UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2012
OR |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-34407
DEER CONSUMER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)

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

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

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 33,592,562 shares of common stock outstanding as of August 9, 2012.

Table of Contents
Deer Consumer Products, Inc.
Table of Contents

|  | Page
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements | 3
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 29
Item 4. | Controls and Procedures | 29
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings | 30
Item 1A. | Risk Factors | 31
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 3. | Defaults Upon Senior Securities | 31
Item 4. | Mine Safety Disclosures | 31
Item 5. | Other Information | 31
Item 6. | Exhibits | 31
| Signatures | 32
| Exhibit Index | 33

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|  | June 30, 2012 |  |  | December 31, 2011 |
ASSETS |  | (Unaudited) |  |  |  |
CURRENT ASSETS |  |  |  |  |  |
Cash & equivalents |  | $ | 9,401,816 |  |  | $ | 13,961,434 |
Restricted cash |  |  | - |  |  |  | 127,235 |
Accounts receivable |  |  | 37,989,248 |  |  |  | 20,553,235 |
Advances to suppliers |  |  | 5,896,487 |  |  |  | 2,920,746 |
Other receivables and prepaid expenses |  |  | 1,566,339 |  |  |  | 1,240,726 |
VAT receivable |  |  | 3,767,154 |  |  |  | 8,562,076 |
Deposits |  |  | 71,628 |  |  |  | 1,153,019 |
Inventories |  |  | 59,655,682 |  |  |  | 61,017,231 |
Total current assets |  |  | 118,348,354 |  |  |  | 109,535,702 |
NON-CURRENT ASSETS |  |  |  |  |  |  |  |
Certificate of deposit |  |  | 474,316 |  |  |  | - |
Advance for equipment purchase |  |  | 378,784 |  |  |  | 844,964 |
Deposit for land use right |  |  | 844,429 |  |  |  | 847,646 |
Property and equipment, net |  |  | 34,312,572 |  |  |  | 36,137,609 |
Construction in progress |  |  | 21,088,038 |  |  |  | 21,141,715 |
Intangible assets, net |  |  | 35,402,003 |  |  |  | 35,895,528 |
Total noncurrent assets |  |  | 92,500,142 |  |  |  | 94,867,462 |
TOTAL ASSETS |  | $ | 210,848,496 |  |  | $ | 204,403,164 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES |  |  |  |  |  |  |  |
Accounts payable |  | $ | 2,976,726 |  |  | $ | 7,977,167 |
Advance from customers |  |  | 2,183,745 |  |  |  | 1,056,442 |
Income tax payable |  |  | 5,243,759 |  |  |  | 4,864,267 |
Other payables and accrued expenses |  |  | 2,256,685 |  |  |  | 2,753,617 |
Dividend payable |  |  | - |  |  |  | 1,679,628 |
Notes payable |  |  | - |  |  |  | 692,821 |
Total current liabilities |  |  | 12,660,915 |  |  |  | 19,023,942 |
COMMITMENTS AND CONTINGENCIES |  |  |  |  |  |  |  |
STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,592,562 shares issued and outstanding |  |  | 33,593 |  |  |  | 33,593 |
Paid-in capital |  |  | 91,187,588 |  |  |  | 91,187,584 |
Statutory reserve |  |  | 10,624,783 |  |  |  | 9,157,606 |
Development fund |  |  | 5,312,391 |  |  |  | 4,578,803 |
Accumulated other comprehensive income |  |  | 14,026,151 |  |  |  | 14,769,957 |
Retained earnings |  |  | 77,003,075 |  |  |  | 65,651,679 |
Total stockholders' equity |  |  | 198,187,581 |  |  |  | 185,379,222 |
TOTAL LIABILITIES AND EQUITY |  | $ | 210,848,496 |  |  | $ | 204,403,164 |

The accompanying notes are an integral part of these financial statements.
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Table of Contents
DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)

|  | Six months ended June 30 |  |  | Three months ended June 30 |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Revenue |  | $ | 94,875,113 |  |  | $ | 79,803,830 |  |  | $ | 45,006,010 |  |  | $ | 45,127,684 |
Cost of revenue |  |  | 66,205,680 |  |  |  | 56,697,985 |  |  |  | 31,855,819 |  |  |  | 31,978,784 |
Gross profit |  |  | 28,669,433 |  |  |  | 23,105,845 |  |  |  | 13,150,191 |  |  |  | 13,148,900 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling |  |  | 8,215,753 |  |  |  | 5,529,852 |  |  |  | 4,201,546 |  |  |  | 2,912,415 |
General and administrative |  |  | 2,767,499 |  |  |  | 2,274,687 |  |  |  | 1,416,013 |  |  |  | 1,034,061 |
Total operating expenses |  |  | 10,983,252 |  |  |  | 7,804,539 |  |  |  | 5,617,559 |  |  |  | 3,946,476 |
Income from operations |  |  | 17,686,181 |  |  |  | 15,301,306 |  |  |  | 7,532,632 |  |  |  | 9,202,424 |
Non-operating income (expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 443,309 |  |  |  | 108,700 |  |  |  | 131,869 |  |  |  | 46,165 |
Exchange loss |  |  | (42,895 | ) |  |  | (266,855 | ) |  |  | (6,733 | ) |  |  | (150,732 | )
Other expenses, net |  |  | (26,783 | ) |  |  | (81,767 | ) |  |  | (22,282 | ) |  |  | (43,469 | )
Subsidy income |  |  | 236,230 |  |  |  | 1,007,192 |  |  |  | - |  |  |  | 7,960 |
Total non-operating income (expenses), net |  |  | 609,861 |  |  |  | 767,270 |  |  |  | 102,854 |  |  |  | (140,076 | )
Income before income tax |  |  | 18,296,042 |  |  |  | 16,068,576 |  |  |  | 7,635,486 |  |  |  | 9,062,348 |
Income tax expense |  |  | 4,743,881 |  |  |  | 2,928,099 |  |  |  | 1,909,413 |  |  |  | 1,715,817 |
Net income |  |  | 13,552,161 |  |  |  | 13,140,477 |  |  |  | 5,726,073 |  |  |  | 7,346,531 |
Other comprehensive item |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) |  |  | (743,806 | ) |  |  | 3,481,869 |  |  |  | (957,678 | ) |  |  | 2,005,459 |
Comprehensive Income |  | $ | 12,808,355 |  |  | $ | 16,622,346 |  |  | $ | 4,768,395 |  |  | $ | 9,351,990 |
Basic weighted average shares outstanding |  |  | 33,592,562 |  |  |  | 33,592,562 |  |  |  | 33,592,562 |  |  |  | 33,592,562 |
Diluted weighted average shares outstanding |  |  | 33,592,562 |  |  |  | 33,592,562 |  |  |  | 33,592,562 |  |  |  | 33,592,562 |
Basic earnings per share |  | $ | 0.40 |  |  | $ | 0.39 |  |  |  | 0.17 |  |  |  | 0.22 |
Diluted earnings per share |  | $ | 0.40 |  |  | $ | 0.39 |  |  |  | 0.17 |  |  |  | 0.22 |

The accompanying notes are an integral part of these financial statements.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)

|  | 2012 |  |  | 2011 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |
Net income |  | $ | 13,552,161 |  |  | $ | 13,140,477 |
Adjustments to reconcile net income to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 2,113,775 |  |  |  | 1,438,861 |
Stock-based compensation |  |  | - |  |  |  | 51,314 |
(Increase) decrease in current assets: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (17,566,409 | ) |  |  | 1,631,055 |
Advances to suppliers |  |  | (2,530,853 | ) |  |  | 1,458,712 |
Other receivables, prepayments, and deposits |  |  | 757,358 |  |  |  | (346,960 | )
VAT receivable |  |  | 4,775,646 |  |  |  | - |
Inventories |  |  | 1,133,152 |  |  |  | (10,200,635 | )
Other assets |  |  | - |  |  |  | 4,628 |
Increase (decrease) in current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  |  | (4,983,962 | ) |  |  | (9,998,292 | )
Advance from customers |  |  | 1,134,456 |  |  |  | 1,617,080 |
Taxes payable |  |  | 389,985 |  |  |  | (2,847,344 | )
Notes payable |  |  | (692,107 | ) |  |  | (3,487,834 | )
Other payables and accrued expenses |  |  | (487,834 | ) |  |  | (742,220 | )
Changes in noncurrent assets - other receivable |  |  |  |  |  |  | - |
Net cash used in operating activities |  |  | (2,404,632 | ) |  |  | (8,281,158 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Certificate of deposit |  |  | (475,632 | ) |  |  | - |
Change in restricted cash |  |  | 127,104 |  |  |  | (5,169,534 | )
Acquisition of intangible assets |  |  | (10,570 | ) |  |  | (4,270,594 | )
Acquisition of property & equipment |  |  | (52,299 | ) |  |  | (889,945 | )
Refund of deposit on land use right |  |  | - |  |  |  | 10,380,731 |
Construction in progress |  |  | (26,620 | ) |  |  | (2,367,640 | )
Net cash used in investing activities |  |  | (438,017 | ) |  |  | (2,316,982 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Dividends paid |  |  | (1,679,628 | ) |  |  | (1,679,978 | )
Net cash used in financing activities |  |  | (1,679,628 | ) |  |  | (1,679,978 | )
EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS |  |  | (37,341 | ) |  |  | 626,584 |
NET DECREASE IN CASH & EQUIVALENTS |  |  | (4,559,618 | ) |  |  | (11,651,534 | )
CASH & EQUIVALENTS, BEGINNING OF PERIOD |  |  | 13,961,434 |  |  |  | 33,956,591 |
CASH & EQUIVALENTS, END OF PERIOD |  | $ | 9,401,816 |  |  | $ | 22,305,057 |
Supplemental Cash flow data: |  |  |  |  |  |  |  |
Income tax paid |  | $ | 4,387,432 |  |  | $ | 3,213,565 |
Interest paid |  | $ | - |  |  | $ | - |

