UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549





FORM
10-K





(Mark
one)




x         Annual Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934





For the
fiscal year ended December 31, 2009





 ̈         Transition Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934





For the
transition period from ______________ to _____________








Commission
File Number: 001-34407





DEER
CONSUMER PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)





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





Area
2, 1/F, Building M-6,


Central
High-Tech Industrial Park,


Nanshan,
Shenzhen, China 518057


(Address
of principal executive offices)





(86)
755-8602-8285


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
              
              Name of each exchange on which
      registeredCommon
      Stock, $.001 par value
              
              Nasdaq
      Global Market




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes  ̈   No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.Yes  ̈   No x





Indicate
by check mark whether the registrant has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x   No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.       ̈





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





Large
      accelerated filer ̈
            Accelerated
      filer ̈Non-accelerated
      filer ̈
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈   No x





At June
30, 2009, the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was approximately $29,052,200, based on the
last sale price of the registrant’s common stock. For the purposes of the
foregoing calculation only, all of the registrant’s directors, executive
officers and holders of ten percent or greater of the registrant’s outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not a determination for
other purposes.




At March
1, 2010, there were 32,631,748 shares of the registrant’s common stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE




None.












Deer
Consumer Products, Inc.





Index
to Contents





Page
                                                                NumberPart
      IItem
      1
                                                              Business
                                                              4Item
      1A
                                                              Risk
      Factors
                                                              11Item
      1B
                                                              Unresolved
      Staff Comments
                                                              27Item
      2
                                                              Properties
                                                              27Item
      3
                                                              Legal
      Proceedings
                                                              28Part
      IIItem
      4
                                                              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                              28Item
      5
                                                              Selected
      Financial Data
                                                              29Item
      6
                                                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                              29Item
      6A
                                                              Quantitative
      and Qualitative Disclosures About Market Risk
                                                              35Item
      7
                                                              Financial
      Statements and Supplementary Data
                                                              35Item
      8
                                                              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                              35Item
      8A(T)
                                                              Controls
      and Procedures
                                                              36Item
      8B
                                                              Other
      Information
                                                              37Part
      IIIItem
      9
                                                              Directors,
      Executive Officers and Corporate Governance
                                                              37Item
      10
                                                              Executive
      Compensation
                                                              41Item
      11
                                                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                              43Item
      12
                                                              Certain
      Relationships and Related Transactions, and Director
      Independence
                                                              45Item
      13
                                                              Principal
      Accounting Fees and Services
                                                              45Part
      IVItem
      14
                                                              Exhibits,
      Financial Statement Schedules
                                                              46Signatures
                                                              
                                                              47Exhibits
                                                              
                                                              48


2


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




In this report, the terms
“Deer,”“Company,”“we,”“us”and “our”refer to Deer Consumer Products,
Inc. (“Deer”) and its
subsidiaries. This report contains forward-looking statements
regarding Deer which include, but are not limited to, statements concerning our
projected revenues, expenses, gross profit and income, mix of revenue, demand
for our products, the benefits and potential applications for our products, the
need for additional capital, our ability to obtain and successfully perform
additional new contract awards and the related funding and profitability of such
awards, the competitive nature of our business and markets, and product
qualification requirements of our customers. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, management’s beliefs, and certain assumptions made by us. Words such
as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,”
“believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view
to” and variations of these words or similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. Such factors include, but are not limited to the
following:




·
            our
      goals and strategies;




·
            our
      expansion plans;




·
            our
      future business development, financial conditions and results of
      operations;




·
            the
      expected growth of the market for our
products;




·
            our
      expectations regarding demand for our
products;




·
            our
      ability to expand the Deer brand in
China;




·
            our
      expectations regarding keeping and strengthening our relationships with
      key customers;




·
            our
      ability to stay abreast of market trends and technological
      advances;




·
            competition
      in our industry in China;




·
            general
      economic and business conditions in the regions in which we sell our
      products;




·
            relevant
      government policies and regulations relating to our industry;
      and




·
            market
      acceptance of our products.




Additionally,
this report contains statistical data that we obtained from various publicly
available government publications. Statistical data in these publications also
include projections based on a number of assumptions. The rapidly changing
nature of our customers' industries results in significant uncertainties in any
projections or estimates relating to the growth prospects or future condition of
our market. Furthermore, if any one or more of the assumptions underlying the
market data is later found to be incorrect, actual results may differ from the
projections based on these assumptions. You should not place undue reliance on
these forward-looking statements.




Unless
otherwise indicated, information in this report concerning economic conditions
and our industry is based on information from independent industry analysts and
publications, as well as our estimates. Except where otherwise noted, our
estimates are derived from publicly available information released by third
party sources, as well as data from our internal research, and are based on such
data and our knowledge of our industry, which we believe to be reasonable. None
of the independent industry publication market data cited in this report was
prepared on our or our affiliates’ behalf.




We do not
undertake any obligation to revise or update publicly any forward-looking
statements for any reason, except as required by law. Additional information on
the various risks and uncertainties potentially affecting our operating results
are discussed below and are contained in our publicly filed documents available
through the SEC’s website (www.sec.gov) or upon written request to our corporate
secretary at: Area 2, 1/F, Building M-6,
Central High-Tech Industrial Park, Nanshan, Shenzhen,
China.


3


PART
I





Item
1.  Business.





General





We are a
leading Chinese designer, manufacturer and seller of quality small home and
kitchen electric appliances. We develop, promote, manufacture and sell a broad
range of stylish, safe and easy to use products including blenders, juicers and
soy milk makers that are designed to make today’s lifestyles simpler and
healthier. Our products are sold both in the China domestic market and to export
markets. In the China domestic market, our products target China’s growing
middle-class and are sold primarily under the Deer brand name (德尔)
as well as under one store brand for a retailer’s private label programs. In the
export market, we manufacture our products for leading overseas consumer
products companies who sell them under brand names including Black & Decker®
and Betty Crocker Kitchens, as well as store brands for retailer’s private label
programs.





Historically,
we have served as an Original Design Manufacturer (ODM) and an Original
Equipment Manufacturer (OEM) for leading international consumer product
companies. For the year ended December 31, 2009, 82.4% of our total revenue was
from the export market, with North America and Europe accounting for
approximately 41.4% of our revenue during such period. Since inception, we have
focused on establishing and growing relationships with our leading international
customer base including Focus Electrics Group, which offers Back to Basics and
West Bend products, Applica Incorporated, which offers Black & Decker®
products, and Sattar. Our experience in the export business has also enabled us
to develop the scale, manufacturing efficiencies and design expertise that
serves as the foundation for us to aggressively pursue the highly-attractive
domestic market opportunity.





While we
have traditionally generated the majority of our sales in the export market,
urbanization, rising family incomes and increased living standards have spurred
demand for small appliances in China. In order to capture this market
opportunity, the Deer brand (德尔)
of appliances was introduced to the domestic market in April 2008. We believe
that the Deer brand (德尔)
will grow significantly as the domestic demand for our products increases in
China with increased living standards. In addition to expanding our footprint in
China, we are also expanding into emerging growth markets in South America,
Asia, Africa, and the Middle East. In 2008 and 2009, we sold our products to
customers and distributors and our products are found worldwide.





We
believe Deer is positioned to become a leading brand in China’s rapidly growing
small home and kitchen electric appliance sector and will continue to be a
leading international ODM and OEM. Despite the global recession in 2008 and
2009, we believe that we were able to maintain our revenue growth in 2009
because of our ability to deliver products on time, the quality reputation of
our ODM and OEM products, our excellent relationships with our large customers,
and our aggressive expansion in China, South America, Asia, Africa and the
Middle East.





We were
incorporated in Nevada on July 8, 2006 under the name of Tag Events Corp as a
musical event organization and promotion company with minimal operations. On
September 3, 2008 we changed our name to Deer Consumer Products, Inc. and
entered into and consummated a series of agreements which resulted in the
acquisition of all of the ordinary shares of Deer International Group Ltd., a
corporation organized under the laws of the British Virgin Islands (“Deer
International”), parent of its wholly-owned subsidiary, Winder Electric Group
Ltd. (“Winder”), which is a wholly-owned foreign enterprise (“WFOE”) and
responsible for research, production and delivery of goods, and Delta
International Limited (“Delta”), which has transferred all of its material
former operations to Winder.


4


The
acquisition of Deer’s ordinary shares was accomplished pursuant to the terms of
a Share Exchange Agreement and Plan of Reorganization, dated September 3, 2008
(the “Share Exchange Agreement”), by and between Deer International and the
Company. Pursuant to the Share Exchange Agreement, we acquired from Deer 50,000
ordinary shares, consisting of all of its issued and outstanding capital stock,
in exchange for the issuance of an aggregate of 18,050,000 shares (15,695,706
after giving effect to stock splits) of our common stock to the shareholders of
Deer International (the “Share Exchange”). 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 5,950,000
shares (5,173,914 shares after giving effect to stock splits) of our common
stock to us for cancellation. Mr. Liu was not compensated in any way for the
cancellation of his shares of our common stock. Upon completion of the foregoing
transactions, we had an aggregate of 22,600,000 (19,652,226 shares after giving
effect to stock splits) shares of common stock issued and
outstanding.





Our
principal offices are located at Area 2, 1/F, Building M-6, Central High-Tech
Industrial Park, Nanshan, Shenzhen, China 518057.  Our telephone
number is (86) 755-8602-8285.





Products





We
manufacture small home and kitchen electric appliances for the consumer market
in China and for export markets. Our largest selling products are blenders and
juice extractors which accounted for 69.7% and 21.7%, respectively, of sales in
2008, and 51% and 21%, respectively, of sales in 2009. Our other products
include soymilk makers, food processors, popcorn makers, meat grinders, coffee
machines and hot water kettles. We also plan to expand our product line into
other growing appliance segments specific to different regions such as
humidifiers and dehumidifiers. Over the last eight years, our product portfolio
has included over 189 different product varieties.





We offer
Original Design Manufacturing (ODM), Original Equipment Manufacturing (OEM) and
Original Brand Manufacturing (OBM) products:





·
            We
      design and manufacture ODM products which are sold to customers. These
      products accounted for 75% and 85% of our total export market revenue for
      2008 and 2009, respectively. These products are primarily sold to large,
      international overseas consumer products companies who sell them under
      brand names such as Black & Decker®. We provide our ODM customers with
      a research, design and development solution to address their home and
      kitchen electronic appliance needs. Our research and development team can
      work alone or in tandem with a customer’s product design group to create
      new designs. We own all the tooling and own or have an exclusive perpetual
      license to use all of the intellectual property and designs for our ODM
      products. Because of our design and development solution, our rights
      to use the product design, and ownership of the tooling, customers that
      purchase ODM products tend to be less likely to switch suppliers relative
      to customers that purchase OEM products. Most of our top ten customers are
      ODM customers and we have ongoing dialogue with them regarding potential
      new products. Most customers pay for the tooling and thus are financially
      incentivized to continue to buy the products from
  us.




·
            OEM
      products are outsourced by electrical appliance manufacturers to our
      Company. We produce appliances for these clients based on their custom
      specifications and designs.




·
            OBM
      products are designed, manufactured and sold by our Company under the Deer
      brand name (德尔). At year
      ended December 31, 2009, these products are sold primarily through agents
      to domestic Chinese retailers for sale in
China.





Our
products have obtained the requisite safety approvals for sale in export markets
including ETL (European Union), GS (Germany), UL/CUL (North America) and CB
(International). Management believes that domestically, our products retail for
significantly less than the price of imports of comparable quality and at slight
discount to the products of other domestic brands. We offer an extensive array
of products with varying sizes, functionality, price points and applications.
This strategy enables us to reach a broad range of customers with our products
in both the China domestic market and export market.





Industry
Overview





Unless
otherwise stated, the following industry data has been referenced from CCID
Consulting’s 2007-2008 and 2008-2009 Annual Report of China’s Small Electrical
Appliances Market.


5


The
global household small electrical appliance market generated approximately $85.9
billion in retail sales in 2008, representing an increase of approximately 10%
from 2007. China is the largest global manufacturer of small household
electrical appliances in the world, producing 1.63 billion units in 2008, of
which exports accounted for 74.3% of those sales, as many Chinese manufacturers
of small electronic appliances sell their products to global consumer products
companies with access to consumers living in the U.S. and Europe. Small
electrical appliances are classified into three sectors: (i) kitchen, which
includes blenders, juicers, microwave ovens, coffee makers and rice cookers;
(ii) living, which includes electric fans, humidifiers, electric heaters,
vacuums; and (iii) personal care, which includes hairdryers, electric shavers
and massagers. Our products primarily fall into the kitchen sector. Average
gross profit margins for small household electrical appliances are approximately
30%, which are higher than that of traditional home appliances such as
televisions and air conditioners which have gross margins of 5-6%. Current
export and domestic market highlights for small household electrical appliances
are described below:





Export
Market





In North
America, Europe, and other developed regions, sales growth in the appliance
industry maintains a steady but slow growth rate with most sales dependent on
replacements and new product introduction. We believe that the Company’s
revenues derived from the overseas export of small electronic appliances have
increased mainly due to buyers becoming increasingly conscious about obtaining
supplies from quality manufacturers who are well capitalized following the
financial crisis. Sales have also increased due to our increased marketing
efforts and sales to growing export markets. In 2009, we have experienced
significant growth in North America, Europe, South America, Asia, and the Middle
East.




China
Domestic Market





In 2008,
China accounted for approximately 15.5% of global small household electrical
appliance sales, or $13.3 billion. Of the small household electrical appliance
sales, kitchen products account for 79% of consumption, as shown
below:





Small
Electrical Appliances Consumption in China (2006-2008):





($ in billions)
                
                Kitchen
                
                
                Living
                
                
                Personal Care
                
                
                TotalYear
                
                Sales
                
                
                Growth(%)
                
                
                Sales
                
                
                Growth(%)
                
                
                Sales
                
                
                Growth(%)
                
                
                Sales
                
                
                Growth(%)2006
                
                $
                9.14
                
                
                
                
                
                $
                1.50
                
                
                
                
                
                $
                1.05
                
                
                
                
                
                $
                11.692007
                
                
                10.46
                
                
                
                14.4
                %
                
                
                1.69
                
                
                
                13.0
                %
                
                
                1.16
                
                
                
                10.8
                %
                
                
                13.31
                
                
                
                13.9
                %2008
                
                
                12.40
                
                
                
                18.5
                %
                
                
                1.99
                
                
                
                17.7
                %
                
                
                1.34
                
                
                
                15.5
                %
                
                
                15.74
                
                
                
                18.4
                %





Small
electrical appliance demand in China grew approximately 14% between 2007 and
2008 to $15.7 billion, and grew at a 16.5% CAGR between 2006 and 2008, faster
than other export markets. The kitchen sector is the largest and fastest growing
segment of the small appliance market in China, representing $12.4 billion in
sales and 18.5% growth in 2008. According to The Information of GuangDong
Household Appliance, Q3 2007, the average household in China owns five small
electrical appliances, which is far less than an average household in a
developed country which owns 20-30 electrical appliances, highlighting the vast
potential of the market in China. According to the Hong Kong Trade Development
Council, “Big Market for Small Electrical Appliances in Mainland China,” July
28, 2006, the main consumers of kitchen appliances in China are young couples
aged 18 to 40 years old with overall buyers being relatively young. The
expansion of China’s market is due, in part, to the country’s rapid economic
growth. According to the National Bureau of Statistics of China, China’s real
gross domestic product, or GDP, grew by 11.1%, 11.4%, 9.0% and 8.7% in 2006,
2007, 2008 and 2009, respectively. China has a large population, including a
rapidly expanding middle class and younger, urban consumer bases, which
offers a large pool of potential consumers. Economic growth in China has led to
greater levels of personal disposable income and increased spending among
China’s expanding middle class consumer base.


6


Production





We
operate 13 tooling houses, 136 injection-molding machines, 18 production lines
and possess an estimated annual production capacity of 14 million units. As part
of our manufacturing best practices, as well as our contribution to
environmental improvement, our manufacturing department recycles and reuses
plastic scraps, defects, waste, and quality rejects to be reused as raw
materials. At current manufacturing levels, approximately 30 tons of our waste
is recycled and reused in our manufacturing monthly. Our manufacturing capacity
is fully integrated, with in-house capabilities to produce everything from
internal components—including electrical motors—to exterior components and final
assembly. Our facilities are largely automated, which ensures consistent product
quality and helps to lower our labor costs. We believe that our vertically
integrated and automated manufacturing capabilities provide us with a
competitive advantage as it enables us to consistently produce low-cost,
high-quality products for our customers, while contributing to our ability to
generate attractive gross margins. We believe our in-house production of
motors gives us a significant cost advantage over our competitors.





We have
implemented a cost control program that continues to improve productivity by
automating or consolidating manual assembly operations while increasing workflow
safety, quality, and efficiency. In order to determine which components can be
produced by us at lowest cost, we evaluate third-party suppliers of components
or of products from time to time. Based on our research, we determine if
components used in our products would be more efficiently produced at our
facilities or outsourced to a third party. As of December 31, 2009, less than 5%
of our sales were manufactured by third party suppliers. To date, all our
production agreements with third party manufacturers are short-term in
nature.





Sales
and Marketing





During
2009, Deer has:





·
            Attended
      international trade shows to gain new customers and display our product
      innovations;




·
            Increased
      sales and distribution of popcorn makers and espresso coffee makers to
      international customers; and




·
            Continued
      its marketing program in emerging markets, such as South America, Asia,
      Africa and the Middle East.





As of
December 31, 2009, our sales and marketing department consisted of 103 employees
primarily dedicated to increasing Deer’s brand awareness among the Chinese
consumer. The target customer in the domestic China market is a middle-class
urban consumer whose socio-economic conditions are improving along with China’s
growing GDP and whose disposable income is improving in-line with the quality of
life. The sales team plans to achieve greater brand awareness by expanding
Deer’s product distribution across the major regions of China and by
establishing new sales channels with local, national and online retailers and
distributors.





Deer has
been actively expanding its sales channels into the hospitality, restaurant and
commercial channels. Deer provides heavy-duty commercial blenders and juicers to
bars, hotels, restaurants, and coffee houses for preparing drink concoctions and
smoothies. In addition, Deer also provides small appliances such as hot water
kettles that are used in hotel guest rooms. Major appliance retailers have used
Deer’s products as a complimentary gift for customers who buy large ticket
items. China’s postal offices offer reward point systems that allow their
customers to redeem their points for Deer’s products. Deer will continue to
expand in these sales channels in 2010. We also expect that sales of our
products over popular Chinese web portals such as Taobao.com and HC360.com will
continue to grow in 2010. According to Taobao.com, our small home and kitchen
electric appliances were among the fastest growing brands purchased on its
website in 2008 and 2009.





We own or
have user rights to 11 registered brand names in the China domestic market
including Deer (德尔), Kyowa, D&R,
Blendermate, K-tec, Blendtec, NOWAKE, 万灵winder, MJ-176NR,
Bartec’ and aiders. We currently sell our products to the China domestic
market primarily under the Deer brand (德尔). Utilizing these
brands, we hope to increase domestic China sales and further transition from an
ODM manufacturer to a branded domestic manufacturer.


7


We have
set our 2010 marketing strategy on four goals:




·
            Aggressively
      expand our product sales in the domestic Chinese market by entering large
      retail appliance chains and department
stores;




·
            Continue
      to expand our ODM and OEM export business and export Deer branded products
      overseas;




·
            Pursue
      deeper penetration and development of our customer base in the emerging
      South America, Southeast Asia, Africa and Middle East markets;
      and




·
            Continue
      expansion of sales of the Deer brand (德尔) of small
      kitchen electric appliances over the Internet in the China domestic
      market.





