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)

For the quarterly period ended September 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~~December 171, 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~~ September 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		2122
Item 3. Quantitative and Qualitative Disclosure About Market Risks		2831
Item 4. Controls and Procedures		2831
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

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2009 & DECEMBER 31, 2008

	2009			2008

	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	111,889		$	1,979,153
Accounts receivable, net of allowance for doubtful accounts		3,141,959			2,275,976
Other receivables, net of allowance for doubtful accounts		441,473			470,632
Advance to suppliers, net of allowance for doubtful accounts		1,168,607			554,376
Inventories, net		13,430,209			8,960,235
Prepaid expenses		5,484			8,754
Tax recoverable		2,301,378			663,836
Due from related parties		417,242			1,900,128
Total current assets		21,018,241			16,813,090

Property, plant and equipment, net		21,406,982			21,832,068
Construction in progress		4,756,402			600,398
Intangible assets		515,515			553,465
Land use right		3,733,519			3,071,373
Land use right deposit		-			1,038,174
Equipment deposit		15,970			-
Long-term investment		1,724,163			1,877,836
Deferred tax assets		112,638			30,394

TOTAL ASSETS	$	53,283,430		$	45,816,798

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Short-term loans	$	10,968,761		$	4,376,878
Accounts payable		7,746,727			6,628,498
Advance from customers		153,124			282,235
Salary payable		78,094			116,823
Accrued expenses and other payables		2,433,250			718,450
Due to related parties		577,913			1,582,074

Total current liabilities		21,957,869			13,704,958

Deferred tax liability		479,410			-

TOTAL LIABILITIES		22,437,279			13,704,958

STOCKHOLDERS’ EQUITY
Comon shares, issued and outstanding; 18,310,539 and 18,310,539 shares as of September 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		2,735,636			2,578,962
Accumulated deficit		(2,245,293	)		(1,417,168	)

TOTAL EQUITY ATTRIBUTED TO CONTROLLING SHAREHOLDERS		15,675,450			16,346,901
Noncontrolling Interest		15,170,701			15,764,939
TOTAL STOCKHOLDERS’ EQUITY		30,846,151			32,111,840

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	53,283,430		$	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

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 & 2008 (Unaudited)

	Nine Months						Three Months
	Ended September 30						Ended September 30
	2009			2008			2009			2008

Net revenue	$	18,828,313		$	24,168,188		$	253,217		$	4,628,679
Cost of sales		(16,226,931	)		(21,327,271	)		(215,211	)		(3,629,023	)

Gross profit		2,601,382			2,840,917			38,006			999,656
Operating expenses:
Sales and marketing expenses		(637,590	)		(150,839	)		(71,023	)		(36,799	)
General and administrative expenses		(1,718,394	)		(1,121,317	)		(856,184	)		(375,541	)
Impairment loss on assets		(867,111	)		(33,521	)		(725,012	)		(46,656	)

Profit/(loss) from operations		(621,713	)		1,535,240			(1,614,213	)		540,660

Investment loss		(158,119	)		-			(16	)		-
Interest income/(expense)		20,520			6,307			14,909			1,027
Gain/(Loss) on disposal of fixed assets		-			-			-			(9,287	)
Government grant income		8,769			-			8,769			-
Other income		138			133,677			23			16,053
Interest income/(expense)		(556,747	)		-			(189,686	)		-
Other expenses		(35,532	)		(16,497	)		(889	)		(8,519	)
		(720,971	)		123,487			(166,890	)		(726	)

Income/(loss) before income taxes and noncontrolling interests		(1,342,684	)		1,658,727			(1,781,103	)		539,934

Income tax benefit/(expense)		-			(402,616	)		170,649			(112,362	)

Net income/(loss)		(1,342,684	)		1,256,111			(1,610,454	)		427,572

Less: (Income)/loss attributable to noncontrolling interest		514,559			(655,013	)		778,727			(280,110	)

Net Income/(loss) attributed to controlling shareholders		(828,125	)		601,098			(831,727	)		147,462

Other comprehensive income		156,674			1,020,617			112,636			38,349

Comprehensive income/(loss)	$	(671,451	)	$	1,621,715		$	(719,091	)	$	185,811

Basic and diluted income/(loss) per commom share:
Basic	$	(0.05	)	$	0.03		$	(0.05	)	$	0.01
Diluted		(0.05	)		0.03			(0.05	)		0.01

Weighted average common shares outstanding:
Basic		18,310,539			18,310,539			18,310,539			18,310,539
Diluted		18,310,539			18,310,539			18,310,539			18,310,539

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		$	-

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2009 & 2008 (Unaudited)

	2009			2008
Cash flows from operating activities:
Income including noncontrolling interest	$	(1,342,685	)	$	1,256,111
Adjustments to reconcile net income/(loss) to cash used by operating activities:
Depreciation and amortization		629,599			576,342
Provision for inventory obsolescence		819,837			-
Provision for doubtful receivables		47,274			33,521
Investment loss		158,119			-
Changes in operating assets and liabilities:
Deferred tax assets		396,954			-
Accounts receivable		(899,591	)		(2,094,525	)
Inventories		(5,264,866	)		(1,712,829	)
Advance to suppliers		(634,582	)		(1,925,083	)
Prepaid expenses and other assets		30,306			(190,367	)
Accounts payable		1,101,346			2,007,526
Advance from customers		(129,703	)		636,771
Accrued expenses and other current liabilities		(9,345	)		123,111
Cash used by operating activities		(5,097,337	)		(1,289,422	)

Cash flows from investing activities:
Cash paid for long- term investment		-			(142,880	)
Receipts from the sale of fixed assets,intangible assets and other longterm assets		32,217			-
Purchase of property and equipment and other long-term assets		(2,286,035	)		(1,030,411	)
Cash increase due to acquisition of subsidiaries		-			207
Net cash used for investing activities		(2,253,818	)		(1,173,084	)

Cash flows from financing activities:
Proceeds from short-term loans		6,649,607			-
Proceeds from related parties - net		-			322,723
Repayment on borrowing from related parties		10,133			-
Advance to related parties		(433,019	)		-
Collection an advance to related parties		16,076			-
Receipt from related parties		(689,294	)		-
Repayments on short-term loans		(73,073	)		-
Net cash provided by financing activities		5,480,430			322,723

Effect of exchange rate changes on cash		3,461			136,861

Net decrease in cash and cash equivalents		(1,867,264	)		(2,002,922	)

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

Cash and cash equivalents, ending balance	$	111,889		$	711,317

SUPPLEMENTARY DISCLOSURE:

Interest paid	$	556,747		$	-

Income tax paid	$	34,769		$	-

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

NOTE 1 - ORGANIZATION~~, BUSINESS~~ ~~OPERATIONS~~ AND ~~ACCOUNTING~~ ~~PRINCIPLES~~PROPOSED BUSINESS OPERATIONS

China Tractor Holdings, ~~Inc~~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~~ 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 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 was accounted for as a recapitalization of China ~~Tractor~~ Tractor and not as a business combination. Accordingly, no pro forma information is 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”)

The financial statements include all adjustments that, in the opinion of management, are necessary to make the interim financial statements not misleading.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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~~ nine months ended ~~June~~September 30, 2009. As the Company appointed 4 of 7 Chang Tuo directors, the accounts of Chang Tuo are included in consolidation. ~~All~~ 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 ($).

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 (“RMB”); however the accompanying consolidated financial statements have been translated and presented in United States Dollars (“$”).

ASC 280 “Disclosure about Segments of an Enterprise and Related Information”, previously SFAS No. 131, 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.

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~~ tothat affect the reported amounts of assets and liabilities and ~~the~~ disclosure of contingent assets and liabilities at the ~~date~~dates of the consolidated financial statements and the ~~reported amounts~~ amount of revenues and expenses during the ~~period~~reporting periods. Management ~~Significant~~makes ~~items~~these ~~subject to such~~ estimates ~~and~~using ~~assumptions include~~ the ~~recoverability~~ ofbest ~~the~~information ~~carrying~~available ~~amount~~at ~~of property and equipment and intangible assets;~~ the ~~allocation~~time 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~~made. ~~based~~However, onactual ~~complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual~~ results ~~may~~could differ materially from those ~~estimates~~ results.