The accompanying notes are an integral part of these financial statements.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
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 Ltd. (“Deer International”), a corporation organized under the laws of the British Virgin Islands on December 3, 2007, and acquired 100% of the shares of Winder Electric Group Ltd. (“Winder”) on March 11, 2008. Winder has a 100% owned subsidiary, Delta International Limited (“Delta”). Winder and Delta were formed and incorporated in the Guangdong Province of the People’s Republic of China (“PRC”) on July 20, 2001, and February 23, 2006, respectively.
Pursuant to the share exchange agreement, the Company acquired from Deer International 50,000 ordinary shares, consisting of all of its issued and outstanding capital stock, 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 share exchange agreement was treated as a recapitalization and not as a business combination. 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.
The unaudited financial statements included herein were prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2011 Annual Report on Form 10-K. The results for the six and three months ended June 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
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.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Cash and Equivalents
Cash and 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 and Certificate of Deposit
Restricted cash consists of guarantee deposit in the bank for issuing letters of credit and bank acceptances. As of June 30, 2012, Company had certificate of deposits $474,316 expiring on March 28, 2014. This certificate of deposit had an annual interest rate of 13%. As of December 31, 2011, the Company had restricted cash of $127,235.
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. The Company has not incurred any bad debts to date. If the Company finds it may incur a bad debt, the Company will accrue the appropriate allowance based on the aging of our accounts receivable. The Company’s policy is to accrue the full amount of accounts receivable when their aging exceeds one year. Based on historical collection activity, the Company did not record any bad debt allowance at June 30, 2012 and December 31, 2011.
The Company sells products in the China domestic market through regional and national wholesalers and third party distributors. The standard term of payment of accounts receivable for several of the Company’s large and established China domestic retailer customers is 180 days from the close of the billing cycle, which is 30 – 45 days after the Company’s products are delivered to the customer. This accounts receivable term is customary for large and established China domestic retailers. Historically, the Company has not experienced late payments or bad debts under such terms from these retailers. The term of payment of accounts receivable for the Company’s other China domestic customers is 30 – 90 days from the close of the billing cycle. The Company provides its major customers with payment terms based on their payment history, amount they have purchased in the past, and upon any strategic agreement the Company may have with them.
As the Company continues to focus on expanding sales to the China domestic market, the Company’s sales to the China domestic market may represent a larger percentage of the Company’s total revenue. The Company anticipates that its accounts receivable will remain in line with standard industry practice relating to accounts receivable in China, which could be up to seven months.
The Company sells products to overseas customers under letters of credit, prepaid arrangements, certain short credit terms or direct customer purchase orders. The Company's export sales-related accounts receivable typically are less than three months, depending on customer shipment schedules. Historically, the Company has not experienced significant bad debts from export sales. The Company also maintains 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.
The Company believes its accounts receivable will be collected in the ordinary course of business within seven months as the Company has established relationships with many of its major customers. In addition, the Company’s domestic customers typically pay according to the Company’s payment terms and the Company maintains insurance for its accounts receivable with respect to its international customers.
The table below provides account receivable roll forward schedules for our three largest customers ---- Gome, Tianhong and Reed Sea.

Customer |  | December 31, 2011 Receivable |  |  | 2012 Sales |  |  | 2012 collection |  |  | Bad debt allowance |  |  | June 30, 2012 Receivable |
Gome |  | $ | 2,802,821 |  |  | $ | 33,475,031 |  |  | $ | 27,573,395 |  |  |  | - |  |  | $ | 8,704,457 |
Tianhong |  | $ | 1,587,777 |  |  | $ | 27,338,740 |  |  | $ | 13,819,473 |  |  |  | - |  |  | $ | 15,107,044 |
Reed Sea |  | $ | 4,236,537 |  |  | $ | 20,812,698 |  |  | $ | 16,151,498 |  |  |  | - |  |  | $ | 8,897,737 |

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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
VAT Receivables
VAT receivables are VAT rebates which arise from our purchase of raw materials. VAT receivables are returned to the Company or offset against VAT payable. The Company anticipates collecting its VAT receivables within one year. The Company does not experience credit losses with respect to VAT receivables because they are owed to the Company by the government. The Company classifies VAT receivables as a current asset because it is an asset that is reasonably expected to be realized (or sold or consumed) within one year or within the Company’s normal operating cycle.
Advances to Suppliers
The Company makes advances to certain vendors to purchase material and equipment. The advances are interest-free and unsecured.
Inventories
Inventories are valued at the lower of cost (determined on a weighted average basis) or market. The Company compares the cost of inventories to their market value and allowance is made to write down inventories to their market value, if lower.
Notes Receivable
The Company sold goods to its customers and received commercial notes (bank acceptance) from them in lieu of payments for accounts receivable. The Company discounted the commercial notes with bank or endorsed the commercial notes to vendors for payment of their own obligations or to get cash from third parties. Most of the commercial notes have a maturity of less than six months.
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 years
Equipment | 5-10 years
Vehicles | 5 years
Office equipment | 5-10 years

The following are the details of property and equipment at June 30, 2012 and December 31, 2011:

|  | 2012 |  |  | 2011 |
Building |  | $ | 21,173,915 |  |  | $ | 21,254,566 |
Equipment |  |  | 25,026,708 |  |  |  | 25,072,857 |
Vehicle |  |  | 452,544 |  |  |  | 454,267 |
Office equipment |  |  | 567,069 |  |  |  | 566,054 |
Total |  |  | 47,220,236 |  |  |  | 47,347,744 |
Less accumulated depreciation |  |  | (12,907,664 | ) |  |  | (11,210,135 | )
Property & equipment, net |  | $ | 34,312,572 |  |  | $ | 36,137,609 |

Depreciation for the six months ended June 30, 2012 and 2011, was $1,744,894 and $1,095,850, respectively; for the three months ended June 30, 2012 and 2011, it was $872,022 and $555,537, respectively.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Construction in Progress
Construction in progress consists of molds under construction of $3.1 million for Winder as of June 30, 2012, and December 31, 2011, with no major additional costs to be incurred. These molds need to be examined by the Company before they are used for production.
Construction in progress also includes costs for the construction of a new plant, office building and power distribution station for Deer Technology. Total estimated cost for this project is $36.11 million. As of June 30, 2012, construction in progress was $17.99 million (See note 13). This phase of construction is anticipated to be completed in September 2012.
Long-Lived Assets
The Company follows ASC Topic 360, “Property, Plant, and Equipment,” which governs financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of June 30, 2012 and December 31, 2011, there was no significant impairment of its long-lived assets.
Intangible Assets
Intangible assets consist of rights to use land and computer software. The Company evaluates intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired and a second test is performed to measure the amount of impairment loss.
The following are the details of intangible assets at June 30, 2012 and December 31, 2011:

|  | 2012 |  |  | 2011 |
Right to use land |  | $ | 36,695,047 |  |  | $ | 36,834,817 |
Computer software |  |  | 93,426 |  |  |  | 83,201 |
Total |  |  | 36,788,473 |  |  |  | 36,918,018 |
Less accumulated amortization |  |  | (1,386,470 | ) |  |  | (1,022,490 | )
Intangibles, net |  | $ | 35,402,003 |  |  | $ | 35,895,528 |

Pursuant to PRC regulations, the PRC government owns all land. The Company recorded the amounts paid for the land use rights as an intangible asset. The Company amortizes these rights over their respective periods, which range from 45 to 50 years. Computer software is amortized over one to two years.
In 2010, Deer Technology acquired the land use rights for two parcels of land with a total of 439,640 square meters located in east central China in the city of Wuhu, AnHui Province. The purchase price of the land use rights for these two parcels of land was approximately $34.5 million, RMB 4.95 million ($743,000) per hectare and including a 4% PRC government land transfer tax and other government charges. The use right for the first parcel of land covering 289,416 square meters was purchased for approximately RMB 149 million ($22.7 million). The land use right for the second parcel of land covering 150,224 square meters was purchased for RMB 77.37 million ($11.8 million). The Company has received the land use right certificates from the PRC government on these two parcels of land.
The deposit of $10.5 million (RMB 67,901,400) paid in 2010 to acquire a land use right was returned to the Company in the first quarter of 2011, as it failed to win the auction for the land.
The Company paid an additional $4.3 million (RMB 27,934,381) in first quarter of 2011 to make payment in full for the land use rights it acquired in December 2010. As of December 31, 2010, the Company prepaid (RMB 22,300,000) $3,367,207 for land use rights acquired in December 2010. This prepayment was transferred into intangible assets in the first quarter of 2011 when the Company received the land use right certificate.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
A summary of Company’s land use rights are as follows:

Name |  | Site use right Phase I |  | Site use right Phase II |  | Land use right |  | Land use right
Size (In Square Meters) |  | 33,728 |  | 52,597 |  | 289,416 |  | 150,224
Location |  | Yangjiang City |  | Yangjiang City |  | Wuhu City |  | Wuhu City
Owner |  | Winder |  | Winder |  | Deer Technology |  | Deer Technology
Useful life in months |  | 600 |  | 600 |  | 600 |  | 600
Purpose |  | Plant and workshop |  | Plant and workshop |  | Plant and workshop |  | Plant and workshop
Purchase date |  | November 2002 |  | June 2005 & March 2010 |  | September 2010 |  | December 2010
Price in RMB/USD |  | RMB 1.7 million ($0.3 million) |  | RMB 3.9 million ($0.6 million) |  | RMB 149.1 million ($23 million) |  | RMB 77.4 million ($12 million)

In addition, as of June 30, 2012, the Company prepaid RMB 5.34 million ($0.8 million) for the land use rights for 60,000 square meters of land in Yangjiang City, or Site use right Phase III. The total cost for the land use rights is approximately RMB 21.3 million ($3.3 million), which the Company is required to pay in full in 2012.
There are no regulatory deadlines or commitments to develop the land.
Amortization for the six months ended June 30, 2012 and 2011 was $368,880 and $343,011, respectively; for the three months ended June 30, 2012 and 2011, was $184,704 and $179,869, respectively.
The following table summarizes the expected amortization over the next five years as of June 30, 2012:

|  | Amount |
2013 |  | $ | 736,583 |
2014 |  |  | 736,583 |
2015 |  |  | 736,583 |
2016 |  |  | 736,583 |
2017 |  |  | 736,583 |
Thereafter |  |  | 31,719,088 |
Total |  | $ | 35,402,003 |