Suppliers





Our major
raw material purchases include petroleum-based resins and chemicals such as AS,
ABS, silicon steel sheets and copper. Currently, around 20% of raw materials are
imported, with the majority sourced domestically in China through various local
suppliers using cost and availability selection criteria. More than half of
these domestic materials can be purchased within the Pearl River Delta region
near our production facilities. Our principal suppliers are: Hong Bo, Zhong Hua
(Sino-Chem), Hua Mei, Zhong Gang, Feng Shun, Yi Jia, Gao Shun Chang and Ming
Gang.





We seek
to maintain two or more quality suppliers for each type of raw material
purchased. By maintaining relationships with more than one supplier, we benefit
from a more stable supply chain and more competitive prices. We hold our
suppliers to strict quality and delivery specifications.





We do not
maintain fixed supply contracts. Components and raw materials are ordered when
needed to meet production needs. If a change of suppliers is necessary, we
estimate we can quickly fulfill supplies from another source without impacting
production. Strategic materials are purchased from several suppliers. There
are no sole source suppliers. We are backward-integrated and depend on suppliers
mainly for raw materials. We produce most of our product components in-house and
recently began manufacturing our own micro-motors, a key component used in our
blenders and juicers, thereby further reducing our reliance on outside
suppliers.





Customers




In 2008
and 2009, sales to customers outside of China accounted for 95% and 82%,
respectively, of total sales. We sell our products to consumer product companies
who in turn offer products worldwide under numerous high-quality brand names
such as Black & Decker®, Disney and Betty Crocker Kitchens. Our largest
customer, Focus Electric, accounted for approximately 19% of revenues during
2008 and 15% of revenues during 2009. Our top 10 customers accounted for 51% of
revenues in 2008 and 50% of revenues in 2009, and included: Focus Electric,
Applica, SuNing, Sattar, Distrivalto, Sindelen, JiangShu Song Qiao, Shen Zhen
Chu Tian Long, Sanwai and LOS.





Export
Market





In the
export market we primarily serve as an ODM for large overseas appliance brands
with sales made both directly and indirectly to the consumer product companies.
We believe that most international ODM and OEM customers are looking for high
quality and stylish products from a reliable manufacturer who can meet their
specifications in the time and at their price points. Since inception, we have
focused on establishing stable and positive customer relationships and have
developed a loyal and strong customer base with foreign export clients such as
Focus Electrics Group, which offers Back to Basics and West Bend products,
Applica Incorporated, which offers Black & Decker® products, and Sattar.
Although we generally do not enter into fixed agreements as to sales quantities
on a monthly or annual basis, our customers generally provide us with
their annual sales forecast, often with a specific monthly breakdown. These
forecasts allow us to better plan for our raw material and labor needs in the
upcoming year to meet our customers’ requirements. While this is not a fixed
contract, the arrangement benefits our customers by establishing a source of
appliances for their retail consumers and provides us with a good indication of
demand for our products. In the past, their forecasts have been consistent with
their purchases in the following year. We believe that the majority of our
customers view us as strategic long-term suppliers and value the quality of our
products, our timely delivery, and sophisticated design
capabilities.


8


China
Domestic Market





In the
China domestic market, we believe that retail consumers seek quality,
convenience, and price. We sell our products to the retail stores through
agents as we do not operate distribution centers in China. Agents buy our
products and hold the inventory for various retail locations, serving as an
intermediary between us and the store. On December 1, 2009, the Company reported
that Winder entered into a distribution agreement with Suning Nanjing Purchasing
Center, a branch of Suning Appliance Co., Ltd. (“Suning”), a company organized
under the laws of the PRC. The distribution agreement provided mutual
cooperation to achieve sales of RMB 200 million (approximately US$29.3 million)
of Deer brand (德尔) products in
Suning’s approximately 885 stores across China in 2010. The Company and Suning
will also jointly provide marketing and branding support in 2010.





Intellectual
Property





Patent
Rights





We and
our subsidiaries have historically licensed the right to use patents from
various parties, including from our Chairman, Mr. Ying He, his brother, Mr.
Famin He, Shenzhen De Mei Long Electric Appliances Co., Ltd. and Shenzhen Kafu
Industrial Co., Ltd. In December 2008, we entered into transfer agreements that
intended to transfer the ownership of patents and trademarks used by the Company
from its Chairman, Mr. Ying He, his brother, Mr. Famin He, Shenzhen De Mei Long
Electric Appliances Co., Ltd. and Shenzhen Kafu Industrial Co., Ltd., to Winder.
Winder has entered into a supplemental agreement to these transfer agreements to
clarify that a license of the use of the patents and trademarks to Winder has
and will continue on a perpetual, exclusive, world-wide and royalty-free basis
which may not be cancelled by the licensor or grantor until the
registration of the ownership transfers of the patents and trademarks becomes
effective.





Trademark
Rights





All
trademarks which we own or use are registered with the China Trademark office
under the State Administration for Industry & Commerce of the PRC as shown
below:





No.
                
                Certificate No.
                
                Brand Name
                
                Registration Date
                
                Valid Until1
                
                No3133609
                
                Kyowa
                
                08/21/2003
                
                08/20/20132
                
                No1977092
                
                Deer
                
                04/21/2003
                
                04/20/20133
                
                No3215570
                
                D&R
                
                02/14/2004
                
                02/13/20144
                
                No4390572
                
                Blendermate
                
                06/14/2007
                
                06/13/20175
                
                No4446484
                
                K-tec
                
                10/14/2007
                
                10/13/20176
                
                No4446483
                
                Blendtec
                
                11/14/2007
                
                11/13/20177
                
                No3133608
                
                NOWAKE
                
                08/21/2003
                
                08/20/2013





Copyrights





No.
                  
                  Certificate No.
                  
                  Works’s Name
                  
                  Author
                  
                  Registration Date1
                  
                  2007-F-08022
                  
                  Wan
      Zhong Yi Xin(万众一心 )
                  
                  Ying
      He
                  
                  07/30/2007





Research
and Development





To
maintain our competitive edge, we consistently invest in research and
development to keep pace with new technologies and improve efficiencies in
design and cost. We have a team of 47 research and development and technical
employees that continuously improve our products and enable us to compete with
our rivals. In 2008 and 2009, we spent $585,000 and $602,550, respectively, on
research and development. While we have no formal written alliances, we work
with several household electric associations who consult for us
intermittently.


9


Governmental
and Environmental Regulation





Our
products have obtained the requisite safety approvals to sell in export markets
allowing us to label products with the marks of ETL (European Union) GS
(Germany), UL/CUL (North America) and CB (International) as well as obtaining
the necessary certifications to sell in the domestic market. Domestic licenses,
which we have obtained, are required for both the production and sale of
goods.





The
business and company registrations are in compliance in all material respects
with the laws and regulations of the municipal and provincial authorities of
GuangDong Province and China.





Competition





Export
Market





In the
export market, we compete against other ODM and OEM manufacturers which are
mostly located in China. More recently, we have experienced increased
competition from other ODM and OEM manufacturers operating in regions with low
labor costs such as Eastern Europe and other Southeast Asian countries. In order
to compete effectively we employ the following practices:





·
            ODM
      capabilities—It is less efficient for customers with multiple product
      lines to maintain in-house research and design capabilities for kitchen
      appliances. As an ODM, we maintain an engineering staff that researches
      and designs products to meet the stylistic and functional needs of our
      customers. Our ODM capabilities are highly valued by our
      customers;




·
            Experience—We
      design quality and stylish products on a timely basis. We believe our
      experience and proven performance provide a competitive edge over other
      manufacturers;




·
            Vertical
      Integration—We produce almost all of the components in-house thus allowing
      us to capture the profit margin and taxes that we would pay to a supplier
      if the components were sourced externally. Through vertical integration,
      we also achieve greater product standardization and we are better able to
      manage our supply chain; and




·
            Customer
      Service—Our sales managers maintain close contact with customers to be
      responsive to any special modifications or product needs to best fit their
      respective markets. In addition, our sales directors often travel to meet
      with customers during the year.





China
Domestic Market





In the
China domestic market we face competition from premium-priced foreign brands as
well as from other Chinese appliance manufacturers. These include companies such
as Midea, Hisense, Galanz, Supor, Elec-Tech and Tsann Kuen (Taiwan), which offer
products that are priced comparably with our products.





·
            Reputation
      as a High-Quality Producer—Many Chinese consumers desire appliances that
      are safe, stylish and priced reasonably. We are known for our extensive
      ODM production for global consumer product goods companies and Chinese
      consumers associate the Deer brand (德尔) with the
      same safety and style as these foreign brands at a better
      price.




·
            Varied
      Product Menu—We offer products with varying size, functionality, price
      points and applications to reach a broad customer
  base.




·
            Experience—Deer
      has extensive experience designing and manufacturing blender and juicer
      products. Many of the domestic brands outsource the design and
      manufacturing to small domestic factories with limited experience in
      designing and manufacturing blender and juicer
  products.


10


·
            Limitation
      of Foreign Brands—Many foreign brands with design capabilities typically
      retail at significantly higher prices than Deer’s products. On the other
      hand, foreign brands without design capabilities do not own the rights to
      the designs and hence cannot sell their products in
  China.





Seasonality





Deer
typically experiences stronger third and fourth calendar quarters due to
seasonality generally caused by national holidays. In addition, customer
demand for blender and juicer products are also influenced by the
weather.





Employees





At year
ended December 31, 2009, the Company had approximately 1,900 employees
consisting of part-time and full-time employees.





We
believe we maintain strong ties with our employees and retention has been
stable. Employee contracts adhere to both State and Provincial employment
regulations and all social security regulations. The Company does not have
collective bargaining agreements with its employees.





We enter
into standard labor contracts as required by the PRC government.





Salary
Policy





Generally,
Deer employees’ salaries are classified into five categories: hourly, piecework,
length of service, overtime including holiday pay, and awards. Awards include
production awards, marketing awards and annual bonuses.





2009
Equity Incentive Plan





On
November 6, 2009, the Company’s stockholders approved the 2009 Equity Incentive
Plan authorizing the issuance of up to 500,000 shares of our common stock. The
Company can grant awards under the Plan to employees, officers, and directors of
Deer under the guidelines set forth in the Plan.












Benefits





Deer
provides its employees with all social insurance required by state and local
laws, living quarters, transportation for employees Monday through Friday to and
from nearby suburbs, and accidental injury insurance.





Legal
Proceedings





Deer may
occasionally become involved in various lawsuits and legal proceedings, arising
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. Deer is 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.





Our
business and an investment in our securities are subject to a variety of
risks.  The following risk factors describe the most significant
events, facts or circumstances that could have a material adverse effect upon
our business, financial condition, results of operations, ability to implement
our business plan, and the market price for our securities.  Many of
these events are outside of our control. The risks described below are not the
only ones facing our company.  Additional risks not presently known to
us or that we currently believe are immaterial may also impair our business
operations.  If any of these risks actually occurs, our business,
financial condition or results of operation may be materially adversely
affected.  In such case, the trading price of our common stock could
decline and investors in our common stock could lose all or part of their
investment.


11


Risks
Related to Our Business





Raw
materials price fluctuations.





The
Company’s largest raw materials purchases consist of plastics (AS, PP, ABS which
are derived from petroleum), stainless steel and copper. As such, fluctuations
in the price of oil, steel and copper on the international market will have an
impact on the Company’s operating costs and related profits.





International
oil prices reached new highs in our third quarter but fell sharply in the fourth
quarter of 2008. Oil prices have increased in the second and third quarter of
2009. The price of most plastics moves in relation to oil prices and all
electrical appliance manufacturers are affected by cost increases and benefit
from decreases. Management believes that any significant long-term increases or
decreases in the price of petroleum will be passed onto users in the form of
higher or lower manufacturer prices. However, short-term volatility in petroleum
and plastics prices can either result in short term increases or decreases in
manufacturing costs.





The
Company does not engage in hedging transactions to protect against raw material
fluctuations, but attempts to mitigate the short-term risks of price swings by
purchasing raw materials in advance.





Economic
slowdown in US & European markets.





Historically,
the majority of the Company’s sales are made as exports overseas with
approximately 52% of our total sales made in North American and European markets
in 2008 and 41% of our total sales made in North American and European markets
in 2009. As such, any weakening economic conditions, including those which
reduce consumer demand for our products in these markets, could reduce demand
for our products and negatively impact the Company’s operating results. In order
to reduce such risk the Company has:





·
            initiated
      a flexible pricing strategy with international customers;
    and




·
            undertaken
      expansion into the domestic market of
China.





Fluctuation
in exchange rates could adversely affect our business and the value of our
securities.





The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and the Renminbi and between those currencies and other
currencies in which our revenue may be denominated. Because a majority of the
Company’s sales are currently made in the export market, and all of our earnings
and cash assets are denominated in Renminbi, fluctuations in the exchange rate
between the U.S. dollar and the Renminbi will affect our financial results
reported in U.S. dollar terms without giving effect to any underlying change in
our business, financial condition or results of operations. Fluctuations in the
exchange rate will also affect the relative value of any dividend we may issue
in the future that will be exchanged into U.S. dollars and earnings from, and
the value of, any U.S. dollar-denominated investments we make in the
future.





Since
July 2005, the Renminbi has not been pegged to the U.S. dollar. Although the
People’s Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the Renminbi
may appreciate or depreciate significantly in value against the U.S. dollar in
the medium to long term. Moreover, it is possible that in the future the Chinese
authorities may lift restrictions on fluctuations in the Renminbi exchange rate
and lessen intervention in the foreign exchange market.





We
currently do not engage in Forward Foreign Exchange Agreement or other hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. Hedging transactions which we may enter into in the future may have
limited effectiveness, and we may not be able to successfully hedge our exposure
at all. In addition, our foreign currency exchange losses may be magnified by
Chinese exchange control regulations that restrict our ability to convert
Renminbi into foreign currencies.


12


Loss
of or failure to renew any or all of its licenses and permits.





In
accordance with the laws and regulations of the PRC, Deer is required to
maintain various licenses and permits in order to operate our electrical
appliance products manufacturing business. Deer is required to comply with
applicable hygiene and safety standards in relation to our production processes.
Deer production processes are subject to periodic inspections by the regulatory
authorities for compliance with applicable regulations. Failure to pass these
inspections, or the loss of or failure to renew such licenses and production
permits, or sales licenses could result in the temporary or permanent suspension
of some or all of our production or distribution operations and could adversely
affect our revenues and profitability.





We
may experience material disruptions to our manufacturing
operations.





While we
seek to operate our facilities in compliance with applicable rules and
regulations and take measures to minimize the risks of disruption at our
facilities, a material disruption at one of our manufacturing facilities could
prevent us from meeting customer demand, reduce our sales and/or negatively
impact our financial results. Any of our manufacturing facilities, or any of our
machines within an otherwise operational facility, could cease operations
unexpectedly due to a number of events, including:





·
            prolonged
      power failures;




·
            equipment
      failures;




·
            disruptions
      in the transportation infrastructure including roads, bridges, railroad
      tracks; and




·
            fires,
      floods, earthquakes, acts of war, or other
  catastrophes.





We
cannot be assured of the success of the China Domestic Market Development and
Brand Campaign.





The
Company initiated its own branding campaign in the China domestic market in the
first quarter of 2008. While prospects for the domestic market are encouraging,
there exists uncertainty as to the Company’s ability to build a strong market
presence. The China domestic market began to emerge in the 1990s and established
brand leaders with greater experience, market share, and customer loyalty
already exist, such as Midea, Tsann Kuen, Supor, and Vatti. Thus, the ability of
the Company to gain meaningful market share is uncertain.





We
derive a substantial part of our revenues from several major
customers.  If we lose any of these customers or they reduce the
amount of business they do with us, our revenues may be seriously
affected.





Our ten
largest customers accounted for approximately 51% and 50% of our revenues for
the year ended December 31, 2008 and for the year ended December 31, 2009,
respectively, and our five largest customers accounted for approximately 37% and
35% of our revenues for the year ended December 31, 2008 and for the year
ended December 31, 2009, respectively. Our largest customer accounted for
approximately 19% and 15% of our revenues in the year ended December 31, 2008
and for the year ended December 31, 2009, respectively. These customers may not
maintain the same volume of business with us in the future. If we lose any of
these customers or they reduce the amount of business they do with us, our
revenues may be seriously affected.





We
cannot be certain that our product innovations and marketing successes will
continue.





We
believe that our past performance has been based on, and our future success will
depend, in part, upon our ability to continue to improve our existing products
through product innovation and to develop, market and produce new products. We
cannot assure you that we will be successful in introducing, marketing and
producing any new products or product innovations, or that we will develop and
introduce in a timely manner innovations to our existing products which
satisfy customer needs or achieve market acceptance. Our failure to develop new
products and introduce them successfully and in a timely manner could harm our
ability to grow our business and could have a material adverse effect on our
business, results of operations and financial condition.





The
technology used in our products may not satisfy the changing needs of our
customers.





With any
technology, including the technology of our current and proposed products, there
are risks that the technology may not successfully address all of our customers’
needs. Moreover, our customers’ needs may change or vary. This may affect the
ability of our present or proposed products to address all of our customers’
ultimate technology needs in an economically feasible manner, which could have a
material adverse affect on our business.


13


We
may not be able to keep pace with rapid technological changes and competition in
our industry.





While we
believe that we have hired or engaged personnel and outside consultants who have
the experience and ability necessary to keep pace with advances in technology,
and while we continue to seek out and develop “next generation” technology
through our research and development efforts, there is no guarantee that we will
be able to keep pace with technological developments and market demands in this
evolving industry and market. In addition, our industry is highly competitive.
We face competition from other manufacturers of products similar to our
products, often from competitors with substantially more capital and other
resources. Some of our competitors’ advantages over us in both the areas of
products, marketing, and services include the following:





·
            substantially
      greater revenues and financial
resources;




·
            stronger
      brand names and consumer
recognition;




·
            the
      capacity to leverage marketing expenditures across a broader portfolio of
      products;




·
            pre-existing
      relationships with potential
customers;




·
            more
      resources to make acquisitions;




·
            lower
      labor and development costs; and




·
            broader
      geographic presence.





We will
face different market dynamics and competition as we expand our market to new
countries. In some export markets, our future competitors would have greater
brand recognition and broader distribution than we currently enjoy. We may not
be as successful as our competitors in generating revenues in those markets due
to our inability to provide products that are attractive to the market in those
countries, the lack of recognition of our brand, and other factors. As a result,
any new expansion efforts could be more costly and less profitable than our
efforts in our existing markets.





If we are
not as successful as our competitors in our target markets, our sales could
decline, our margins could be negatively impacted and we could lose market
share, any of which could materially harm our business.





We
are a major purchaser of certain goods and raw materials that we use in the
manufacturing process of our products, and price changes for the commodities we
depend on may adversely affect our profitability.





Our
profitability depends in part upon the margin between the cost to us of certain
raw materials used in the manufacturing process, as well as our fabrication
costs associated with converting such raw materials into assembled products,
compared to the selling price of our products, and the overall supply of raw
materials. It is our intention to base the selling prices of our products in
part upon the associated raw materials costs to us. However, we may not be able
to pass all increases in raw material costs and ancillary acquisition costs
associated with taking possession of the raw materials through to our customers.
Although we are currently able to obtain adequate supplies of raw materials, it
is impossible to predict future availability or pricing. The inability to offset
price increases of raw material by sufficient product price increases, and our
inability to obtain raw materials, would have a material adverse effect on our
consolidated financial condition, results of operations and cash
flows.





Our
products may contain defects, which could adversely affect our reputation and
cause us to incur significant costs.





Despite
testing by us, defects may be found in existing or new products. Any such
defects could cause us to incur significant return and exchange costs,
re-engineering costs, divert the attention of our engineering personnel from
product development efforts, and cause significant customer relations and
business reputation problems. Any such defects could force us to undertake a
product recall program, which could cause us to incur significant expenses and
could harm our reputation and that of our products. If we deliver defective
products, our credibility and the market acceptance and sales of our products
could be harmed.


14


Our
position in the marketplace could be negatively impacted if we experience delays
in launching our products.





We may
experience delays in bringing new products to market, due to design,
manufacturing or distribution problems. Such delays could adversely affect our
ability to compete effectively and may adversely affect our relationship with
our customers. Any such delays would adversely affect our revenues and our
ability to become profitable.





