UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009 or

o Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

000-52716
(Commission file No.)

China Tractor Holdings, Inc.
(Exact name of Smaller Reporting Company as specified in its charter)

DELAWARE		98-0445019
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

Kalun Industrial Park, JiuTai Economic Development Zone
(Address of principal executive offices)

86-431-82561001
(Issuer’s telephone number, including area code) (Former name or former address, if changed since last report)

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

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (Registrant is not yet required to provide financial disclosure in an Interactive Data File format.) Yes o No o

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

Large Accelerated filer o

Accelerated filer o

Non-Accelerated filer o

Smaller reporting company x

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

Yes o No x

As of August 17, 2009, there were 18,340,539 shares of the Company’s common stock outstanding.

CHINA TRACTOR HOLDINGS, INC.

TABLE OF CONTENTS

FORM 10-Q

June 30, 2009


PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets (unaudited)		1

Condensed Consolidated Statements of Operations and other Comprehensive Income (Loss)		2

Condensed Consolidated Statements of Cash Flows (unaudited)		3

Notes to the Condensed Consolidated Financial Statements (unaudited)		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosure About Market Risks		28

Item 4. Controls and Procedures		28

PART II - OTHER INFORMATION		29

Exhibit 31.1	Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1	Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2	Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

CHINA TRACTOR HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2009 & DECEMBER 31, 2008

	June 30, 2009			December 31, 2008
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	130,644		$	1,979,153
Accounts receivable, net of allowance for doubtful accounts		5,573,615			2,275,976
Other receivables, net of allowance for doubtful accounts		481,632			470,632
Advance to suppliers, net of allowance for doubtful accounts		2,584,343			554,376
Inventories, net		13,822,454			8,960,235
Prepaid expenses		6,574			8,754
Tax recoverable		1,745,598			663,836
Due from related parties		-			1,900,128
Total current assets		24,344,860			16,813,090

Property, plant and equipment, net		21,529,716			21,832,068
Construction in progress		3,309,107			600,398
Intangible assets		530,943			553,465
Land use right		3,750,905			3,071,373
Land use right deposit		0			1,038,174
Equipment deposit		16,173			-
Long-term investments		1,722,349			1,877,836
Deferred tax assets		70,888			30,394

TOTAL ASSETS	$	55,274,941		$	45,816,798

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Short-term loans	$	10,957,223		$	4,376,878
Accounts payable		9,129,991			6,628,498
Advance from customers		385,433			282,235
Salary payable		84,466			116,823
Accrued expenses and other payables		1,151,407			718,450
Due to related parties		663,868			1,582,074

Total current liabilities		22,372,388			13,704,958

Deferred tax liability		478,905			-

TOTAL LIABILITIES		22,851,293			13,704,958

STOCKHOLDERS’ EQUITY
Comon shares, issued and outstanding; 18,310,539 and 18,310,539 shares as of June 30, 2009 and December 31, 2008 respectively, par value $0.001 per share		1,831			1,831
Additional paid-in capital		15,183,276			15,183,276
Accumulated other comprehensive income		2,623,000			2,578,962
Accumulated deficit		(1,413,566	)		(1,417,168	)

TOTAL STOCKHOLDERS’ EQUITY		16,394,541			16,346,901
Noncontrolling Interest		16,029,107			15,764,939
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	55,274,941		$	45,816,798

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

CHINA TRACTOR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 & 2008

	For the Six Months						For the Three Months
	Ended June 30						Ended June 30
	2009			2008			2009			2008
Net revenue	$	18,575,096		$	20,121,871		$	7,124,886		$	11,496,916
Cost of sales		(16,011,720	)		(18,280,610	)		(5,562,983	)		(10,706,260	)

Gross profit		2,563,376			1,841,261			1,561,903			790,656
Operating expenses:
Sales and marketing expenses		(566,567	)		(114,040	)		(448,742	)		(49,643	)
General and administrative expenses		(862,210	)		(745,776	)		(482,976	)		(363,625	)
Impairment loss of assets		(142,099	)		13,135			(134,196	)		16,310

Profit from operations		992,500			994,580			495,989			393,698

Investment loss		(158,103	)		-			(51,375	)		21,153
Interest income		5,611			44,706			2,200			41,233
Gain on disposal of fixed assets		-			9,287			-			9,287
Government grant income		-			70,695			0			1,015
Other income		115			6,840			115			6,840
Interest expense		(367,061	)		(7	)		(191,021	)		(7	)
Other expenses		(34,643	)		(7,308	)		(1,522	)		23,831
		(554,081	)		124,213			(241,603	)		103,352

Income before income taxes and noncontrolling interests		438,419			1,118,793			254,386			497,050

Income tax expense		(170,649	)		(290,254	)		(50,165	)		(142,600	)

Income before noncontrolling interests		267,770			828,539			204,221			354,450

Less: Net income attributable to noncontrolling interest		(264,168	)		(374,903	)		(130,696	)		(143,630	)

Net Income		3,602			453,636			73,525			210,820

Other comprehensive income		44,038			982,268			3,685			351,249

Comprehensive income	$	47,640		$	1,435,904		$	77,210		$	562,069

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

CHINA TRACTOR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 & 2008

	2009			2008
Cash flows from operating activities:
Income including noncontrolling interest	$	267,770		$	828,539
Adjustments to reconcile net income to cash used by operating activities:		-			-
Depreciation and amortization		423,293			364,174
Provision for inventory obsolescence		(21,770	)		-
Provision for doubtful receivables		142,099			(12,408	)
Investment loss		158,103			-
Changes in operating assets and liabilities:
Deferred tax assets		438,554			-
Accounts receivable		(3,295,269	)		(1,770,187	)
Inventories		(4,829,257	)		(3,618,765	)
Advance to suppliers		(2,171,770	)		(964,903	)
Prepaid expenses and other assets		(26,039	)		(604,277	)
Accounts payable		2,492,962			3,614,542
Advance from customers		102,834			214,088
Accrued expenses and other current liabilities		(728,979	)		(255,309	)
Cash used by operating activities		(7,047,469	)		(2,204,506	)