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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Fair Value of Financial Instruments
Certain of the Company’s financial instruments, including cash and 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 (“FV”) of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines FV and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV 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 FV measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”
As of June 30, 2012 and December 31, 2011, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.
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 (codified in FASB ASC Topic 480).
Sales revenue from export customers is recognized at the date of shipment when the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. The Company records payments for goods before all relevant criteria for revenue recognition are satisfied as advance from customers.
Sales revenue from domestic customers is recognized at FOB destination when the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Company pays for the cost of freight and insurance and risk of loss passes when customers receive the goods. The Company records payments for goods before all relevant criteria for revenue recognition are satisfied as advance from customers.
Sales revenue is the invoiced value of goods, net of value-added tax. All of the Company’s products sold in the PRC are subject to a VAT of 17% of the sales price. This VAT may be offset by the VAT paid by the Company on raw materials and other materials included in the cost of producing the Company’s finished product. The Company recorded VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.
Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Sales returns and allowances were $0 for the six and three months ended June 30, 2012 and 2011. The Company does not provide a right of unconditional return, price protection or any other concessions to its customers.
Cost of Revenue and Selling, General and Administrative Expenses
Cost of revenue includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process. These costs include inbound freight , purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process. Selling, general and administrative expenses includes expenses associated with the distribution of our products, sales efforts including commissions payable to in store promotional staff, administration and other costs that are not incurred to support the manufacturing process. The Company records distribution costs associated with the sale of inventory as a component of selling, general and administrative expenses in the Statements of Consolidated Income. These expenses include warehousing , outbound freight , insurance and costs associated with distribution personnel.
Advance from Customers
The Company records payments received from customers in advance of their future orders to an advance account. These orders are normally delivered within a reasonable period of time based upon contract terms with the customers.
Advertising Costs
The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the six month ended June 30, 2012 and 2011 were $1,429,774 and $71,439, respectively. Advertising costs for the three months ended June 30, 2012 and 2011, were $1,412,308 and $48,360, respectively.
Research and Development
The Company expenses its research and development (“R&D”) costs as incurred. R&D costs for the six months ended June 30, 2012 and 2011, were $5,001 and $186,284, respectively. For the three months ended June 30, 2012 and 2011, were $5,001 and $2,442, respectively. R&D costs are included in general and administrative expenses.
Subsidy Income
The Company was awarded grants from local government bureaus to encourage the development of its business. As a policy of municipal governments in the PRC, local government bureaus commonly provide grants to local companies to encourage greater economic development and employment. The grants are typically based on certain standards that are reviewed periodically. The grants set forth below were awarded to the Company based on its progress in technological innovation and building of a standardized plant and factory. As the exact amount of a grant is uncertain until the local government makes its final determination, the Company records income only when the grant is received or approved. The grants set forth below were made without any conditions and restrictions, and were not required to be repaid.
Set forth below are the grants recorded in the six months ended June 30, 2012. The Company did not receive subsidiary income in the three months ended June 30, 2012.

Item |  | Amount in ($) |
Development fund from Yangjiang Hi-Tech Industrial Development Zone Administration Committee |  | $ | 79,272 |
From Yangjiang Hi-Tech Industrial Development Zone for business development reward |  |  | 150,617 |
Others |  |  | 6,341 |
Total |  | $ | 236,230 |

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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Set forth below are the grants recorded in the six months ended June 30, 2011. Subsidy income for the three months ended June 30, 2011 was $7,960, and was received from Guangdong Strategy Special Fund for Technology Implementation.

Item |  | Amount in ($) |
Development fund from Yangjiang Hi-Tech Industrial Development Zone Administration Committee |  | $ | 269,406 |
From Hi-Tech Bureau of Finance for rewarding of plant construction |  |  | 704,564 |
Others |  |  | 33,222 |
Total |  | $ | 1,007,192 |

The above subsidy income attributable to the grants specified was received in full and could be used without any restrictions.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718 & 505, “Compensation – Stock Compensation.” ASC 718 requires companies to measure compensation cost for stock-based employee compensation at FV at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in its statement of operations the grant-date FV of stock options and other equity-based compensation issued to employees and non-employees. There were 50,000 options outstanding as of June 30, 2012.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 109, “Accounting for Income Taxes” (codified in FASB ASC Topic 740), which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes (codified in FASB ASC Topic 740). When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified as selling, general and administrative expense in the statements of income. At June 30, 2012 and December 31, 2011, the Company had not taken any significant uncertain tax position on its tax returns for 2011 and prior years or in computing its tax provision for 2012.
Foreign Currency Transactions and Comprehensive Income
The financial statements of the Company’s PRC subsidiaries were translated into USD in accordance with SFAS No. 52, “Foreign Currency Translation” (codified in FASB ASC Topic 830), with the RMB as the Company’s China subsidiaries’ functional currency. According to SFAS No. 52 , 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 operations items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” (codified in FASB ASC Topic 220).
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Basic and Diluted Earnings Per Share
Earnings per share (“EPS”) are calculated in accordance with the ASC Topic 260, “Earnings per Share.” Basic EPS are based upon the weighted average number of common shares outstanding. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is calculated 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 EPS calculations:

Six months ended June 30, |  | 2012 |  |  | 2011 |
|  | Shares |  | Per Share Amount |  |  | Shares |  | Per Share Amount |
Basic EPS |  | $ | 33,592,562 |  |  | $ | 0.40 |  |  | $ | 33,592,562 |  |  | $ | 0.39 |
Effect of dilutive warrants and stock options |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Diluted EPS |  |  | 33,592,562 |  |  | $ | 0.40 |  |  |  | 33,592,562 |  |  | $ | 0.39 |

Three months ended June 30, |  | 2012 |  |  | 2011 |
|  | Shares |  | Per Share Amount |  |  | Shares |  | Per Share Amount |
Basic EPS |  | $ | 33,592,562 |  |  | $ | 0.17 |  |  | $ | 33,592,562 |  |  | $ | 0.22 |
Effect of dilutive warrants and stock options |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Diluted EPS |  |  | 33,592,562 |  |  | $ | 0.17 |  |  |  | 33,592,562 |  |  | $ | 0.22 |

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.
Segment Reporting
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (codified in FASB ASC Topic 280) requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management disaggregates a company.
SFAS No. 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment. All of the Company's assets are located in the PRC.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Recent Pronouncements
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the FV of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on our financial statements.
As of June 30, 2012, there are no other recently issued accounting standards not yet adopted that would have a material effect on the Company’s consolidated financial statements.
Note 3 – Inventories
Inventories consisted of the following at June 30, 2012 and December 31, 2011:

|  | 2012 |  |  | 2011 |
Raw material |  | $ | 8,328,154 |  |  | $ | 23,080,165 |
Work in process |  |  | 6,525,780 |  |  |  | 10,265,880 |
Finished goods |  |  | 44,959,271 |  |  |  | 27,829,309 |
Total |  |  | 59,813,205 |  |  |  | 61,175,354 |
Allowance for inventory impairment |  |  | (157,523) |  |  |  | (158,123) |
Inventories, net |  | $ | 59,655,682 |  |  | $ | 61,017,231 |

Note 4 – Other Payables and Accrued Expenses
Other payables and accrued expenses consisted of the following at June 30, 2012 and December 31, 2011:

|  | 2012 |  |  | 2011 |
Accrued expenses |  | $ | 72,793 |  |  | $ | 113,695 |
Accrued wages |  |  | 582,255 |  |  |  | 975,071 |
Welfare payable |  |  | 20,276 |  |  |  | 20,353 |
Other payables |  |  | 1,581,361 |  |  |  | 1,644,498 |
Total |  | $ | 2,256,685 |  |  | $ | 2,753,617 |

Accrued expenses were for electricity and freight. Other payables were for government charges, payable to the local construction management department, and payable for employees’ education fund and labor union fund, etc.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Note 5 – Notes Payable
Notes payable at June 30, 2012 and December 31, 2011 was $0 and $692,821, respectively, were for multiple bankers’ acceptances from the Bank of China. The terms of the notes range from 3-6 months, bear no interest and pay the bank 0.05% of the note balance as an acceptance fee. The Company deposits a certain percentage of the notes’ par value with the Bank of China, refundable when the notes are re-paid and accounted for as restricted cash in the accompanied consolidated financial statements.
Note 6 – Dividend Payable
On March 9, 2011, the Company’s Board of Directors (“BOD”) declared a first quarter dividend payable from future earnings, of $0.05 per share which was paid on April 14, 2011. On May 9, 2011, the Company’s BOD declared a second quarter dividend of $0.05 per share, payable from future earnings on July 15, 2011, to the shareholders of record as of June 30, 2011. On August 9, 2011, the Company’s BOD declared a third quarter dividend of $0.05 per share, payable from future earnings on October 15, 2011, to the shareholders of record as of September 30, 2011. On November 8, 2011, the Company’s BOD declared a fourth quarter dividend of $0.05 per share, payable from future earnings on January 13, 2012, to the shareholders of record as of December 30, 2011. No dividend was declared by the Company’s BOD for the six months ended June 30, 2012.
Note 7 – Stockholders’ Equity
Stock Options
Following is a summary of the activity of options to an independent director:

|  | Options outstanding |  |  | Weighted Average Exercise Price |  |  | Weighted average remaining contractual life |  |  | Aggregate Intrinsic Value |
Outstanding, December 31, 2011 |  |  | 50,000 |  |  | $ | 10.96 |  |  |  | 2.98 |  |  | $ | - |
Exercisable, December 31, 2011 |  |  | 50,000 |  |  | $ | 10.96 |  |  |  | 2.98 |  |  | $ | - |
Outstanding, June 30, 2012 |  |  | 50,000 |  |  | $ | 10.96 |  |  |  | 2.48 |  |  | $ | - |
Exercisable, June 30, 2012 |  |  | 50,000 |  |  | $ | 10.96 |  |  |  | 2.48 |  |  | $ | - |