If
we are not able to manage our growth, we may not be profitable.





Our
success will depend on our ability to expand and manage our operations and
facilities. There can be no assurance that we will be able to manage our growth,
meet the staffing requirements for our business or for additional collaborative
relationships or successfully assimilate and train new employees. In addition,
to manage our growth effectively, we may be required to expand our management
base and enhance our operating and financial systems. If we continue to grow,
there can be no assurance that the management skills and systems currently in
place will be adequate. Moreover, there can be no assurance that we will be able
to manage any additional growth effectively. Failure to achieve any of these
goals could have a material adverse effect on our business, financial condition
or results of operations.





Our
inability to successfully manage the inherent risks in our domestic and export
activities could adversely affect our business. Because of the risks associated
with conducting such operations (including the risks listed above), there can be
no assurances that any new market expansion will be successful.





Winder
may only have a perpetual, exclusive, worldwide and royalty-free license to use
the patents and trademarks used in its business.





We and
our subsidiaries have historically licensed the right to use patents and
trademarks from various parties, including from our Chairman, Mr. Ying He, his
brother, Mr. Famin He, Shenzhen De Mei Long Electric Appliances Co., Ltd. and
Shenzhen Kafu Industrial Co., Ltd. In December 2008, we entered into transfer
agreements that intended to transfer patents and trademarks used by the Company
from its Chairman, Mr. Ying He, his brother, Mr. Famin He, Shenzhen De Mei Long
Electric Appliances Co., Ltd. and Shenzhen Kafu Industrial Co., Ltd., to Winder.
Any transfer of the ownership of such patents and trademarks requires that the
transfer agreements be registered with the State Intellectual Property Office of
the PRC and the China Trademark Office under the State Administration of
Industry and Commerce of the PRC, respectively. In the absence of such
registration, the transfers would be ineffective under PRC law. To clarify the
transfer and safeguard our right to use these patents and trademarks, Winder has
entered into a supplemental agreement to such transfer agreements whereby Mr.
Ying He, Mr. Famin He, Shenzhen De Mei Long Electric Appliances Co., Ltd. and
Shenzhen Kafu Industrial Co., Ltd. clarify that a transfer of ownership was
intended and their license of the use of the patents and trademarks to Winder
has and will continue on a perpetual, exclusive, world-wide and royalty-free
basis which may not be cancelled by the licensor or grantor until such time as
the ownership of such patents and trademarks are effectively transferred to
Winder. If any of the licensors unilaterally terminates or repudiates the
supplemental agreements, the Company’s business may be adversely affected as
Winder may have to litigate or arbitrate to retain such license
rights.





We
face risks associated with managing international operations.





Almost
all of our operations are conducted in China.  There are a number of
risks inherent in doing business in such market, including the
following:





·
            unfavorable
      political or economical factors;




·
            fluctuations
      in foreign currency exchange rates;




·
            potentially
      adverse tax consequences;




·
            unexpected
      legal or regulatory changes;


15


·
            lack
      of sufficient protection for intellectual property
  rights;




·
            difficulties
      in recruiting and retaining personnel, and managing international
      operations; and




·
            less
      developed infrastructure





Our
inability to successfully manage the inherent risks in our domestic and
international activities could adversely affect our business. Because of
the risks associated with conducting such operations (including the risks listed
above), there can be no assurances that any new market expansion will be
successful.





We
may not be able to adequately protect our technology and other proprietary
rights.





Our
success will depend in part on our ability to obtain and protect our products,
methods, processes and other technologies, to preserve our trade secrets, and to
operate without infringing on the proprietary rights of third parties both
domestically and abroad. Despite our efforts, any of the following occurrences
may reduce the value of our owned and used intellectual property:





§
            issued
      patents and trademarks which we own or have the right to use may not
      provide us with any competitive
advantages;




§
            our
      efforts to protect our intellectual property rights may not be effective
      in preventing misappropriation of our technology or that of those from
      whom we license our rights to use;




§
            our
      efforts may not prevent the development and design by others of products
      or technologies similar to or competitive with, or superior to those we
      use or develop; or




§
            another
      party may obtain a blocking patent and we or our licensors would need to
      either obtain a license or design around the patent in order to continue
      to offer the contested feature or service in our
  products.





Effective
protection of intellectual property rights may be unavailable or limited in
certain foreign countries.  If we are unable to adequately protect our
proprietary rights, then it would have a negative impact on our
operations.





We
or the owners of the intellectual property rights licensed to us may be subject
to claims that we or such licensors have infringed the proprietary rights of
others, which could require us and our licensors to obtain a license or change
designs.





Although
we do not believe that any of our products infringe upon the proprietary rights
of others, there is no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against us or those from whom we have licenses or that
any such assertions or prosecutions will not have a material adverse affect on
our business. Regardless of whether any such claims are valid or can be
successfully asserted, defending against such claims could cause us to incur
significant costs and could divert resources away from our other activities. In
addition, assertion of infringement claims could result in injunctions that
prevent us from distributing our products. If any claims or actions are asserted
against us or those from whom we have licenses, we may seek to obtain a license
to the intellectual property rights that are in dispute. Such a license may not
be available on reasonable terms, or at all, which could force us to change our
designs.





We
may need additional capital to execute our business plan and fund operations and
may not be able to obtain such capital on acceptable terms or at
all.





In our
rapidly changing industry, capital requirements are difficult to plan for.
Although we currently expect to have sufficient funding for the next 12 months,
we may need additional capital to fund our future growth.





Our
ability to obtain additional capital on acceptable terms or at all is subject to
a variety of uncertainties, including:





§
            Investors’
      perceptions of, and demand for, companies in our
  industry;




§
            Investors’
      perceptions of, and demand for, companies operating in
    China;


16


§
            Conditions
      of the U.S. and other capital markets in which we may seek to raise
      funds;




§
            Our
      future results of operations, financial condition and cash
      flows;




§
            Governmental
      regulation of foreign investment in companies in particular
      countries;




§
            Economic,
      political and other conditions in the United States, China, and other
      countries; and




§
            Governmental
      policies relating to foreign currency
  borrowings.





We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. There is no
assurance that we will be successful in locating a suitable financing
transaction in a timely fashion or at all. In addition, there is no assurance
that we will be successful in obtaining the capital we require by any other
means. Future financings through equity investments are likely to be dilutive to
our existing stockholders. Also, the terms of securities we may issue in future
capital transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.





If we
cannot raise additional funds on favorable terms or at all, we may not be able
to carry out all or parts of our strategy to maintain our growth and
competitiveness or to fund our operations. If the amount of capital we are able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease
operations.





Our
business could be subject to environmental liabilities.





As is the
case with manufacturers of similar products, we use certain hazardous substances
in our operations. Currently we do not anticipate any material adverse effect on
our business, revenues or results of operations as a result of compliance with
Chinese environmental laws and regulations. However, the risk of environmental
liability and charges associated with maintaining compliance with environmental
laws is inherent in the nature of our business, and there is no assurance that
material environmental liabilities and compliance charges will not arise in the
future.





If
we lose our key personnel, or are unable to attract and retain additional
qualified personnel, the quality of our services may decline and our business
may be adversely impacted.





We rely
heavily on the expertise, experience and continued services of our senior
management, including our Chief Executive Officer. Loss of his services could
adversely impact our ability to achieve our business objectives. We believe our
future success will depend upon our ability to retain key employees and our
ability to attract and retain other skilled personnel. The rapid growth of the
economy in China has caused intense competition for qualified personnel. We
cannot guarantee that any employee will remain employed by us for any definite
period of time or that we will be able to attract, train or retain qualified
personnel in the future. Such loss of personnel could have a material adverse
effect on our business and company. Moreover, qualified employees periodically
are in great demand and may be unavailable in the time frame required to satisfy
our customers’ requirements. We need to employ additional personnel to expand
our business. There is no assurance that we will be able to attract and retain
sufficient numbers of highly skilled employees in the future. The loss of
personnel or our inability to hire or retain sufficient personnel at competitive
rates could impair the growth of our business. We have entered into
standard China domestic labor contracts with Mr. Ying He and Mr. Zongshu Nie,
which do not contain provisions prohibiting competition by either Mr. He or Mr.
Nie following their employment with us. Mr. He’s labor contract expires March 2,
2013 and Mr. Nie’s labor contract expires April 30, 2012.


17


If
we fail to establish and maintain an effective system of internal controls, we
may not be able to report our financial results accurately or prevent fraud. Any
inability to report and file our financial results accurately and timely could
harm our business and adversely impact the trading price of our common
stock.





We are
required to establish and maintain internal controls over financial reporting,
disclosure controls, and to comply with other requirements of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”) and the rules promulgated by the SEC. Our
management, including our Chief Executive Officer and Chief Financial Officer,
cannot guarantee that our internal controls and disclosure controls will prevent
all possible errors or prevent all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a
control system must reflect the fact that there are resource constraints and the
benefit of controls must be relative to their costs. Because of the inherent
limitations in all control systems, no system of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Further, controls can be circumvented by
individual acts of some persons, by collusion of two or more persons, or by
management override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, a control may
become inadequate because of changes in conditions or the degree of compliance
with policies or procedures may deteriorate. Because of inherent limitations in
a cost-effective control system, misstatements due to error or fraud may occur
and may not be detected.





We
are a holding company that depends on cash flow from our wholly-owned subsidiary
to meet our obligations.





After the
Share Exchange, we became a holding company with no material assets other than
the stock of our wholly-owned subsidiary. Accordingly, all our operations will
be conducted by our wholly-owned subsidiary Winder, which is responsible for
research, production and delivery of goods and Delta, which has transferred all
of its material former operations to Winder.





We
currently expect that the earnings and cash flow of our subsidiary will
primarily be retained and used by us in its operations.





All
of Deer’s liabilities survived the Share Exchange and there may be undisclosed
liabilities that could have a negative impact on our financial
condition.





Before
the Share Exchange, certain due diligence activities on the Company and Deer
were performed. The due diligence process may not have revealed all liabilities
(actual or contingent) of the Company and Deer that existed or which may arise
in the future relating to the Company’s activities before the consummation of
the Share Exchange. Notwithstanding that all of the Company’s pre-closing
liabilities were transferred to a third party pursuant to the terms of the Share
Exchange Agreement, it is possible that claims for such liabilities may still be
made against us, which we will be required to defend or otherwise resolve. The
transfer pursuant to the Share Exchange Agreement may not be sufficient to
protect us from claims and liabilities and any breaches of related
representations and warranties. Any liabilities remaining from the Company’s
pre-closing activities could harm our financial condition and results of
operations.





New
accounting standards could result in changes to our methods of quantifying and
recording accounting transactions, and could affect our financial results and
financial position.





Changes
to Generally Accepted Accounting Principles in the United States (GAAP) arise
from new and revised standards, interpretations, and other guidance issued by
the Financial Accounting Standards Board, the SEC, and others. In addition, the
U.S. Government may issue new or revised Cost Accounting Standards or Cost
Principles. The effects of such changes may include prescribing an accounting
method where none had been previously specified, prescribing a single acceptable
method of accounting from among several acceptable methods that currently exist,
or revoking the acceptability of a current method and replacing it with an
entirely different method, among others. Such changes could result in
unanticipated effects on our results of operations, financial position, and
other financial measures.


18


The
markets we serve are subject to seasonality and cyclical demand, which could
harm our business and make it difficult to project long-term
performance.





Demand
for our products depends in large part upon the level of capital and maintenance
expenditures of our customers and the end users. These expenditures have
historically been cyclical in nature and vulnerable to economic downturns.
Decreased capital and maintenance spending by our customers could have a
material adverse effect on the demand for our products and our business,
financial condition and results of operations. To date, the Company has not been
adversely affected by these trends and, given the current demand visibility, we
do not currently foresee weakening in the demand for our products in the next
year. However, the historically cyclical nature of the demand for our products
limits our ability to make accurate long-term predictions about our performance.
Changing world economic and political conditions may also reduce the willingness
of our customers and prospective customers to purchase our products and
services. The seasonality of our business results in significant operational
challenges to our production and inventory control functions.





Risks
Related to Our Business being Conducted in China





We
are subject to international economic and political risks over which we have
little or no control and may be unable to alter our business practice in time to
avoid the possibility of reduced revenues.





Our
business is conducted in China. Doing business outside the United States,
particularly in China, subjects us to various risks, including changing economic
and political conditions, major work stoppages, exchange controls, currency
fluctuations, armed conflicts and unexpected changes in United States and
foreign laws relating to tariffs, trade restrictions, transportation
regulations, foreign investments and taxation. We have no control over most of
these risks and may be unable to anticipate changes in international economic
and political conditions and, therefore, unable to alter our business practice
in time to avoid the possibility of reduced revenues.





China’s
economic policies could affect our business.





Substantially
all of our assets are located in China and all of our revenue is derived from
our operations in China. Accordingly, our results of operations and prospects
are subject, to a significant extent, to the economic, political and legal
developments in China.





While
China’s economy has experienced significant growth in the past twenty years,
such growth has been uneven, both geographically and among various sectors of
the economy. The Chinese government has implemented various measures to
encourage economic growth and guide the allocation of resources. Some of these
measures benefit the overall economy of China, but they may also have a negative
effect on us. For example, operating results and financial condition may be
adversely affected by the government control over capital investments or changes
in tax regulations. The economy of China has been transitioning from a planned
economy to a more market-oriented economy. In recent years the Chinese
government has implemented measures emphasizing the utilization of market
forces for economic reform and the reduction of state ownership of productive
assets, and the establishment of corporate governance in business enterprises;
however, a substantial portion of productive assets in China are still owned by
the Chinese government. In addition, the Chinese government continues to
play a significant role in regulating industry development by imposing
industrial policies. It also exercises significant control over China’s economic
growth through the allocation of resources, the control of payment of foreign
currency-denominated obligations, the setting of monetary policy and the
provision of preferential treatment to particular industries or
companies.





We
may have difficulty establishing adequate management, legal and financial
controls in China.





China
historically has not adopted a Western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in China. As a result of these
factors, we may experience difficulty in establishing management, legal and
financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.


19


Our
bank accounts are not insured or protected against loss.





We
maintain our cash with various national banks located in China. Our cash
accounts are not insured or otherwise protected. Should any bank holding our
cash deposits become insolvent, or if we are otherwise unable to withdraw funds,
we would lose the cash on deposit with that particular bank.





We
have limited business insurance coverage and may incur losses due to business
interruptions resulting from natural and man-made disasters, and our insurance
may not be adequate to cover liabilities resulting from accidents or injuries
that may occur.





The
insurance industry in China is still in an early stage of development and
insurance companies located in China offer limited business insurance products.
In the event of damage or loss to our properties, our insurance may not provide
as much coverage as if we were insured by insurance companies in the United
States. We currently carry property and casualty insurance for our buildings,
plant and equipment but cannot assure you that the coverage will be adequate to
fully replace damage to any of the foregoing. Should any natural catastrophes
such as earthquakes, floods, or any acts of terrorism occur where our primary
operations are located and most of our employees are based, or elsewhere, we
might suffer not only significant property damage, but also loss of revenues due
to interruptions in our business operations. The occurrence of a significant
event for which we are not fully insured or indemnified, and/or the failure of a
party to meet its underwriting or indemnification obligations, could materially
and adversely affect our operations and financial condition. Moreover, no
assurance can be given that we will be able to maintain adequate insurance in
the future at rates we consider reasonable.





Tax
laws and regulations in China are subject to substantial revision, some of which
may adversely affect our profitability.





The
Chinese tax system is in a state of flux, and it is anticipated that China’s tax
regime will be altered in the coming years. Tax benefits that we presently enjoy
may not be available to us in the wake of these changes, and we could incur tax
obligations to the Chinese government that are significantly higher than
currently anticipated. These increased tax obligations could negatively impact
our financial condition and our revenues, gross margins, profitability and
results of operations may be adversely affected as a result.





Certain
tax treatment that we presently enjoy in China is scheduled to expire over the
next several years.





As a
substantial portion of our operations are located in a privileged economic zone,
we are entitled to certain tax benefits. When these exemptions expire, our
income tax expenses will increase, reducing our net income below what it would
be if we continued to enjoy these exemptions. A special tax rate of 15% is given
to us for our efforts to automate production at our factory. The tax
authority and government entities examine productivity per employee and other
operating metrics to determine our eligibility for special tax treatment. Our
current tax treatment will last until December 31, 2010. Prior to expiration,
these government entities will re-assess our efforts in automating production
and determine future eligibilities for special tax treatment. We would pay the
common 25% income tax instead of the special 15% income tax rate if the special
tax treatment is not renewed. Winder is one of the largest employers in
Yang Jiang and we believe that the local taxing authorities would be favorably
inclined to continue our favorable tax treatment.





We
may face judicial corruption in China.





Another
obstacle to foreign investment in China is corruption. There is no assurance
that we will be able to obtain recourse in any legal disputes with suppliers,
customers or other parties with whom we conduct business, if desired, through
China’s poorly developed and sometimes corrupt judicial systems.





If
relations between the United States and China worsen, investors may be unwilling
to hold or buy our stock and our stock price may decrease.





At
various times during recent years, the United States and China have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and China, whether or not directly
related to our business, could reduce the price of our common
stock.


20


China
could change its policies toward private enterprise or even nationalize or
expropriate private enterprises.





Our
business is subject to significant political and economic uncertainties and may
be affected by political, economic and social developments in China. Over the
past several years, the Chinese government has pursued economic reform policies
including the encouragement of private economic activity and greater economic
decentralization. The Chinese government may not continue to pursue these
policies or may significantly alter them to our detriment from time to time with
little, if any, prior notice.





Changes
in policies, laws and regulations or in their interpretation or the imposition
of confiscatory taxation, restrictions on currency conversion, restrictions or
prohibitions on dividend payments to stockholders, or devaluations of currency
could cause a decline in the price of our common stock, should a market for our
common stock ever develop. Nationalization or expropriation could
even result in the total loss of your investment.





The
nature and application of many laws of China create an uncertain environment for
business operations and they could have a negative effect on us.





The legal
system in China is a civil law system. Unlike the common law system, the civil
law system is based on written statutes in which decided legal cases have little
value as precedents. In 1979, China began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in China and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could cause a decline in the price of our common stock. In addition, as
these laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.





As
we import goods into and export goods out of China, fluctuation of the Renminbi
may affect our financial condition by affecting the volume of cross-border money
flow.





Although
we use the United States dollar for financial reporting purposes, most of the
transactions effected by our operating subsidiaries are denominated in China’s
Renminbi. The value of the Renminbi fluctuates and is subject to changes in
China’s political and economic conditions. Future movements in the exchange rate
of the Renminbi could adversely affect our financial condition as we may suffer
financial losses when transferring money raised outside of China into the
country or paying vendors for services performed outside of China.





We
may not be able to obtain regulatory approvals for our products.





The
manufacture and sale of our products in China is regulated by The People’s
Republic of China and the local provincial governments. Although our licenses
and regulatory filings are up to date, the uncertain legal environment in China
and our industry may be vulnerable to local government agencies or other parties
who wish to renegotiate the terms and conditions of, or terminate their
agreements or other understandings with us.





It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in China.





As our
executive officers and several of our directors, including the Chairman of our
Board of Directors, are Chinese citizens, it may be difficult, if not
impossible, to acquire jurisdiction over these persons in the event a lawsuit is
initiated against us and/or our officers and directors by a stockholder or group
of stockholders in the United States. Also, because our operating subsidiaries
and assets are located in China, it may be extremely difficult or impossible for
individuals to access those assets to enforce judgments rendered against us or
our directors or executive offices by United States courts. In addition, the
courts in China may not permit the enforcement of judgments arising out of
United States federal and state corporate, securities or similar laws.
Accordingly, United States investors may not be able to enforce judgments
against us for violation of United States securities laws.


21


PRC
regulations relating to mergers, offshore companies and Chinese stockholders, if
applied to us, may limit our ability to operate our business as we see
fit.