Cash flows from investing activities:
Receipts from the sale of fixed assets, intangible assets and other long-term assets		32,214			-
Purchase of property and equipment and other long-term assets		(819,730	)		(1,045,104	)
Net cash used for investing activities		(787,516	)		(1,045,104	)

Cash flows from financing activities:
Proceeds from short-term loans		6,648,907			-
Proceeds from related parties - net		-			294,996
Repayment on borrowing from related parties		29,192			-
Receipt from related parties		(621,700	)		-
Repayments on short-term loans		(73,065	)		-
Net cash provided by financing activities		5,983,334			294,996

Effect of exchange rate changes on cash		3,142			663,785

Net decrease in cash and cash equivalents		(1,848,509	)		(2,290,829	)

Cash and cash equivalents, beginning balance		1,979,153			2,714,239

Cash and cash equivalents, ending balance	$	130,644		$	423,410

SUPPLEMENTARY DISCLOSURE:

Interest paid	$	363,562		$	-

Income tax paid	$	34,766		$	-

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

NOTE 1 ORGANIZATION, BUSINESS OPERATIONS AND ACCOUNTING PRINCIPLES

China Tractor Holdings, Inc.. ("China Tractor") was incorporated in April 2005 in Hong Kong. In June 2005, China Tractor signed an agreement with Densen Investment Limited (“Densen Investment”) to obtain assets from Densen Investment. China Tractor invested $15,180,000 to establish Changchun Densen Agriculture Machinery Manufacturing Co., Ltd. (“Changchun Densen”) on September 27, 2005. Changchun Densen is engaged in the R&D and production of low-speed vehicles, tractors and construction machinery. According to the revised articles of association dated January 09, 2007, Changchun Tractor (Group) Co., Ltd. (“Changchun Tractor”) invested a trademark of $471,445 to Changchun Densen. After this investment, Changchun Tractor obtained 3% equity in Changchun Densen. On April 23, 2007, the company name of Changchun Densen was changed to Changchun Densen Changtuo Agriculture Machinery Manufacturing Co., Ltd. accordingly. Based on an investment agreement signed on November 20, 2007, Changchun Densen and State-owned Assets Supervision and Administration Commission of Changchun (“SOASACC”) jointly invested to establish Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”). The total registered capital of Chang Tuo is RMB200,000,000 which includes 50% (RMB100,000,000) from SOASACC, 47.5% (RMB95,000,000) from Changchun Densen and 2.5% (RMB5,000,000) from the operator, Mr. Yu Han. Chang Tuo is engaged in the R&D and production of low-speed vehicles, tractors and construction machineries, and sales of agricultural machinery and accessories.

Pursuant to the Share Exchange Agreement by and among Royaltech Corp. (“Royaltech”), a Delaware corporation, China Tractor, and the shareholders of all the outstanding shares of Densen Machinery, on September 9, 2008 (the “Closing Date”), Royaltech issued 16,720,354 shares of its common stock in exchange for all the issued and outstanding shares of China Tractor. The former shareholders of China Tractor acquired 91.3% of the issued and outstanding shares of common stock, par value $0.0001 per share (the “Common Stock”), of Royaltech. This transaction resulted in a change in control of Royaltech to the former shareholders of China Tractor. Immediately after the closing of the Share Exchange and the Stock Purchase Agreements, Royaltech had 18,310,539 shares of Common Stock issued and outstanding. In connection with the change in control, Mr. Lau San became Chairman of the Board of Directors and Chief Executive Officer, Mr. Lau Jingdong became President, and Mr. Chen Guocheng became Chief Financial Officer of Royaltech. This transaction accounted for as a recapitalization of China Tractor and not as a business combination. Accordingly, no pro forma information is presented. The historical financial statements are those of China Tractor.

The share exchange agreement also states Royaltech’s existing shareholders assumed all the liabilities of Royaltech at the date of merger.

On September 19, 2008, Royaltech amended Article I of its Certificate of Incorporation to change its corporate name from “Royaltech Corp.) to “China Tractor Holdings, Inc.” (“China Tractor”, or “the Company”, or “We”, or “us”)

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of China Tractor Holdings, Inc., its 97%-owned subsidiary Changchun Densen Changtuo Agriculture Machinery Manufacturing Co., Ltd. (“Changchun Densen”), its 70%-owned subsidiary Jilin Qilida Bearing Co., Ltd. (“JQBC”) and its 47.5%-owned joint venture Chang Tuo as of and for the six months ended June 30, 2009. As the Company appointed 4 of 7 Chang Tuo directors, the accounts of Chang Tuo are included in consolidation. All significant inter-company accounts and transactions were eliminated in consolidation.

Basis of Presentation

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The Company’s functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars ($).

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount of property and equipment and intangible assets; the allocation of the purchase price for the Company’s acquisitions; the collectibility of accounts receivable; the fair value of share-based compensation; the useful lives and salvage values of property and equipment; the realizability of inventories; and amounts recorded for contingencies. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results may differ from those estimates.

Foreign Currency Transactions

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are quoted by the PBOC, which are determined largely by supply and demand.

Foreign Currency Translation

The Company’s financial records are maintained in its local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates for the reporting periods and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

The reporting currency of the Company is the US Dollar. Transactions denominated in currencies other than US dollar are translated into US dollars at the average rates for the period. Monetary assets and liabilities denominated in currencies other than US dollars are translated into US dollars at the rates of exchange at the balance sheet date. The resulting exchange differences are recorded in other expenses in the statement of income and comprehensive income.