The exercise price for options outstanding at June 30, 2012, is as follows:

Number of Options |  |  | Exercise Price |
| 50,000 |  |  | $ | 10.96 |

The assumptions used in calculating the fair value of options granted using the Black-Scholes option-pricing model are as follows:

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

During the six months ended June 30, 2012 and 2011, the Company recorded $0 and $51,314 stock option expense, respectively. During three months ended June 30, 2012 and 2011, the Company recorded $0 and $25,657 stock option expense, respectively.
Warrants
At the end of 2010, all warrants were exercised. No new warrants were granted during the six and three months ended June 30, 2012. No warrants were granted during the six months ended June 30, 2011.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Note 8 – Employee Welfare Plan
Expense for employee common welfare was $3,210 and $19,493 for the six months ended June 30, 2012 and 2011, respectively and $1,739 and $11,581 for the three months ended June 30, 2012 and 2011, respectively. The Company is not required to establish welfare and common welfare reserves.
Note 9 – Statutory Reserve and Development Fund
As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

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

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

| iii. | Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “statutory common welfare fund,” 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 the Company’s 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% of income after tax, not to exceed 50% of registered capital.
The Company appropriated $1,467,177 and $1,449,408 as reserve for the statutory surplus reserve, $733,588 and $724,704 as reserve for development fund, for the six months ended June 30, 2012 and 2011respectively. The Company appropriated $639,217 and $814,343 as reserve for the statutory surplus reserve, and $319,608 and $407,171 as reserve for development fund, for the three months ended June 30, 2012 and 2011.
Note 10 – Income Tax
The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
Deer, the U.S. parent company, was incorporated in the U.S. and has net operating losses (NOL) for income tax purposes. Deer has net operating loss carry forwards for income taxes of $745,963 at June 30, 2012, which may be available to reduce future years’ taxable income as NOL; NOL can be carried forward up to 20 years from the year the loss is incurred. Management believes the realization of benefits from these losses remains uncertain due to Deer’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance has been provided.
Deer International was incorporated in the BVI and there is no income tax for a company domiciled in the BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI tax jurisdiction where Deer International is domiciled.
Local PRC Income Tax
Pursuant to the tax laws of China, general enterprises are subject to income tax at an effective rate of 25%. Winder enjoyed a 15% preferential income tax effective as of 2009 until expiration on December 31, 2011. For the period ended June 30, 2012, Winder used standard tax rate of 25% to record income tax expenses.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
The following is a reconciliation of tax at the U.S. federal statutory rate to the provision for income tax recorded in the consolidated financial statements for the six and three months ended June 30, 2012 and 2011:

|  | Six Months |  |  | Three Months |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Tax provision at U.S. statutory rates |  |  | 34 | % |  |  | 35.2 | % |  |  | 34 | % |  |  | 36.2 | %
Foreign tax rate difference |  |  | (9.4 | )% |  |  | (9.3 | )% |  |  | (9.6 | )% |  |  | (9.3 | )%
Other |  |  | (0.7) | % |  |  | 2.2 | % |  |  | (2.3) | % |  |  | 2.0 | %
Valuation allowance |  |  | 2.0 | % |  |  | 0.7 | % |  |  | 2.9 | % |  |  | 0.6 | %
Effective tax holiday |  |  | 0 | % |  |  | (10.6 | )% |  |  | 0 | % |  |  | (10.6 | )%
Tax per financial statements |  |  | 25.9 | % |  |  | 18.2 | % |  |  | 25.0 | % |  |  | 18.9 | %

Note 11 – Geographical Sales
Geographical distribution of sales is as follows:

|  | Six Months Ended |  |  | Three Months Ended |
|  | June 30, |  |  | June 30, |
Geographical Areas |  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
China |  | $ | 94,809,315 |  |  | $ | 44,581,539 |  |  | $ | 45,006,010 |  |  | $ | 29,174,799 |
South America |  |  | - |  |  |  | 9,523,576 |  |  |  | - |  |  |  | 4,296,996 |
Asia |  |  | 65,798 |  |  |  | 8,298,692 |  |  |  | - |  |  |  | 2,534,005 |
Europe |  |  | - |  |  |  | 4,937,251 |  |  |  | - |  |  |  | 2,218,883 |
Middle East |  |  | - |  |  |  | 8,325,845 |  |  |  | - |  |  |  | 5,137,179 |
North America |  |  | - |  |  |  | 3,474,092 |  |  |  | - |  |  |  | 1,328,163 |
Africa |  |  | - |  |  |  | 662,835 |  |  |  | - |  |  |  | 437,659 |
|  | $ | 94,875,113 |  |  | $ | 79,803,830 |  |  | $ | 45,006,010 |  |  | $ | 45,127,684 |

Note 12 – Operating Risks
The Company’s operations in the PRC are subject to considerations and risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments of the PRC and PRC rules and regulations regarding foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sale, purchase and expense transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under current PRC law. Foreign exchange transactions are required by law to be carried out only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.
Note 13 – Commitments
The Company had construction in progress, which includes costs for the construction of a new plant, office building and power distribution station for Deer Technology. Total estimated cost for this project is $36.11 million. As of June 30, 2012, construction in progress related to this project was $17.99 million and the Company was committed to pay an additional $18.12 million to complete this project. This phase of construction is anticipated to be completed in September 2012.
Winder has registered capital of $57.2 million. At June 30, 2012, the Company has contributed $38.5 million to Winder’s registered capital and is committed to contribute an additional $18.7 million by April 2013.
On September 1, 2010, the Company entered into a 2-year lease, expiring August 30, 2012, for a show room in Panyu City, Guangdong Province with monthly rent, inclusive of property management fees, of $5,500 (RMB 37,000). The Company has the option to renew this lease upon expiration. At June 30, 2012, the Company’s future minimum rental payments required under this operating lease for 2012 were as follows:

2012 |  | $ | 11,000 |

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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Note 14 – Major Customers and Vendors
Below is a table indicating major customers of the Company who account for over 10% of the Company’s total sales. At June 30, 2012, the total accounts receivable balance due from these four customers was $37,922,948.

|  | Six months ended June 30 |  |  | Three months ended June 30 |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Gome |  |  | 35 | % |  |  | 26 | % |  |  | 25 | % |  |  | 33 | %
Tianhong |  |  | 29 | % |  |  | 2 | % |  |  | 38 | % |  |  | 4 | %
Reed Sea |  |  | 22 | % |  |  | 7 | % |  |  | 22 | % |  |  | 7 | %
Suyi |  |  | 13 | % |  |  | 4 | % |  |  | 13 | % |  |  | 5 | %

Below is a table indicating the Company’s major vendors who account for over 10% of the Company’s total purchases. At June 30, 2012, the total payable to these vendors was approximately $808,669.

|  | Six months ended June 30 |  |  | Three months ended June 30 |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Shimaite |  |  | 31 | % |  |  | - |  |  |  | 9 | % |  |  | - |
Chuangdi |  |  | 27 | % |  |  | - |  |  |  | 26 | % |  |  | - |
Yalesi |  |  | 14 | % |  |  | - |  |  |  | 19 | % |  |  | - |
Hongbo |  |  | - |  |  |  | 13 | % |  |  | - |  |  |  | 11 | %