PRC
regulations govern the process by which we may participate in an acquisition of
assets or equity interests. Depending on the structure of the transaction, these
regulations require involved parties to make a series of applications and
supplemental applications to various government agencies. In some instances, the
application process may require the presentation of economic data concerning a
transaction, including appraisals of the target business and evaluations of the
acquirer, which are designed to allow the government to assess the transaction.
Government approvals will have expiration dates by which a transaction must be
completed and reported to the government agencies. Compliance with the new
regulations is likely to be more time consuming and expensive than in the past
and the government can now exert more control over the combination of
two businesses. Accordingly, due to PRC regulations, our ability to engage
in business combination transactions in China through our Chinese subsidiaries
has become significantly more complicated, time consuming and expensive, and we
may not be able to negotiate transactions that are acceptable to us or
sufficiently protective of our interests.





The
acquisition by Deer International Group Ltd. (“Deer International”) of Winder in
2008 may require further approval.





On April
1, 2008, Deer International acquired 100% of the equity interest in Winder from
50HZ Electric Limited. The transaction was approved by the Economic Development
Bureau of Yangjiang High-tech Industry Development Zone (the “Yangjiang Hi-Tech
Zone”). Approval from a PRC government agency with higher authority may be
required.





Furthermore,
the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors jointly issued on August 8, 2006 (the “New M&A Rule”) by six PRC
regulatory agencies, including the Ministry of Commerce (“MOFCOM”), the State
Assets Supervision and Administration Commission, the State Administration for
Taxation, the State Administration for Industry and Commerce, China Securities
Regulatory Commission (“CSRC”) and the State Administration of Foreign Exchange
(“SAFE”), has a particular provision which requires that MOFCOM’s approval is
required if a PRC domestic non-foreign-invested enterprise or natural person
acquires its/his affiliated Chinese company in the name of an offshore
enterprise established or controlled by it or him. At the time of such
acquisition, Deer International was an offshore enterprise controlled by some of
our shareholders who are PRC residents. These same shareholders at the same time
owned or controlled 50HZ Electric Limited, which made Winder an affiliated
Chinese company of such shareholders. According to the New M&A Rule, this
transaction might require the approval of MOFCOM. As the interpretation and
implementation of the New M&A Rule are unclear, if the approval of MOFCOM is
required, the approval that 50HZ Electric Limited has obtained from the
Yangjiang Hi-Tech Zone may be deemed incomplete and the transferee, namely Deer
International, may need to obtain further approval from MOFCOM.





The
acquisition by Deer International of Winder in 2008 may face PRC tax authority
challenges and be subject to transfer pricing adjustment.





The
acquisition of 100% of Winder’s equity interests by Deer International on April
1, 2008 was free of any considerations and conditions. Under applicable PRC tax
rules, any transaction between related parties shall be priced on an arm’s
length basis. The tax authority has the right to investigate any related party
transaction and to make adjustment if it finds the price not on an arm’s
length basis. The PRC tax authority would make adjustment by applying a deemed
arm’s length price to the transaction. Given that 50HZ Electric Limited and Deer
International had certain related parties, there is a possibility that the
consideration-free transfer may be challenged and investigated by the PRC tax
authority. If the deemed arm’s length price determined by the PRC tax authority
during such investigation is higher than the original cost that 50HZ Electric
Limited paid to get 100% equity interest of Winder, such excess amount would be
subject to a 10% PRC income tax. Although we believe 50HZ Electric Limited shall
be responsible for the possible PRC income tax, we understand that it is common
practice for PRC tax authority to enforce the tax collection over the entity at
issue, which in this case would be Winder, and we may be required to pay the
possible PRC income tax on behalf of 50HZ Electric Limited.


22


If
the China Securities Regulatory Commission, or CSRC, or another PRC regulatory
agency determines that its approval is required in connection with the Company’s
public offerings, the Company may become subject to penalties.





The New
M&A Rule, among other things, has certain provisions that require
offshore special purpose vehicles, or SPVs, formed or controlled for the
purpose of overseas listing of interests of PRC domestic non-foreign-invested
companies controlled by PRC domestic non-foreign invested companies or
individuals, to obtain the approval of the CSRC prior to listing their
securities on an overseas stock exchange. The Company believes, based on the
opinion of its PRC legal counsel, the GuangDong Tuo Jin Law Firm, that while the
CSRC generally has jurisdiction over overseas listings of companies like us,
CSRC’s approval is not required for the offerings of the Company’s securities
because its current corporate structure was established before the new
regulation became effective. However, there remains some uncertainty as to how
this regulation will be interpreted or implemented in the context of an overseas
offering. If the CSRC or another PRC regulatory agency subsequently determines
that its approval is required for the Company’s public offerings, the Company
may face sanctions by the CSRC or another PRC regulatory agency. If this
happens, these regulatory agencies may impose fines and penalties on the
Company’s operations in the PRC, limit its operating privileges in the PRC,
delay or restrict the repatriation of the proceeds from this offering or
other of the Company’s offerings into the PRC, restrict or prohibit payment or
remittance of dividends by the Company’s PRC subsidiaries to it or take other
actions that could have a material adverse effect on the Company’s business,
financial condition, results of operations, reputation and prospects, as well as
the trading price of the Company’s ordinary shares.





Recent
Chinese regulations relating to the establishment of offshore special purpose
companies by Chinese residents and registration requirements for China resident
shareholders owning shares in offshore companies as well as registration
requirements of employee stock ownership plans or share option plans may subject
the Company’s China resident shareholders to personal liability and limit
its ability to acquire Chinese companies or to inject capital into its operating
subsidiaries in China, limit its subsidiaries’ ability to distribute profits to
the Company, or otherwise materially and adversely affect the
Company.





The State
Administration of Foreign Exchange (“SAFE”) issued a public notice in October
2005 (“Circular 75”) requiring PRC residents, including both legal persons and
natural persons, to register with the competent local SAFE branch before
establishing or controlling any company outside of China, referred to as an
“offshore special purpose company,” for the purpose of acquiring any assets of
or equity interest in PRC companies and raising funds from overseas. In
addition, any PRC resident who is the shareholder of an offshore special purpose
company is required to amend his or her SAFE registration with the local SAFE
branch, with respect to that offshore special purpose company in connection with
any increase or decrease of capital, transfer of shares, merger, division,
equity investment or creation of any security interest over any assets located
in China. To further clarify the implementation of Circular 75, the SAFE issued
Circular 124 and Circular 106 on November 24, 2005 and May 29, 2007,
respectively. Under Circular 106, PRC subsidiaries of an offshore special
purpose company are required to coordinate and supervise the filing of SAFE
registrations by the offshore holding company’s shareholders who are PRC
residents in a timely manner. If these shareholders fail to comply, the PRC
subsidiaries are required to report to the local SAFE authorities. If the PRC
subsidiaries of the offshore parent company do not report to the local SAFE
authorities, they may be prohibited from distributing their profits and proceeds
from any reduction in capital, share transfer or liquidation to their
offshore parent company and the offshore parent company may be restricted in its
ability to contribute additional capital into its PRC subsidiaries. Moreover,
failure to comply with the above SAFE registration requirements could result in
liabilities under PRC laws for evasion of foreign exchange restrictions. The
Company’s PRC resident beneficial owners, including our Chairman, have not
registered with the local SAFE branch as required under SAFE regulations.
The failure or inability of these PRC resident beneficial owners to comply with
the applicable SAFE registration requirements may subject these beneficial
owners or the Company to fines, legal sanctions and restrictions described
above.





On March
28, 2007, SAFE released detailed registration procedures for employee stock
ownership plans or share option plans to be established by overseas listed
companies and for individual plan participants. Any failure to comply with the
relevant registration procedures may affect the effectiveness of the Company’s
employee stock ownership plans or share option plans and subject the plan
participants, the companies offering the plans or the relevant intermediaries,
as the case may be, to penalties under PRC foreign exchange
regime.


23


These
penalties may subject the Company to fines and legal sanctions, prevent the
Company from being able to make distributions or pay dividends, as a result of
which the Company’s business operations and its ability to distribute profits
could be materially and adversely affected.





The
Company’s PRC Subsidiaries have taken the position that they do not have to
contribute to a statutory housing fund for its employees and if that position
turns out to be wrong, they may face penalties imposed by the PRC
government.





PRC laws
require that employers contribute to a statutory housing fund for all their
employees that hold urban resident status and that employees contribute equal
amounts to the same housing fund. Failure to do so may trigger penalties imposed
by the competent government authorities in addition to making up the
deficiencies within a time limit prescribed by the PRC government. The Company’s
PRC Subsidiaries believe they do not have to pay statutory housing fund for
their employees because of their exempt status. However, if that belief turns
out to be wrong, they may face penalties imposed by the PRC government for their
noncompliance.





The
Company’s PRC Subsidiaries may be exposed to penalties by the PRC government due
to noncompliance with taxation, land use and construction administration,
environmental and employment rules.





While the
Company believes its PRC Subsidiaries have been in compliance with PRC taxation,
land use and construction administration, environmental and employment rules
during their operations in China, the Company has not obtained letters from the
competent PRC government authorities confirming such compliance, except a letter
from the relevant environmental authority confirming Winder’s compliance in
discharge of wastes in the recent two years. If any competent PRC government
authority takes the position that there is noncompliance with the taxation, land
use and construction administration, environmental or employment rules by any of
the Company’s PRC Subsidiaries, they may be exposed to penalties by such PRC
government authority, in which case the operation of the Company’s PRC
Subsidiaries in question may be adversely affected.





We
must comply with the Foreign Corrupt Practices Act.





We are
required to comply with the United States Foreign Corrupt Practices Act (the
“FCPA”), which prohibits U.S. companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or
retaining business. Foreign companies, including some of our competitors, are
not subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
theft and other fraudulent practices occur from time-to-time in mainland China.
If our competitors engage in these practices, they may receive preferential
treatment from personnel of some companies, giving our competitors an advantage
in securing business or from government officials who might give them priority
in obtaining new licenses, which would put us at a disadvantage. Although we
inform our personnel that such practices are illegal, we cannot assure you that
our employees or other agents will not engage in such conduct for which we might
be held responsible. If our employees or other agents are found to have engaged
in such practices, we could suffer severe penalties.





We
operate in the PRC through our Wholly Foreign Owned Enterprise (“WFOE”) status
initially approved by the local office of the PRC Ministry of Commerce
(“MOFCOM’s Local Counterpart”). However, we cannot warrant that such approval
procedures have been completely satisfied due to a number of reasons, including
changes in laws and government interpretations. If we lose our WFOE status for
any reason, our business in China may be negatively impacted.





Our
operating entities in the PRC have received initial approval from MOFCOM’s Local
Counterpart as WFOEs and there may be conditions subsequent to complete and
maintain such status. We believe we have satisfied the approval procedures of
MOFCOM’s Local Counterpart for having obtained such status. However, the
approval procedures of MOFCOM’s Local Counterpart or interpretations of its
approval procedures may be different from our understanding or may change. As a
result, if we lose our WFOE status for any reason, there may be a material
adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our
shares.


24


Risks
Related to Our Securities





The
market price for our common stock has been and may be volatile.





The
trading price of our common stock has and may continue to fluctuate widely in
response to various factors, some of which are beyond our control. These factors
include, but not limited to, our quarterly operating results or the operating
results of other companies in our industry, announcements by us or our
competitors of acquisitions, new products, product improvements, commercial
relationships, intellectual property, legal, regulatory or other business
developments and changes in financial estimates or recommendations by stock
market analysts regarding us or our competitors. In addition, the stock market
in general, and the market for companies based in China in particular, has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated or disproportionate to their operating performance. These
broad market fluctuations may materially affect our stock price, regardless of
our operating results. Further, the market for our common stock is limited and
we cannot assure you that a larger market will ever be developed or maintained.
Market fluctuations and volatility, as well as general economic, market and
political conditions, could reduce our market price. As a result, these factors
may make it more difficult or impossible for you to sell our common stock for a
positive return on your investment.





Our
quarterly results may be volatile.





Our
operating results have varied on a quarterly basis during our operating history
and are likely to fluctuate significantly in the future. Many factors, including
the risk factors incorporated by reference herein, could cause our revenues and
operating results to vary significantly in the future. Many of these factors are
outside of our control. Accordingly, we believe that quarter-to-quarter
comparisons of our operating results are not necessarily meaningful. Investors
should not rely on the results of one quarter as an indication of our future
performance. If our results of operations in any quarter do not meet analysts’
expectations, our stock price could materially decrease.





Future
sales of shares of our common stock by our stockholders could cause our stock
price to decline.





Future
sales of shares of our common stock could adversely affect the prevailing market
price of our stock. If our significant stockholders sell a large number of
shares, or if we issue a large number of shares, the market price of our stock
could significantly decline. Moreover, the perception in the public market that
stockholders might sell shares of our stock could depress the market for our
shares. If our stockholders who received shares of our common stock issued in
the Share Exchange sell substantial amounts of our common stock in the public
market upon the effectiveness of a registration statement, or upon the
expiration of any holding period under Rule 144, such sales could create a
circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of an overhang,
whether or not sales have occurred or are occurring, also could make it more
difficult for our Company to raise additional financing through the sale of
equity or equity-related securities in the future at a time and price that we
deem reasonable or appropriate. The shares of common stock issued in the Share
Exchange will be freely tradable upon the earlier of (i) effectiveness of a
registration statement covering such shares; and (ii) the date on which such
shares may be sold without registration pursuant to Rule 144 under the
Securities Act and the sale of such shares could have a negative impact on the
price of our common stock.





We
may issue additional shares of our capital stock or debt securities to raise
capital or complete acquisitions, which would reduce the equity interest of our
stockholders.





Our
articles of incorporation authorize the issuance of up to 75,000,000 shares of
common stock, par value $.001 per share. There were approximately 42,368,252
authorized and unissued shares of our common stock that have not been reserved
and are available for future issuance as of March 1, 2010. Although we have no
commitments as of this date to issue our securities in connection with an
acquisition, we may issue a substantial number of additional shares of our
common stock, to complete a business combination or to raise capital. The
issuance of additional shares of our common stock:





§
            may
      significantly reduce the equity interest of our existing stockholders;
      and




§
            may
      adversely affect prevailing market prices for our common
      stock.


25


We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.





We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting it at such time as the board of directors may consider relevant. If we
do not pay dividends, our common stock may be less valuable because a return on
your investment will only occur if our stock price appreciates.





Capital
outflow policies in China may hamper our ability to declare and pay dividends to
our shareholders.





China has
adopted currency and capital transfer regulations. These regulations may require
us to comply with complex regulations for the movement of capital. Although our
management believes that we will be in compliance with these regulations, should
these regulations or the interpretation of them by courts or regulatory agencies
change, we may not be able to pay dividends to our shareholders outside of
China. In addition, under current Chinese law, we must retain a reserve equal to
10% of net income after taxes, not to exceed 50% of registered capital.
Accordingly, this reserve will not be available to be distributed as dividends
to our shareholders. We presently do not intend to pay dividends in the
foreseeable future. Our management intends to follow a policy of retaining all
of our earnings to finance the development and execution of our strategy and the
expansion of our business.





Our
principal stockholder has the ability to exert significant control in matters
requiring a stockholder vote and could delay, deter or prevent a change of
control in our company.





As of
December 31, 2009, Mr. Ying He, our Chairman, Chief Executive Officer and
President and our largest stockholder, beneficially owned approximately 22.2% of
our outstanding shares. Mr. Ying He possesses significant influence over us,
giving him the ability, among other things, to effectively control the election
of all or a majority of the Board of Directors and to approve significant
corporate transactions. Such stock ownership and control may also have the
effect of delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination, or discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of our company. Without the consent of Mr. Ying He, we could be
prevented from entering into potentially beneficial transactions if they
conflict with our major stockholder’s interests. The interests of this
stockholder may differ from the interests of our other
stockholders.





We
have provisions in our articles of incorporation and bylaws that substantially
eliminate the personal liability of members of our board of directors and our
officers for violations of their fiduciary duty of care as a director or officer
and that allow us to indemnify our officers and directors. This could make it
very difficult for you to bring any legal actions against our directors or
officers for such violations or could require us to pay any amounts incurred by
our directors or officers in any such actions.





Pursuant
to our articles of incorporation, members of our board of directors and our
officers will have no liability for breaches of their fiduciary duty of care as
a director or officer, except in limited circumstances. This means that you may
be unable to prevail in a legal action against our directors or officers even if
you believe they have breached their fiduciary duty of care. In addition, our
bylaws allow us to indemnify our directors and officers from and against any and
all costs, charges and expenses resulting from their acting in such capacities
with us. This means that if you were able to enforce an action against our
directors or officers, in all likelihood we would be required to pay any
expenses they incurred in defending the lawsuit and any judgment or settlement
they otherwise would be required to pay.





Taxation





We
will not obtain an opinion of legal counsel regarding the United States income
tax consequences of an investment in our securities.





We will
not obtain an opinion of counsel regarding the U.S. income tax consequences of
investing in our securities including whether we will be treated as a company
for U.S. income tax purposes. Recent changes in tax laws have not, as yet, been
the subject of administrative or judicial scrutiny or interpretation. Moreover,
there is no assurance that future legislation may not further affect the tax
consequences of an investment in our securities. INVESTORS ARE URGED TO CONSULT
WITH THEIR TAX ADVISORS REGARDING THE POSSIBLE U.S. FEDERAL, STATE, AND LOCAL
TAX CONSEQUENCES OF INVESTING IN OUR SECURITIES.


26


Item
1B.  Unresolved Staff Comments.





Not
applicable.





Item
2.  Properties.





Description
of Property





Deer has
signed 50-year lease agreements for the properties in Yangjiang on which their
manufacturing, office, and employee dorms are located. The properties and
associated structures are as shown in the tables below:





Land
usage rights





Certificate No.
                
                Issuance
                  Authority
                
                Location
                
                Measurement
                  (m2)
                
                Designated
                  Use
                
                Valid
                  Until(2005)
      No1400008
                
                Yangjiang
                  government
                
                Road
      5, District 3, Zhan Gang
                  Science
      & Technology Park,
                  Yangjiang
      High&New
                  Technological
      Development
                  Zone
                
                31216.95
                
                Industrial
                
                07/22/2050(2002)
      No11325
                
                Yangjiang
                  government
                
                No.1,
      District 3, Zhan Gang
                  Science
      & Technology Park,
                  Yangjiang
      High&New
                  Technological
      Development
                  Zone
                
                33728
                
                Industrial
                
                12/06/2052(2004)
      No100
                
                Yangjiang
                  government
                
                Room
      501, Block A, Bi Tao
                  Garden,
      Zhapo Town,
                  Yangjiang
      City
                
                185.83
                
                Commercial
                  Housing
                
                09/30/2062





Buildings





Certificate No.
                
                Issuance
                  Authority
                
                Location
                
                Measurement
                  (m2)
                
                Designated
                  Use
                
                Valid
                  UntilC
      2329137
                
                Yangjiang
                  government
                
                No.1,
      District 3, Zhan Gang
                  Science
      & Technology
                  Park,Yangjiang
      High&New
                  Technological
      Development
                  Zone.
                
                15030
                
                Industrial
                
                12/06/2052C
      1871973
                
                Yangjiang
                  government
                
                Room
      501, Block A, Bi Tao
                  Garden,
      Zhapo Town,
                  Yangjiang City.
                
                92.44
                
                Housing
                
                09/30/2062C
      1871974
                
                Yangjiang
                  government
                
                Room
      501, Block A, Bi Tao
                  Garden,
      Zhapo Town,
                  Yangjiang City
                
                92.44
                
                Housing
                
                09/30/2062





We
believe that our facilities are adequate for our current operations for fiscal
2010.


27


Item
3.  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.





PART
II





Item
4.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.