Fair Value of Financial Instruments

The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, marketable securities, trade, bills and other receivables, deposits, trade, bills and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of bank borrowings approximate their fair values because the applicable interest rates approximate current market rates.

It is management’s opinion that the Company is not exposed to significant interest, price or credit risks arising from these financial instruments. The Company is exposed to foreign currency risk arising from import purchase transactions and trade payables as they affect the future operating results of the Company. The Company did not have any hedging transactions during the periods ended June 30, 2009 and 2008 (unaudited).

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Cash and Cash Equivalents

Cash consists of cash on hand, cash in bank accounts and interest-bearing savings accounts. Cash deposits that are restricted as to withdrawal or pledged as security, are disclosed separately on the consolidated balance sheet, and not included in cash for the purpose of the consolidated statements of cash flows.

Accounts Receivable

Allowances for doubtful accounts are maintained against accounts receivable for estimated losses resulting from the inability of customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. Accounts are written off against the allowance when it becomes evident collection will not occur.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase as our projected demand requirements; or decrease due to market conditions and product life cycle changes. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand.

In addition, the Company estimates net realizable value based on intended use, current market value and inventory ageing analyses. The Company writes down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions. Historically, actual net realizable value has been close to management’s estimate.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over estimated useful lives of 30 years for buildings and improvements, 10 years for machinery and equipment and 5 years for furniture and fixtures. Expenditures for maintenance and repairs are expensed as incurred. Major renewals and betterments are charged to the property accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed in the current period.

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until on item is completed and ready for intended use.

Land Use Rights

Land use right is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the designated terms of the lease of 50 years obtained from the relevant PRC land authority.

Other Intangible Assets

Other intangible assets include non-patent techniques, trademarks and capitalized accounting software. The cost of intangible assets is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over estimated useful lives.

Capitalized Interest

Interest associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying values of long-lived assets, including property, plant and equipment, land use right and other intangible assets, whenever facts and circumstances indicate the assets may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment is measured by the amount by which the carrying amount the asset exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs of disposal.

Revenue Recognition

The Company recognizes sales in accordance with United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” and SAB No. 104, “Revenue Recognition.” The Company recognizes revenue when the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services were rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. Revenue is not recognized until title and risk of loss is transferred to the customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions have were met. Provisions for discounts and returns are provided for at the time the sale is recorded, and are recorded as a reduction of sales. The Company bases its estimates on historical experience taking into consideration the type of products sold, the type of customer, and the type of specific transaction in each arrangement. Revenues represent the invoiced value of goods, net of value added tax (“VAT”).

The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers. Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advanced from customers.

Income Taxes

The Company accounts for income taxes in accordance with SFAS 109, “Accounting for Income Taxes”. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts and each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion; it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities. The Company also follows FIN 48, Accounting for Uncertainty in Tax Positions.

Comprehensive Income

The Company uses SFAS 130 “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

SFAS 130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Accumulated other comprehensive income (loss) includes foreign currency translation adjustments.

Long-Term Investments

The Company accounted for the 24% investment in Zhongji North Machinery Co., Ltd, (Zhongji North) using the equity method, under which the share of Zhongji North’ net income is recognized in the period in which it is earned

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The provisions of this statement should be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except in some circumstances where the statement shall be applied retrospectively. The adoption of SFAS 157 had no material effect on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 were effective for 2008. The adoption of SFAS 159 had no material effect on our financial statements.

In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for use in Future Research and Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable advance payments for goods or services that used or rendered for research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed. The adoption of FASB Staff Position No. EITF 07-3 had no material effect on our financial statements.

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51”. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company adopted SFAS 160 on January 1, 2009.

Certain amounts presented for prior periods that were previously designated as minority interest were reclassified to conform to the current year presentation. Effective January 1, 2009, the Company adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” which established new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case); that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements. The provisions of the standard were applied to all NCIs prospectively, except for the presentation and disclosure requirements, which were applied retrospectively to all periods presented. As a result, upon adoption, the Company retroactively reclassified the “Minority interest” balance previously included in the “Other liabilities” section of the consolidated balance sheet to a new component of equity with respect to NCIs in consolidated subsidiaries. The adoption also impacted certain captions previously used on the consolidated statement of income and other comprehensive income, largely identifying net income including NCI and net income attributable to China Tractor Holdings, Inc.

In December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”. SFAS 141 (Revised) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company adopted SFAS 141 (Revised) on January 1, 2009. The adoption of SFAS 141 (Revised) had no impact on the Company’s financial statements..

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133.” SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company adopted SFAS 161 on January 1, 2009. The adoption of SFAS 161 had no impact on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). SFAS 162 had no impact on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). SFAS 163 also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 163 was adopted on January 1, 2009 and had no impact on the Company’s financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on the consolidated financial statements because all of the investments in debt securities are classified as trading securities.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting this FSP must also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). Additionally, if an entity elects to early adopt either FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1) or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt this FSP. The adoption of FSP FAS 157-4 did not have any impact on the Company’s financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This FSP provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this FSP does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1, the entity also is required to early adopt this FSP. The adoption of FSP FAS 115-2 and FAS 124-2 did not have any impact on the Company’s financial statements.

In April 2009, the FASB issued FAS 164, “Not-for-Profit Entities: Mergers and Acquisitions Including an amendment of FASB Statement No.142”, to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. This Statement also improves the relevance, representational faithfulness, and comparability of the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition by amending FASB Statement No. 142, Goodwill and Other Intangible Assets, to make it fully applicable to not-for-profit entities. This Statement is effective for: Mergers for which the merger date is on or after the beginning of an initial reporting period beginning on or after December 15, 2009, Acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009. A not-for-profit entity shall apply those items prospectively in the first set of initial or annual financial statements for a reporting period beginning on or after December 15, 2009. Application before that date is prohibited. We are currently evaluating this new FSP but do not believe that it will have a significant impact on the determination or reporting of our financial results.