Note 15 – Contingencies
Acquisition of Winder
On April 1, 2008, Deer International acquired 100% of the equity interest in Winder from 50HZ Electric Limited (“50HZ”). At that time Deer International was an offshore that enterprise controlled by some of the Company’s shareholders who are PRC residents. Certain of these shareholders also owned or controlled 50HZ , which made Winder an affiliated PRC company of such shareholders. In October 2008, such shareholders transferred their ownership interests in 50HZ to an unrelated third party, after which 50HZ was no longer a related party of the Company. The transaction was approved by the Economic Development Bureau of Yangjiang High-Tech Industry Development Zone (the “Yangjiang High-Tech Zone”).
The acquisition of 100% of Winder’s equity interests by Deer International on April 1, 2008, was free of any consideration 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 and Deer International had certain related parties at the time of the Winder acquisition, there is a possibility 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 paid to get 100% equity interest of Winder, such excess amount would be subject to additional PRC income tax. Although the Company believes 50HZ would be responsible for the possible PRC income tax, the Company understands it is common practice for PRC tax authority to enforce the tax collection on the entity at issue, which in this case would be Winder, and the Company may be required to pay the possible PRC income tax on behalf of 50HZ. According to the M&A Regulations, the acquisition of Winder might require the approval of Ministry of Commence People’s Republic of China (“MOFCOM”). As the interpretation and implementation of the M&A Regulations are unclear, if the approval of MOFCOM is required, the approval that 50HZ obtained from the Yangjiang High-Tech Zone may be deemed incomplete and the transferee, namely Deer International, may need to obtain further approval from MOFCOM.
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DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011
Pending Litigation
On March 28, 2011, the Company filed suit in the Supreme Court of the State of New York, captioned Deer Consumer Products, Inc. v. Alfred Little, et al., Index No. 650823/2011, against a certain blogger, “Alfred Little,” a website SeekingAlpha.com (where some of the blogs appeared) and Does #1-10, who were phantom authors and distributors of negative false articles about the Company. The Company alleged that the defendants published false and defamatory statements as part of scheme to manipulate and depress the market for the Company’s common stock enabling defendants to realize unnatural profits on short positions they had taken. On August 29, 2011, the Company obtained a Court order allowing the Company to serve the summons and complaint upon anonymous defendant Alfred Little via email. The Company effected service on Alfred Little pursuant to that order. On September 29, 2011, Alfred Little filed motions to dismiss the complaint claiming lack of New York jurisdiction and for permission to appear anonymously as a party in the litigation. SeekingAlpha.com certified that it was neither involved in the authoring or revision of the allegedly defamatory statements and, as such, on August 31, 2011, the Court granted defendant SeekingAlpha.com’s motion to dismiss the Company’s claim against it. On September 29, 2011, the Company filed a notice of appeal of this decision. On May 21, 2012, the Company advised the Court that it had decided not to “perfect” the appeal. On January 27, 2012, the Court denied in part Alfred Little’s motion to dismiss the complaint for lack of personal jurisdiction and permitted the Company to conduct discovery on the issue of personal jurisdiction after a confidentiality agreement was reached between the parties. On February 17, 2012, the parties reached a confidentiality agreement and the Company then commenced discovery on the jurisdictional issue. On February 23, 2012, after an in camera review of the evidence presented by Alfred Little, the Court permitted Alfred Little to proceed anonymously until the Court decided the jurisdictional issue. On March 30, 2012, Alfred Little filed a second motion to dismiss all claims. This motion was rejected and denied by the Court on May 9, 2012. On this same date, the Court found Alfred Little to be in violation of discovery and compelled Alfred Little to comply under pain of sanctions. The Company informed the Court that there was more than one Alfred Little and that additional defamation attacks were taking place in explicit retaliation for the Company seeking assistance from the New York Court. The Court granted the Company the right to amend its complaint to plead the case against all individuals and entities acting in concert to publish and distribute the allegedly false statements about the Company. On May 10, 2012, the Court so ordered a subpoena for the in person deposition of Xiaofu (Jeff) Huang at New York Supreme Court to take place on May 16, 2012. Xiaofu (Jeff) Huang failed to appear on May 16, prompting the Court to inform the parties that it planned to vacate the February 23, 2012 Order of Anonymity. The Court reasoned that Xiaofu (Jeff) Huang had information material as to whether Alfred Little should proceed anonymously, and, without such information, Alfred Little should not be allowed to proceed anonymously. The next day Jon Carnes claimed that he was Alfred Little. Carnes retained the same law firm as Alfred Little. On May 17, 2012, the Court vacated its February 23 Order of Anonymity on consent. All confidentiality protections were specifically lifted by an order dated May 21, 2012, which Order also unsealed all documents making them available to the public. The Company filed its amended complaint on June 6, 2012, naming the individuals and entities that were part of the group that the Company claims authored and distributed false statements about the Company. The Company is seeking: (1) $11 million dollars in compensatory and punitive damages against each defendant for its participation in the scheme as well as other damages, (2) an Order requiring the defendants to retract the false statements about the Company and (3) an Order forbidding the defendants from future false attacks on the Company. On June 22, 2012, the Court permitted the Company and Carnes to engage in supplemental briefing on the issue of whether the jurisdictional discovery of Carnes extends up to the filing date of the amended complaint. In its July 31, 2012 Order, the Court ruled that Jon Carnes and Alfred Little are one and the same and that the time limit for Carnes’s jurisdictional discovery ended at the filing of the original complaint, but that jurisdictional discovery as to all other defendants other than Jon Carnes may very well extend to June 6, 2012. On August 1, 2012, the Court granted service of the amended complaint upon defendant Andrew Wong via email. The Company effected service upon that defendant the same day. Thus far the Company has served five of the ten known defendants and has filed a motion to serve three more defendants without addresses: Joseph Ramelli, Xiaofu (Jeff) Huang, and International Financial Research & Analysis Group. Defendant EOS Holdings LLC has filed a motion to dismiss which the Company must file papers in opposition to by August 22, 2012. Defendant Simon Moore, also represented by the same law firm representing Carnes, has until August 17, 2012 to file its answer or motion.
On April 29, 2011, a purported securities class action lawsuit on behalf of the purchasers of the Company’s common stock between March 31, 2009, and March 21, 2011, James Rose v. Deer Consumer Products, Inc. et al, was filed against the Company and certain of its current and former officers and directors in the United States District Court for the Central District of California. The court has not yet certified the class action status. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as, in the case of the individual defendants, the Section 20(a) control person provisions of the Exchange Act. The factual assertions in the complaint, based expressly on the published statements at issue in the Alfred Little suit described above, consist primarily of allegations that the defendants made materially false or misleading public statements concerning the Company’s financial condition in 2010 and 2009. The complaint seeks unspecified damages and other relief relating to the purported inflation in the price of the Company’s common stock during the class period. A consolidated amended complaint was filed on September 6, 2011, with essentially the same allegations. The Company filed a motion to dismiss the lawsuit, which motion is fully briefed and has been taken under submission by the Court. The Company strongly denies the allegations in the complaint. The Company believes this lawsuit is frivolous and without merit and will contest it vigorously. The Company plans to pursue all legal remedies available to it if the complaint is not withdrawn in its entirety.
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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other Securities and Exchange Commission filings. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report, we will refer to Deer Consumer Products, Inc. as "Deer," the "Company," "we," "us," and "our."
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are engaged in the manufacture, marketing, distribution and sale of small home and kitchen electric appliances. We develop, promote, manufacture and sell stylish, safe and easy to use products including: blenders, juicers and soymilk makers that are designed to make today’s lifestyles simpler and healthier. We currently manufacture our products in Yangjiang, China and have corporate functions in Nanshan, Shenzhen, China.
On September 3, 2008, we consummated a series of agreements that resulted in the acquisition of all of the ordinary shares of Deer International, a corporation organized under the laws of the British Virgin Islands (“BVI”) on December 3, 2007, parent of its wholly owned subsidiary Winder since March 11, 2008, and Delta, a wholly owned subsidiary of Winder. Winder and Delta were 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 for 15,695,706 shares of our common stock.
Concurrently with the closing of the transactions contemplated by the share exchange agreement and as a condition thereof, we entered into an agreement with Crescent Liu, our former Director and Chief Executive Officer, pursuant to which he returned 5,173,914 shares of our common stock for cancellation. Mr. Liu was not compensated for the cancellation of his shares of our common stock. Upon completion of the foregoing transactions, we had 19,652,226 shares of common stock issued and outstanding. In connection with the above transaction, we changed our name to Deer Consumer Products, Inc. on September 3, 2008. For accounting purposes, the exchange of shares with Deer International and concurrent transactions described above were treated as a reverse acquisition and recapitalization of Deer International, with Deer International being treated as the continuing entity, because the Deer International shareholders owned a majority of our outstanding common stock after the transactions and exercise significant influence over the operating and financial policies of the consolidated entity.
We operate through our wholly owned subsidiaries in China. Our U.S. holding company, Deer Consumer Products, Inc., owns 100% of Deer International Group Ltd., a BVI entity, which owns our three wholly foreign owned enterprises, Winder, Deer Technology (AnHui) Co., Ltd. and Anlin Technology (Anhui) Co., Ltd. Delta, which transferred its material former operations to Winder in 2009, is 100% owned by Winder and is currently engaged in marketing operations. Winder is located in Guangdong Province and is engaged in the research, production and delivery of our goods. Deer Technology and Anlin Technology were both incorporated in the AnHui Province on April 30, 2010. Deer Technology and Anlin Technology will also be engaged in the manufacture and sale of household electric appliances and were formed to establish production and distribution facilities in the Wuhu area of AnHui Province.
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Each of our wholly owned foreign enterprises, Winder, Deer Technology and Anlin Technology, is authorized by its respective business license to operate our electrical appliance manufacturing business. Delta transferred all of its material former operations to Winder in 2009 to improve the Company’s operating efficiency. Currently, Delta only conducts marketing operations for the Company.
On April 30, 2010, we incorporated Deer Technology and Anlin Technology in AnHui Province. As of March 31, 2012, we invested $39.8 million in Deer Technology and $10.2 million in Anlin Technology. Deer Technology and Anlin Technology will be engaged in the manufacture and sale of household electric appliances and were formed to establish a new factory in the Wuhu area of AnHui Province. In 2010, the Company paid approximately $35 million to purchase two parcels of land in the Wuhu area of Anhui Province.
The purchase price paid by the Company for the land use rights in Anhui Province was determined through a public bidding process with the PRC government, as is the case with all acquisitions of land use rights in the PRC. Typically, once a bidder wins a land auction a public notification stating the bidder’s name, the size of the land and the price paid are available to the public on the PRC government’s Ministry of Land and Resources website. After the bidder makes the full payment on the land an official land use rights certificate is granted.
The PRC government bases the price of the land use rights on a number of factors including the land’s location, size, condition, proposed use, need for improvement, degree of surface leveling, close proximity to utilities and logistics, availability of other land in the local market, the financial position of the bidder, the competitive bidding positions of other bidders, general market conditions and local government policies at the time of the land auction. The prices for land use rights can vary significantly based on these factors.
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We have acted as an ODM and OEM for the export market and, in recent years, have expanded sales of our Deer brand (德尔) of appliances in the China domestic market. We will continue to target the China domestic market by expanding our production and manufacturing facilities by building a new factory in the Wuhu area of central China. Wuhu is located on the banks of the Yangtze River within hours from Shanghai and Nanjing, which are some of China’s most populous and economically developed regions. This central location will improve our ability to deliver our products to customers located throughout China. The new factory, which will increase our production capacity by 40%, and distribution center, will allow us to target the neighboring population of more than 400 million as we continue to grow our business in the China domestic market. We completed the construction of fencing, sewage system, water pipes, gas and utilities, the factory’s main entrance and leveling the land during the last quarter of 2011. We plan to complete the construction of certain workshops and the warehouse in 2012. The pace of construction will be determined by the pace of the Company’s China domestic market expansion. While our current factory located in Yangjiang, Guangdong province in south China does not operate a full capacity, we plan to use these facilities primarily for fulfilling export orders whereas we anticipate using our new facilities in Anhui to fulfill China domestic orders. These two facilities are about 1,000 miles apart and management anticipates needing the additional capacity at the new facilities in AnHui over the next few years. This additional capacity will be brought on line incrementally in accordance with our domestic expansion strategy.
Critical Accounting Policies
Presented below are those accounting policies we believe require subjective and complex judgments that could potentially affect our 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 accounting principles generally accepted in the United States (“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.
Long-Lived Assets. We periodically assess potential impairments to our long-lived assets. We perform an impairment review whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. Factors we considered include, but are not limited to: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends. When we determine the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, we recognize an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair market value of the asset, based on the fair market value if available, or discounted cash flows. To date, there has been no impairment of long-lived assets.
Revenue Recognition. Our revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (SAB) 104 (codified in FASB ASC Topic 480).
Sales revenue from export customers is recognized at the date of shipment when the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured.
Sales revenue from domestic customers is recognized at FOB destination when the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured. Company pays for the cost of freight and insurance and risk of loss passes when customers receive the goods.
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Recent Accounting Pronouncements
On July 27, 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on our financial statements.
As of June 30, 2012, there are no other recently issued accounting standards not yet adopted that would have a material effect on the Company’s consolidated financial statements.
Results of Operations
Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