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~~intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, ~~limited~~ limited operating history, foreign currency exchange rates and the volatility of ~~public~~ public markets.

Comprehensive Income

The Company has adopted the provisions of ASC 220 “Reporting Comprehensive Income”, previously SFAS No. 130, establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements.

ASC 220 defines 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, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.

Foreign Currency Transactions

The reporting currency of the Company is the US $. The functional currency of PRC subsidiaries is RMB. The financial statements of PRC subsidiaries are translated to United States dollars using quarter-end exchange rates as to assets and liabilities and average exchange rates as to revenues, expenses and cash flows. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The balance sheet amounts with the exception of equity at September 30, 2009 were translated 6.8376 RMB to $1.00 as compared to 6.8542 RMB at December 31, 2008. The equity accounts were stated at their historical exchange rate. The average translation rates applied to the income and cash flow statement amounts for the three months ended September 30, 2009 and 2008 were 6.8411 RMB and 6.8529 RMB to $1.00 respectively. The average translation rates applied to the income and cash flow statement amounts for the nine months ended September 30, 2009 and 2008 were 6.8425 RMB and 6.9989 RMB to $1.00, respectively.

Translations adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of stockholders’ equity and were $2,735,925 and $2,578,962 as of September, 2009 and 2008, respectively.

Cash and Cash Equivalents

~~Cash~~For ~~consists~~Statement of Cash Flows purposes, the Company considers all cash on hand, ~~cash~~and in banks, ~~bank~~including accounts ~~and~~in ~~interest-bearing~~book ~~savings~~overdraft positions, certificates of deposit ~~accounts.~~and ~~Cash~~other ~~deposits~~highly-liquid ~~that~~investments ~~are~~with ~~restricted~~maturities asof tothree ~~withdrawal~~months or ~~pledged as~~less, ~~security~~when purchased, ~~are~~to ~~disclosed~~be ~~separately~~cash onand ~~the~~cash ~~consolidated~~equivalents. The ~~balance~~Company maintains ~~sheet,~~cash with various banks and trust companies located in China. Cash accounts are not insured or otherwise ~~included~~protected. Should inany bank or trust company holding cash ~~for~~deposits become insolvent, or if the ~~purpose~~Company ofis otherwise unable to withdraw funds, the Company ~~consolidated~~would ~~statements~~lose ofthe cash on deposit with that particular bank or trust ~~flows~~company.

Accounts Receivable

~~Allowances~~The ~~for~~Company’s ~~doubtful~~policy ~~accounts~~is ~~are~~to ~~maintained~~maintain ~~against~~reserves ~~accounts~~for ~~receivable~~potential ~~for~~credit ~~estimated~~ losses ~~resulting~~on ~~from~~accounts receivable. Management reviews the ~~inability~~composition of ~~customers~~accounts ~~to make required payments.~~receivable ~~These~~and ~~allowances~~analyzes ~~are~~historical ~~based~~bad ondebts, ~~both~~customer ~~recent~~concentrations, ~~trends~~customer ofcredit worthiness, ~~certain~~current ~~customers~~economic ~~estimated to~~trends beand achanges ~~greater~~in ~~credit~~customer ~~risk~~payment aspatterns ~~well~~to evaluate asthe ~~general~~adequacy ~~trends~~ of ~~the~~these ~~entire customer pool~~reserves. Accounts are written off against the allowance when it becomes evident collection will not occur. As of September 30, 2009 and December 31, 2008, the allowance for doubtful accounts was $42,369 and $74,832 respectively.

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~~their 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~~. Gains ~~Depreciation~~or islosses ~~calculated~~ on ~~a straight-line basis over estimated~~ ~~useful~~disposals ~~lives~~are ofreflected ~~30 years~~as ~~for~~gain ~~buildings~~or ~~and~~loss ~~improvements,~~in 10the ~~years~~year ~~for~~of disposal. All ~~machinery~~ordinary ~~and~~repair ~~equipment~~ and 5maintenance ~~years~~costs ~~for~~are ~~furniture~~expensed ~~and fixtures~~as incurred. 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.

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of assets as set out below.

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

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.

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.

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~~Long-Term ~~Interest~~Investment

~~Interest~~The ~~associated~~Company ~~with~~accounted ~~major~~for ~~development~~its ~~and~~24% ~~construction~~investment ~~projects~~in isZhongji ~~capitalized~~North ~~and included~~Machinery inCo., ~~the~~Ltd, (Zhongji ~~cost~~North) ofusing the ~~project.~~equity ~~When~~method, nounder ~~debt~~which isthe ~~incurred~~share ~~specifically~~of ~~for~~Zhongji aNorth’ ~~project,~~net ~~interest~~income is ~~capitalized~~recognized onin ~~amounts~~the ~~expended~~period onin ~~the~~which ~~project~~it ~~using~~is earned. In ~~weighted-average~~China, ~~cost~~only ofannual ~~the~~report ~~Company’s~~is ~~outstanding borrowings~~audited. ~~Capitalization~~The ~~of interest~~financial ~~ceases~~statement ~~when~~of ~~the~~2008 ~~project~~was audited isby ~~substantially~~Tianzhi ~~complete~~CPA. orFinancial ~~development activity~~statement isof 2009 ~~suspended~~will ~~for~~be ~~more~~audited after ~~than~~year aend ~~brief period~~2009.

Impairment of Long-Lived Assets

In accordance with ~~Statement~~ASC of360, ~~Financial~~“Property, ~~Accounting~~Plant ~~Standards~~and ~~(“SFAS~~Equipment”), previously 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. In 2007, Changchun Densen invested land use right to Changtuo. According to appraisal report, the value of land use right was lower than the book value and the difference between appraisal value and book value resulted in an impairment of land use right. As of September 30, 2009, the Company performed an impairment review of long-lived assets and concluded that there was an impairment loss of land use right of $697,512.

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. After the customers of the Company taking the goods and signing on the shipping order, the Company considers the signed shipping order as customer acceptance and the risk of goods is transferred, as the price in invoice or sales contract with customers is fixed, the Company recognize revenue accordingly. 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 provides a product warranty to customers; meanwhile, as an assembling company, all parts are purchased from related suppliers, suppliers provide a same terms warranty to the Company as that the Company provides to customers. In case customers claim problem products to the Company, the Company will claim the related parts to suppliers accordingly. Further more, the labor costs and overheads related to the problem products are not material compared to the parts cost, so the company do not accrue any warranty liabilities in financial statements.

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~~In 2009, ~~Taxes~~subsidies were granted to farmers by the Chinese government, who are the ending users of products of the Company. When farmers buy tractors, the Chinese government pays the subsidies to the company on behalf of farmers to ensure the subsidies are correctly used, and farmers only need to pay the difference between sales price and government subsidies. The Company records the subsidies as revenue when it recognizes product sales. The subsidies are nonrefundable. In 2009, the Company received $5,789,589 from the Chinese government, which represents a portion of the sales price of tractors sold to the farmers during 2009 and 2008, included in which, $127,385 recorded as sales of 2008 and $5,662,204 recorded as sales of 2009.

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.