Market
Information





On May
16, 2007, our common stock became eligible for quotation on the OTCBB under the
symbol “TGEV.” No trades of our common stock occurred through the facilities of
the OTC Bulletin Board until September 9, 2008. Our common stock became
eligible for quotation on the OTC Bulletin Board on September 5, 2008 under the
symbol “DCPI” and, as of April 23, 2009, began trading under the symbol “DCPD.”
Our common stock began listing on the NASDAQ Stock Market on July 17, 2009 under
the symbol “DEER” and upgraded its listing to the NASDAQ Global Market on
October 22, 2009. The following table sets forth the range of the high and
low sales prices of our common stock for each quarter (or portion thereof)
beginning on September 5, 2008 and ending on December 31, 2009 as reported by
the OTC Bulletin Board for the period beginning on September 5, 2008 to July 16,
2009 and as reported on the NASDAQ Stock Market from July 17, 2009 to October
21, 2009 and on the NASDAQ Global Market thereafter.





High
                
                
                LowThird
      Quarter 2008 (September 5, 2008–September 30, 2008)
                
                $
                4.60
                
                
                $
                0.31Fourth
      Quarter 2008 (through December 31, 2008)
                
                $
                4.60
                
                
                $
                0.46First
      Quarter 2009 (through March 31, 2009)
                
                $
                2.30
                
                
                $
                0.46Second
      Quarter 2009 (through June 30, 2009)
                
                $
                4.30
                
                
                $
                1.84Third
      Quarter 2009 (through September 30, 2009)
                
                $
                9.37
                
                
                $
                3.90Fourth
      Quarter 2009 (through December 31, 2009)
                
                $
                18.97
                
                
                $
                8.98





Holders
of Record





As
of March 1, 2010, there were approximately 26 stockholders of record of our
common stock. Many of our shares of common stock are held in street or nominee
name by brokers and other institutions on behalf of stockholders and we are
unable to estimate the total number of stockholders represented by these record
holders.





Dividends





We have
not paid and do not expect to declare or pay any cash dividends on our common
stock in the foreseeable future, and we currently intend to retain future
earnings, if any, to finance the expansion of our business. The decision whether
to pay cash dividends on our common stock will be made by our board of
directors, in their discretion, and will depend on our financial condition,
operating results, capital requirements and other factors that the board of
directors considers significant.





Securities
authorized for issuance under equity compensation plans





The
following table sets forth certain information regarding the common stock that
may be issued upon the exercise of options, warrants and other rights that have
been or may be granted to employees, directors or consultants under the
Company’s existing equity compensation plans, as of December 31,
2009.


28


Equity
Compensation Plan Information





Number
      of securities
                  to
      be issued upon
                  exercise
      of
                  outstanding
      options,
                  warrants
      and rights
                
                
                Weighted-average
                  exercise
      price of
                  outstanding
      options,
                  warrants
      and rights
                
                
                Number
      of securities
                  remaining
      available for
                  future
      issuance under
                  equity
      compensation
                  plans
      (excluding
                  securities
      reflected in
                  column
      (a))Plan category
                
                (a)
                
                
                (b)
                
                
                (c)Equity
      compensation plansapproved
      by security holders
                
                
                130,000
                (1)
                
                $
                10.96
                
                
                
                370,000Equity
      compensation plansnot
      approved by security holders
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                
                130,000
                
                
                $
                10.96
                
                
                
                370,000





(1)
Consists of grants made under the Company’s 2009 Equity Incentive Plan, which
provides that an aggregate of 500,000 shares of our common stock are reserved
for issuance under the plan.





Recent
Sales of Unregistered Securities





Previously
disclosed in filings with the SEC.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





We did
not repurchase any of our common stock during 2009.





Item
5.  Selected Financial Data.





Not
applicable.





CAUTIONARY
STATEMENT FOR FORWARD-LOOKING STATEMENTS




This
Annual Report on Form 10-K 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 have 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 Annual
Report we will refer to Deer Consumer Product, Inc. as "Deer," the
"Company," "we," "us," and "our."





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





Overview





On
September 3, 2008, we entered into a share exchange agreement and plan of
reorganization with Deer International Group Limited (“Deer International”), a
company incorporated under the laws of British Virgin Islands (“BVI”) on
December 3, 2007 and holder of 100% of the shares of Winder 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.




29




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.





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.


30


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 apply
the provisions of Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”)
(codified in FASB ASC Topic 360), which governs financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of,” and the accounting and reporting
provisions of APB Opinion No. 30, “Reporting the Results of Operations for a
Disposal of a Segment of a Business.” We periodically evaluate the carrying
value of long-lived assets to be held and used in accordance with SFAS 144. SFAS
144 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets’
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair market value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Based on our review, we believe that to date there were no significant
impairments of its long-lived assets.





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





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




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





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





Currency
Hedging.  We entered into a forward exchange agreement with the
Bank of China, whereby we have agreed to sell US dollars to the Bank of China at
certain rates. Since the contractual rate at which we sell US dollars to the
Bank of China was greater than the exchange rate on the date of each exchange
transaction, we have recognized foreign exchange gains. At December 31, 2009, we
had no outstanding forward exchange contracts.


31


Recent
Accounting Pronouncements





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





In
October 2009, the FASB issued an ASU regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. We are currently evaluating the impact of this ASU on our
consolidated financial statements.





On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements.” This ASU requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on our consolidated financial statements.





Results of
Operations





Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008:





$
                
                
                %2009
                
                
                2008
                
                
                Change
                
                
                ChangeRevenue
                
                $
                81,342,680
                
                
                $
                43,784,935
                
                
                $
                37,557,745
                
                
                
                85.8Cost
      of revenue
                
                
                61,176,610
                
                
                
                34,125,019
                
                
                
                27,051,591
                
                
                
                79.3Gross
      profit
                
                
                20,166,070
                
                
                
                9,659,916
                
                
                
                10,506,154
                
                
                
                108.8Selling,
      general and administrative expenses
                
                
                5,936,408
                
                
                
                5,421,580
                
                
                
                514,828
                
                
                
                9.5Interest
      and financing costs, net
                
                
                250,920
                
                
                
                544,793
                
                
                
                (293,873
                )
                
                
                (53.9
                )Other
      income
                
                
                364,418
                
                
                
                40,216
                
                
                
                324,202
                
                
                
                806.2Foreign
      exchange gain
                
                
                138,284
                
                
                
                959,943
                
                
                
                (821,659
                )
                
                
                (85.6
                )Income
      tax expense
                
                
                2,112,382
                
                
                
                1,302,045
                
                
                
                810,337
                
                
                
                62.2Net
      income
                
                
                12,369,062
                
                
                
                3,356,784
                
                
                
                9,012,278
                
                
                
                268.5





Revenues





Our
revenue for the year ended December 31, 2009 was $81,342,680 an increase of
$37,557,745 or 85.8% from $43,784,935 for the year ended December 31, 2008. The
increase in revenues was a result of us aggressively expanding our sales in the
China domestic, and increasing our market shares in the U.S., South American,
Middle Eastern and European markets. We increased our China domestic market
sales from approximately $2.0 million in 2008 to approximately $14.3 million in
2009, a 599% increase in sales year over year. In 2009, we increased sales of
our products to a prominent national electric appliance retail chain in China
with roughly 900 stores. We also added retail locations in other channels such
as regional electric appliance retailers and department stores. We increased our
product sales over internet portals, into hotels and restaurants, and via reward
programs with large Chinese banks, telecommunication firms, and postal offices.
The results are on pace with management’s plan to capture the fast growth
experienced in the domestic Chinese small appliance market.


32


Our sales
in the U.S. were $22.2 million for 2009, a $7.3 million or 49% increase year
over year; our sales in South America were $12.3 million for 2009, a $6.0
million or 96% increase year over year; our sales in the Middle East were $11.1
million for 2009, a $4.1 million or 60% increase year over year; and our sales
in Europe were $11.5 million for 2009, a $3.6 million or 47 % increase year over
year.  Increases in sales in the U.S., South America, Middle East and
Europe were largely due to Deer gaining market share following the financial
crisis.  We believe that many smaller suppliers with limited capital
resources had gone out of business leading to further consolidation in the
industry.  In addition, we noticed that buyers increasingly favored
companies with strong financial strength, higher quality, sufficient plant
capacity, and a track record of prompt delivery.  Buyers placed even
greater emphasis on being able to source quality supplies without delays or
interruptions.  We utilized this market opportunity to add new
accounts and increase sales volume with our existing customers.





Cost
of Revenue





Our cost
of revenue for the year ended December 31, 2009 increased by $27,051,591 or
79.32% from $34,125,019 for the year ended December 31, 2008 to $61,176,610 for
the year ended December 31, 2009.  The increased cost of revenue in
2009 was due to the increase in sales.





Gross
Profit





Our gross
margin for the year ended December 31, 2009 was 24.8% compared to 22.1% for the
same period in 2008. The increase in gross margin for the year ended December
31, 2009 compared to the same period in 2008 was due to higher manufacturing
efficiency as a result of higher revenue volume and increased sales in the China
domestic market which has higher margins.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the year ended December 31, 2009
increased by $514,828 or 9.5%, from $5,421,580 for the year ended December 31,
2008 to $5,936,408 for the year ended December 31, 2009.  Selling expenses
for the year ended December 31, 2009 increased by 24.5% or $770,601 in
comparison to the same period in 2008 due to the associated selling costs
incurred to generate the significant increase in revenue.  General and
administrative expenses for the year ended December 31, 2009 decreased by 7.2%
or $185,773 in comparison to the same period in 2008.  Operating
expenses include overhead expenses such as rent, management and staff salaries,
general insurance, marketing, accounting, legal and offices
expenses.  We have scaled back and consolidated our operations thus
reducing selling, general and administrative expenses to withstand the effect of
the global financial crisis. Also, we have contracted out our Delta subsidiary
beginning in 2009 whereby all Delta operations have been run through our Winder
subsidiary. As a result of these cost-cutting efforts we have been able to
reduce our operating expenses while at the same time increasing our growth in
revenue.





Interest
and Financing Costs (net)





Interest
and financing costs, net for the year ended December 31, 2009 was $250,920
compared to $544,793 for the year ended December 31, 2008 a decrease of $293,873
or 53.9%. The change is principally due to lower interest expense due to lower
borrowings in 2009 and higher interest income due to the excess cash invested in
interest bearing accounts.





Other
Income (Expense)





Other
income for the year ended December 31, 2009 was $364,418, an increase of
$324,202 or 806.2%, from $40,216 for the year ended December 31, 2008. The
increase in other income is due to increases in grants received from the Chinese
government for Deer’s high tech status and for hiring a large number of local
workers.





Foreign
Exchange (Gain)





Foreign
exchange gain for the year ended December 31, 2009 was $138,284, a decrease of
$821,659 or 85.6%, from $959,943 for the year ended December 31, 2008.
The Company entered into a forward exchange agreement with the Bank of
China, whereby the Company agreed to sell US dollars to the Bank of China at
certain rates. Since the contractual rate at which the Company sells US dollars
to the Bank of China was greater than the exchange rate on the date of each
exchange transaction, the Company recognized foreign exchange gains.
At December 31, 2009 the Company had no outstanding forward exchange
contracts.




33





Income
Tax Expense





Our
effective tax rate for the year ended December 31, 2009 was 15%, as opposed to
28% for the year ended December 31, 2008.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the year ended December 31, 2009
that have, or are reasonably likely to have, a current or future affect on our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests.





Liquidity
and Capital Resources





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





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





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





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





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





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





Cash
Flows





At
December 31, 2009, we had $79,333,729 in cash and cash equivalents on
hand.  Our principal demands for liquidity are to increase sales in
China, adding capacity, inventory purchase, sales distribution, and general
corporate purposes.  We anticipate that the amount of cash we have on
hand as of the date of this report as well as the cash that we will generate
from operations will satisfy these requirements.





Net cash
flows provided by operating activities for the year ended December 31, 2009 was
$384,221 compared to $3,037,566 for the year ended December 31, 2008. The cash
flows from operating activities was principally attributed to the net income
generated during the year ended December 31, 2009, an increase in current
liabilities, offset by an increase in our accounts receivable, other receivables
and inventories.


34


We used
$4,110,610 in investing activities during the year ended December 31, 2009,
principally for property and equipment and construction in process.





Cash
provided from financing activities in the year ended December 31, 2009 was
$80,233,859, which included proceeds from a notes payable and sale of shares of
common stock, offset by payment on short-term loans.





Assets





As of
December 31, 2009, our accounts receivable increased by $8,510,316 compared with
the balance as of December 31, 2008. The increase in accounts receivable on year
ended December 31, 2009 was due primarily to increased sales. We intend to
continue our efforts to maintain accounts receivable at reasonable levels in
relation to our sales. Inventories increased by $10,380,431 from the balance at
December 31, 2008 due to the need to increase our inventory levels to keep up
with the increase in sales.





Liabilities





Our
accounts payable increased by $4,087,022 during the year ended December 31, 2009
compared with the balance as of December 31, 2008. Other payables increased by
$300,828 and accrued payroll increased by $980,381 for the same period. Unearned
revenues (payments received before all the relevant criteria for revenue
recognition are satisfied) decreased by $1,586,205, tax and welfare payable
decreased by $670,681 and short-term loans decreased by $3,552,841 over the same
period. Notes payable increased by $3,057,563, due to the receipt of proceeds
from new loans entered into during the year ended December 31,
2009.





We intend
to meet our liquidity requirements, including capital expenditures related to
the purchase of equipment, purchase of raw materials, and the expansion of our
business, through cash flow provided by operations and funds raised through
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
6A.  Quantitative and Qualitative Disclosures about Market
Risk.





Not
applicable.





Item
7.  Financial Statements and Supplementary Data.





The
financial statements, together with the report thereon, of Deer Consumer
Products, Inc. appear in a separate section of this report beginning on page
F-1.





Item
8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.





None.


35




Item
8A(T). Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





An
evaluation was conducted under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer (“CEO”), its
principal executive officer, and Chief Financial Officer (“CFO”), its principal
financial officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) of the Exchange Act) as of December 31, 2009. Based on that
evaluation, the CEO and CFO concluded that the Company’s disclosure controls and
procedures were effective as of such date to ensure that information required to
be disclosed in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. 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.





Report
of Management on Internal Control over Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. The Company’s internal control over financial reporting is a
process designed by, or under the supervision of, the Company’s CEO and CFO, and
effected by the issuer’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:





§
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;




§
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company;




§
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company's assets that
      could have a material effect on the financial
  statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. Therefore, internal control
over financial reporting determined to be effective provides only reasonable
assurance regarding the reliability of financial reporting and the preparations
of financial statements for external purposes in accordance with generally
accepted accounting principles.





The
Company carried out an evaluation of the effectiveness, as of December 31, 2009,
of the design and operation of its internal control over financial reporting
pursuant to Rule 13a-15 of the Exchange Act, which was conducted under the
supervision and with the participation of the Company’s CEO and CFO. This
evaluation was based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in the report entitled “Internal
Control—Integrated Framework.” Based upon this evaluation, the Company’s CEO and
CFO concluded that the Company’s internal controls over financial reporting are
effective as of December 31, 2009.





This
Annual Report on Form 10-K does not, nor is required to, include an attestation
report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.


36





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended
December 31, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





Item 8B.  Other
Information.





Submission
of Matters to a Vote of Security Holders





At the
Company’s 2009 Annual Meeting of Stockholders held on November 6, 2009, the
following actions were taken:





The
following directors were elected to serve until the 2010 Annual Meeting of
Stockholders and until their successors are elected and qualified:





Name
              
              Votes For
              
              
              Votes Withheld
              
              
              Votes AbstainedMr.
      Ying He
              
              
              8,632,567
              
              
              
              0
              
              
              
              0Mr.
      Zongshu Nie
              
              
              8,482,811
              
              
              
              149,756
              
              
              
              0Mr.
      Edward Hua
              
              
              8,632,567
              
              
              
              0
              
              
              
              0Mr.
      Arnold Staloff
              
              
              8,631,996
              
              
              
              571
              
              
              
              0Mr.
      Qi Hua Xu
              
              
              8,632,567
              
              
              
              0
              
              
              
              0





Proposal
2 to ratify the selection of Goldman Parks Kurland Mohidin, LLP as the Company’s
independent registered public accounting firm for the 2009 fiscal year was
approved by stockholders with 8,632,995 shares voting in favor of the proposal
and 471 shares abstaining.





Proposal
3 to approve the Company’s 2009 Equity Incentive Plan was approved by
stockholders with 7,949,552 shares voting in favor of the proposal, 233,706
shares voting against the proposal and 5,500 shares abstaining.





Stockholder
Proposals





Our 2010
Annual Meeting of Stockholders will be held on May 28, 2010 (China time) at our
corporate offices, Area 2, 1/F, Building M-6, Central High-Tech Industrial Park,
Nanshan, Shenzhen, China commencing at 10:00 a.m. (China time). Stockholder
proposals must be received by our Corporate Secretary no later than April 9,
2010 (China time) in order to be included in our proxy statement. Our
determination of whether we will oppose inclusion of any proposal in our proxy
statement and proxy will be made on a case-by-case basis in accordance with our
judgment and the rules and regulations promulgated by the SEC. In addition, if a
stockholder wishes to present a proposal at the 2010 Annual Meeting that will
not be included in our proxy statement and the Company is not notified prior to
April 9, 2010 (China time), then the proxies solicited by our management for the
2010 Annual Meeting will include discretionary authority to vote on the proposal
in the event that it is properly brought before the meeting.




PART
III





Item
9.  Directors, Executive Officers and Corporate Governance.





Our
executive officers and directors, and their ages, positions and biographical
information, as of February 22, 2010, are as follows:





Name
                                      
                                      Position
                                      
                                      AgeMr.
      Ying He
                                      
                                      Chairman
      & Chief Executive Officer
                                      
                                      41Mr.
      Zongshu Nie
                                      
                                      Chief
      Financial Officer & Director
                                      
                                      31Mr.
      Edward Hua
                                      
                                      Director
                                      
                                      56Mr.
      Arnold Staloff
                                      
                                      Director
                                      
                                      65Mr.
      Qi Hua Xu
                                      
                                      Director
                                      
                                      47Mr.
      Walter Zhao
                                      
                                      President
                                      
                                      46Mr.
      Man Wai James Chiu
                                      
                                      Head
      of Asia Pacific
                                      
                                      48Mrs.
      Yongmei Wang
                                      
                                      Corporate
      Secretary
                                      
                                      34




37




Our
executive officers are appointed by, and serve at the discretion of, our board
of directors. Each executive officer is a full-time employee. Our directors hold
office for one-year terms or until their successors have been elected and
qualified. There are no family relationships between any of our directors,
executive officers or other key personnel and any other of our directors,
executive officers or key personnel.





Mr.
Ying He, Chairman and Chief Executive Officer


Mr. He
was appointed as our Chairman, Chief Executive Officer and President on
September 3, 2008 and, as of September 28, 2009, serves exclusively as Chairman
and Chief Executive Officer. Mr. He was one of the original founders of Winder
Electric Group Ltd. (“Winder”) in 2001, which is now a wholly owned subsidiary
of the Company. From June 2006, Mr. He served as the Director of Winder. From
July 2001 to August 2006, Mr. He served as the Chairman of Winder. Prior to that
time from August 1999 to June 2001, Mr. He worked independently to establish the
initial business plan for Winder, including arrangements with future customers,
suppliers, vendors, and site determination. Prior to that time, from March 1996
to July 1999, Mr. He served as Chief Executive Officer of Dongguan Xin Dao
Mould. From March 1993 to December 1995, Mr. He served as the Senior Manager of
Hong Kong Dongjiang Group, Inc. Mr. He obtained his MBA degree from Zhongshan
University in 2005. On September 28, 2009, Mr. He voluntarily resigned as
President of the Company.