In May 2009, the FASB issued FAS 165, “Subsequent Events”, to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This Statement should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable generally accepted accounting principles (GAAP) that provide different guidance on the accounting treatment for subsequent events or transactions. This Statement would apply to both interim financial statements and annual financial statements. This Statement should not result in significant changes in the subsequent events that an entity reports—either through recognition or disclosure—in its financial statements. This Statement introduces the concept of financial statements being available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. We are currently evaluating this new FSP but do not believe it will have a significant impact on the determination or reporting of our financial results.

In June 2009, the FASB issued FAS 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140”, to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This Statement must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. If the evaluation on the effective date results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. Additionally, the disclosure provisions of this Statement should be applied to transfers that occurred both before and after the effective date of this Statement. This Statement has the same scope as Statement 140. Accordingly, this Statement applies to all entities. This Statement removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special-purpose entities. This Statement clarifies that the objective of paragraph 9 of Statement 140 is to determine whether a transferor and all of the entities included in the transferor’s financial statements being presented have surrendered control over transferred financial assets. This Statement defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. The special provisions in Statement 140 and FASB Statement No. 65, Accounting for Certain Mortgage Banking Activities, for guaranteed mortgage securitizations are removed to require those securitizations to be treated the same as any other transfer of financial assets within the scope of Statement 140, as amended by this Statement. If such a transfer does not meet the requirements for sale accounting, the securitized mortgage loans should continue to be classified as loans in the transferor’s statement of financial position. This Statement requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. Enhanced disclosures are required to provide financial statement users with greater transparency about transfers of financial assets and a transferor’s continuing involvement with transferred financial assets. We are currently evaluating this new FSP but do not believe it will have a significant impact on the determination or reporting of our financial results.

In June 2009, the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R)”, to improve financial reporting by enterprises involved with variable interest entities. The Board undertook this project to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of Financial Assets, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement amends Interpretation 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This Statement amends Interpretation 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This Statement amends Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, which was based on determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. This Statement amends certain guidance in Interpretation 46(R) for determining whether an entity is a variable interest entity. This Statement amends Interpretation 46(R) to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. This Statement amends Interpretation 46(R) to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. This Statement shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. We are currently evaluating this new FSP but do not believe it will have a significant impact on the determination or reporting of our financial results.

In June 2009, the FASB issued FAS 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”. The FASB Accounting Standards CodificationTM (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We are currently evaluating this new FSP but do not believe it will have a significant impact on the determination or reporting of our financial results.

NOTE 2 ACCOUNTS RECEIVABLE

As of June 30, 2009 and December 31, 2008, accounts receivable consisted of the following:

	2009			2008
	(Unaudited)
Accounts receivable	$	5,576,201		$	2,278,559
Less: Allowance for doubtful accounts		(2,586	)		(2,583	)

Accountants receivable, net	$	5,573,615		$	2,275,976

NOTE 3 INVENTORIES

Inventories, by major categories, as of June 30, 2009 and December 31, 2008 were as follows:

	2009			2008
	(Unaudited)
Raw materials	$	4,798,201		$	4,435,034
Work in progress		173,198			1,119,496
Low value consumables		156,655			123,437
Packaging materials		2,000			1,579
Materials on consignment for further processing		203,640			18,638
Finished goods		8,489,039			3,284,065
		13,822,733			8,982,249
Less: Allowance for obsolete inventories		(279	)		(22,014	)

Inventories, net	$	13,822,454		$	8,960,235

NOTE 4 ADVANCE TO SUPPLIERS

Advance to suppliers represented partial payments or deposits on inventory purchases and was $2,584,343 and $554,376 in net, which is after provision for doubtful accounts of $199,805 and $57,667 as of June 30, 2009 and December 31, 2008, respectively.

NOTE 5 OTHER RECEIVABLES

As of June 30, 2009 and December 31, 2008, other receivables comprised the following:

	2009			2008
	(Unaudited)
Advance to employees for business purposes	$	127,031		$	123,698
Prepayment		11,382			28,827
Rebate receivable					48,496
Other		357,829			284,201
		496,242			485,222
Less: Allowance for doubtful accounts		(14,610	)		(14,590	)

Total other receivables, net	$	481,632		$	470,632

NOTE 6 PROPERTY, PLANT AND EQUIPMENT

As of June 30, 2009 and December 31, 2008, property, plant and equipment consisted of the followings:

	2009			2008
	(Unaudited)
Cost:
Plant and Building	$	20,969,275		$	20,940,518
Machinery and Equipment		2,002,381			1,967,750
Office Furniture and Equipment		130,022			125,881
Transportation Equipment		258,105			296,274
Total at cost		23,359,783			23,330,423
Less: Accumulated depreciation		(1,830,067	)		(1,498,355	)

Total property, plant and equipment, net	$	21,529,716		$	21,832,068

The range of estimated useful lives of property, plant and equipment is as follows:


Plant and Building		30-40 years
Machinery and Equipment	10 years
Office Furniture and Equipment	5 years
Transportation Equipment		5 years

Depreciation for the six months ended June 30, 2009 and 2008 was $354,726 (unaudited) and $294,623 (unaudited) respectively. And depreciation expense for the 3 months ended June 30, 2009 and 2008 were $177,166 (unaudited) and $138,907 (unaudited) respectively.

NOTE 7 CONSTRUCTION IN PROGRESS

As of June 30, 2009 and December 31, 2008, construction in progress was as follow:

	2009		2008
	(Unaudited)
Phase II plant project	$	3,309,107	$	600,398

The Company started the construction of phase II plant in 2008 to increase the production of tractors.