InIncome 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..Taxes

~~In March~~The ~~2008,~~Company ~~the~~accounts ~~FASB~~for ~~issued~~income taxes in accordance with ASC 740 “Income Taxes”, previously SFAS No. ~~161~~109. Under this method, ~~“Disclosures~~deferred ~~about~~income ~~Derivative~~taxes ~~Instruments~~are ~~and~~recognized ~~Hedging~~for ~~Activities~~the anestimated ~~amendment~~tax ofconsequences ~~FASB~~in ~~Statement~~future ~~No.~~years ~~133.” SFAS~~of ~~161~~differences ~~changes~~between the ~~disclosure~~tax ~~requirements~~bases ~~for~~of ~~derivative~~assets ~~instruments~~and liabilities and ~~hedging~~their financial reporting ~~activities.~~amounts ~~Entities~~and ~~are~~each ~~required~~year-end tobased ~~provide~~on ~~enhanced~~enacted ~~disclosures~~tax ~~about~~laws ~~(a)~~and ~~how~~statutory rates ~~and~~applicable ~~why~~to anthe ~~entity~~periods ~~uses~~in ~~derivative~~which ~~instruments,~~the ~~(b)~~differences ~~how~~are ~~derivative~~expected ~~instruments~~to affect ~~and~~taxable ~~related~~income. ~~hedged~~Valuation ~~items~~allowances are ~~accounted~~established ~~for~~to ~~under~~reduce ~~SFAS~~deferred ~~133~~tax assets ~~and~~to ~~its~~the ~~related interpretations,~~amount ~~and~~expected ~~(c)~~to ~~how~~be ~~derivative~~realized ~~instruments~~when, ~~and~~in ~~related~~management’s ~~hedged~~opinion; ~~items~~it ~~affect~~is anmore ~~entity’s~~likely ~~financial~~than ~~position,~~not ~~financial~~that ~~performance,~~some ~~and~~portion ~~cash~~of the deferred tax assets will not be ~~flows~~realized. The ~~Company~~provision ~~adopted~~for ~~SFAS~~income ~~161~~taxes onrepresents ~~January~~current 1,taxes payable ~~2009.~~net ~~The~~of ~~adoption~~the ~~of SFAS~~change ~~161~~during ~~had~~the noperiod ~~impact~~in ondeferred ~~the Company’s~~tax ~~financial~~assets and ~~statements~~liabilities.

InEarnings 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~~loss)~~. SFAS~~ ~~162 had no~~Per ~~impact on the Company’s financial statements.~~Share

~~In May~~The ~~2008,~~Company ~~the~~reports ~~FASB~~earnings ~~issued~~per ~~SFAS~~share ~~No.~~in ~~163,~~accordance ~~“Accounting~~with ~~for~~the ~~Financial~~provisions ~~Guarantee Insurance~~of ~~Contracts,~~ASC an260 “Earnings ~~interpretation~~Per ofShare”, ~~FASB~~previously ~~Statement~~SFAS No. 60128.~~” The~~ ASC 260 requires ~~scope~~presentation of ~~SFAS~~basic ~~163 is limited to financial guarantee insurance (~~and ~~reinsurance) contracts,~~diluted asearnings ~~described~~per share in ~~this~~conjunction ~~Statement,~~with ~~issued by enterprises included within~~ the disclosure ~~scope~~ of ~~Statement~~the ~~60.~~methodology ~~Accordingly,~~used ~~SFAS~~in ~~163~~computing ~~does~~such ~~not~~earnings ~~apply to financial~~per ~~guarantee~~share. Basic ~~contracts~~earnings ~~issued~~per byshare ~~enterprises~~excludes ~~excluded~~dilution ~~from~~and ~~the~~is ~~scope~~computed ~~of Statement~~by 60dividing orincome toavailable ~~some insurance contracts that seem similar~~ to ~~financial~~common ~~guarantee insurance~~stockholders ~~contracts issued~~ by ~~insurance~~the ~~enterprises~~weighted ~~(such~~average ~~as mortgage guaranty~~common ~~insurance~~shares oroutstanding ~~credit~~during ~~insurance~~the ~~on trade receivables)~~period. Diluted ~~SFAS~~earnings ~~163~~per ~~also does not~~share ~~apply~~takes tointo ~~financial~~account ~~guarantee~~the ~~insurance~~potential ~~contracts~~dilution that ~~are~~could ~~derivative~~occur ~~instruments included~~if ~~within~~securities ~~the~~or other ~~scope~~contracts ofto ~~FASB~~issue ~~Statement~~common ~~No.~~stock ~~133,~~were ~~“Accounting~~exercised ~~for Derivative Instruments~~ and ~~Hedging~~converted ~~Activities.”~~into ~~SFAS 163 was adopted on January 1, 2009 and~~common ~~had~~stock nousing ~~impact on~~ the ~~Company’s~~treasury ~~financial statements~~method.

InCommon ~~January~~stock ~~2009,~~equivalents represent the ~~FASB~~dilutive ~~issued~~effect ~~FSP~~of ~~EITF~~the ~~99-20-1,~~assumed ~~“Amendments~~exercise toof the ~~Impairment~~ ~~Guidance~~outstanding ofstock ~~EITF~~options ~~Issue~~and ~~No. 99-20~~warrants, ~~and~~using ~~EITF~~the ~~Issue~~treasury ~~No.~~stock ~~99-20~~method, ~~Recognition of~~at ~~Interest~~either ~~Income~~the ~~and~~beginning ~~Impairment~~of ~~on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes~~ the ~~impairment~~ ~~model~~respective ~~included~~period ~~within~~presented ~~EITF~~or ~~99-20 to be more consistent with~~ the ~~impairment~~ ~~model~~date of ~~SFAS~~issuance, whichever ~~No.~~is ~~115.~~later, ~~FSP~~and ~~EITF~~only ~~99-20-1~~if ~~achieves this by amending~~ the ~~impairment~~ ~~model~~common instock ~~EITF~~equivalents ~~99-20~~are ~~to remove its exclusive reliance on “market~~considered ~~participant”~~dilutive ~~estimates~~based ofupon ~~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~~Company’s ~~estimate~~net ofincome ~~whether~~(loss) ~~there~~position ~~has~~at 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~~calculation ~~securities are classified as trading securities~~dates.

Fair Value of Financial Instruments

ASC 820 “Fair Value Measurements and Disclosures”, previously FAS 157, adopted January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for current receivables and payables qualify as financial instruments. Management concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available. The three levels are defined as follows:

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) 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 assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

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

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of September 30, 2009 are as follows:

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts receivable, notes receivables, other receivables, accounts payable, notes payable and convertible notes payable. Cash and cash equivalents consist primarily of high rated money market funds at a variety of well-known institutions with original maturities of three months or less. Restricted cash represents time deposits on account to secure short-term bank loans and notes payable. Management estimates that the carrying amounts of the non related party financial instruments approximate their fair values due to their short-term nature.

~~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 ofMeasurements ~~Financial~~at ~~Instruments”~~Reporting ~~(FSP~~Date ~~FAS~~Using ~~107-1~~Quoted ~~and~~Prices ~~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

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.

	Carrying value as Of September 30		Active markets For identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs
	2009		(Level 1)		(Level 2)		(Level 3)

Cash and cash equivalents	$	111,889,	$	111,889		-		-

InConcentration ~~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.Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade and bills receivables. As of September 30, 2009, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade receivables.

Noncontrolling Interests

Effective January 1, 2009, the Company adopted the provisions of ASC 810, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements-reported in equity” for reporting noncontrolling interest (“NCI”) in a subsidiary. As a result, the Company reported NCI as a separate component of Stockholders’ Equity in the Condensed Consolidated Balance Sheet. Additionally, the Company reported the portion of net income and comprehensive income (loss) attributed to the Company and NCI separately in the Condensed Consolidated Statement of Operations. The Company also included a separate column for NCI in the Consolidated Statement of Changes in Equity. All related disclosures were adjusted accordingly. Prior year amounts associated with NCI in the financial statements and accompanied footnotes were retrospectively adjusted to conform to the adoption.

Statement of Cash Flows

In accordance with ASC 230, “Statement of Cash Flows”, previously AFAS No. 95, cash flows from the Company's operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Recent Accounting Pronouncements

Noncontrolling Interests (Included in ASC 810 “Consolidation”, previously 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. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted SFAS 160 on January 1, 2009. As a result, we reclassified financial statement line items within our Condensed Consolidated Balance Sheets and Statements of Income and Comprehensive Income for the prior period to conform to this standard.