|  |  |  |  | $ |  |  | % |
|  | 2012 |  |  | 2011 |  |  | Change |  |  | Change |
Revenue |  | $ | 94,875,113 |  |  | $ | 79,803,830 |  |  | $ | 15,071,283 |  |  |  | 19% |
Cost of revenue |  |  | 66,205,680 |  |  |  | 56,697,985 |  |  |  | 9,507,695 |  |  |  | 17% |
Gross profit |  |  | 28,669,433 |  |  |  | 23,105,845 |  |  |  | 5,563,588 |  |  |  | 24% |
Selling, general and administrative expenses |  |  | 10,983,252 |  |  |  | 7,804,539 |  |  |  | 3,178,713 |  |  |  | 41% |
Interest and financing (costs) income, net |  |  | 435,290 |  |  |  | 108,700 |  |  |  | 326,590 |  |  |  | 300% |
Other income, net (including subsidy) |  |  | 217,466 |  |  |  | 925,425 |  |  |  | (707,959 | ) |  |  | 77% |
Foreign exchange transaction loss |  |  | (42,895 | ) |  |  | (266,855 | ) |  |  | 223,960 |  |  |  | (84)% |
Income tax expense |  |  | 4,743,881 |  |  |  | 2,928,099 |  |  |  | 1,815,782 |  |  |  | 62% |
Net income |  | $ | 13,552,161 |  |  | $ | 13,140,477 |  |  | $ | 411,684 |  |  |  | 3% |

Revenues
Our revenues for the six months ended June 30, 2012, were $94.9 million, an increase of $15.1 million, or 19%, from $79.8 million in 2011. The increase in revenues resulted from our continued sales expansion in the China domestic market. In addition, the average selling price of our products increased 201% compared to the average selling prices in 2011, conforming to our strategy of promoting high value products to middle and high-end customer groups. We also adjusted product categories to meet domestic market needs. We increased our China domestic market sales to $94.8 million in the six months ended June 30, 2012, from $44.6 million in 2011, a 113% increase. Our products are available in over 4,000 stores as of June 30, 2012. Our customers include Gome, a prominent national electronic appliance retail chain in China with approximately 1,400 stores. In the three months ended June 30, 2012, we also increased our sales to Reed Sea Company, an internet sales operator in China that owns over 100 networked sales channels and who is now one of our largest customers. We also added another major customer, Tianhong Mall, a retail chain of a Sino-foreign joint venture. We also added retail locations in other channels such as regional electric appliance retailers, wholesalers and department stores. We increased our product sales over internet portals, into hotels and restaurants, and via reward programs with large banks, telecommunication firms and postal offices in China. These results are on pace with our plan to capture the fast growth being experienced in the China domestic small appliance market.
We adjusted our growth strategy to focus exclusively on China domestic markets, which offer higher profit margins than international markets. Accordingly, we had no sales to South America, Europe, Middle East, Africa and the US in the six months ended June 30, 2012. In addition, we are continuing to transform our business to focus on creating and marketing our own brand domestically.
Cost of Revenue
Cost of revenue “COR” includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process. These costs include inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process. Our COR for the six months ended June 30, 2012, was $66.2 million, an increase of $9.5 million, or 17%, from $56.7 million in 2011. The increased COR in the six months ended June 30, 2012, was due primarily to our increase in sales. Our COR as a percentage of revenue decreased 1% due to our increased domestic sales which have higher profit margins than export sales.
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Gross Profit
Our gross profit was $28.7 million for the six months ended June 30, 2012, compared to $23.1 million for 2011, an increase of 24%. Our gross margin was 30% for the six months ended June 30, 2012, compared to 29% for 2011, an increase of 1%. Our increase in gross profit was attributable to higher gross margins in the China domestic market, where we experienced a significant growth in sales, offset by our increased costs of revenue. Products generally sell for higher prices at retail and wholesale in China and our gross margin is in line with other comparable companies specializing in small household and kitchen appliances in the China domestic market. In addition, we have continued to improve the efficiency of our manufacturing operations through in-house production of motors and other primary components of our products, providing benefits from economies of scale.
Operating Expenses
Selling, general and administrative expenses (“SG&A”) includes expenses associated with the distribution of our products, sales efforts, including commissions payable to in-store promotional staff, administration costs and other costs that are not incurred to support the manufacturing process. We record distribution costs associated with the sale of inventory as a component of SG&A expenses in the Consolidated Statements of Income. These expenses include warehousing costs, outbound freight charges, insurance and costs associated with distribution personnel. SG&A expenses for the six months ended June 30, 2012, were $11.0 million, an increase of $3.2 million, or 41%, from $7.8 million in 2011. Selling expenses for the six months ended June 30, 2012, increased by $2.7 million, or 49%, in comparison to 2011, due to our increase in sales. Associated selling expenses include advertising to expand our market share, increase brand awareness and to help generate our significant increase in sales. In the six months ended June 30, 2012, our advertising expense increased significantly. We had advertising expenses of $1,429,774 for the six months ended June 30, 2012, an increase of $1,355,688, or 1830%, from $74,086 in 2011 period. We retained Han Han, a famous writer in China, as our product spokesman. We also retained Shanghai Dingxiang Advertising Company to promote our dehumidifier products in Beijing, Shanghai, Hangzhou and Nanjing. These two retentions accounted for 79% of our total advertising expenses. As usual, we incurred minimal expenses for our factory representatives and in-store promoters who promote our products directly to consumers at retail locations. We believe our direct in-store promotion approach, a standard practice in the small household appliances industry in China, is highly effective in marketing to consumers in the unique Chinese retail environment as compared to traditional mass media advertising channels, which can cause significant television and other mass media advertising expense without target customer interaction. Our in-store promoters market our products exclusively and directly to in-store customer traffic. According to a survey in the 2010 China Small Electronics Market Research Report, approximately 60% of Chinese consumers surveyed purchased small household appliances after being introduced to the product by in-store promoters.
Interest and Financing (Costs) Income, net
Interest and financing (costs) income, net, for the six months ended June 30, 2012, was a net gain of $435,290, which was an increase of $326,590 or 300% from a net gain of $108,700 for the six months ended June 30, 2011. The change was due principally to an increase in interest income from $108,700 in the six months ended June 30, 2011 to $443,309 in the six months ended June 30, 2012.
Other Income, net
Other income, net, in the six months ended June 30, 2012, was $217,466 compared to a $925,425 for the six months ended June 30, 2011, a decrease of $707,959. The decrease was due mainly to grants and rewards totaling $1,007,192 which we received from various PRC governments in the six months ended June 30, 2011, compared to $236,230 in the 2012 period.
Foreign Exchange Transaction Gain (Loss)
Foreign exchange transaction loss for the six months ended June 30, 2012, was $42,895 compared to $266,855 for 2011, a decrease of $223,960. The decrease was due principally to decreased export sales in 2012 and continuing foreign exchange rate fluctuations.
Income Tax Expense
Our effective tax rate for the six months ended June 30, 2012, was 25.0% compared to 18.2% for 2011. Winder enjoyed a 15% preferential income tax from 2009 through December 31, 2011, as a result of its status as a high tech enterprise. Winder is currently in the process of renewing its high tech enterprise status.
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Three Months Ended June 30, 2012, Compared to the Three Months Ended June 30, 2011

|  |  |  |  | $ |  |  | % |
|  | 2012 |  |  | 2011 |  |  | Change |  |  | Change |
Revenue |  | $ | 45,006,010 |  |  | $ | 45,127,684 |  |  | $ | (121,674) |  |  |  | (0.27)% |
Cost of revenue |  |  | 31,855,819 |  |  |  | 31,978,784 |  |  |  | (122,965) |  |  |  | (0.38)% |
Gross profit |  |  | 13,150,191 |  |  |  | 13,148,900 |  |  |  | 1,291 |  |  |  | 0.01% |
Selling, general and administrative expenses |  |  | 5,617,559 |  |  |  | 3,946,476 |  |  |  | 1,671,083 |  |  |  | 42% |
Interest and financing costs, net |  |  | 130,110 |  |  |  | 46,165 |  |  |  | 83,945 |  |  |  | 182% |
Other income (expense), net (including subsidy) |  |  | (20,523 | ) |  |  | (35,509) |  |  |  | 14,986 |  |  |  | (42)% |
Foreign exchange transaction loss |  |  | (6,733 | ) |  |  | (150,732 | ) |  |  | 143,999 |  |  |  | (96)% |
Income tax expense |  |  | 1,909,413 |  |  |  | 1,715,817 |  |  |  | 193,596 |  |  |  | 11% |
Net income |  | $ | 5,726,073 |  |  | $ | 7,346,531 |  |  | $ | (1,602,458) |  |  |  | (22)% |