NOTE 8 LAND USE RIGHTS

As of June 30, 2009 and December 31, 2008, land use rights were as follows:

	2009			2008
	(Unaudited)
Cost	$	4,667,880		$	3,950,862
Less: Accumulated amortization		(220,197	)		(183,667	)
		4,447,683			3,767,195
Less: Impairment loss		(696,778	)		(695,822	)

Land use rights, net	$	3,750,905		$	3,071,373

The Company obtained the right from the relevant PRC land authority for fifty years to use the land on which the office premises, production facilities and warehouse of the Company are situated.

Amortization expense for the six months ended June 30, 2009 and 2008 was $36,286 (unaudited) and $38,289 (unaudited) respectively. And the amortization for the 3 months ended June 30, 2009 and 2008 were $20,572 and $22,836 respectively. The estimated annual amortization for land use rights for the next five years as of June 30, 2009 and thereafter is expected to be as follows by years:


2010	$	77,396
2011		77,396
2012		77,396
2013		77,396
2014		77,396
Thereafter		3,363,925

Total	$	3,750,905

NOTE 9 LAND USE RIGHTS DEPOSIT

Land use right deposit as of June 30, 2009 and December 31, 2008 was nil and $1,038,174 respectively. The land use right deposit represented the prepayment to obtain the land use rights in the future.

NOTE 10 OTHER INTANGIBLE ASSETS

As of June 30, 2009 and December 31, 2008, the Company’s intangible assets were summarized as follows:

	Useful life	2009			2008
		(Unaudited)
Amortizable intangible assets:
Trademark	10 years	$	539,095		$	538,356
Capitalized accounting software	10 years		23,195			14,185
Non-patent techniques	10 years		87,658			87,538
Total at historical cost			649,948			640,079
Less: Total accumulated amortization			(119,005	)		(86,614	)

Other intangible assets, net		$	530,943		$	553,465

Other intangible assets were stated at cost less accumulated amortization. The amortization of other intangible assets for the six months ended June 30, 2009 and 2008 was $32,280 (unaudited) and $31,261 (unaudited) respectively. And the amortization for the 3 months ended June 30, 2009 and 2008 were $16,260 and $15,688 respectively. The estimated amortization expense for the next five years as of June 30, 2009 and thereafter is expected to be as follows by years:

2010	$	64,995
2011		64,995
2012		64,995
2013		64,995
2014		64,995
Thereafter		205,968

Total	$	530,943

NOTE 11 LONG-TERM INVESTMENTS

As of June 30, 2009 and December 31, 2008, the Company’s investment consisted of the following:

	2009				2008
	(Unaudited)
Zhongji North Machinery Co., Ltd.		24	%	1,722,349		24	%	$	1,877,836

Zhongji North was established on November 22, 2007 and the total registered capital is RMB50,000,000. Zhongji North’s principal activities are development, manufacturing, sale and foreign trading of agricultural machineries and other machineries, manufacturing and sale of parts and accessories of agricultural machineries and other machineries. The unaudited condensed balance sheet and income statement of Zhongji North are summarized as follows:

Balance sheet

	June 30, 2009				December 31, 2008
Assets
Cash		$	382,556			$	2,481,590
Receivables			6,500,041				3,499,959
Inventories			7,048,874				1,895,571
Long-term assets			2,621,193				2,054,884

Total assets		$	16,552,664			$	9,932,004

Liabilities and shareholders equity
Payables		$	9,376,210			$	1,432,339
Long-term liabilities							675,349
Paid-in capital			7,294,797				7,294,797
Retained earnings (Accumulated deficit)			(137,457	)			521,303
Foreign currency translation			19,114				8,216

Total liabilities and shareholders equity		$	16,552,664			$	9,932,004

Income statement

	For the six months ended June 30,
	2009			2008
Revenue	$	304,432		$	-
Cost of sales		261,636			-
Gross Margin		42,796			-
Expenses		703,402			-
Loss before income taxes		(660,606	)		-
Income tax		(1,846	)		-
Net loss	$	(658,760	)	$	-

The following table summarizes the movement of the Company’s long-term investment in Zhongji North in the six months ended June 30, 2009:

Balance as of December 31, 2008	$	1,877,836
Net loss of Zhongji North		(658,760	)
Foreign currency translation		10,898
Total		(647,862	)
% of ownership		24	%
Movement		(155,487	)

Balance as of June 30, 2009	$	1,722,349

NOTE 12 SHORT-TERM LOANS

Short-term loans represented amounts due to various financial institutions which are normally due within one year. As of June 30, 2009 and December 31, 2008, the Company’s short term loans consisted of the following:

	2009		2008
	(Unaudited)
From Jilin bank Changchun Ruixiang Sub-Branch (“JBCRSB”), due from December 10, 2008 to November 26, 2009. With interest at 7.254%, pledged by the Company’s building and land use right.	$	4,382,889	$	4,376,878

From JBCRSB, due from January 13, 2009 to November 26, 2009. With interest at 7.254%, pledged by the Company’s building and land use right.		5,843,852		-

From Jilin Jiutai Rural Commercial Bank Chengqu-Branch, due from March 27, 2009 to March 24, 2010. With interest at 11.16%, pledged by the Company’s land use right.		730,482		-

Total short-term loans	$	10,957,223	$	4,376,878

NOTE 13 ACCRUED EXPENSES AND OTHER PAYABLES

As of June 30, 2009 and December 31, 2008, the accrued expenses and other liabilities of the Company were summarized as follows:

	2009		2008
	(Unaudited)
Accrued expenses	$	174,631	$	-

Other payables – equipment purchases payable		120,369		63,109
– security deposit		285,334		109,013
– borrowing from third party		470,138		542,441
– Others		100,935		3,887

Total accrued expenses and other payables	$	1,151,407	$	718,450

The borrowing from third party has no repayment term and bore no interest. The security deposit is deposit from clients for the maintenance of tractors.