~~In May~~Business ~~2009,~~Combinations ~~the~~(Included ~~FASB~~in ~~issued~~ASC ~~FAS~~805 ~~165,~~ “~~Subsequent~~Business ~~Events~~Combinations”, topreviously ~~establish~~SFAS ~~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~~No. ~~This Statement should be applied to the accounting for and~~ ~~disclosure of subsequent events~~141(R)). This ~~Statement~~ASC ~~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 onrevised ~~the accounting~~SFAS ~~treatment for subsequent events or transactions~~No. ~~This~~141, ~~Statement would~~“Business ~~apply~~Combinations” ~~to both interim financial statements~~ and ~~annual~~addresses ~~financial statements. This Statement should not result in significant changes in~~ the ~~subsequent~~accounting ~~events~~and ~~that an entity reports—either through recognition or~~ disclosure~~—in~~ ~~its~~for ~~financial~~identifiable ~~statements.~~assets 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 dateacquired, ~~that~~liabilities isassumed, ~~whether~~ ~~that~~and ~~date~~noncontrolling ~~represents~~interests ~~the~~in ~~date~~a ~~the financial statements were issued or~~business ~~were available to be issued~~combination. The ~~This~~adoption ~~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,~~ anstandard ~~entity~~had ~~should~~no ~~apply~~material ~~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~~the orCompany’s ~~reporting of our~~ financial ~~results~~statements.

~~In June~~Intangibles-Goodwill ~~2009,~~and ~~the~~Other ~~FASB~~(Included ~~issued~~in ~~FAS~~ASC ~~166~~350”, ~~“Accounting~~previously ~~for Transfers of Financial Assets—an amendment of~~ FASB ~~Statement~~staff ~~No.~~position ~~140~~(“FSP”,) ~~to improve the relevance, representational~~FAS ~~faithfulness~~142-3, ~~and~~Determination ~~comparability~~ of the ~~information~~Useful ~~that~~Life ~~a reporting entity provides in its financial statements about a transfer~~ of ~~financial~~Intangible ~~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~~Assets). ~~This Statement must be applied as of the beginning of each~~ FSP ~~reporting~~FAS ~~entity’s~~142-3 ~~first~~amends 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~~factors ~~date.~~an ~~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 beconsider ~~evaluated for consolidation by reporting entities on and after the effective date~~ in ~~accordance~~ ~~with~~developing ~~the~~renewal ~~applicable consolidation guidance. If the evaluation~~or onextension ~~the~~assumptions ~~effective~~used ~~date results~~ in ~~consolidation,~~determining the ~~reporting~~useful ~~entity~~life ~~should apply the transition guidance provided in the pronouncement that requires consolidation. Additionally, the disclosure provisions~~ of ~~this Statement should~~recognized beintangible ~~applied~~assets tounder ~~transfers~~FASB ~~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)~~142, ~~Consolidation~~ of“Goodwill ~~Variable~~and ~~Interest~~Other ~~Entities, to qualifying special-purpose~~Intangible ~~entities~~Assets”. This ~~Statement~~new ~~clarifies~~guidance ~~that~~applies ~~the~~prospectively ~~objective of paragraph 9 of Statement 140 is~~ to ~~determine~~intangible ~~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~~that ~~term~~are ~~participating~~acquired ~~interest~~individually toor ~~establish~~with ~~specific conditions for reporting~~ a ~~transfer~~ ofgroup ~~a portion~~ of aother ~~financial~~assets ~~asset as a sale. The special provisions~~ in business ~~Statement~~combinations ~~140~~ and ~~FASB~~asset ~~Statement No~~acquisitions. FSP ~~65,~~FAS ~~Accounting~~142-3 ~~for~~is ~~Certain~~effective ~~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~~statements ~~the~~issued ~~scope of Statement 140, as amended by this Statement. If such a transfer does not meet the requirements~~ for ~~sale~~fiscal ~~accounting,~~years ~~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~~interim ~~measure~~periods atbeginning ~~fair value all assets obtained (including a~~after ~~transferor’s~~December ~~beneficial~~15, ~~interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale~~2008. Early ~~Enhanced~~adoption ~~disclosures~~is ~~are~~prohibited. The ~~required~~adoption ~~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~~standard ~~FSP~~had ~~but~~no ~~do not~~material ~~believe~~effect ~~it will have a significant impact~~ on the ~~determination~~Company's ~~or reporting of our~~ financial ~~results~~ statements.

Business Combinations (Included in ASC 805, previously FSP No. 141R-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”). FSP 141R-1 amends the provisions in FASB Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in Statement 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in evaluating the impact of SFAS 141(R). The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Fair Value Measurements and Disclosures (Included in ASC 820, previously FSP No. 157-4, “Determining Whether a Market is Not Active and a Transaction Is Not Distressed”). FSP No. 157-4 clarifies when markets are illiquid or that market pricing may not actually reflect the “real” value of an asset. If a market is determined to be inactive and market price is reflective of a distressed price then an alternative method of pricing can be used, such as a present value technique to estimate fair value. FSP No. 157-4 identifies factors to be considered when determining whether or not a market is inactive. FSP No. 157-4 would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. The adoption of this standard had no material effect on the Company's financial statements.

Investments - Debt and Equity Securities - Overall - Transition and Open Effective Date Information (Included in ASC 320-10-65, previously FASB Staff Position No. 115-2 and Statement of Financial Accounting Standards No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”). ASC 320-10-65 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and securities with unrealized losses. The adoption of this statement had no material impact on the Company’s financial statements.

Interim Disclosures about Fair Value of Financial Instruments (Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1). This guidance requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This guidance also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP 107-1 had no material impact on the Company’s financial statements.

~~In June~~Subsequent ~~2009,~~Events ~~the~~(Included ~~FASB~~in ~~issued~~ASC ~~FAS~~855 ~~167,~~ “~~Amendments~~Subsequent ~~to FASB Interpretation No. 46(R)~~Events”, ~~to improve~~previously ~~financial~~SFAS ~~reporting by enterprises involved with variable interest entities~~No. ~~The Board undertook this project to address (1) the effects on certain~~ ~~provisions of FASB Interpretation No~~165). SFAS ~~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~~165, ~~Accounting~~“Subsequent ~~for Transfers~~Events” ofestablishes ~~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~~disclosure ~~timely~~requirements ~~and~~for ~~useful~~subsequent ~~information about an enterprise’s involvement in a variable interest entity~~events. SFAS ~~This~~165 ~~Statement~~details ~~amends Interpretation 46(R) to require an enterprise to perform an analysis to determine whether~~ the ~~enterprise’s~~ ~~variable~~period ~~interest~~after ~~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~~balance ~~beneficiary~~sheet ofdate ~~a variable~~during ~~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~~we ~~based~~should ~~on determining~~evaluate ~~which~~events ~~enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns,~~ or ~~both.~~ ~~This~~transactions ~~Statement~~that ~~amends~~occur ~~certain guidance in Interpretation 46(R)~~ for ~~determining whether~~potential anrecognition ~~entity~~or isdisclosure ~~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~~financial ~~group~~statements, ~~lose~~ the ~~power~~circumstances ~~from~~under ~~voting~~which ~~rights~~we orshould ~~similar~~recognize ~~rights~~events ~~of those investments~~or totransactions ~~direct~~occurring ~~the~~after ~~activities of~~ the ~~entity~~balance ~~that~~sheet ~~most~~date ~~significantly~~in ~~impact~~its ~~the entity’s economic performance. This Statement amends Interpretation 46(R) to require enhanced disclosures that will provide users of~~ financial statements ~~with~~and ~~more~~the ~~transparent~~required ~~information~~disclosures ~~about~~for ansuch ~~enterprise’s~~events. We ~~involvement~~adopted ~~in a~~this ~~variable~~statement ~~interest entity. This Statement shall be~~ effective asJune ~~of the beginning of each reporting entity’s first annual reporting period that begins after November 15~~1, 2009, ~~for interim periods within that first annual reporting period,~~ and ~~for~~have ~~interim~~evaluated ~~and~~all ~~annual~~subsequent ~~reporting periods thereafter. We are~~events ~~currently~~through ~~evaluating~~the ~~this~~filing ~~new~~date ~~FSP~~with ~~but do not believe it will have a significant impact on~~ the ~~determination or reporting of our financial results~~SEC.