Mr.
Zongshu Nie, Chief Financial Officer and Director


Mr. Nie
was appointed as our Chief Financial Officer on August 20, 2009. Mr. Nie has
been a director of the Company since April 29, 2009. From May 2008 to the
present time, Mr. Nie has been the Financial Controller of the Company. From
1998 to May 2008, Mr. Nie was the Chief Financial Officer at Xian Tai Plastics
Co., Ltd, a manufacturer and exporter of plastics based materials. Mr. Nie
received a bachelor’s degree in accounting from the ShaanXi College of Finance
and Economics in 1998.





Mr.
Edward Hua, Director


Mr. Hua
has held various management positions at the Bank of China from 1994 to the
present time, and is currently the General Manager of the Treasury Department of
the Boc Shenzhen Branch. Mr. Hua holds a Master’s Degree in World Economics from
Fudan University and a Senior Economist Certificate from the Bank of China. Mr.
Hua has been appointed as the Chairman of our Nominating and Corporate
Governance Committee and serves as a member of our Audit Committee and
Compensation Committee. Mr. Hua has been a director of the Company since April
29, 2009.





Mr.
Arnold Staloff, Director


Mr.
Staloff has served as the Chairman of Audit Committee for each of Shiner
International, Inc. since 2007; AgFeed Industries, Inc. since 2007 and SmartHeat
Inc. since 2008. From December 2005 to May 2007, Mr. Staloff served as Chairman
of the Board of SFB Market Systems, Inc., a New Jersey-based company that
provides technology solutions for the management and generation of options
series data. From March 2003 to December 2005, Mr. Staloff was an independent
consultant. From June 1990 to March 2003, Mr. Staloff served as President and
Chief Executive Officer of Bloom Staloff Corporation, an equity and options
market-making firm and foreign currency options floor broker. Additionally, Mr.
Staloff served on the Board of Directors of Lehman Brothers Derivative Products
Inc. from 1998 until 2008 and Lehman Brothers Financial Products Inc. from 1994
until 2008. Mr. Staloff holds a Bachelor of Business Administration from the
University of Miami. Mr. Staloff has been appointed as the Chairman of our Audit
Committee and serves as a member of our Compensation Committee and Nominating
and Corporate Governance Committee. Mr. Staloff has been a director of the
Company since April 29, 2009.




Mr.
Qi Hua Xu, Director
 Mr. Xu,
PhD., has been a professor of Aerospace Automation at the China Northwestern
Industrial University for over 20 years. Mr. Xu received a bachelor’s degree
from China Northwestern Industrial University in Aerospace Automation in July
1980 and a doctorate of Aerospace Automation in July 1987. Mr. Xu has been
appointed as the Chairman of our Compensation Committee and serves as a member
of our Audit Committee and Nominating and Corporate Governance Committee. Mr. Xu
has been a director of the Company since September 28,
2009.


38




Mr.
Walter Zhao, President


Mr. Zhao
was the President of Kaito Electronics, Inc., an electronics design and
manufacturer, from December 1997 to September 2009. From 1989 to 1997 Mr. Zhao
was a Department Manager of CEIEC Shenzhen, an education equipment and
instrument company. Mr. Zhao received a Master’s degree in electrical
engineering from the University of Science and Technology in China in 1989 and a
Bachelor of Science degree in electrical engineering from Shandong University in
1985. Mr. Zhao was a director of the company from April 29, 2009 to September
28, 2009. Upon Mr. Zhao’s voluntary resignation as director on September 28,
2009, he was appointed by the Board of Directors as President of the
Company.





Mr.
Man Wai James Chiu, Head of Asia Pacific


Mr. Chiu
serves as our Head of Asia Pacific. Mr. Chiu was appointed as our Chief
Operating Officer and Head of Asia Pacific on September 3, 2008. From September
3, 2008 until April 29, 2009, Mr. Chiu served as director of the Company. Mr.
Chiu was appointed Chief Operating Officer of Winder and its subsidiary in May
2007. Prior to that time, from January 2001 to May 2007, Mr. Chiu served as the
Sourcing Director for Hamilton Beach Proctor-Silex, Inc., in China. Mr. Chiu
obtained his B.S. in Accounting & Economics from Hong Kong University, his
MBA from Australia Charles Stuart University in 2001, and his bachelor’s degree
in law from the University of London in 2006.





Mrs.
Yongmei Wang, Corporate Secretary


Mrs. Wang
was appointed as our Corporate Secretary on September 3, 2008. Mrs. Wang joined
Winder upon its inception in 2001 as Assistant General Secretary. Mrs. Wang
obtained her bachelor’s degree in International Trade from Xian Foreign Language
Institute in July 1995.





Legal
Proceedings





During
the past ten years, none of the Company’s directors or executive officers have
been:





·
            the
      subject of any bankruptcy petition filed by or against any business of
      which such person was a general partner or executive officer either at the
      time of the bankruptcy or within two years prior to that
    time;




·
            convicted
      in a criminal proceeding or is subject to a pending criminal proceeding
      (excluding traffic violations and other minor
  offenses);




·
            subject
      to any order, judgment or decree, not subsequently reversed, suspended or
      vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking
      activities;




·
            found
      by a court of competent jurisdiction (in a civil action), the SEC or the
      Commodity Futures Trading Commission to have violated a federal or state
      securities or commodities law, that has not been reversed, suspended, or
      vacated;




·
            subject
      of, or a party to, any order, judgment, decree or finding, not
      subsequently reversed, suspended or vacated, relating to an alleged
      violation of a federal or state securities or commodities law or
      regulation, law or regulation respecting financial institutions or
      insurance companies, law or regulation prohibiting mail or wire fraud or
      fraud in connection with any business entity;
or




·
            subject
      of, or a party to, any sanction or order, not subsequently reversed,
      suspended or vacated, of any self-regulatory organization, any registered
      entity or any equivalent exchange, association, entity or organization
      that has disciplinary authority over its members or persons associated
      with a member.




Corporate
Governance





Board
Leadership Structure and Role in Risk Oversight




Mr. He
has served as our Chairman of the Board of Directors and Chief Executive Officer
since September 28, 2009. Mr. He had served previously as our Chairman, Chief
Executive Officer and President since his appointment on September 3, 2008. We
continue to believe that our leadership structure is appropriate because Mr. He
takes an active role in board functions and was one of the original founders of
Winder in 2001, which is now a wholly-owned subsidiary of the Company. Under Mr.
He’s leadership, our management team has executed a strategy that has
significantly improved our earnings growth, cash flow stability, and
competitiveness in both the export market and China domestic market. We do not
currently have a lead independent director.


39





Our board
of directors delegates risk oversight to our Audit Committee, which considers
and addresses risk management issues and concerns.





Audit
Committee





We
established our Audit Committee in April 2009. The Audit Committee consists of
Messrs. Hua, Staloff and Xu, each of whom is an independent director. Mr.
Staloff, Chairman of the Audit Committee, is an “audit committee financial
expert” as defined under Item 407(d) of Regulation S-K. The purpose of the Audit
Committee is to represent and assist our board of directors in its general
oversight of our accounting and financial reporting processes, audits of the
financial statements and internal control and audit functions.





As more
fully described in its charter, the functions of the Audit Committee include the
following:





·
            appointment
      of independent auditors, determination of their compensation and oversight
      of their work;




·
            review
      the arrangements for and scope of the audit by independent
      auditors;




·
            review
      the independence of the independent
auditors;




·
            consider
      the adequacy and effectiveness of the internal controls over financial
      reporting;




·
            pre-approve
      audit and non-audit services;




·
            establish
      procedures regarding complaints relating to accounting, internal
      accounting controls, or auditing
matters;




·
            review
      and approve any related party
transactions;




·
            discuss
      with management our major financial risk exposures and our risk assessment
      and risk management policies; and




·
            discuss
      with management and the independent auditors our draft quarterly interim
      and annual financial statements and key accounting and reporting
      matters.




The board
of directors has adopted a written charter for the Audit Committee. A copy of
the Audit Committee Charter is posted on our website at
www.deerinc.com.





Compensation
Committee





We
established our Compensation Committee in April 2009. The Compensation Committee
consists of Messrs. Hua, Staloff and Xu, each of whom is an independent
director. Mr. Xu is the Chairman of the Compensation Committee. The Compensation
Committee is responsible for the design, review, recommendation and approval of
compensation arrangements for our directors, executive officers and key
employees, and for the administration of our equity incentive plans, including
the approval of grants under such plans to our employees, consultants and
directors. The Compensation Committee also reviews and determines compensation
of our executive officers, including our Chief Executive Officer. The board of
directors has adopted a written charter for the Compensation Committee. A
current copy of the Compensation Committee Charter is posted on our website at
www.deerinc.com.





Nominating
and Corporate Governance Committee





We
established our Nominating and Corporate Governance Committee in April 2009. The
Nominating and Corporate Governance Committee consists of Messrs. Hua, Staloff
and Xu, each of whom is an independent director. Mr. Hua is the Chairman of the
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee assists in the selection of director nominees, approves
director nominations to be presented for shareholder approval at our annual
general meeting and fills any vacancies on our board of directors, considers any
nominations of director candidates validly made by shareholders, and reviews and
considers developments in corporate governance practices. The board of directors
has adopted a written charter for the Nominating and Corporate Governance
Committee. A current copy of the Nominating and Corporate Governance Committee
Charter is posted on our website at www.deerinc.com.


40





Procedures
for Shareholder Recommendations of Nominees to the Boards of
Directors





During
the year ended 2009, there were no material changes to the procedures described
in Company’s Proxy Statement relating to the 2009 Annual Meetings of
Stockholders by which security holders may recommend nominees to the Company’s
Boards of Directors.





Code
of Ethics





Our board
of directors has adopted a Code of Conduct, which applies to all directors,
officers and employees. The purpose of the Code is to promote honest and ethical
conduct. The Code is posted on our website, located at www.deerinc.com, and is
available in print, without charge, upon written request to Corporate Secretary,
Deer Consumer Products, Inc. at Area 2, 1/F, Building M-6, Central High-Tech
Industrial Park, Nanshan, Shenzhen, China 518057. We intend to post promptly any
amendments to or waivers of the Code on our website.





Compliance
With Section 16(a) of the Exchange Act





Section
16(a) of the Exchange Act requires our executive officers and directors and
persons who own more than 10% of our common stock to file reports regarding
ownership of, and transactions in, our securities with the Commission and to
provide us with copies of those filings. Based solely on our review of the
copies received by us and on the written representations of certain reporting
persons, we believe that during fiscal year ended December 31, 2009, the
following reporting persons have failed to file such reports on a timely
basis:





Nameandprincipalposition
                
                Number of
                  latereports
                
                
                Transactions not
                  timelyreported
                
                
                Known failures to
                  filearequiredformZongshu
      Nie, Chief Financial Officer and Director
                
                
                1
                
                
                
                0
                
                
                
                0Edward
      Hua, Director
                
                
                1
                
                
                
                0
                
                
                
                0Arnold
      Staloff, Director
                
                
                1
                
                
                
                1
                
                
                
                0Qi
      Hua Xu, Director
                
                
                1
                
                
                
                0
                
                
                
                0Walter
      Zhao, President
                
                
                1
                
                
                
                1
                
                
                
                0





Item
10.  Executive Compensation.





As a
“Smaller Reporting Company,” we have elected to follow scaled disclosure
requirements for smaller reporting companies with respect to the disclosure
required by Item 402 of Regulation S-K. Under the scaled disclosure obligations,
the Company is not required to provide a Compensation Discussion and Analysis,
Compensation Committee Report and certain other tabular and narrative
disclosures relating to executive compensation.





The
following table sets forth information concerning the compensation for the years
ended December 31, 2009, 2008 and 2007 of certain of our executive
officers.





SummaryCompensationTable–2009Fiscal
                                    
                                    Salary
                                    
                                    
                                    Bonus
                                    
                                    
                                    Stock
                                      Awards
                                    
                                    
                                    Option
                                      Awards
                                    
                                    
                                    TotalNameandprincipalposition
                                    
                                    Year
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)
                                    
                                    
                                    ($)Ying
      He
                                    
                                    2007
                                    
                                    
                                    24,660
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    24,660Chairman
      and Chief Executive Officer
                                    
                                    2008
                                    
                                    
                                    24,660
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    24,6602009
                                    
                                    
                                    24,660
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    24,660Walter Zhao(1)
                                    
                                    2009
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    230,760
                                    
                                    
                                    
                                    280,760President




41




(1) Mr.
Zhao was appointed President of the Company on September 28, 2009. Mr. Zhao was
a director of the company from April 29, 2009 to September 28, 2009. The options
were valued using the Black-Scholes pricing model with the following
assumptions:  risk-free interest rate – 2.25%; expected life – 3
years; volatility – 80% and dividend yield – 0%.





Narrative
Disclosure to Summary Compensation Table.





Employment
Agreements





We have
entered into a standard China domestic labor contract with Mr. Ying He, which
does not contain provisions prohibiting competition by Mr. He following his
employment with us. Mr. He’s labor contract expires March 2, 2013.





The
Company and Mr. Zhao have agreed that he will be compensated with a salary of
$50,000 per annum for one year of service, subject to renewal.





Change-In-Control
Agreements





We do not
have any existing arrangements providing for payments or benefits in connection
with the resignation, severance, retirement or other termination of any of our
named executive officers, or a change in control of the Company or a change in
the named executive officer's responsibilities following a change in
control.





Equity
Incentive Plans





On
November 6, 2009, our stockholders approved the Company’s 2009 Equity Incentive
Plan authorizing the issuance of up to 500,000 shares of our common stock. The
Company can grant awards under the Plan to employees, officers, and directors of
Deer pursuant to the guidelines set forth in the Plan.





On
December 22, 2009, the Company granted options under the 2009 Equity Incentive
Plan to purchase an aggregate of 80,000 shares of common stock to Mr. Zhao, with
options to purchase 40,000 shares vesting immediately and the remainder to vest
on December 31, 2010. The options may be exercised at the price of $10.96 per
share, which was the closing price of the Company’s common stock on the NASDAQ
Global Market on December 21, 2009. The options are exercisable for five years
from the date of grant.





Outstanding
Equity Awards at Fiscal Year-End





This
table provides information about the outstanding equity awards held by each of
our named executive officers as of December 31, 2009.





OutstandingEquityAwardsatFiscalYear-End–2009OptionAwardsNumberofSecuritiesUnderlying
                            UnexercisedOptions
                          
                          
                          Option
                            ExercisePrice
                          
                          
                          Option
                            ExpirationName
                          
                          (#) Exercisable
                          
                          
                          (#) Unexercisable
                          
                          
                          ($)
                          
                          
                          DateYing
      He
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Walter
      Zhao
                          
                          
                          40,000
                          
                          
                          
                          40,000
                          (1)
                          
                          
                          10.96
                          
                          
                          12/22/2014





(1)
Consists of options vesting on December 31, 2010.


42




Compensation
of Directors





DirectorCompensationTable–2009FeesEarnedor
                        PaidinCash
                      
                      
                      Stock
                        Awards
                      
                      
                      Option
                        Awards
                      
                      
                      TotalNameandprincipalposition
                      
                      ($)
                      
                      
                      ($)
                      
                      
                      ($)
                      
                      
                      ($)Ying
      He, Chairman
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Zongshu
      Nie
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Edward
      Hua
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Arnold
      Staloff
                      
                      
                      25,833
                      (1)
                      
                      
                      —
                      
                      
                      
                      102,628
                      (2)
                      
                      
                      128,461Qi
      Hua Xu
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Walter Zhao(3)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Man Wai James
      Chiu(4)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —





(1) Mr.
Staloff was compensated at $20,000 per annum from April 29, 2009 until December
21, 2009, and at $50,000 per annum from thereon until December 31,
2009.


(2) On
December 22, 2009, the Company granted options under the 2009 Equity Incentive
Plan to purchase an aggregate of 50,000 shares of common stock to Mr. Staloff,
with options to purchase 16,666 shares vesting immediately and the remainder to
vest in increments of 16,667 shares on each subsequent annual anniversary of the
grant date. The options may be exercised at the price of $10.96 per
share. The options are exercisable for five years from the date of
grant. The options were valued using the Black-Scholes pricing model with
the following assumptions: risk-free interest rate – 2.25%; expected life – 3.5
years; volatility – 80% and dividend yield – 0%.


(3) Mr.
Zhao was appointed President of the Company on September 28, 2009 and
voluntarily resigned as a director of the Company effective September 28, 2009.
Mr. Zhao was appointed a director on April 29, 2009.


(4) Mr.
Chiu voluntarily resigned as a director of the Company effective April 29, 2009.
Mr. Chiu was appointed a director on September 3, 2008.





Narrative
Disclosure to Director Compensation Table.





We have
not compensated, and will not compensate, our non-independent directors, such as
Messrs. He and Nie, for serving as our directors, although they are entitled to
reimbursements for reasonable expenses incurred in connection with attending our
board meetings.





Messrs.
Hua, Staloff and Xu, as independent directors, are eligible to receive grants of
options to purchase the Company’s common stock under the 2009 Equity Incentive
Plan.





Mr.
Staloff was compensated at $20,000 per annum from April 29, 2009 until December
21, 2009. As of December 22, 2009, the Company and Mr. Staloff have agreed that
he will be compensated $50,000 per annum.





We do not
maintain a medical, dental or retirement benefits plan for our
directors.





Impact
of Accounting and Tax Treatment of Compensation




Section
162(m) of the Internal Revenue Code disallows a tax deduction to publicly held
companies for compensation paid to the principal executive officer and to each
of the three other most highly compensated officers (other than the principal
financial officer) to the extent that such compensation exceeds $1.0 million per
covered officer in any fiscal year. The limitation applies only to compensation
that is not considered to be performance-based. Non-performance-based
compensation paid to our executive officers during fiscal 2009 did not exceed
the $1.0 million limit per officer, and we do not expect the
non-performance-based compensation to be paid to our executive officers during
fiscal 2010 to exceed that limit. Because it is unlikely that the cash
compensation payable to any of our executive officers in the foreseeable future
will approach the $1.0 million limit, we do not expect to take any action to
limit or restructure the elements of cash compensation payable to our executive
officers so as to qualify that compensation as performance-based compensation
under Section 162(m). We will reconsider this decision should the individual
cash compensation of any executive officer ever approach the $1.0 million
level.





Item
11. Security Ownership of Certain Beneficial Owners and Management.





The
following table provides information concerning beneficial ownership of our
common stock as of December 31, 2009, by (i) each person that we know
beneficially owns more than 5% of our outstanding common stock, (ii) each of our
named executive officers, (iii) each of our directors and (iv) all of our named
executive officers and directors as a group.


43





The
amounts and percentages of common stock beneficially owned are reported on the
basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to be a
“beneficial owner” of a security if that person has or shares “voting power,”
which includes the power to vote or to direct the voting of such security, or
“investment power,” which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial
ownership within 60 days of December 31, 2009. Under these rules, more than one
person may be deemed a beneficial owner of the same securities and a person may
be deemed to be a beneficial owner of securities as to which such person has no
economic interest. As of December 31, 2009, there were 32,631,748 shares of
our common stock issued and outstanding.





Unless
otherwise indicated, each of the stockholders named in the table below, or his
or her family members, has sole voting and investment power with respect to such
shares of common stock. Except as otherwise indicated, the address of each of
the stockholders listed below is: c/o Deer Consumer Products, Inc. Area 2, 1/F,
Building M-6, Central High-Tech Industrial Park, Nanshan, Shenzhen, China
518057.