NOTE 14 RELATED PARTY BALANCE AND TRANSCATIONS

Due to related parties

As of June 30, 2009 and December 31, 2008, due to related parties was summarized as follows:

	2009		2008
	(Unaudited)
Lau San	$	86,498	$	1,005,084
Changchun Junming Machinery Co., Ltd. (“CJMCL”)		148,939		148,734
Shenzhen Junsheng Property Management Co., Ltd. (“SJPMCL”)		14,610		14,590
Zhongji North Machinery Co., Ltd. (“Zhongji North”)		413,821		413,666

Total due to related parties	$	663,868	$	1,582,074

A director of the Company, Mr. Lau San, loaned money to the Company for working capital. These amounts are interest- free, unsecured and repayable on demand.

The Company borrowed money from CJMCL, which is controlled by Mr. Lau San, a director of the Company for use in operations. The loan bore no interest and the principal is due upon demand.

The Company borrowed money from SJPMCL, which is controlled by Ms. Yang, Fengyan, Mr. Lau San’s wife, for use in operations. The loan bore no interest and the principal is due upon demand.

The Company, as noncontrolling shareholder of Zhongji North, borrowed money from Zhongji North, to fund the Company’s operations. These amounts are interest-free, unsecured and the principal is due upon demand.

NOTE 15 GOVERNMENT GRANT INCOME

In the first quarter of 2008 (unaudited), Changchun Densen received a $69,680 subsidy from Jiutai Municipal Bureau of Finance for the improvement of the assembly line of big and medium tractors.

NOTE 16 NONCONTROLLING INTERESTS

Noncontrolling interests on the consolidated statement of income and comprehensive income of $247,295 and $374,903 for the six months ended June 30, 2009 and 2008 respectively, of $113,823 and $143,630 for the three months ended June 30, 2009 and 2008 respectively, represented the noncontrolling shareholders’ proportionate share of the net income/(loss) of the Company.

NOTE 17 INCOME TAX

Changchun Densen and Chang Tuo are governed by the Income Tax Law of the PRC concerning the private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriated tax adjustments.

Changchun Densen is exempt from income tax in PRC for two years starting from the 1st profitable year or 2008, whichever is earlier, and subject to 50% discount on normal income tax rate for the following three years.

The operating profits and losses of our subsidiaries were as follows, for the six months ended June 30, 2009 and 2008, unaudited:

	2009			2008
Changchun Densen	$	(228,460	)	$	141,162
Changtuo		511,946			687,377
JQBC		(15,716	)		-
	$	267,770		$	828,539

The operating profits and losses of our subsidiaries were as follows, for the three months ended June 30, 2009 and 2008, unaudited:

	2009			2008
Changchun Densen	$	(47,613	)	$	93,289
Changtuo		234,986			261,161
JQBC		16,848			-
	$	204,221		$	354,450

The following table summarizes the temporary differences which result in deferred tax assets and liabilities as of June 30, 2009 and December 31, 2008:

	2009		2008
	(Unaudited)
Deferred tax assets:
Inventory impairment	$	70	$	5,504
Bad debt allowance		49,951		-
Investment gain		6,097		-
Expenses deductible in next year		14,770		24,890

Total deferred tax assets	$	70,888	$	30,394

	2009		2008
	(Unaudited)
Deferred tax liabilities:
Taxable income in year 2010	$	478,905	$	-

Total deferred tax liabilities	$	478,905	$	-

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended June 30, 2009 and 2008 (unaudited):

	2009			2008
US statutory rates		(34	%)		(34	%)
Tax rate difference		9	%		9	%
Valuation allowance		(14	%)		-
Effect of tax holiday		-			3	%
Non-deductable expenses		-			(4	%)

Tax per financial statements		(39	%)		(26	%)

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2009 and 2008 (unaudited):

	2009			2008
		(34	%)		(34	%)
US statutory rates		9	%		9	%
Tax rate difference		(5	%)		-
Valuation allowance		2	%		5	%
Effect of tax holiday		-			(9	%)
Equity in loss of investee		8	%		1	%

Tax per financial statements		(20	%)		(28	%)

NOTE 18 OPERATING RISK

(a)	Country risk

Currently, the Company’s revenues are primarily derived from the sale of agriculture tractors to customers in the People’s Republic of China (“PRC”). The Company hopes to expand its operations to other countries, however, such expansion has not commenced and there is no assurance that the Company will be able to achieve such expansion. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Company’s financial condition.

(b)	Products risk

In addition to competing with other manufacturers of agricultural machinery, the Company competes with larger PRC companies which have greater funds available for expansion, marketing, research and development and the ability to attract more qualified personnel. These PRC companies may be able to offer products at a lower price. There can be no assurance the Company will remain competitive should this occur.

(c)	Exchange risk

The Company can not guarantee the Renminbi, US dollar exchange rate will remain steady, therefore the Company could post the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and US dollars. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.

(d)	Political risk

Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into PRC. Additionally PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the PRC subsidiaries could be affected.

(e)	Interest risk

The Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time. The Company’s future interest expense will fluctuate in line with any change in borrowing rates. The Company does not have any derivative financial instruments as of June 30, 2009 and 2008 and believes its exposure to interest rate risk is not material.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto and the other financial information included elsewhere in this report.

Note on Forward Looking Statements

This quarterly report on Form 10-Q includes and incorporates by reference “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 with respect to our financial condition, results of operations, plans, objectives, future performance and business, which are usually identified by the use of words such as “will,” “may,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “plans,” “predicts,” “continues,” “intends,” “should,” “would,” or similar expressions. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with these safe harbor provisions.