~~In June~~Accounting ~~2009,~~for ~~the~~Transfers ~~FASB~~of ~~issued~~Financial ~~FAS~~Assets ~~168,~~(To ~~“The~~be ~~FASB~~included ~~Accounting~~in ~~Standards~~ASC ~~CodificationTM~~860 “Transfers and ~~the~~Servicing”, ~~Hierarchy~~previously ofSFAS ~~Generally~~No. ~~Accepted~~166, “Accounting ~~Principles—a~~for ~~replacement~~Transfers of ~~FASB~~Financial ~~Statement~~Assets ~~No.~~- ~~162”.~~an ~~The~~Amendment of FASB ~~Accounting~~Statement ~~Standards~~No. ~~CodificationTM (Codification~~140”). SFAS 166 addresses ~~will~~information ~~become~~a ~~the~~reporting ~~source~~entity ofprovides ~~authoritative~~in ~~U.S.~~its ~~generally~~financial ~~accepted~~statements ~~accounting~~about the ~~principles~~transfer ~~(GAAP)~~of ~~recognized~~financial byassets; the ~~FASB~~effects toof bea ~~applied~~transfer byon ~~nongovernmental~~its financial ~~entities.~~position, ~~Rules~~financial performance, and ~~interpretive~~cash ~~releases~~flows; ofand ~~the~~a ~~Securities~~transferor’s ~~and Exchange~~continuing ~~Commission~~involvement ~~(SEC)~~in ~~under~~transferred ~~authority~~financial ofassets. Also, ~~federal~~SFAS ~~securities~~166 ~~laws~~removes the ~~are~~concept ~~also sources~~ of ~~authoritative~~ ~~GAAP~~a ~~for~~qualifying ~~SEC~~special ~~registrants.~~purpose Onentity, limits the ~~effective~~circumstances ~~date~~in which ofa ~~this~~transferor ~~Statement, the~~derecognizes ~~Codification~~a ~~will~~portion ~~supersede~~or ~~all~~component ~~then-existing~~of ~~non-SEC~~a ~~accounting~~financial ~~and~~asset, ~~reporting~~defines ~~standards.~~participating ~~All~~interest ~~other~~and ~~nongrandfathered~~enhances ~~non-SEC~~the ~~accounting~~information ~~literature~~provided to ~~not~~financial ~~included~~statement inusers ~~the~~to ~~Codification~~provide ~~will~~greater ~~become nonauthoritative~~transparency. ~~This Statement~~ SFAS 166 is effective for ~~financial~~the ~~statements~~first ~~issued~~annual ~~for~~reporting ~~interim~~period ~~and~~beginning ~~annual periods ending~~ after ~~September~~November 15, 2009. Weand ~~are~~will ~~currently~~be ~~evaluating~~effective ~~this~~for ~~new FSP~~us ~~but~~as doof ~~not~~January ~~believe~~1, it2010. The management ~~will~~is ~~have~~in athe ~~significant~~process ~~impact~~of onevaluating the ~~determination~~impact orof adopting this standard ~~reporting~~on ofthe ~~our~~Company’s financial ~~results~~statements.

~~NOTE~~Consolidation ~~2 ACCOUNTS~~of ~~RECEIVABLE~~Variable Interest Entities – Amended (To be included in ASC 810 “Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). SFAS 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” to require an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. SFAS 167 also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

AsFASB Accounting ofStandards Codification (Accounting Standards Update “ASU” 2009-1). In June 302009, ~~2009~~the Financial Accounting Standard Board (“FASB”) approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and ~~December~~reporting ~~31,~~standards applicable ~~2008~~for all non-governmental entities, ~~accounts~~with ~~receivable~~the ~~consisted~~exception of the SEC and ~~following:~~its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There were no changes to the content of our financial statements or disclosures as a result of implementing the Codification.

	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

As a result of our implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, we will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update 2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. ASC Update 2009-05 will become effective for the Company’s annual financial statements for the year ended December 31, 2009. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

~~NOTE~~In ~~3 INVENTORIES~~October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

~~Inventories,~~NOTE by3 ACCOUNTS ~~major categories, as of June 30, 2009 and December 31, 2008 were as follows:~~RECEIVABLE

	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

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

NOTE 4 ADVANCE TO SUPPLIERS

	2009			2008
	(Unaudited)
Accounts receivable	$	3,184,328		$	2,278,559
Less: Allowance for doubtful accounts		(42,369	)		(2,583	)

Accounts receivable, net	$	3,141,959		$	2,275,976

~~Advance~~NOTE 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.4 INVENTORIES

~~NOTE~~Inventories, ~~5 OTHER~~by ~~RECEIVABLES~~major categories, as of September 30, 2009 and December 31, 2008 were as follows:

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

	2009			2008
	(Unaudited)
Raw materials	$	3,165,909		$	4,435,034
Work in progress		102,169			1,119,496
Low value consumables		156,957			123,437
Packaging materials		2,002			1,579
Materials on consignment for further processing		200,691			18,638
Finished goods		10,630,350			3,284,065
		14,258,078			8,982,249

Less: Allowance for obsolete inventories		(827,869	)		(22,014	)

Inventories, net	$	13,430,209		$	8,960,235

	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

The sales peak season of tractor is winter, the high finished goods are hold for winter sales.

NOTE ~~6 PROPERTY,~~5 ADVANCE ~~PLANT~~TO ~~AND EQUIPMENT~~SUPPLIERS

~~As of~~Advance ~~June~~to ~~30,~~suppliers ~~2009~~represented partial payments or deposits on inventory purchases and was ~~December~~$ 311,168,607 ~~2008~~and $554,376 ~~property~~net, ~~plant~~which is after allowance for doubtful accounts of $79,952 (unaudited) and ~~equipment~~$57,667 ~~consisted~~as of September 30, 2009 and December ~~the~~31, ~~followings:~~2008, respectively.

	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

NOTE 6 OTHER RECEIVABLES

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

	2009		2008
	(Unaudited)
Advance to employees for business purposes	$	32,080	$	123,698
Prepayment		7,312		28,827
Rebate receivable		-		48,496
Loan (no interest)		43,875		-
Other		358,206		284,201
		441,473		485,222
Less: Allowance for doubtful accounts		-		(14,590	)

Total other receivables, net	$	441,473	$	470,632

NOTE 7 PROPERTY, PLANT AND EQUIPMENT

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

	2009			2008
	(Unaudited)
Cost:
Plant and Building	$	20,996,694		$	20,940,518
Machinery and Equipment		2,021,915			1,967,750
Office Furniture and Equipment		131,077			125,881
Transportation Equipment		258,376			296,274
Total at cost		23,408,062			23,330,423

Less: Accumulated depreciation		(2,001,080	)		(1,498,355	)

Total property, plant and equipment, net	$	21,406,982		$	21,832,068

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

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

Depreciation for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008 was $~~354~~523,~~726~~729 (unaudited) ~~and~~ and $~~294~~641,~~623~~735 (unaudited) respectively. And depreciation expense for the ~~3 months~~three months ended ~~June~~September 30, 2009 and 2008 ~~were~~was $~~177~~169,~~166~~003 (unaudited) and $~~138~~183,~~907~~ 398 (unaudited) respectively.