Nameofbeneficialowner
                  
                  Numberofshares
                  
                  
                  Percentofclass5% StockholdersFutmon
      Holding, Inc.(1)
                    Akara
      Building, 24 De Castro Street, Wickhams Cay I,
                    Road
      Town, Tortola, BVI
                  
                  
                  2,600,000
                  
                  
                  
                  7.82
                  %Sino
      Unity Limited(2)
                  
                  
                  1,687,284
                  
                  
                  
                  5.17
                  %Directors
      and Named Executive OfficersMr.
      Ying He(3)
                  
                  
                  7,259,240
                  
                  
                  
                  22.25
                  %Mr.
      Zongshu Nie(4)
                  
                  
                  1,569,566
                  
                  
                  
                  4.81
                  %Mr.
      Edward Hua
                  
                  
                  —
                  
                  
                  
                  *Mr.
      Arnold Staloff(5)
                  
                  
                  16,666
                  
                  
                  
                  *Mr.
      Qi Hua Xu
                  
                  
                  —
                  
                  
                  
                  *Mr.
      Walter Zhao(6)
                  
                  
                  40,000
                  
                  
                  
                  *Mr.
      Man Wai James Chiu(7)
                  
                  
                  941,740
                  
                  
                  
                  2.89
                  %All
      Directors and Named Executive Officers as a Group (7
    Persons)
                  
                  
                  9,770,546
                  
                  
                  
                  30.06
                  %





(1)
Consists of 2,000,000 shares of common stock and 600,000 shares of common stock
issuable upon exercise of warrants. Dogan Erbek has sole investment and voting
power over the securities held by Futmon Holding, Inc.


(2) Sino
Unity Limited is 100% owned by YuHai Deng, our Manager of
Purchasing.


(3) Mr.
Ying He, our Chairman and Chief Executive Officer, holds his shares through
Achieve On Limited, which is 100% owned by him.


(4) Mr.
Zongshu Nie, our Chief Financial Officer, holds his shares through True Olympic
Limited, which is 100% owned by him.


(5)
Consists of options to purchase 16,666 shares of common stock that are presently
exercisable.


(6)
Consists of options to purchase 40,000 shares of common stock that are presently
exercisable.


(7) Mr.
Man Wai James Chiu, our Head of Asia Pacific, holds his shares through Sharp
Champion Limited, which is 100% owned by him.


*
Represents less than 1% of shares outstanding.





We are
not aware of any arrangements that could result in a change in control of the
Company.





The
disclosure of securities authorized for issuance under equity compensation plans
required by Item 201(d) of Regulation S-K is set forth in Item 4
herein.


44





Item
12.  Certain Relationships and Related Transactions, and Director
Independence.





Certain
Relationships and Related Transactions





There
were no transactions with any related persons (as that term is defined in Item
404 in Regulation S-K) during the fiscal year ended 2009, or any currently
proposed transaction, in which we were or are to be a participant and the amount
involved was in excess of $120,000 and in which any related person had a direct
or indirect material interest.





We have
adopted a written policy in connection with related party transactions involving
our company. The policy requires the prior approval by our Audit Committee for
any transaction, arrangement or relationship in which (i) the aggregate amount
involved will or may be expected to reach $50,000 in any calendar year, (ii) we
are a participant and (iii) any related person has or will have an interest.
Related persons include our executive officers, directors, greater than 5%
stockholders or immediate family members of any of the foregoing. Pursuant to
the policy, the Audit Committee, among other factors, is required to take into
account whether the transaction is on terms no less favorable than terms
generally available to an unaffiliated third party under the same or similar
circumstances. In addition, the Chairman of the Audit Committee has the
authority to approve or ratify any interested transaction with a related person
in which the aggregate amount involved is expected to be less than
$25,000.





Director
Independence





Subject
to certain exceptions, under the listing standards of NASDAQ, a listed company’s
board of directors must consist of a majority of independent directors.
Currently, our board of directors has determined that each of Messrs. Edward
Hua, Arnold Staloff and Qi Hua Xu are independent directors for purposes of the
NASDAQ’s listed company standards currently in effect and approved by the SEC
and all applicable rules and regulations of the SEC. We have established the
following standing committees of the board: Audit, Compensation and Corporate
Governance and Nominating. All members of the Audit Committee and a majority of
the members of the Compensation and Nominating and Corporate Governance
Committees satisfy the “independence” standards applicable to members of each
such committee. The board of directors made this affirmative determination
regarding these directors’ independence based on discussion with the directors
and on its review of the directors’ responses to a standard questionnaire
regarding employment and compensation history; affiliations, family and other
relationships; and transactions with the Company. The board of directors
considered relationships and transactions between each director or any member of
his immediate family and the Company and its subsidiaries and affiliates. The
purpose of the board of director’s review with respect to each director was to
determine whether any such relationships or transactions were inconsistent with
a determination that the director is independent under the NASDAQ
rules.





Item
13.  Principal Accounting Fees and Services.





The firm
of Goldman Parks Kurland Mohidin, LLP (“GPKM”) has been selected by the board of
directors as the independent registered certified public accounting firm to
audit the books and accounts of our company and its subsidiaries for the fiscal
year ending December 31, 2009. This firm has served as independent public
accountants for our company since April 14, 2008. Prior to September 3, 2008, we
engaged Dale Matheson Carr Hilton Labonte, LLP (“DMCHL”) as our independent
accountants.





Audit
Fees





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for our audit of annual financial
statements and review of financial statements included in our Quarterly Reports
on Form 10-Q or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years were:





Year
                  
                  Fees
                  
                  Name2009
                  
                  $
                  137,500
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  107,500
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  5,000
                  
                  Dale
      Matheson Carr Hilton Labonte,
LLP




45





Audit-Related
Fees





The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported in the preceding paragraph were:





Year
                  
                  Fees
                  
                  Name2009
                  
                  $
                  30,000
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Dale
      Matheson Carr Hilton Labonte,
LLP





Tax
Fees





The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountants for tax compliance, tax advice
and tax planning were:





Year
                  
                  Fees
                  
                  Name2009
                  
                  $
                  0
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Dale
      Matheson Carr Hilton Labonte,
LLP





All
Other Fees





The
aggregate fees billed in each of the last two fiscal years for products and
services provided by the principal accountants, other than the services reported
in the preceding paragraphs of this Item 13 were:





Year
                  
                  Fees
                  
                  Name2009
                  
                  $
                  0
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Goldman
      Parks Kurland Mohidin, LLP2008
                  
                  $
                  0
                  
                  Dale
      Matheson Carr Hilton Labonte,
LLP





Audit
Committee’s Pre-Approval Policy





It is the
Audit Committee’s policy to approve in advance the types and amounts of audit,
audit-related, tax and any other services to be provided by our independent
auditors. In situations where it is not possible to obtain full Audit Committee
approval, the Committee has delegated authority to the Chairman of the Audit
Committee to grant pre-approval of auditing, audit-related, tax and all other
services. Any pre-approved decisions by the Chairman are required to be
reviewed with the Audit Committee at its next scheduled
meeting.





PART
IV





Item
14.  Exhibits, Financial Statement Schedules.





Financial
Statements





See Index
to Consolidated Financial Statements on page F-1 of this
Form 10-K.





Financial
Statement Schedules





Not
applicable.





Exhibits




The
exhibits of this Annual Report on Form 10-K are set forth on the Exhibit Index
attached hereto.


46


Deer
Consumer Products, Inc and Subsidiaries


Consolidated
Financial Statements


For
the Years Ended December 31, 2009 and 2008





Contents




Page
                NumberReport
      of Independent Registered Public Accounting Firm
              F-2Financial
      StatementsConsolidated
      Balance Sheets as of December 31, 2009 and 2008
              F-3Consolidated
      Statements of Income and Other Comprehensive Income
                for
      the years ended December 31, 2009 and 2008
              F-4Consolidated
      Statement of Stockholders’ Equity
                for
      the years ended December 31, 2009 and 2008
              F-5Consolidated
      Statements of Cash Flows
                for
      the years ended December 31, 2009 and 2008
              F-6Notes
      to Consolidated Financial Statements
              F-7




F-1




Report
of Independent Registered Public Accounting Firm





Board of
Directors and Stockholders of


Deer
Consumer Products, Inc.





We have
audited the accompanying consolidated balance sheets of Deer Consumer Products,
Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of income and other comprehensive income, stockholders'
equity, and cash flows for the years ended December 31, 2009 and 2008. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit
of internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Deer Consumer
Products, Inc. and subsidiaries as of December 31, 2009 and 2008 and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2009 and 2008, in conformity with U.S. generally
accepted accounting principles.





Goldman
Parks Kurland Mohidin LLP


Encino,
California


February
28, 2010


F-2




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS
OF DECEMBER 31, 2009 AND 2008





2009
                                
                                
                                2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                
                                $
                                79,333,729
                                
                                
                                $
                                2,782,026Restricted
      cash
                                
                                
                                35,701
                                
                                
                                
                                200,099Accounts
      receivable, net
                                
                                
                                17,070,781
                                
                                
                                
                                8,560,465Advances
      to suppliers
                                
                                
                                3,299,107
                                
                                
                                
                                5,015,479Other
      receivables
                                
                                
                                213,487
                                
                                
                                
                                489,286Short
      term investments
                                
                                
                                —
                                
                                
                                
                                29,340Due
      from related party
                                
                                
                                —
                                
                                
                                
                                331,267Inventories
                                
                                
                                18,061,282
                                
                                
                                
                                7,680,851Other
      current assets
                                
                                
                                12,500
                                
                                
                                
                                13,342Total
      current assets
                                
                                
                                118,026,587
                                
                                
                                
                                25,102,155PROPERTY
      AND EQUIPMENT, net
                                
                                
                                11,325,999
                                
                                
                                
                                11,291,202CONSTRUCTION
      IN PROGRESS
                                
                                
                                3,724,337
                                
                                
                                
                                892,897INTANGIBLE
      ASSETS, net
                                
                                
                                394,684
                                
                                
                                
                                404,125OTHER
      ASSETS
                                
                                
                                20,073
                                
                                
                                
                                39,689TOTAL
      ASSETS
                                
                                $
                                133,491,680
                                
                                
                                $
                                37,730,068LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                
                                $
                                13,055,110
                                
                                
                                $
                                8,968,088Other
      payables
                                
                                
                                1,061,460
                                
                                
                                
                                760,632Unearned
      revenue
                                
                                
                                1,719,761
                                
                                
                                
                                3,305,966Accrued
      payroll
                                
                                
                                1,148,663
                                
                                
                                
                                168,282Short
      term loans
                                
                                
                                —
                                
                                
                                
                                3,552,841Advances
      from related party
                                
                                
                                —
                                
                                
                                
                                274,805Notes
      payable
                                
                                
                                6,212,911
                                
                                
                                
                                3,155,348Tax
      and welfare payable
                                
                                
                                862,332
                                
                                
                                
                                1,533,013Total
      current liabilities
                                
                                
                                24,060,237
                                
                                
                                
                                21,718,975LONG-TERM
      LOAN
                                
                                
                                —
                                
                                
                                
                                733,500TOTAL
      LIABILITIES
                                
                                
                                24,060,237
                                
                                
                                
                                22,452,475STOCKHOLDERS'
      EQUITY:Common
      Stock, $0.001 par value; 75,000,000 shares authorized; 32,631,748 and
      19,652,226 shares issued and oustanding as of December 31, 2009 and
      December 31, 2008, respectively
                                
                                
                                32,632
                                
                                
                                
                                19,652Additional
      paid-in capital
                                
                                
                                91,111,661
                                
                                
                                
                                9,329,371Development
      funds
                                
                                
                                1,185,859
                                
                                
                                
                                542,701Statutory
      reserve
                                
                                
                                2,371,718
                                
                                
                                
                                1,085,403Other
      comprehensive income
                                
                                
                                2,335,216
                                
                                
                                
                                2,345,698Retained
      earnings
                                
                                
                                12,394,357
                                
                                
                                
                                1,954,768Total
      stockholders' equity
                                
                                
                                109,431,443
                                
                                
                                
                                15,277,593TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                
                                $
                                133,491,680
                                
                                
                                $
                                37,730,068





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


F-3




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
                          
                          
                          2008Revenue
                          
                          $
                          81,342,680
                          
                          
                          $
                          43,784,935Cost
      of Revenue
                          
                          
                          61,176,610
                          
                          
                          
                          34,125,019Gross
      profit
                          
                          
                          20,166,070
                          
                          
                          
                          9,659,916Operating
      expensesSelling
      expenses
                          
                          
                          3,555,547
                          
                          
                          
                          2,854,946General
      and administrative expenses
                          
                          
                          2,380,861
                          
                          
                          
                          2,566,634Total
      operating expenses
                          
                          
                          5,936,408
                          
                          
                          
                          5,421,580Income
      from operations
                          
                          
                          14,229,662
                          
                          
                          
                          4,238,336Non-operating
      income (expense):Financing
      costs
                          
                          
                          (223,607
                          )
                          
                          
                          (247,901
                          )Interest
      income
                          
                          
                          94,986
                          
                          
                          
                          13,870Interest
      expense
                          
                          
                          (122,299
                          )
                          
                          
                          (310,762
                          )Other
      income (expense)
                          
                          
                          364,418
                          
                          
                          
                          40,216Realized
      loss on trading securities
                          
                          
                          —
                          
                          
                          
                          (34,873
                          )Foreign
      exchange gain
                          
                          
                          138,284
                          
                          
                          
                          959,943Total
      non-operating income
                          
                          
                          251,782
                          
                          
                          
                          420,493Income
      before income tax
                          
                          
                          14,481,444
                          
                          
                          
                          4,658,829Income
      tax
                          
                          
                          2,112,382
                          
                          
                          
                          1,302,045Net
      income
                          
                          
                          12,369,062
                          
                          
                          
                          3,356,784Other
      comprehensive incomeForeign
      currency translation gain (loss)
                          
                          
                          (10,482
                          )
                          
                          
                          1,041,966Comprehensive
      Income
                          
                          $
                          12,358,580
                          
                          
                          $
                          4,398,750Weighted
      average shares outstanding :Basic
                          
                          
                          22,782,200
                          
                          
                          
                          16,985,460Diluted
                          
                          
                          23,190,286
                          
                          
                          
                          16,985,460Earnings
      per share:Basic
                          
                          $
                          0.54
                          
                          
                          $
                          0.20Diluted
                          
                          $
                          0.53
                          
                          
                          $
                          0.20





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


F-4




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Other
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        TotalCommon
                        
                        
                        Additional Paid
                        
                        
                        Comprehensive
                        
                        
                        Statutory
                        
                        
                        Development
                        
                        
                        Retained
                        
                        
                        Stockholders'Shares
                        
                        
                        Stock
                        
                        
                        in
      Capital
                        
                        
                        Income
                        
                        
                        Reserve
                        
                        
                        Funds
                        
                        
                        Earnings
                        
                        
                        EquityBalance
      December 31, 2007
                        
                        
                        15,695,706
                        
                        
                        
                        15,696
                        
                        
                        
                        9,333,327
                        
                        
                        
                        1,303,732
                        
                        
                        
                        686,464
                        
                        
                        
                        343,232
                        
                        
                        
                        2,331,371
                        
                        
                        
                        14,013,822Shares
      issued in merger with Tag Events Corp.
                        
                        
                        3,956,520
                        
                        
                        
                        3,956
                        
                        
                        
                        (3,956
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Change
      in foreign currency translation gain
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,041,966
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,041,966Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        3,356,784
                        
                        
                        
                        3,356,784Transfer
      to statutory reserve and development funds
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        398,939
                        
                        
                        
                        199,469
                        
                        
                        
                        (598,408
                        )
                        
                        
                        —Deemed
      dividend to major shareholders - settlement of receivable
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (3,134,979
                        )
                        
                        
                        (3,134,979
                        )Balance,
      December 31, 2008
                        
                        
                        19,652,226
                        
                        
                        
                        19,652
                        
                        
                        
                        9,329,371
                        
                        
                        
                        2,345,698
                        
                        
                        
                        1,085,403
                        
                        
                        
                        542,701
                        
                        
                        
                        1,954,768
                        
                        
                        
                        15,277,593Sale
      of common stock for cash
                        
                        
                        12,810,890
                        
                        
                        
                        12,811
                        
                        
                        
                        93,565,189
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        93,578,000Offering
      costs
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (12,407,007
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (12,407,007
                        )Exercise
      of warrants
                        
                        
                        168,632
                        
                        
                        
                        169
                        
                        
                        
                        290,721
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        290,890Change
      in foreign currency translation gain
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (10,482
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (10,482
                        )Stock-based
      compensation
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        333,387
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        333,387Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        12,369,062
                        
                        
                        
                        12,369,062Transfer
      to statutory reserve and development funds
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,286,315
                        
                        
                        
                        643,158
                        
                        
                        
                        (1,929,473
                        )
                        
                        
                        —Balance,
      December 31, 2009
                        
                        
                        32,631,748
                        
                        
                        $
                        32,632
                        
                        
                        $
                        91,111,661
                        
                        
                        $
                        2,335,216
                        
                        
                        $
                        2,371,718
                        
                        
                        $
                        1,185,859
                        
                        
                        $
                        12,394,357
                        
                        
                        $
                        109,431,443





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


F-5




DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                        
                        $
                        12,369,062
                        
                        
                        $
                        3,356,784Adjustments
      to reconcile net income to net cash  provided by operating
      activities:Depreciation
                        
                        
                        1,439,751
                        
                        
                        
                        1,199,578Amortization
                        
                        
                        9,435
                        
                        
                        
                        18,723Loss
      on disposal of fixed assets
                        
                        
                        —
                        
                        
                        
                        351,257Realized
      loss on short term investments
                        
                        
                        —
                        
                        
                        
                        34,873Stock
      based compensation
                        
                        
                        333,387
                        
                        
                        
                        —(Increase)
      / decrease in assets:Accounts
      receivable
                        
                        
                        (8,512,633
                        )
                        
                        
                        (7,821,066
                        )Other
      receivables
                        
                        
                        (5,019
                        )
                        
                        
                        210,696Inventories
                        
                        
                        (10,374,062
                        )
                        
                        
                        (3,180,080
                        )Due
      from stockholder
                        
                        
                        —
                        
                        
                        
                        1,454,375Due
      from related party
                        
                        
                        331,064
                        
                        
                        
                        (325,509
                        )Advances
      to suppliers
                        
                        
                        1,715,320
                        
                        
                        
                        (1,965,833
                        )Tax
      rebate receivable
                        
                        
                        283,706
                        
                        
                        
                        158,989Other
      assets
                        
                        
                        18,100
                        
                        
                        
                        215,234Increase
      / (decrease) in current liabilities:Accounts
      payable
                        
                        
                        4,084,515
                        
                        
                        
                        6,205,438Unearned
      revenue
                        
                        
                        (1,585,231
                        )
                        
                        
                        3,175,324Other
      payables
                        
                        
                        241,952
                        
                        
                        
                        156,499Due
      to related party
                        
                        
                        (274,636
                        )
                        
                        
                        (795,427
                        )Accrued
      payroll
                        
                        
                        979,780
                        
                        
                        
                        24,138Tax
      and welfare payable
                        
                        
                        (670,270
                        )
                        
                        
                        563,573Net
      cash provided by operating activities
                        
                        
                        384,221
                        
                        
                        
                        3,037,566CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                        
                        
                        (1,474,527
                        )
                        
                        
                        (3,627,873
                        )Acquisition
      of intangible assets
                        
                        
                        —
                        
                        
                        
                        (8,319
                        )Construction
      in process
                        
                        
                        (2,829,702
                        )
                        
                        
                        (559,651
                        )Changes
      in restricted cash
                        
                        
                        164,297
                        
                        
                        
                        276,966Sale
      of short-term investments
                        
                        
                        29,322
                        
                        
                        
                        79,984Net
      cash used in investing activities
                        
                        
                        (4,110,610
                        )
                        
                        
                        (3,838,893
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of notes payable
                        
                        
                        3,055,687
                        
                        
                        
                        2,969,781Proceeds
      from issuance of short term loans
                        
                        
                        —
                        
                        
                        
                        4,176,723Proceeds
      from sale of common stock
                        
                        
                        93,578,000
                        
                        
                        
                        —Offering
      costs paid
                        
                        
                        (12,407,007
                        )
                        
                        
                        —Proceeds
      from exercise of warrants
                        
                        
                        290,890
                        
                        
                        
                        —Payment
      on short term loans
                        
                        
                        (3,550,661
                        )
                        
                        
                        (5,656,331
                        )Payment
      on long term loans
                        
                        
                        (733,050
                        )
                        
                        
                        —Change
      in advance to shareholder, net
                        
                        
                        —
                        
                        
                        
                        (535,367
                        )Change
      in advance to related party, net
                        
                        
                        —
                        
                        
                        
                        270,028Proceeds
      from issuance of long-term note
                        
                        
                        —
                        
                        
                        
                        720,750Net
      cash provided by financing activities
                        
                        
                        80,233,859
                        
                        
                        
                        1,945,584Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        44,233
                        
                        
                        
                        126,224NET
      INCREASE IN CASH & CASH EQUIVALENTS
                        
                        
                        76,551,703
                        
                        
                        
                        1,270,481CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                        
                        
                        2,782,026
                        
                        
                        
                        1,511,545CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                        
                        $
                        79,333,729
                        
                        
                        $
                        2,782,026SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                        
                        $
                        119,996
                        
                        
                        $
                        310,762Income
      taxes paid
                        
                        $
                        567,226
                        
                        
                        $
                        725,125Settlement
      of receivable as a deemed dividend
                        
                        $
                        —
                        
                        
                        $
                        3,134,979





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


F-6


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





Note
1 - Organization and Basis of Presentation





Organization and Line of
Business





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





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





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





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





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





Stock
Split





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





Basis of
Presentation





The
accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Deer International, and its 100%
wholly-owned subsidiary Winder and Winder’s wholly-owned subsidiary Delta. All
significant inter-company accounts and transactions were eliminated in
consolidation.





