welfare Plan





The total expense for the employee common welfare was $81,327 and
$32,510 for the nine months ended September 30, 2010 and
2009, respectively. The PRC 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;


14


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(unaudited)





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 $2,038,609 and $633,320, respectively, as reserve for the
statutory surplus reserve and $1,019,304 and $316,660, respectively, as reserve
for the development fund for the three and nine months ended September 30, 2010
and 2009, respectively.





Note
8 - Geographical Sales





Geographical
distribution of sales is as follows:





Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,Geographical Areas
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009China
                    
                    $
                    23,344,687
                    
                    
                    $
                    2,888,011
                    
                    
                    $
                    41,116,099
                    
                    
                    $
                    5,017,482South
      America
                    
                    
                    8,292,216
                    
                    
                    
                    3,845,583
                    
                    
                    
                    19,719,641
                    
                    
                    
                    7,126,393Asia
                    
                    
                    9,293,129
                    
                    
                    
                    2,364,182
                    
                    
                    
                    19,319,193
                    
                    
                    
                    4,933,763Europe
                    
                    
                    5,768,105
                    
                    
                    
                    4,047,740
                    
                    
                    
                    13,064,512
                    
                    
                    
                    7,929,475Middle
      East
                    
                    
                    5,534,332
                    
                    
                    
                    3,601,564
                    
                    
                    
                    12,185,623
                    
                    
                    
                    6,950,609North
      America
                    
                    
                    2,369,655
                    
                    
                    
                    9,456,088
                    
                    
                    
                    6,955,375
                    
                    
                    
                    16,334,869Africa
                    
                    
                    661,185
                    
                    
                    
                    337,871
                    
                    
                    
                    1,256,010
                    
                    
                    
                    431,167$
                    55,263,309
                    
                    
                    $
                    26,541,039
                    
                    
                    $
                    113,616,453
                    
                    
                    $
                    48,723,758


15


CAUTIONARY STATEMENT FOR FORWARD-LOOKING
STATEMENTS





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





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





Overview





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





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





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





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





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





We
operate through our two wholly-owned subsidiaries, Winder, which is a
wholly-owned foreign enterprise (“WOFE”) and responsible for research,
production and delivery of goods, and Delta, which has transferred all of its
material former operations to Winder. We have traditionally acted as both an
original equipment manufacturer (“OEM”) and original design manufacturer (“ODM”)
for the export market. On April 30, 2010, we incorporated Deer Technology
(AnHui) Co., Ltd. (“Deer Technology”) in the AnHui Province. We invested $29.8
million in Deer Technology. Deer Technology is engaged in the manufacture and
sales of household electric appliances. Also on April 30, 2010, we incorporated
Anlin Technology (Anhui) Co. Ltd (“Anlin”) in the AnHui Province. We invested
$10.2 million in Anlin. Anlin is engaged in the manufacture and sales of
household electric appliances.


16





We are
positioning Deer to continue to target the China domestic
market by expanding our production and manufacturing facilities. We are
currently investing in a new factory located in the Wuhu area of central
China. Wuhu is located in China's east coast, on the banks of the Yangtze River,
within hours from Shanghai and Nanjing, which are some of China's most populous
and economically developed regions. Wuhu is also close in proximity to raw
material suppliers as well as end user buyers such as two of China's largest
domestic retailers and current customers of the Company – SuNing and
Gome. The new factory is anticipated to be completed in 2011 and will
increase our production capacity by 40%. We paid approximately $22.2 million in
the third quarter of 2010 to secure the land use rights for our new
factory.





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.


17





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 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. From
time-to-time, we may enter into forward exchange agreements with the Bank of
China, whereby we agree to sell US dollars to the Bank of China at certain
rates. At September 30, 2010, we had no outstanding forward exchange
contracts.





Recent
Accounting Pronouncements





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


18





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. The adoption of this ASU did not have a material impact on our
consolidated financial statements.