NOTE 7 8 CONSTRUCTION IN PROGRESS

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

	2009		2008
	(Unaudited)
Phase II plant project	$	34,~~309~~756,~~107~~402	$	600,398

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

NOTE 8 9 LAND USE RIGHTS

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

	2009			2008
	(Unaudited)
Cost	$	4,~~667~~672,~~880~~795		$	3,950,862
Less: Accumulated amortization		(~~220~~241,~~197~~765	)		(183,667	)
		4,447,683			3,767,195
		4,431,030			3,767,195
Less: Impairment loss		(~~696~~697,~~778~~511	)		(695,822	)
Land use rights, net	$	3,~~750~~733,~~905~~519		$	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~~nine months ended ~~June~~September 30, 2009 and 2008 was $3657,~~286~~ 611 (unaudited) and $3861,~~289~~813 (unaudited) respectively. And the amortization for the three 3 months ended ~~June~~September 30, 2009 and 2008 ~~were~~was $2021,~~572~~325 ~~and~~(unaudited) and $227,~~836~~829 (unaudited) respectively. The estimated annual amortization for land use rights for the next five years as of ~~June~~ September 30, 2009 and thereafter is expected to be as follows by years:

2010	$	77,~~396~~478
2011		77,~~396~~478
2012		77,~~396~~478
2013		77,~~396~~478
2014		77,~~396~~478
Thereafter		3,~~363~~346,~~925~~129
Total	$	3,~~750~~733,~~905~~519

14NOTE 10 LAND USE RIGHTS DEPOSIT

~~NOTE~~Land use 9right ~~LAND~~deposit ~~USE~~as ~~RIGHTS~~of ~~DEPOSIT~~September 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.

~~Land use~~NOTE ~~right~~11 OTHER ~~deposit~~INTANGIBLE ~~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.~~ASSETS

~~NOTE~~As of 10September ~~OTHER~~30, ~~INTANGIBLE~~2009 ~~ASSETS~~and December 31, 2008, the Company’s intangible assets were summarized as follows:

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

	Useful life	2009			2008
		(Unaudited)
Amortizable intangible assets:
Trademark	10 years	$	539,663		$	538,356
Capitalized accounting software	10 years		23,219			14,185
Non-patent techniques	10 years		87,750			87,538
Total at historical cost			650,632			640,079

Less: Total accumulated amortization			(135,117	)		(86,614	)

Other intangible assets, net		$	515,515		$	553,465

Other intangible assets were stated at cost less accumulated amortization. The amortization of other intangible assets for the nine months ended September 30, 2009 and 2008 was $48,260 (unaudited) and $61,758 (unaudited) respectively. And the amortization for the three months ended September 30, 2009 and 2008 was $15,980 (unaudited) and $20,943 (unaudited) respectively. The estimated amortization expense for the next five years as of September 30, 2009 and thereafter is expected to be as follows by years:

2010	$	65,063
2011		65,063
2012		65,063
2013		65,063
2014		65,063
Thereafter		190,200

Total	$	515,515

NOTE 12 LONG-TERM INVESTMENT

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

	2009				2008
	(Unaudited)
Zhongji North Machinery Co., Ltd.		24	%	1,724,163		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

Balance sheet

	For the six months ended June 30,
	September 30, 2009			December 31, 2008
	2009			2008
Assets
Revenue	$	304,432		$	-
Cash	$	382,959		$	2,481,590
Cost of sales		261,636			-
Receivables		6,506,886			3,499,959
Gross Margin		42,796			-
Inventories		7,056,296			1,895,571
Expenses		703,402			-
Long-term assets		2,623,953			2,054,884
Loss before income taxes		(660,606	)		-
Total assets	$	16,570,094		$	9,932,004
Income tax		(1,846	)		-
Liabilities and shareholder’s equity
Net loss	$	(658,760	)	$	-
Payables	$	9,386,083		$	1,432,339
Long-term liabilities		-			675,349
Paid-in capital		7,294,797			7,294,797
Retained earnings (Accumulated deficit)		(137,527	)		521,303
Foreign currency translation		26,741			8,216
Total liabilities and shareholder’s equity	$	16,570,094		$	9,932,004

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

Income statement
	Nine months ended September 30,
	2009			2008
Revenue	$	304,464		$	-
Cost of sales		(261,664	)		-
Gross Margin		42,800			-
Expenses		(703,476	)		-
Loss before income taxes		(660,676	)		-
Income tax		1,846			-
Net loss	$	(658,830	)	$	-

~~As of~~The ~~June~~following ~~30,~~table ~~2009~~summarizes ~~and~~the ~~December~~movement ~~31,~~of ~~2008,~~ the ~~accrued~~Company’s ~~expenses~~long-term ~~and~~investment ~~other liabilities~~in ofZhongji North in the ~~Company~~nine ~~were~~months ~~summarized~~ended asSeptember ~~follows~~30, 2009:

	2009			2008
Balance as of December 31, 2008	$	1,877,836
	(Unaudited)
Net loss of Zhongji North		(658,830	)
Accrued expenses	$	174,631		$	-
Foreign currency translation		18,525
Other payables – equipment purchases payable		120,369			63,109
Total		(640,305	)
– security deposit		285,334			109,013
% of ownership		24	%
– borrowing from third party		470,138			542,441
Loss on investment		(153,673	)
– Others		100,935			3,887
Balance as of September 30, 2009	$	1,724,163
Total accrued expenses and other payables	$	1,151,407		$	718,450

~~The borrowing from third party has no~~NOTE ~~repayment~~13 SHORT-TERM ~~term and bore no interest. The security deposit is deposit from clients for the maintenance of tractors.~~LOANS

~~NOTE~~Short-term 14loans are ~~RELATED~~due ~~PARTY~~to ~~BALANCE~~various ~~AND~~financial ~~TRANSCATIONS~~institutions which are normally due within one year. As of September 30, 2009 and December 31, 2008, the Company’s short term loans consisted of the following:

Due to related parties

	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.	$	4,387,504	$	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.		5,850,006		-

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.		731,251		-

Total short-term loans	$	10,968,761	$	4,376,878

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~~NOTE ~~Company,~~14 ACCRUED asEXPENSES ~~noncontrolling~~AND ~~shareholder~~OTHER ~~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.~~PAYABLES

~~NOTE~~As of 15September ~~GOVERNMENT~~30, ~~GRANT~~2009 ~~INCOME~~and December 31, 2008, the accrued expenses and other liabilities of the Company were summarized as follows:

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.

	2009		2008
	(Unaudited)
Accrued expenses	$	177,044	$	-

Other payables – equipment purchases payable		120,496		63,109
– security deposit		275,693		109,013
– borrowing from third party		1,786,884		542,441
– Others		73,133		3,887

Total accrued expenses and other payables	$	2,433,250	$	718,450

~~NOTE~~The borrowing from third party has no 16repayment ~~NONCONTROLLING~~term ~~INTERESTS~~and bore no interest, which include $1,170,001 from Shanghai Sibo Education Co., Ltd. , $146,250 from Zheng Yin, $470,633 from Changchun Tuolaji Group, for operation use, will repay in near future. So the borrowing amount showed in the table above can be considered fair value of the liabilities.

~~Noncontrolling~~The ~~interests~~security ondeposit ~~the~~is ~~consolidated~~deposit ~~statement~~from ofclients ~~income and comprehensive income of $247,295 and $374,903~~ for the ~~six~~maintenance ~~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~~tractors.

NOTE 1715 RELATED ~~INCOME~~PARTY ~~TAX~~BALANCE AND TRANSCATIONS

Due from related parties

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

	2009		2008
	(Unaudited)
Lau San	$	417,242	$	-
Mudanjiang Binjiang Garden City		-		1,900,128

Total due from related parties	$	417,242	$	1,900,128

A director of the Company, Mr. Lau San, borrowed money from the Company. These amounts are interest- free, unsecured and repayable on demand.

Due to related parties

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

	2009		2008
	(Unaudited)
Lau San	$	-	$	1,005,084
Changchun Junming Machinery Co., Ltd. (“CJMCL”)		149,095		148,734
Shenzhen Junsheng Property Management Co., Ltd. (“SJPMCL”)		14,625		14,590
Zhongji North Machinery Co., Ltd. (“Zhongji North”)		414,193		413,666

Total due to related parties	$	577,913	$	1,582,074

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

NOTE 16 GOVERNMENT GRANT INCOME

The Company records government grants when received and shows it as government grant income on the face of statements of consolidated operations and other comprehensive income. All subsidies are nonrefundable.

In the third quarter of 2009 (unaudited), Changtuo and Changchun Densen received $5,846 and $2,923 subsidy respectively from Jiutai Municipal Bureau of Finance for the international business development. 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 17 NONCONTROLLING INTERESTS

Noncontrolling interests on the consolidated statement of income and comprehensive income of $(304,337) and $655,013 for the nine months ended September 30, 2009 and 2008 respectively, of $(568,505) and $280,110 for the three months ended September 30, 2009 and 2008 respectively, represented the noncontrolling shareholders’ proportionate share of the net income/(loss) of the Company.