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


F-7


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





Foreign Currency
Translation





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





Note
2 – Summary of Significant Accounting Policies





Use of
Estimates





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





Cash and Cash
Equivalents





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





Restricted
Cash





Restricted
cash consists of monies restricted by the Company’s lender and monies restricted
under a letter of credit and a bank acceptance. As of December 31, 2009 and
2008, total restricted cash was $35,701 and $200,099 (interest rate of 0.36% and
0.36% at December 31, 2009 and 2008), respectively.





Accounts
Receivable





The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. As of December 31, 2009 and 2008, approximately 46%
and 79%, 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.




Investments





The
Company purchased various stocks during 2007 and in 2008 the Company was
required to purchase an equity fund for a bank loan. The investments are trading
securities that were bought and held principally for the purpose of selling them
in the near term and are reported at fair value, with unrealized gains and
losses included in earnings. All of these stocks were sold during the year ended
December 31, 2009.





Advances to
Suppliers





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


F-8


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





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 December 31, 2009 and
2008:





2009
                  
                  
                  2008Building
                  
                  $
                  3,294,109
                  
                  
                  $
                  1,889,916Equipment
                  
                  
                  14,312,145
                  
                  
                  
                  14,232,539Vehicle
                  
                  
                  34,735
                  
                  
                  
                  34,735Office
      Equipment
                  
                  
                  420,106
                  
                  
                  
                  430,177Total
                  
                  
                  18,061,095
                  
                  
                  
                  16,587,367Less
      accumulated depreciation
                  
                  
                  (6,735,096
                  )
                  
                  
                  (5,296,165
                  )$
                  11,325,999
                  
                  
                  $
                  11,291,202





Depreciation
expense for the years ended December 31, 2009 and 2008 was $1,439,751 and
$1,199,578, respectively.




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 $1,500,000 to finish the current projects.




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 December 31, 2009 and 2008, there was no significant impairment of its
long-lived assets.





Intangible
Assets





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


F-9


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





The
following are the details of intangible assets at December 31, 2009 and
2008:





2009
                  
                  
                  2008Right
      to use land
                  
                  $
                  450,335
                  
                  
                  $
                  450,335Computer
      software
                  
                  
                  76,906
                  
                  
                  
                  76,906Total
                  
                  
                  527,241
                  
                  
                  
                  527,241Less
      Accumulated amortization
                  
                  
                  (132,557
                  )
                  
                  
                  (123,116
                  )Intangibles,
      net
                  
                  $
                  394,684
                  
                  
                  $
                  404,125





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





Amortization
expense for the years ended December 31, 2009 and 2008 was $9,435 and $18,723,
respectively.





The
following table summarizes the amortization over the next 5 years:





Year Ended December 31,
                  
                  Amount2010
                  
                  $
                  9,4252011
                  
                  
                  9,4252012
                  
                  
                  9,4252013
                  
                  
                  9,4252014
                  
                  
                  9,425





Fair Value of Financial
Instruments





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





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





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





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





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




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


F-10


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





As of
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 a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectability is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are satisfied are recorded
as unearned revenue.




Unearned
Revenue





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





Advertising
Costs





The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place.  Advertising costs for the
years ended December 31, 2009 and 2008 were not significant.




Research and Development








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 Chinese subsidiaries is Chinese RMB.
Translation gains of $2,335,412 and $2,345,698 at December 31, 2009 and 2008,
respectively, are classified as an item of other comprehensive income in the
stockholders’ equity section of the consolidated balance
sheets.


F-11


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





Currency
Hedging





The
Company entered into a forward exchange agreement with the Bank of China,
whereby the Company agreed to sell US dollars to the Bank of China at certain
rates. Since the contractual rate at which the Company sells US dollars to the
Bank of China was greater than the exchange rate on the date of each exchange
transaction, the Company recognized foreign exchange gains of $138,284 and
$959,943 for the years ended December 31, 2009 and 2008,
respectively.  At December 31, 2009, 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:





Years Ended December 31,
                
                2009
                
                
                2008Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic  earnings
      per share
                
                
                22,782,200
                
                
                $
                0.54
                
                
                
                16,985,460
                
                
                $
                0.20Effect
      of dilutive warrants and stock options
                
                
                408,086
                
                
                
                (0.01
                )
                
                
                —
                
                
                
                —Diluted
      earnings per share
                
                
                23,190,286
                
                
                $
                0.53
                
                
                
                16,985,460
                
                
                $
                0.20





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


F-12


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





In
October 2009, the FASB issued an ASU regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU on its
consolidated financial statements.





On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements.”  This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on the Company’s consolidated financial statements.





Note
3 – Inventories





Inventories
consisted of the following at December 31, 2009 and 2008:





2009
                      
                      
                      2008Raw
      material
                      
                      $
                      11,113,055
                      
                      
                      $
                      3,960,022Work
      in process
                      
                      
                      5,236,692
                      
                      
                      
                      1,326,719Finished
      goods
                      
                      
                      1,711,535
                      
                      
                      
                      2,394,110Total
                      
                      $
                      18,061,282
                      
                      
                      $
                      7,680,851





Note
4 – Short Term Loans





Short
term loans consisted of the following at December 31, 2008:





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





Note
5 – Notes Payable





Notes
payable at December 31, 2009 and 2008 consist of multiple bankers’ acceptances
from the Bank of China. The terms of the notes range from 3-6 months, with no
interest rate. The Company deposits 10% of the notes’ par value with the Bank of
China, refundable when the notes are re-paid.


F-13


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





Note
6 – Long-Term Loan





On
November 14, 2008, the Company entered into a long-term loan with an unrelated
party. The loan was for $733,500 at 8.10%, was due on October 20, 2010 and was
secured by certain property and equipment. This loan was re-paid in October
2009.





Note
7 – Stockholders’ Equity





Common
Stock





On
December 20, 2008, 50HZ, a related party, owned by two shareholders of Deer
International transferred an intangible asset to the Company in settlement of a
related party receivable. The asset’s historical costs could not be corroborated
with supporting documentation and was recorded at zero by the Company. The
settlement of the related party receivable was considered a deemed dividend of
$3,134,979 to the majority shareholders of the Company as they own 100% of
50HZ.





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





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





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





On
September 21, 2009, the Company completed a private placement offering of
3,000,000 Units at an offering price of $5.00 per Unit for aggregate offering
price of $15,000,000 to non-U.S. investors. Each Unit consisted of one share of
the Company's common stock, par value $.001 per share and a three-year warrant
to purchase 30% of one share of the Company’s common stock, or an aggregate of
900,000 shares of common stock, at an exercise price of $5.00 per share. A
non-U.S. advisor to the Company received fees of 9% of the gross proceeds and
warrants to purchase 300,000 shares of common stock on the same terms as the
non-U.S. investors. In addition, the Company paid an additional 3% advisory fee
in connection with this private placement offering. The investors received
registration rights. The Company issued the shares pursuant to an exemption from
registration under Regulation S promulgated under the Securities Act of 1933, as
amended.





On
December 17, 2009, the Company completed a public offering of 6,900,000 shares
of the Company’s common stock at a public offering price of $11.00 per share for
gross proceeds of $75,900,000. The Company paid commissions and fees associated
with this offering of $9,931,296.


F-14


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





Stock
Options





Following
is a summary of the option activity:





Options
                          outstanding
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Weighted
                          average
                          remaining
                          contractual life
                        
                        
                        Aggregate
                          Intrinsic ValueOutstanding,
      December 31, 2008
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        
                        
                        $
                        —Granted
                        
                        
                        130,000
                        
                        
                        $
                        10.96Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2009
                        
                        
                        130,000
                        
                        
                        $
                        10.96
                        
                        
                        
                        4.98
                        
                        
                        $
                        45,500Exercisable,
      December 31, 2009
                        
                        
                        56,666
                        
                        
                        $
                        10.96
                        
                        
                        
                        4.98
                        
                        
                        $
                        19,833





The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option-pricing model for options granted during the year ended
December 31, 2009:





Risk-free
      interest rate
                    
                    
                    2.25
                    %Expected
      life of the options
                    
                    3 to 3.5 yearsExpected
      volatility
                    
                    
                    80
                    %Expected
      dividend yield
                    
                    
                    0
                    %





The
exercise price for options outstanding at December 31, 2009 is as
follows:





Number of
                          Options
                        
                        Exercise
                          Price130,000
                        
                        $
                        10.96130,000





For
options granted during the year ended December 31, 2009 where the exercise price
equaled the stock price at the date of the grant, the weighted-average fair
value of such options was $5.92 and the weighted-average exercise price of such
options was $10.96. No options were granted during the year ended December 31,
2009 where the exercise price was less than the stock price at the date of the
grant or the exercise price was greater than the stock price at the date of
grant. At December 31, 2009, the compensation costs related to nonvested options
was $436,016, which will be expensed through the fourth quarter of
2011.





Warrants





Following
is a summary of warrant activity:





Warrants
                          outstanding
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Weighted
                          average
                          remaining
                          contractual life
                        
                        
                        Aggregate
                          Intrinsic ValueOutstanding,
      December 31, 2008
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        
                        
                        $
                        —Granted
                        
                        
                        1,927,750
                        
                        
                        $
                        3.76Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        (168,632
                        )
                        
                        $
                        1.73Outstanding,
      December 31, 2009
                        
                        
                        1,759,118
                        
                        
                        $
                        3.96
                        
                        
                        
                        2.61
                        
                        
                        $
                        12,931,146Exercisable,
      December 31, 2009
                        
                        
                        1,759,118
                        
                        
                        $
                        3.96
                        
                        
                        
                        2.61
                        
                        
                        $
                        12,931,146




F-15


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





The
exercise price for warrants outstanding at December 31, 2009 is as
follows:





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





Note
8 - Employee Welfare Plan





The total
expense for the employee common welfare was $51,160 and $59,147 for the year
ended December 31, 2009 and 2008, respectively.  The Chinese
government abolished the 14% welfare plan policy during 2007.  The
Company is not required to establish welfare and common welfare
reserves.





Note
9 - Statutory Reserve and Development Fund





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





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





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





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





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





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





The
Company appropriated $1,286,315 and $643,158, and $398,939 and $199,469 as
reserve for the statutory surplus reserve and development fund for the years
ended December 31, 2009 and 2008, respectively.





Note
10 - Taxes





Local PRC Income
Tax





Pursuant
to the tax laws of China, general enterprises are subject to income tax at an
effective rate of 25%. A reconciliation of tax at US federal statutory rate to
the provision for income tax recorded in the financial statements for years
ended December 31, 2009 and 2008 is as follows:





2009
                  
                  
                  2008Tax
      provision at statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Foreign
      tax rate difference
                  
                  
                  (9
                  )%
                  
                  
                  (9
                  )%US
      NOL for which no benefit is realized
                  
                  
                  1
                  %
                  
                  
                  —Current
      operating losses not utilized
                  
                  
                  —
                  
                  
                  
                  3
                  %Utilization
      of NOLs
                  
                  
                  (11
                  )%
                  
                  
                  —15
                  %
                  
                  
                  28
                  %




F-16


DEER
CONSUMER PRODUCTS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





The
effect of the change of tax status was recorded in accordance with ASC Topic
740-10, which states that the effect of a change in tax status is computed as of
the date of change and is included in the tax provision for continuing
operations. Management believes the local tax authorities would not have waived
past taxes had it not been for the change in the Company’s subsidiary’s tax
status.





Foreign
pretax earnings approximated $15,100,000 for the year ended December 31, 2009.
Pretax earnings of a foreign subsidiary are subject to U.S. taxation when
effectively repatriated. The Company provides income taxes on the undistributed
earnings of non-U.S. subsidiaries except to the extent that such earnings are
indefinitely invested outside the United States. At December 31, 2009,
approximately $13,000,000 of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At the existing U.S. federal income tax
rate, additional taxes of $1,175,000 would have to be provided if such earnings
were remitted currently.





Note
11 - Related Party Transactions





Due from
related party was $331,267 as of December 31, 2008. The Company collects a
portion of its sales through a collection company controlled through a former
shareholder and current related party. Due from related party represents account
receivables from that company.  The above parties are considered
related parties through common ownership of the Company’s CEO.





Advances
from related party were $274,805 as of December 31, 2008. Advances to
shareholder and related party are non-interest bearing and are payable or
receivable on demand.





There
were no related party transactions during the year ended December 31,
2009.  As of December 31, 2009, a certain entity previously reported
as a related party is no longer considered to be related due to an ownership
changes within that entity.





Note
12 - Geographical Sales





Geographical
distribution of sales is as follows:





Years EndedDecember 31,Geographical Areas
                  
                  2009
                  
                  
                  2008North
      America
                  
                  $
                  22,217,528
                  
                  
                  $
                  14,899,350China
                  
                  
                  14,313,485
                  
                  
                  
                  2,048,297South
      America
                  
                  
                  12,305,666
                  
                  
                  
                  6,294,899Europe
                  
                  
                  11,488,707
                  
                  
                  
                  7,842,437Middle
      East
                  
                  
                  11,064,745
                  
                  
                  
                  6,921,928Asia
                  
                  
                  9,319,581
                  
                  
                  
                  5,532,985Africa
                  
                  
                  632,968
                  
                  
                  
                  245,039$
                  81,342,680
                  
                  
                  $
                  43,784,935




F-17


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized.





DEER
      CONSUMER PRODUCTS, INC.Date:
      March 2, 2010
                By:
                /s/
      Ying HeYing
      He
                  Chief
      Executive Officer
                  (Principal
      Executive Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/ Ying He
            
            Chairman
      and Chief Executive Officer
            
            March
      2, 2010Ying
      He
            
            (Principal
      Executive Officer)/s/ Zongshu Nie
            
            Chief
      Financial Officer
            
            March
      2, 2010Zongshu
      Nie
            
            (Principal
      Financial and Accounting Officer)/s/ Edward Hua
            
            Director
            
            March
      2, 2010Edward
      Hua/s/ Arnold Staloff
            
            Director
            
            March
      2, 2010Arnold
      Staloff/s/ Qi Hua Xu
            
            Director
            
            March
      2, 2010Qi
      Hua Xu




47




EXHIBIT
INDEX





Exhibit No.
              
              Description2.1
              
              Share
      Exchange Agreement and Plan of Reorganization by and between Deer
      International Group Limited and TAG Events Corp., dated September 3, 2008.
      (Incorporated herein by reference to Exhibit 2.1 to the Current Report on
      Form 8-K filed on September 5, 2008)2.2
              
              Return
      to Treasury Agreement by and between the Company and Crescent Liu, dated
      August 26, 2008. (Incorporated herein by reference to Exhibit 2.2 to the
      Current Report on Form 8-K filed on September 5, 2008)3.1
              
              Articles
      of Incorporation (Incorporated herein by reference to Exhibit 3.1 to the
      Company’s Form SB-2 filed on February 8, 2007)3.2
              
              By-Laws
      (Incorporated herein by reference to Exhibit 3.2 to the Company’s Form
      SB-2 filed on February 8, 2007)3.3
              
              Articles
      of Exchange of Deer International Group Limited and TAG Events Corp. filed
      September 3, 2008. (Incorporated herein by reference to Exhibit 3.3 to the
      Current Report on Form 8-K filed on September 5, 2008)3.4
              
              Articles
      of Merger between Deer Consumer Products, Inc. and TAG Events Corp.
      amending the Articles of Incorporation filed with the Secretary of State
      of the State of Nevada on September 3, 2008. (Incorporated herein by
      reference to Exhibit 3.4 to the Current Report on Form 8-K filed on
      September 5, 2008)4.1
              
              Specimen
      Stock Certificate (Incorporated herein by reference to Exhibit 4.1 to the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2008)4.2
              
              Form
      of Warrant (Incorporated herein by reference to Exhibit 10.1 to the
      Current Report on Form 8-K filed on April 3, 2009)4.3
              
              Form
      of Registration Rights Agreement (Incorporated herein by reference to
      Exhibit 10.2 to the Current Report on Form 8-K filed on April 3,
      2009)4.4
              
              Form
      of Warrant (Incorporated herein by reference to Exhibit 10.3 to the
      Current Report on Form 8-K filed on September 23, 2009)4.5
              
              Form
      of Registration Rights Agreement (Incorporated herein by reference to
      Exhibit 10.2 to the Current Report on Form 8-K filed on September 23,
      2009)10.1
              
              Supplemental
      Agreement by and between Winder Electric Group Ltd., Ying He, Fa’min He,
      Shenzhen De Mei Long Electric Appliances Co., Ltd. and Shenzhen Kafu
      Industrial Co., Ltd., dated November 19, 2009 (Incorporated herein by
      reference to Exhibit 10.1 to the Current Report on Form 8-K filed on
      November 20, 2009)10.2
              
              Form
      of prior Patent Transfer Agreement by and between Winder Electric Group
      Ltd., Ying He, Fa’min He, Shenzhen De Mei Long Electric Appliances Co.,
      Ltd. and Shenzhen Kafu Industrial Co., Ltd. (Incorporated herein by
      reference to Exhibit 10.2 to the Current Report on Form 8-K filed on
      November 20, 2009)10.3
              
              Form
      of prior Copyright and Trademark Transfer Agreement by and between Winder
      Electric Group Ltd., Ying He, Fa’min He, Shenzhen De Mei Long Electric
      Appliances Co., Ltd. and Shenzhen Kafu Industrial Co., Ltd. (Incorporated
      herein by reference to Exhibit 10.3 to the Current Report on Form 8-K
      filed on November 20, 2009)10.4
              
              Distribution
      Agreement by and between Winder Electric Group Ltd. and Suning Nanjing
      Purchasing Center, dated December 1, 2009 (Incorporated herein by
      reference to Exhibit 10.4 to the Current Report on Form 8-K filed on
      December 4, 2009)10.5
              
              Form
      of Stock Option Agreement for use with stock options granted pursuant to
      the Deer Consumer Products, Inc. 2009 Equity Incentive Plan (Incorporated
      herein by reference to Exhibit 10.5 to the Current Report on Form 8-K
      filed on December 24, 2009)10.7
              
              Deer
      Consumer Products, Inc. 2009 Equity Incentive Plan (Incorporated herein by
      reference to the Definitive Proxy Statement on Schedule 14A filed on
      October 6, 2009)16.1
              
              Letter
      from Dale Matheson Carr Hilton Labonte LLP, dated September 3, 2008.
      (Incorporated herein by reference to Exhibit 16.1 to the Current Report on
      Form 8-K filed on September 5, 2008)21
              
              Subsidiaries




48





31.1
              
              Certification
      of Chief 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 Chief 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




49