Revenues
Our revenue for three months ended June 30, 2012, was $45.0 million, a decrease of $0.1 million or 0.3% from $45.1 million for the three months ended June 30, 2011. Our sales remained stable in the second quarter of 2012 and 2011. The average selling prices of our products increased 150% in the second quarter of 2012 compared to the average selling prices in the 2011 period, which conforms to our strategy of maintaining healthy profit margins across our product lines. We increased our China domestic market sales to $45.0 million in the three months ended June 30, 2012, from $29.2 million in the same period of 2011, a 54% increase. Our customers include Gome, a prominent national electronic appliance retail chain in China with approximately 1,400 stores. In the six months ended June 30, 2012, we also increased our sales to Reed Sea Company, an internet sales operator in China that owns over 100 networked sales channels and who is now one of our largest customers. We also added another major customer, Tianhong Mall, a retail chain of a Sino-foreign joint venture. We also added retail locations in other channels such as regional electric appliance retailers, wholesalers and department stores. We increased our product sales over internet portals, into hotels and restaurants, and via reward programs with large banks, telecommunication firms and postal offices in China. These results are on pace with our plan to capture the fast growth being experienced in the China domestic small appliance market.
We had no sales in South America, Asia, Europe, Middle East, Africa and US in the quarter ended June 30, 2012, which was due to adjusting our growth strategy to focus on China domestic markets, which offer higher profit margins than the international market. We are also transforming our business to focus on creating and marketing our own brand domestically.
Cost of Revenue
Our COR for the three months ended June 30, 2012, was $31.9 million, a decrease of $0.1 million, or 0.38%, from $31.9 million for 2011. The COR remained the same for 2012 and 2011periods. Our cost of revenue as a percentage of revenue remained constant at about 71% for the same period of both years.
Gross Profit
Our gross margin increased slightly to 29.2% for the three months ended June 30, 2012, compared to 29.1% for 2011. Our gross margin is higher in the China domestic market compared to the export market because products generally sell at much higher prices at retail and wholesale in China. We continue to improve our manufacturing efficiency through in-house production of motors and other primary components of our products, thereby benefiting further from economies of scale.
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Operating Expenses
SG&A expenses for the three months ended June 30, 2012, were $5.6 million, an increase of $1.7 million, or 42.3%, from $3.9 million for 2011. Selling expenses for the three months ended June 30, 2012, increased by 44.3% or $1.3 million in comparison to 2011 due to in advertising expenses. We had advertising expense of $1,407,900 for the three months ended June 30, 2012, an increase of $1,357,903, or 2,716%, from $49,997 in 2011. Associated selling expenses include advertising to expand our market share, increase brand awareness and to help generate our significant increase in sales. We retained Han Han, a famous writer in China, as our products spokesman. We also retained Shanghai Dingxiang Advertising Company to promote our dehumidifier products in Beijing, Shanghai, Hangzhou and Nanjing. As usual, the expense for our factory representatives and in-store promoters to promote our products directly to consumers at retail locations was minimal.
Interest and Financing Costs, net
Interest and financing costs, net, for the three months ended June 30, 2012, was a net gain of $130,110, an increase of $83,945, or 182%, from a net gain of $46,165 for 2011. The change was principally due to interest income increasing from $46,165 in the 2011 period to $131,869 in the 2012 period.
Other Income (Expense), net
Other expense for the three months ended June 30, 2012, was $20,523 compared to a $35,509 other expense for the 2011 period, a decrease of expense of $14,986.
Foreign Exchange Transaction Gain (Loss)
Foreign exchange transaction loss for three months ended June 30, 2012, was $6,733 compared to foreign exchange transaction loss of $150,732 for 2011, a decrease of $143,999. The change was principally due to fluctuations in the foreign exchange rate and significant decreased international sales in 2012.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of June 30, 2012, that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
Liquidity and Capital Resources
In May 2010, we announced a $20 million share buyback program. We purchased 798,300 shares of our common stock on the open market during 2010 for $6,945,950 and returned such shares to the treasury for cancelation. We may purchase additional shares of our common stock from time to time on the open market pursuant to the buyback program.
Cash Flows
As of June 30, 2012, we had $9.40 million in cash and equivalents on hand. Our principal demands for liquidity are to help increase our sales in China by adding capacity, purchasing inventory and for sales distribution infrastructure and general corporate purposes. We anticipate the cash we have on hand as of June 30, 2012, as well as the cash that we will generate from operations, will satisfy these requirements.
At June 30, 2012, other current assets were $108.9 million and current liabilities were $12.66 million. Working capital was $105.7 million. The current ratio was 9.35:1.
The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended June 30, 2012 and 2011:

|  | 2012 |  |  | 2011 |
Cash provided by (used in): |  |  |  |  |  |
Operating activities |  | $ | (2,404,632 | ) |  | $ | (8,281,158 | )
Investing activities |  |  | (438,017 | ) |  |  | (2,316,982 | )
Financing activities |  |  | (1,679,628 | ) |  |  | (1,679,978 | )