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





Results of
Operations





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





Three Months Ended September 30,
                  
                  
                  $
                  
                  
                  %2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  ChangeRevenue
                  
                  $
                  55,263,309
                  
                  
                  $
                  26,541,039
                  
                  
                  $
                  28,722,270
                  
                  
                  
                  108.2Cost
      of revenue
                  
                  
                  39,417,477
                  
                  
                  
                  20,670,731
                  
                  
                  
                  18,746,746
                  
                  
                  
                  90.7Gross
      profit
                  
                  
                  15,845,832
                  
                  
                  
                  5,870,308
                  
                  
                  
                  9,975,524
                  
                  
                  
                  169.9Selling,
      general and administrative expenses
                  
                  
                  4,237,305
                  
                  
                  
                  1,389,669
                  
                  
                  
                  2,847,636
                  
                  
                  
                  204.9Interest
      and financing costs
                  
                  
                  35,977
                  
                  
                  
                  50,174
                  
                  
                  
                  (14,197
                  )
                  
                  
                  (28.3
                  )Interest
      income
                  
                  
                  188,754
                  
                  
                  
                  63,698
                  
                  
                  
                  125,056
                  
                  
                  
                  196.3Foreign
      exchange gain (loss)
                  
                  
                  (758,621
                  )
                  
                  
                  288,461
                  
                  
                  
                  (1,047,082
                  )
                  
                  
                  (363.0
                  )Income
      tax expense
                  
                  
                  1,746,286
                  
                  
                  
                  668,745
                  
                  
                  
                  1,077,541
                  
                  
                  
                  161.1Net
      income
                  
                  
                  9,265,624
                  
                  
                  
                  4,122,773
                  
                  
                  
                  5,142,851
                  
                  
                  
                  124.7





Revenues





Our
revenue for the three months ended September 30, 2010, was $55.3 million, an
increase of $28.7 million or 108.2% from $26.5 million for the three months
ended September 30, 2009. The increase in revenues was a result of us
aggressively expanding our sales in the China domestic market and increasing our
market shares in the Asian, South American, Middle East and European markets. We
increased our China domestic market sales from $2.9 million for the three months
ended September 30, 2009, to $23.3 million for the same period in 2010, a 708.3%
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 banks, telecommunication firms and postal offices in China. The
results are on pace with management’s plan to capture the fast growth
experienced in the China domestic small appliance market.





Our sales
in Asia were $9.3 million for the three months ended September 30, 2010, a $6.9
million or 293.1% increase over the same period in 2009. Our sales in South
America were $8.3 million for the three months ended September 30, 2010, a $4.4
million or 115.6% increase over the same period in 2009. We believe 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.


19





Our sales
in Europe were $5.8 million for the three months ended September 30, 2010, a
$1.7 million or 42.5% increase over the same period in 2009. Our sales in the
Middle East were $5.5 million for the three months ended September 30, 2010, a
$1.9 million or 53.7% increase over the same period in 2009. Our sales
gains in Europe and the Middle East were largely due to Deer gaining market
share following the financial crisis. Our sales in the U.S. were $2.4 million
for the three months ended September 30, 2010, a $7.1 million or 74.9% decrease
over the same period in 2009. The economic recovery in the U.S. has been slower
than anticipated and our U.S. customers placed orders as expected based on the
slow recovery. We expect our U.S. revenues to recover in 2011 as the economic
recovery progresses and we continue to pursue new large U.S.
customers.





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





Cost
of Revenue





Our cost
of revenue for the three months ended September 30, 2010, increased by $18.7
million or 90.7% from $20.7 million for the three months ended September 30,
2009, to $39.4 million for the three months ended September 30, 2010. The
increased cost of revenue in 2010 was due to the increase in sales.





Gross
Profit





Our gross
margin for the three months ended September 30, 2010, was 28.7% compared to
22.1% for the same period in 2009. The increase in gross margin for the three
months ended September 30, 2010, compared to the same period in 2009, was due to
increased sales in the China domestic market, which has higher margins. Our
gross margin is substantially higher in the China domestic market because of the
lower household penetration of small household products and trends of emerging
wealth. In addition, our higher manufacturing efficiency as a result of higher
revenue volume contributed to the increase in gross margin.





Operating
Expenses





Selling,
general and administrative expenses for the three months ended September 30,
2010, increased by $2.8 million or 204.9%, from $1.4 million for the three
months ended September 30, 2009, to $4.2 million for the three months ended
September 30, 2010. Selling expenses for the three months ended September 30,
2010, increased by 187.1% or $1.8 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 September 30, 2010, increased by 244.7% or $1.1 million in comparison to
the same period in 2009 due to an increase in research and development, trade
shows, insurance and travel expenses.





Interest
and Financing Costs





Interest
and financing costs for the three months ended September 30, 2010, was $35,977
compared to $50,174 for the three months ended September 30, 2009, a decrease of
$14,197 or 28.3%. The change is principally due to lower interest expense due to
lower borrowings in 2010.