NOTE 18 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~~Chang Tuo ~~operating~~does ~~profits~~not ~~and~~receive ~~losses~~any benefit of ~~our~~a ~~subsidiaries~~reduced ~~were~~income astax ~~follows,~~rate. ~~for~~Chang ~~the~~Tuo ~~six~~is included ~~months~~in income ~~ended~~tax ~~June 30, 2009 and 2008, unaudited:~~return.

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

The pre-tax accounting income/(loss) of our subsidiaries were as follows, unauditded for the nine months ended September 30, 2009 and 2008:

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	$	(404,620	)	$	43,879
Changtuo		(922,346	)		1,614,848
JQBC		(15,718	)		-
	$	(1,342,684	)	$	1,658,727

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

The ~~following~~pre-tax ~~table~~accounting ~~summarizes~~income ~~the~~of ~~temporary~~our ~~differences~~subsidiaries ~~which~~were ~~result~~as infollows, ~~deferred~~unauditded for ~~tax~~the ~~assets~~three ~~and~~months ~~liabilities~~ended asSeptember ~~of June~~ 30, 2009 and ~~December 31,~~ 2008:

	2009			2008
	(Unaudited)
Changchun Densen	$	(176,161	)	$	(97,283	)
Deferred tax assets:
Changtuo		(1,604,941	)		637,217
Inventory impairment	$	70		$	5,504
JQBC		(1	)		-
Bad debt allowance		49,951			-
	$	(1,781,103	)	$	539,934
Investment gain		6,097			-
Expenses deductible in next year		14,770			24,890
Total deferred tax assets	$	70,888		$	30,394

18The following table summarizes the temporary differences which result in deferred tax assets and liabilities as of September 30, 2009 and December 31, 2008:

	2009		2008
	(Unaudited)
Deferred tax liabilities:
Deferred tax assets:
Taxable income in year 2010	$	478,905	$	-
Inventory impairment	$	73,890	$	5,504
Total deferred tax liabilities	$	478,905	$	-
Bad debt allowance		19,988		-
Investment gain		6,104		-
Expenses deductible in next year		12,656		24,890
Total deferred tax assets	$	112,638	$	30,394

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
	(Unaudited)
Deferred tax liabilities:
Taxable income in year 2010	$	479,410	$	-

Total deferred tax liabilities	$	479,410	$	-

	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	%)

We delivered some goods to our customers in 2008, however the related invoices will be issued and taxable in 2010. The annual CIT final settlement for 2008, which was settled in May 2009, did not include profit from these sales. The temporary difference from these sales resulted in deferred tax liability.

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

	2009			2008
		(34	%)		(34	%)
US statutory rates		34.0	%		34.0	%
US statutory rates		9	%		9	%
Tax rate difference		(9.0	)%		(9.0	)%
Tax rate difference		(5	%)		-
Valuation allowance		(25.0	)%		(0.7	)%
Valuation allowance		2	%		5	%
Effect of tax holiday		-			-
Effect of tax holiday		-			(9	%)
Non-deductable expenses		-			-
Equity in loss of investee		8	%		1	%
Tax per financial statements		0.0	%		24.3	%
Tax per financial statements		(20	%)		(28	%)

~~NOTE~~The 18following ~~OPERATING~~table ~~RISK~~reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended September 30, 2009 and 2008 (unaudited):

	2009			2008

US statutory rates		34.0	%		34.0	%
Tax rate difference		(9.0	)%		(9.0	)%
Valuation allowance		(34.6	)%		4.5	%
Effect of tax holiday		-			(8.7	)%
Equity in loss of investee		-			-

Tax per financial statements		(9.6	)%		20.8	%

NOTE 19 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.

2021

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 be achieved. Investors are cautioned ~~that~~ all forward-looking statements involve ~~risks~~ risks and uncertainties, and actual results may differ materially from those ~~discussed~~ discussed in the forward-looking statements as a result of various factors, ~~including~~ including those Risk Factors set forth in our Form 8-K filed with the SEC on September 15, 2008 and Form 10-K filed April 22, 2009. 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~~ 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~~ owned subsidiary, Densen Machinery. Densen Machinery invested $15~~,180,000 to~~.2 million to establish Changchun Densen Agricultural Machinery Equipment Co., Ltd. (“Changchun Densen”) inon 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~~2009, the total registered capital of Chang Tuo iswas ~~RMB200,000,000~~RMB 200 million and is engaged in the research, development production, and sale of low-speed vehicles, tractors and construction machineries, and ~~sales~~sale of ~~agricultural~~ agricultural machineries and accessories. In July 2008, Chang Tuo and Mr. Lao Zhenjun signed an agreement to establish Jilin Qilida Bearing Co., Ltd. (“Qilida”). As of September 30, 2009, the total registered capital of Qilida was RMB500 million and is engaged in the production of transmission assembly of tractors and vehicles, rear axles assembly of tractors, and production and R&D of gear petroleum reducer.

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 generally accepted accounting principles ("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~~ see 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~~A isconsiderable amount of judgment is required when we assess the realization of accounts ~~receivables~~receivable, 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~~ASC 740 “Income Taxes”, previously 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~~three months ended ~~June~~September 30, 2009 and 2008

CHINA TRACTOR HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS AND OTHER COMPREHENSIVE

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

										Variance
	2009			2008				Variance
	2009				2008					Amount					%
								Amount				%
Net revenue	$	18253,~~575,096~~217		$	$4,628,679	~~20,121,871~~		$	(4,375,462	$)	~~(1,546,775~~	)	-95	%		-8	%
Cost of sales		(16215,~~011,720~~211	)		(3,629,023	~~(18,280,610~~)	)		3,413,812		~~2,268,890~~		-94	%		~~-12~~	%
Gross profit		238,~~563,376~~006			999,656	~~1,841,261~~			(961,650	)	~~722,115~~		-96	%		39	%
Operating expenses:
Selling and general and administrative expenses		(1927,~~428,777~~207	)		(412,340	~~(859,816~~)	)		(514,867	)	~~(568,961~~	)	125	%		66	%
Impairment loss of assets		(~~142~~725,~~099~~012	)		(46,656	~~13,135~~)			(678,356	)	~~(155,234~~	)	1454	%		~~-1182~~	%
Profit from operations		992,500				994,580					(2,080	)				0	%
Profit/(Loss) from operations		(1,614,213	)		540,660				(2,154,873	)			-399	%
Other income/(expenses)		(~~554~~166,~~081~~890	)		(726	~~124,213~~)			(166,164	)	~~(678,294~~	)	22888	%		~~-546~~	%
Minority interest		~~(264~~778,~~168~~727	)		(280,110	~~(274,903~~)	)		1,058,837		~~110,735~~		-378	%		~~-30~~	%
Income tax expenses		(170,649	)			(290,254	)				119,605					N/A
Income tax benefit /(expenses)		170,649			(112,362	)			283,011				252	%
Net profit attributable to stockholders		3,602				453,636					(450,034	)				-99	%
Net profit/(loss) attributable to stockholders		(831,727	)		147,462				(979,189	)			-664	%
Other comprehensive income		44,038				982,268					(938,230	)				-96	%
Other comprehensive income/(loss)		112,636			38,349				74,287				194	%
Comprehensive income	$	47,640			$	1,435,904					(1,388,264	)				-97	%
Comprehensive income/(loss)	$	(719,091	)	$	185,811				(904,902	)			-487	%

Revenue

Revenue for the ~~six~~three months ended ~~June~~September 30, 2009 was $18253,~~575~~217,~~096,~~ as compared to $204,~~121~~628,~~871~~ 679 for the ~~comparable~~same period of 2008, a decrease of $14,~~546~~375,~~775~~462 or 895%. The significant decrease ~~mainly~~in ~~resulted~~the ~~from~~2009 ~~more~~period ~~extensive~~was ~~competition~~as ina result of ~~the~~fewer ~~markets~~sales and in ~~2009~~the ~~than~~one-time ~~that~~subsidy ofpolicy in 2008. Soto ~~the~~farmers ~~price~~from ~~and~~local government ~~quantity~~to ofencourage ~~sales~~farmers ~~in year~~to ~~2009~~buy istractors. ~~lower~~This ~~than~~subsidy was only valid for that ofshort period during 2008.