These forward-looking statements reflect our current views and expectations about our plans, strategies and prospects, which are based on the information currently available and on current assumptions.

We cannot give any guarantee that these plans, intentions or expectations will be achieved. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those Risk Factors set forth in our Form 8-K filed with the SEC on September 15, 2008. Listed below and discussed elsewhere in this quarterly report are some important risks, uncertainties and contingencies that could cause our actual results, performances or achievements to be materially different from the forward-looking statements included in this quarterly report. These risks, uncertainties and contingencies include, but are not limited to, the following:

You should read this document with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.

History

We are a Delaware Corporation incorporated on April 13, 2004 under the name Royaltech Corp. From inception to September 2008, we were a developmental stage company focused on developing and manufacturing clinical diagnostic kits in the People’s Republic of China. From inception to September 2008, we had not manufactured or sold any products, and had limited operating history.

On September 9, 2008, we entered into a share exchange agreement with by Densen Equipment Ltd., which resulted in a change of control. In consideration for acquiring all the assets of Densen Equipment Ltd., the former shareholders of Densen Equipment Ltd. acquired over 90% of the issued and outstanding shares of our common stock. The former officers and directors of Densen Equipment Ltd. were also appointed to serve as our officers and directors. Following the acquisition of these assets, we changed our corporate name to China Tractor Holdings, Inc. and our business is focused on the research, production, and sales of low-speed vehicles, tractors and construction machinery in the People’s Republic of China, through our wholly owned subsidiary, Densen Machinery Investment Limited, incorporated in Hong Kong in April 2005 ("Densen Machinery"). For further details regarding the share exchange transaction with Densen Equipment, please see our Current Report on Form 8-K, filed with the SEC on September 15, 2008.

Our corporate structure is summarized in the chart below and the accompanying summary:

Overview

At the present time, our business is solely comprised of the business of our wholly-owned subsidiary, Densen Machinery. Densen Machinery invested $15,180,000 to establish Changchun Densen Agricultural Machinery Equipment Co., Ltd. (“Changchun Densen”) in September 2005. Changchun Densen is engaged in the research and development and production of low-speed vehicles, tractors and construction machinery. In November 2007, Changchun Densen and State-owned Assets Supervision and Administration Commission of Changchun entered into a joint venture to establish Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”) to put itself in a better position in the marketplace . As of September 30, 2008, the total registered capital of Chang Tuo is RMB200,000,000 and is engaged in the research, development production, and sale of low-speed vehicles, tractors and construction machineries, and sales of agricultural machineries and accessories.

Densen Machinery is a recipient of subsidies and tax incentives from the Chinese government as part of their plan to promote the development of the agriculture industry in the northeast regions of China. The major markets for our products are located mainly in the provinces of Jilin, Liaoning, Heilongjiang and Shangdong.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: allowance for doubtful accounts; income taxes; and asset impairment.

Revenue Recognition

In accordance with GAAP in the United States, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collection of the resulting receivable is reasonably assured.

Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collect ability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. Please see our Note 1 of the notes accompanying our financial statements.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts to reduce trade receivable amounts to their estimated realizable value. Judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required.. In estimating the provision for doubtful accounts, we consider:

i.	the aging of the accounts receivable;

ii.	trends within and ratios involving the age of the accounts receivable;

iii.	the customer mix in each of the aging categories and the nature of the receivable;

iv.	our historical provision for doubtful accounts;

v.	the credit worthiness of the customer;

vi.	the economic conditions of the customer’s industry as well as general economic conditions, among other factors.

Income taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period. In addition, as a result of the significant change in the Company’s ownership, the Company's future use of its existing net operating losses may be limited.

We are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.

We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.

Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.

Asset Impairment

We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.

Results of Operations for the six months ended June 30, 2009 and 2008

CHINA TRACTOR HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS AND OTHER COMPREHENSIVE

GAINS/LOSS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

							Variance
	2009			2008			Amount			%
Net revenue	$	18,575,096		$	20,121,871		$	(1,546,775	)		-8	%
Cost of sales		(16,011,720	)		(18,280,610	)		2,268,890			-12	%

Gross profit		2,563,376			1,841,261			722,115			39	%
Operating expenses:
Selling and general and administrative expenses		(1,428,777	)		(859,816	)		(568,961	)		66	%
Impairment loss of assets		(142,099	)		13,135			(155,234	)		-1182	%
Profit from operations		992,500			994,580			(2,080	)		0	%

Other income/(expenses)		(554,081	)		124,213			(678,294	)		-546	%
Minority interest		(264,168	)		(274,903	)		110,735			-30	%
Income tax expenses		(170,649	)		(290,254	)		119,605			N/A

Net profit attributable to stockholders		3,602			453,636			(450,034	)		-99	%

Other comprehensive income		44,038			982,268			(938,230	)		-96	%

Comprehensive income	$	47,640		$	1,435,904			(1,388,264	)		-97	%

Revenue

Revenue for the six months ended June 30, 2009 was $18,575,096, compared to $20,121,871 for the comparable period of 2008, a decrease of $1,546,775 or 8%. The decrease mainly resulted from more extensive competition in the markets in 2009 than that of 2008. So the price and quantity of sales in year 2009 is lower than that of 2008.

Cost of sales

Cost of sales for the six months ended June 30, 2009 decreased to $16,011,720 from $18,280,610 for the comparable period of 2008, a decrease of $2,268,890 or 12%. The decrease of cost of sales is in line with the sales decrease.

Gross profit

Gross profit for the six months ended June 30, 2009 was $2,563,376, which was an increase of $722,115 or 39% compared to $1,841,261 for the comparable period of 2008. The increase of gross profit is due to a decrease of the per unit selling cost.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $1,428,777 for the six months ended June 30, 2009 from $859,816 in 2008, an increase of $568,961 or 66%. The increase primarily resulted from reinforced sales and marketing activities in 2009.