Interest
Income





Interest
income for the three months ended September 30, 2010, was $188,754 compared to
$63,698 for the three months ended September 30, 2009, an increase of $125,056.
The change is principally due to the excess cash invested in interest bearing
accounts.


20





Foreign
Exchange Gain (Loss)





Foreign
exchange loss for the three months ended September 30, 2010, was $0.8 million
compared to foreign exchange gain of $0.3 million for the three months ended
September 30, 2009, a decrease of $1.0 million. The change is principally due to
foreign exchange rate fluctuations.





Income
Tax Expense





Our
effective tax rate for the three months ended September 30, 2010, was 15.9%, as
opposed to 14.0% for the three months ended September 30, 2009. In 2009, the PRC
government granted the Company this special tax rate because of its high tech
enterprise status. These special tax benefits last for three years and can be
renewed prior to expiration.





Nine
Months Ended September 30, 2010, Compared to the Nine Months Ended September 30,
2009:





Nine Months Ended September 30,
                
                
                $
                
                
                %2010
                
                
                2009
                
                
                Change
                
                
                ChangeRevenue
                
                $
                113,616,453
                
                
                $
                48,723,758
                
                
                $
                64,892,695
                
                
                
                133.2Cost
      of revenue
                
                
                81,011,120
                
                
                
                37,403,300
                
                
                
                43,607,820
                
                
                
                116.6Gross
      profit
                
                
                32,605,333
                
                
                
                11,320,458
                
                
                
                21,284,875
                
                
                
                188.0Selling,
      general and administrative expenses
                
                
                9,250,414
                
                
                
                3,478,826
                
                
                
                5,771,588
                
                
                
                165.9Interest
      and financing costs
                
                
                85,438
                
                
                
                275,527
                
                
                
                (190,089
                )
                
                
                (69.0
                )Interest
      income
                
                
                519,814
                
                
                
                66,354
                
                
                
                453,460
                
                
                
                683.4Foreign
      exchange gain (loss)
                
                
                (884,431
                )
                
                
                207,958
                
                
                
                (1,092,389
                )
                
                
                (525.3
                )Income
      tax expense
                
                
                3,599,127
                
                
                
                1,350,892
                
                
                
                2,248,235
                
                
                
                166.4Net
      income
                
                
                19,323,187
                
                
                
                6,494,523
                
                
                
                12,828,664
                
                
                
                197.5





Revenues





Our
revenue for the nine months ended September 30, 2010, was $113.6 million, an
increase of $64.9 million or 133.2% from $48.7 million for the nine months ended
September 30, 2009. The increase in revenues was a result of us aggressively
expanding our sales in the China domestic market and increasing our market
shares in the Asian, South American, Middle East and European markets. We
increased our China domestic market sales from $5.0 million for the nine months
ended September 30, 2009, to $41.1 million for the same period in 2010, a 719.5%
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 banks, telecommunication firms and postal offices in China. The results
are on pace with management’s plan to capture the fast growth experienced in the
China domestic small appliance market.





Our sales
in South America were $19.7 million for the nine months ended September 30,
2010, a $12.6 million or 176.7% increase over the same period in 2009. Our sales
in Asia were $19.3 million for the nine months ended September 30, 2010, a $14.4
million or 291.6% increase over the same period in 2009. We believe the increase
in sales in South America and Asia 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 South American
and Asian markets because of their GDP growth and large
populations.


21





Our sales
in Europe were $13.1 million for the nine months ended September 30, 2010, a
$5.1 million or 64.8% increase over the same period in 2009. Our sales in the
Middle East were $12.2 million for the nine months ended September 30, 2010, a
$5.2 million or 75.3% increase over the same period in 2009. Our sales
gains in Europe and the Middle East were largely due to Deer gaining market
share following the financial crisis. Our sales in the U.S. were $7.0 million
for the nine months ended September 30, 2010, a $9.4 million or 57.4% decrease
over the same period in 2009. The economic recovery in the U.S. has been slower
than anticipated and our U.S. customers placed orders as expected based on the
slow recovery. We expect our U.S. revenues to recover in 2011 as the economic
recovery progresses and we continue to pursue new large U.S.
customers.





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





Cost
of Revenue





Our cost
of revenue for the nine months ended September 30, 2010, increased by $43.6
million or 116.6% from $37.4 million for the nine months ended September 30,
2009, to $81.0 million for the nine months ended September 30, 2010. The
increased cost of revenue in 2010 was due to the increase in sales.