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Net cash flows used by operating activities for the six months ended June 30, 2012, was $2.4 million compared to net cash used in operating activities of $8.28 million for 2011. The decreased cash outflows from operating activities was attributed principally to decreased other receivables and VAT receivable outstanding and less inventory on hand, despite our increased cash outflow as a result of increased accounts receivable.
Net cash flows used in investing activities for the six months ended June 30, 2012, was $0.44 million compared to net cash used of $2.32 million for 2011. In the six months ended June 30, 2012, we had cash inflow of $0.13 million for restricted cash, and $89,000 for fixed asset and intangible asset purchase including $26,000 for construction in progress. In the six months ended June 30, 2011, we had net of $6.1 million refund of deposit on land use right despite paying $2.37 million for construction in progress and $5.2 million outflow for restricted cash and $889,945 for fixed asset purchase.
Net cash flows used in financing activities for the six months ended June 30, 2012, was $1.7 million, compared to $1.7 million for 2011. The cash outflow from financing activities was both attributed principally to dividends paid totaling $1.7 million for each period.
We sell our products in the China domestic market through distribution outlets including: regional and national wholesalers and third party distributors. Our standard terms for accounts receivable for several of our large and established China domestic retailers is 180 days from the close of the billing cycle, which is 30 – 45 days after our products are delivered. These terms are customary for large and established China domestic retailers. Historically, we have not experienced late payments or bad debts under such terms from these retailers. The term for accounts receivable for our other domestic customers is 30 – 90 days from the close of the billing cycle. We sell our products to overseas customers in the export markets under letters of credit, prepaid arrangements, certain short credit terms or direct customer purchase orders. Our export sales-related account receivables typically are less than three months, depending on customer shipment schedules. Historically, we have not experienced significant bad debts from export sales. For the six months ended June 30, 2012, we had accounts receivable turnover of 6.48 on an annualized basis, with sales outstanding of 56 days. For the six months ended June 30, 2011, we had accounts receivable turnover of 3.04 on an annualized basis, with sales outstanding of 121 days. We experienced significant improvements in our accounts receivable collection in 2012, compared to 2011. As we continue to focus on our expansion in the China domestic markets, our sales in the China domestic market will continue to represent a larger percentage of our total revenue. We anticipate our accounts receivable will remain in line with standard industry practice relating to accounts receivable in China, which could be up to seven months.
Pending Litigation
On March 28, 2011, we filed suit in the Supreme Court of the State of New York, captioned Deer Consumer Products, Inc. v. Alfred Little, et al., Index No. 650823/2011, against a certain blogger, “Alfred Little,” a website SeekingAlpha.com (where some of the blogs appeared) and Does #1-10, who were phantom authors and distributors of negative false articles about the Company. We alleged that the defendants published false and defamatory statements as part of scheme to manipulate and depress the market for our common stock enabling defendants to realize unnatural profits on short positions they had taken. On August 29, 2011, we obtained a Court order allowing us to serve the summons and complaint upon anonymous defendant Alfred Little via email. We effected service on Alfred Little pursuant to that order. On September 29, 2011, Alfred Little filed motions to dismiss the complaint claiming lack of New York jurisdiction and for permission to appear anonymously as a party in the litigation. SeekingAlpha.com certified that it was neither involved in the authoring or revision of the allegedly defamatory statements and, as such, on August 31, 2011, the Court granted defendant SeekingAlpha.com’s motion to dismiss our claim against it. On September 29, 2011, we filed a notice of appeal of this decision. On May 21, 2012, we advised the Court that we had decided not to “perfect” the appeal. On January 27, 2012, the Court denied in part Alfred Little’s motion to dismiss the complaint for lack of personal jurisdiction and permitted us to conduct discovery on the issue of personal jurisdiction after a confidentiality agreement was reached between the parties. On February 17, 2012, the parties reached a confidentiality agreement and we then commenced discovery on the jurisdictional issue. On February 23, 2012, after an in camera review of the evidence presented by Alfred Little, the Court permitted Alfred Little to proceed anonymously until the Court decided the jurisdictional issue. On March 30, 2012, Alfred Little filed a second motion to dismiss all claims. This motion was rejected and denied by the Court on May 9, 2012. On this same date, the Court found Alfred Little to be in violation of discovery and compelled Alfred Little to comply under pain of sanctions. We informed the Court that there was more than one Alfred Little and that additional defamation attacks were taking place in explicit retaliation for our seeking assistance from the New York Court. The Court granted us the right to amend our complaint to plead the case against all individuals and entities acting in concert to publish and distribute the allegedly false statements about the Company. On May 10, 2012, the Court so ordered a subpoena for the in person deposition of Xiaofu (Jeff) Huang at New York Supreme Court to take place on May 16, 2012. Xiaofu (Jeff) Huang failed to appear on May 16, prompting the Court to inform the parties that it planned to vacate the February 23, 2012 Order of Anonymity. The Court reasoned that Xiaofu (Jeff) Huang had information material as to whether Alfred Little should proceed anonymously, and, without such information, Alfred Little should not be allowed to proceed anonymously. The next day Jon Carnes claimed that he was Alfred Little. Carnes retained the same law firm as Alfred Little. On May 17, 2012, the Court vacated its February 23 Order of Anonymity on consent. All confidentiality protections were specifically lifted by an order dated May 21, 2012, which Order also unsealed all documents making them available to the public. We filed our amended complaint on June 6, 2012, naming the individuals and entities that were part of the group that we claim authored and distributed false statements about the Company. We are seeking: (1) $11 million dollars in compensatory and punitive damages against each defendant for its participation in the scheme as well as other damages, (2) an Order requiring the defendants to retract the false statements about the Company and (3) an Order forbidding the defendants from future false attacks on the Company. On June 22, 2012, the Court permitted the Company and Carnes to engage in supplemental briefing on the issue of whether the jurisdictional discovery of Carnes extends up to the filing date of the amended complaint. In its July 31, 2012 Order, the Court ruled that Jon Carnes and Alfred Little are one and the same and that the time limit for Carnes’s jurisdictional discovery ended at the filing of the original complaint, but that jurisdictional discovery as to all other defendants other than Jon Carnes may very well extend to June 6, 2012. On August 1, 2012, the Court granted service of the amended complaint upon defendant Andrew Wong via email. We effected service upon that defendant the same day. Thus far we have served five of the ten known defendants and has filed a motion to serve three more defendants without addresses: Joseph Ramelli, Xiaofu (Jeff) Huang, and International Financial Research & Analysis Group. Defendant EOS Holdings LLC has filed a motion to dismiss which we must file papers in opposition to by August 22, 2012. Defendant Simon Moore also represented by the same law firm representing Carnes, has until August 17, 2012 to file its answer or motion.
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On April 29, 2011, a purported securities class action lawsuit on behalf of the purchasers of our common stock between March 31, 2009, and March 21, 2011, James Rose v. Deer Consumer Products, Inc. et al, was filed against us and certain of our current and former officers and directors in the United States District Court for the Central District of California. The court has not yet certified the class action status. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as, in the case of the individual defendants, the Section 20(a) control person provisions of the Exchange Act. The factual assertions in the complaint, based expressly on the published statements at issue in the Alfred Little suit described above, consist primarily of allegations that the defendants made materially false or misleading public statements concerning our financial condition in 2010 and 2009. The complaint seeks unspecified damages and other relief relating to the purported inflation in the price of our common stock during the class period. A consolidated amended complaint was filed on September 6, 2011, with essentially the same allegations. We filed a motion to dismiss the lawsuit, which motion is fully briefed and has been taken under submission by the Court. We strongly deny the allegations in the complaint. We believe this lawsuit is frivolous and without merit and will contest it vigorously. We plan to pursue all legal remedies available to us if the complaint is not withdrawn in its entirety.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to fluctuations in currency exchange rates and commodity prices for certain of our raw materials. We currently do not engage in forward foreign exchange agreements or other hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. We do not engage in hedging transactions to protect against raw material pricing fluctuations; instead, we attempt to mitigate the short-term risks of price swings by purchasing raw materials in advance.
Our Annual Report on Form 10-K for the year ended December 31, 2011, contains information about our exposure to market risks under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” There has been no material change in our exposure to market risks during the three months ended June 30, 2012.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2012, our disclosure controls and procedures were not effective as of such date because management had not completed remediated of the material weakness in our internal control over financial reporting identified during the fourth quarter of 2011, as described below and discussed in “Item 9A. Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2011.
Notwithstanding this material weakness, our management has concluded that our consolidated financial statements for the periods covered by and included in this report are prepared in accordance with US GAAP and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.
Changes in Internal Control over Financial Reporting
As of June 30, 2012, we are in the process of remediating the following material weaknesses identified by management in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The material weakness identified during management’s assessment as of December 31, 2011, was our lack of technical accounting expertise among our financial staff regarding the requirements of U.S. GAAP and the PCAOB Accounting Standard No. 5 and COSO in the assessment of internal control over financial reporting.
We have developed certain remediation steps to address this material weakness and to improve our internal control over financial reporting. Specifically, we plan to hire additional credentialed professional staff and consulting professionals with greater knowledge of US GAAP in our domestic operations and the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 to oversee our financial reporting process in order to ensure our compliance with US GAAP and the relevant securities laws. In addition, we plan to provide additional training to our accounting staff on US GAAP, the Sarbanes-Oxley Act of 2002 and the requirements of the PCAOB, regarding the preparation of financial statements.
We believe the measures described above will facilitate remediation of the material weakness management identified and will continue to strengthen our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures are necessary to address control deficiencies.
Changes in Internal Control over Financial Reporting
Other than the changes discussed above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may become involved in various lawsuits and legal proceedings arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters that may arise from time to time could have an adverse effect on our business, financial conditions or operating results. Other than the following pending suits, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
On March 28, 2011, we filed suit in the Supreme Court of the State of New York, captioned Deer Consumer Products, Inc. v. Alfred Little, et al., Index No. 650823/2011, against a certain blogger, “Alfred Little,” a website SeekingAlpha.com (where some of the blogs appeared) and Does #1-10, who were phantom authors and distributors of negative false articles about the Company. We alleged that the defendants published false and defamatory statements as part of scheme to manipulate and depress the market for our common stock enabling defendants to realize unnatural profits on short positions they had taken. On August 29, 2011, we obtained a Court order allowing us to serve the summons and complaint upon anonymous defendant Alfred Little via email. We effected service on Alfred Little pursuant to that order. On September 29, 2011, Alfred Little filed motions to dismiss the complaint claiming lack of New York jurisdiction and for permission to appear anonymously as a party in the litigation. SeekingAlpha.com certified that it was neither involved in the authoring or revision of the allegedly defamatory statements and, as such, on August 31, 2011, the Court granted defendant SeekingAlpha.com’s motion to dismiss our claim against it. On September 29, 2011, we filed a notice of appeal of this decision. On May 21, 2012, we advised the Court that we had decided not to “perfect” the appeal. On January 27, 2012, the Court denied in part Alfred Little’s motion to dismiss the complaint for lack of personal jurisdiction and permitted us to conduct discovery on the issue of personal jurisdiction after a confidentiality agreement was reached between the parties. On February 17, 2012, the parties reached a confidentiality agreement and we then commenced discovery on the jurisdictional issue. On February 23, 2012, after an in camera review of the evidence presented by Alfred Little, the Court permitted Alfred Little to proceed anonymously until the Court decided the jurisdictional issue. On March 30, 2012, Alfred Little filed a second motion to dismiss all claims. This motion was rejected and denied by the Court on May 9, 2012. On this same date, the Court found Alfred Little to be in violation of discovery and compelled Alfred Little to comply under pain of sanctions. We informed the Court that there was more than one Alfred Little and that additional defamation attacks were taking place in explicit retaliation for our seeking assistance from the New York Court. The Court granted us the right to amend our complaint to plead the case against all individuals and entities acting in concert to publish and distribute the allegedly false statements about the Company. On May 10, 2012, the Court so ordered a subpoena for the in person deposition of Xiaofu (Jeff) Huang at New York Supreme Court to take place on May 16, 2012. Xiaofu (Jeff) Huang failed to appear on May 16, prompting the Court to inform the parties that it planned to vacate the February 23, 2012 Order of Anonymity. The Court reasoned that Xiaofu (Jeff) Huang had information material as to whether Alfred Little should proceed anonymously, and, without such information, Alfred Little should not be allowed to proceed anonymously. The next day Jon Carnes claimed that he was Alfred Little. Carnes retained the same law firm as Alfred Little. On May 17, 2012, the Court vacated its February 23 Order of Anonymity on consent. All confidentiality protections were specifically lifted by an order dated May 21, 2012, which Order also unsealed all documents making them available to the public. We filed our amended complaint on June 6, 2012, naming the individuals and entities that were part of the group that we claim authored and distributed false statements about the Company. We are seeking: (1) $11 million dollars in compensatory and punitive damages against each defendant for its participation in the scheme as well as other damages, (2) an Order requiring the defendants to retract the false statements about the Company and (3) an Order forbidding the defendants from future false attacks on the Company. On June 22, 2012, the Court permitted the Company and Carnes to engage in supplemental briefing on the issue of whether the jurisdictional discovery of Carnes extends up to the filing date of the amended complaint. In its July 31, 2012 Order, the Court ruled that Jon Carnes and Alfred Little are one and the same and that the time limit for Carnes’s jurisdictional discovery ended at the filing of the original complaint, but that jurisdictional discovery as to all other defendants other than Jon Carnes may very well extend to June 6, 2012. On August 1, 2012, the Court granted service of the amended complaint upon defendant Andrew Wong via email. We effected service upon that defendant the same day. Thus far we have served five of the ten known defendants and has filed a motion to serve three more defendants without addresses: Joseph Ramelli, Xiaofu (Jeff) Huang, and International Financial Research & Analysis Group. Defendant EOS Holdings LLC has filed a motion to dismiss which we must file papers in opposition to by August 22, 2012. Defendant Simon Moore also represented by the same law firm representing Carnes, has until August 17, 2012 to file its answer or motion.
On April 29, 2011, a purported securities class action lawsuit on behalf of the purchasers of our common stock between March 31, 2009, and March 21, 2011, James Rose v. Deer Consumer Products, Inc. et al, was filed against us and certain of our current and former officers and directors in the United States District Court for the Central District of California. The court has not yet certified the class action status. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as, in the case of the individual defendants, the Section 20(a) control person provisions of the Exchange Act. The factual assertions in the complaint, based expressly on the published statements at issue in the Alfred Little suit described above, consist primarily of allegations that the defendants made materially false or misleading public statements concerning our financial condition in fiscal years 2010 and 2009. The complaint seeks unspecified damages and other relief relating to the purported inflation in the price of our common stock during the class period. A consolidated amended complaint was filed on September 6, 2011, with essentially the same allegations. We filed a motion to dismiss the lawsuit, which motion is fully briefed and has been taken under submission by the Court. We strongly deny the allegations in the complaint. We believe this lawsuit is frivolous and without merit and will contest it vigorously. We plan to pursue all legal remedies available to us if the complaint is not withdrawn in its entirety.
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We maintain directors and officers liability insurance, which provides the protection of certain insurance coverage for both the company and our officers and directors. We can provide no assurance as to the outcome of these cases. Regardless of the outcomes, such litigation may require significant attention and resources of management.
Item 1A. Risk Factors
You should consider carefully the factors discussed in the “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business. There have been no material changes to the risk factors described previously in that Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not required.
Item 5. Other Information
None.
Item 6. Exhibits
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | DEER CONSUMER PRODUCTS, INC. |
|  | (Registrant) |
Date: August 9, 2012 | By: | /s/ Ying He |
|  | Ying He Chief Executive Officer (Principal Executive Officer)

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EXHIBIT INDEX

Exhibit No. | Description of Exhibit
31.1 † | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 † | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 ‡ | 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 Officer
32.2 ‡ | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by the Chief Financial Officer
101** | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements

† Filed herewith
‡ Furnished herewith
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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