Provision and impairment expenses

The provision and impairment expenses in the six months ended June 30, 2009 represents the allowance of other receivables of $142,099, while the provision and impairment expenses in 2008 represents for the allowance of advance to suppliers of ($13,135).

Other income/ (expenses)-net

Other expenses-net for the six months ended June 30, 2009 was $554,081, as compared to other income-net of $124,213 for the comparable period of 2008. Other expenses for six months ended June 30, 2009 mainly consisted of interest expense related to bank loans of $349,972. Other income for the six months ended June 30, 2008 mainly consisted of subsidies from governments for agricultural machinery manufacturers of $69,680.

Net income

Net income for the six months ended June 30, 2009 was $3,602, compared to $453,636 for the comparable period in 2008. The Company had net income in the first half year of 2009 because of improvement of gross margin on product sales.

Comprehensive income

Comprehensive income for the six months ended June 30, 2009 was $44,038 compared to $982,268 for the comparable period in 2008. It represents the foreign currency translation income had on from appreciation of Renmenbi against US dollar.

Liquidity and Capital Resources

As shown in the accompanying financial statements, the Company had an accumulated deficit of $1,413,566 as of June 30, 2009 and $1,417,168 as of December 31, 2008. The Company has relied upon cash from its financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from its operating activities in the past. We begun to achieve profitability in 2008, but there is no assurance it will continue to be able to do so in the future. If we fail to maintain profitability, we cannot predict how long we can incur losses or whether we will become profitable again, or if the Company’s business will improve.

However, our working capital was $1,972,472. In addition, our wholly-owned subsidiary, Densen Machinery is a recipient of subsidies and tax incentives from the Chinese government as part of its plan to promote the development of the agriculture industry in the northeast regions of China. We expect these subsidies and tax incentives to continue in the near future and improve our liquidity, although the current world-wide economic crisis may cause the Chinese government to discontinue these incentives and subsidies. Further, demand for agricultural machines continues to be robust in China, including the provinces of Jilin, Liaoning, Heilongjiang and Shangdong, areas that are major markets for our products.

Operating Activities

The net cash used in operating activities during the six months ended June 30, 2009 was $7,047,469, compared to the net cash used by operating activities during the six months ended June 30, 2008 of $2,204,506. The net cash outflow from operating activities in 2009 was mainly due to an increase in accounts receivable of $3,295,269, inventories of $4,829,257, and advances to suppliers of $2,171,770, less an increase in accounts payable of $2,492,962, advances from customers of $102,834, depreciation and amortization of $423,293, an increase in minority interest of $264,168. The increase in both operating assets and liabilities were mainly due to increase of sales and operating scale. In addition, in order to achieve larger market share, we offered longer credit period to our customers. The cash inflow during 2008 is mainly due to the increase in accounts receivable and inventory of $1,770,187 and $3,618,765 respectively, increase in accounts payable of $3,614,542 and decrease in accrued liabilities of $255,309, and depreciation and amortization of $364,174.

Investing Activities

Net cash used in investing activities was $787,516 during the six months ended June 30, 2009, compared to $1,045,104 in 2008. The net cash outflow in 2009 primarily consisted of the cash outflow from purchase of property and equipment of $819,730. The cash outflow during the comparable period of 2008 is from cash paid for purchase of property and equipment of $1,045,104.

Financing Activities

Net cash provided by financing activities was to $5,983,334 during the six months ended June 30, 2009, compared to cash provided by financing activities of $294,996 during the comparable period of 2008. The net cash inflow in 2009 was due to proceeds from short term loans of $6,648,907 less payments and receipt from related parties of $621,700. The short term loan will be repaid from our operation cash flow generated during the second half year of 2009.

Inflation

In the opinion of management, inflation has not had a material effect on the Company's financial condition or results of its operations.

Trends and uncertainties

Our wholly-owned subsidiary, Densen Machinery is a recipient of subsidies and tax incentives from the Chinese government as part of their plan to promote the development of the agriculture industry in the northeast regions of China. We expect that these subsidies and tax incentives to continue in the near future and improve our liquidity, although the current world-wide economic crisis may cause the Chinese government to discontinue these incentives and subsidies. Further, demand for agricultural machines continues to be robust in China, including the provinces of Jilin, Liaoning, Heilongjiang and Shangdong, areas that are major markets for our products. The Company’s operations are affected by seasonal factors sales of our products are affected by shifts in seasonal cultivating trends. On the agricultural machinery business, the first quarter and third quarter are the off-season for sales; the second quarter and fourth quarter are the peak season for sales.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

A smaller reporting company, as defined by Rule 229.10(f)(1), is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”), conducted evaluations of the Company’s disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, included the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.

Changes in Internal Control over Financial Reporting

Further, there were no changes in the Company’s internal control over financial reporting during the Company’s second fiscal quarter of 2009 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 1

Legal Proceedings

As of March 31, 2009, there were presently no material pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is the subject and, to the best of our knowledge, no such actions against us is contemplated or threatened.


	Item 2	Unregistered Sales of Securities and Use of Proceeds

		None.

	Item 3	Defaults Upon Senior Securities

		None.

	Item 4	Submission of Matters to a Vote of Security Holders

		None.

	Item 5	Other Information

		None.

	Item 6	Exhibits

	31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350

	32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

In accordance with 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 hereunto duly authorized.

	CHINA TRACTOR HOLDINGS, INC.

Dated: August 19, 2009	By:	/s/ Lau San
		Lau San
		Chief Executive Officer and Chairman

	By:	/s/ Chen Guochen
		Chen Guochen
		Chief Financial Officer and Director

China Tractor Holdings, Inc. 10-Q