Gross
Profit





Our gross
margin for the nine months ended September 30, 2010, was 28.7% compared to 23.2%
for the same period in 2009. The increase in gross margin for the nine months
ended September 30, 2010, compared to the same period in 2009, was due to
increased sales in the China domestic market, which has higher margins. Our
gross margin is substantially higher in the China domestic market because of the
lower household penetration of small household products and trends of emerging
wealth. In addition, our higher manufacturing efficiency as a result of higher
revenue volume contributed to the increase in gross margin.





Operating
Expenses





Selling,
general and administrative expenses for the nine months ended September 30,
2010, increased by $5.8 million or 165.9%, from $3.5 million for the nine months
ended September 30, 2009, to $9.3 million for the nine months ended September
30, 2010. Selling expenses for the nine months ended September 30, 2010,
increased by 220.9% or $4.1 million in comparison to the same period in 2009 due
to the associated selling costs incurred to generate the significant increase in
revenue. General and administrative expenses for the nine months ended September
30, 2010, increased by 101.9% or $1.6 million in comparison to the same period
in 2009 due to an increase in research and development, trade shows, insurance
and travel expenses.





Interest
and Financing Costs





Interest
and financing costs for the nine months ended September 30, 2010, was $85,438
compared to $275,527 for the nine months ended September 30, 2009, a decrease of
$190,089 or 69.0%. The change is principally due to lower interest expense due
to lower borrowings in 2010.





Interest
Income





Interest
income for the nine months ended September 30, 2010, was $519,814 compared to
$66,354 for the nine months ended September 30, 2009, an increase of $453,460.
The change is principally due to the excess cash invested in interest bearing
accounts.





Foreign
Exchange Gain (Loss)





Foreign
exchange loss for the nine months ended September 30, 2010, was $0.9 million
compared to foreign exchange gain of $0.2 million for the nine months ended
September 30, 2009, a decrease of $1.1 million. The change is principally due to
foreign exchange rate fluctuations.




22




Income
Tax Expense





Our
effective tax rate for the nine months ended September 30, 2010, was 15.7%, as
opposed to 17.23% for the nine months ended September 30, 2009. In 2009, the PRC
government granted the Company this special tax rate because of its high tech
enterprise status. These special tax benefits last for six years and can be
renewed prior to expiration.





Off-Balance
Sheet Arrangements





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





Liquidity
and Capital Resources





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





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
(as defined below) at an offering price of $0.92 per Unit for
aggregate gross proceeds of $956,800 to two non-U.S. investors. Each Unit
consisted of one share of our common stock and a three-year warrant to purchase
15% of one share of common stock, or an aggregate of 156,000 shares of common
stock, at an exercise price of $1.73 per share. We also issued warrants to
purchase 104,000 shares of common stock to the placement agents.





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





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





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





During
the nine months ended September 30, 2010, certain warrant holders exercised
1,756,668 warrants that resulted in gross proceeds of $6,960,278. Also during
the nine months ended September 30, 2010, we purchased 798,300 shares of our
common stock on the open market (treasury shares) for $6,945,950.





Cash
Flows





At
September 30, 2010, we had $54.4 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.


23





Net cash
flows provided by operating activities for the nine months ended September 30,
2010, was $1.3 million compared to cash provided by operating activities of $4.0
million for the nine months ended September 30, 2009. The cash flows from
operating activities was principally attributed to the net income generated
during the nine months ended September 30, 2010, an increase in accounts
payables, offset by an increase in our accounts receivable, inventories and
advances to suppliers. The increase in account receivable is within expectations
as we continue to increase sales in the China domestic markets. The higher
margin in the China domestic markets typically requires payment terms
for as long as seven to eight months from the date of shipments. We
historically have not experienced significant bad debts from our customers;
therefore, we believe our current receivables are manageable and within
expectations.





We used
$27.1 million in investing activities during the nine months ended September 30,
2010, principally for the purchase of land use rights (intangible assets) for
our new production and manufacturing facility that will be located in the Wuhu
area in central China.





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





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





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





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





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





Item 3. Quantitative and
Qualitative Disclosures about Market Risk





Not
required.





Item
4. Controls and Procedures





Disclosure
Controls and Procedures





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


24





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.





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




25


SIGNATURES





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





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




26