In 2009, the Company received $5,789,589 of the subsidy to farmers in cash from the Chinese government from sales made in 2009 and 2008. The amount was recorded in accounts receivable at September 30, 2009, which included in revenue of 2008 and 2009.

Cost of sales

Cost of sales for the ~~six~~three months ended ~~June~~September 30, 2009 decreased to $16215,~~011,720~~211 from $183,~~280~~629,~~610~~023 for the ~~comparable~~same period of 2008, a decrease of $23,~~268~~413,~~890~~812 or 1294%. The significant decrease ofin cost of sales is generally in line with the sales decrease.

Gross profit

~~Gross~~The gross profit for the ~~six~~three months ended ~~June~~September 30, 2009 was $238,~~563~~006,~~376,~~ ~~which~~a ~~was~~decrease ~~an increase~~ of $~~722~~961,~~115~~650 or 3996% compared to $1999,~~841,261~~656 for the ~~comparable~~same period of 2008. The gross ~~increase~~margin ofalso dropped from 21% to 15% during the quarter ended September 30, 2009 compared to the same period last year. The gross margin ~~profit~~during the quarter ended September 30, 2009 is ~~due~~generally toin aline ~~decrease~~with ofour regular sales margin, but the ~~per~~margin in the same period of 2008 is higher due to ~~unit~~the ~~selling~~one-off ~~cost~~subsidy incentive plan.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $1927,~~428,777~~209 for the ~~six~~three months ended ~~June~~September 30, 2009 from $~~859~~412,~~816~~340 in the same period of 2008, an increase of $~~568~~514,~~961~~869 or 66 124%. The increase ~~primarily~~ resulted from: 1) reinforced sales ~~and~~ and marketing activities in 2009; 2) change of the sales policy for the transportation cost; 3) increase of salary, entertainment, traveling and repairing cost due to New Holland project started in early 2009 .

Provision and impairment expenses

The provision and impairment expenses of $725,012 in the ~~six~~three months ended September ~~June~~ 30, 2009 represents the allowance of ~~other~~certain ~~receivables~~old ofstyle ~~$142,099,~~inventory ~~while the provision~~which ~~and~~is ~~impairment~~difficult ~~expenses in 2008 represents for the allowance of advance~~ to ~~suppliers~~ ~~of ($13,135)~~sell.

Other income/ (expenses)-net

Other expenses-net for the ~~six~~three months ended ~~June~~September 30, 2009 was $~~554~~166,~~081~~890, as compared to other ~~income~~expenses-net of $~~124,213~~726 for the ~~comparable~~same period of 2008. Other ~~expenses~~ expenses for ~~six~~the three months ended ~~June~~September 30, 2009 mainly consisted of interest expense related to ~~bank~~notes ~~loans~~receivable ofdiscounted ~~$349,972. Other income for the six months ended June 30, 2008 mainly consisted~~ of ~~subsidies from governments for agricultural~~ ~~machinery manufacturers of~~ $69189,~~680~~686.

~~Net~~Income ~~income~~tax expenses

~~Net~~Income ~~income~~tax expenses for the ~~six~~three months ended ~~June~~September 30, 2009 ~~was~~and ~~$3,602,~~2008 ~~compared to $453,636~~represent ~~for~~accrued ~~the~~income ~~comparable~~tax ~~period~~ in ~~2008.~~Chang ~~The Company had net income in the first half year of 2009 because of improvement of gross margin on product sales~~Tuo.

~~Comprehensive~~Non-controlling ~~income~~interest

~~Comprehensive~~Non-controlling interest resulted in income of $778,727 for the ~~six~~three months ended ~~June~~September 30, 2009 ~~was~~representing ~~$44,038~~the ~~compared~~3% tonon-controlling ~~$982,268 for~~interest ~~the~~of ~~comparable~~Changchun ~~period~~Tractor in ~~2008~~Densen and 52.5% Itnon-controlling ~~represents~~interest ~~the~~in ~~foreign~~Chang ~~currency translation~~Tuo ~~income~~and ~~had~~30% onnon-controlling ~~from appreciation~~ interest of ~~Renmenbi against US dollar~~Qilida.

Net loss/income

Net loss for the three months ended September 30, 2009 was $831,727, compared to a net income of $147,462 for the same period in 2008. The Company had a net loss during the three months ended September 30, 2009 due to lower sales during this period.

Results of Operations for the nine months ended September 30, 2009 and 2008

CHINA TRACTOR HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS AND OTHER COMPREHENSIVE

GAINS/LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

	2009			2008			Variance
							Amount			%

Net revenue	$	18,828,313		$	24,168,188		$	(5,339,875	)		-22	%
Cost of sales		(16,226,931	)		(21,327,271	)		5,100,340			-24	%

Gross profit		2,601,382			2,840,917			(239,535	)		-8	%
Operating expenses:
Selling and general and administrative expenses		(2,355,984	)		(1,272,156	)		(1,083,828	)		85	%
Impairment loss of assets		(867,111	)		(33,521	)		(833,590	)		2487	%
Profit/(Loss) from operations		(621,713	)		1,535,240			(2,156,953	)		-140	%

Other income/(expenses)		(720,971	)		123,487			(844,458	)		-684	%
Minority interest		514,559			(655,013	)		1,169,572			-179	%
Income tax benefit /(expenses)		-			(402,616	)		402,616			-100	%

Net profit/(loss) attributable to stockholders		(828,125	)		601,098			(1,429,223	)		-238	%

Other comprehensive income/(loss)		156,674			1,020,617			(863,943	)		-85	%

Comprehensive income/(loss)	$	(671,451	)	$	1,621,715			(2,293,166	)		-141	%

Revenue

Revenue for the nine months ended September 30, 2009 was $18,828,313, as compared to $24,168,188 for the same period of 2008, a decrease of $5,339,875 or 22%. The decrease is mainly resulted from more extensive competition in the markets in 2009 than that of 2008. So the price and sales volume was lower in 2009 as compared to 2008.

Cost of sales

Cost of sales for the nine months ended September 30, 2009 decreased to $16,226,931 from $21,327,271 for the same period of 2008, a decrease of $5,100,340 or 24%. The significant decrease of cost of sales is mainly due to the decrease in sales volume.

Gross profit

The gross profit for the nine months ended September 30, 2009 was $2,601,382, a decrease of $239,535 or 8% compared to $2,840,917 for the same period of 2008. The decrease in gross profit is due to the decrease in sales volume. However, the gross margin increased from 11.8% to 13.8%. The increase in gross margin is mainly due to higher margins of big and medium tractors compared to small tractors.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $2,355,984 for the nine months ended September 30, 2009 from $1,272,156 in 2008, an increase of $1,083,828 or 85%. The increase is generally resulted from reinforced sales and marketing activities in year 2009. In addition, we made bad debt provision against certain receivables during the nine months ended September 30, 2009.

Provision and impairment expenses

The provision and impairment expenses in the nine months ended September 30, 2009 represents the provision for certain old style inventory which are difficult to sell.

Other income/ (expenses)-net

Other expenses-net for the nine months ended September 30, 2009 was $720,971, as compared to other income-net of $123,487 for the same period of 2008. Other expenses for the period ended September 30, 2009 mainly consisted of interest expense related to notes receivable discount of $556,747 and investment loss of $158,119. Other income for the period ended September 30, 2008 mainly consisted of subsidies from governments for agricultural machinery manufacturers of $133,677.

Income tax expenses

Income tax expenses for the nine months ended September 30, 2009 and 2008 represent accrued income tax in Chang Tuo.

Non-controlling interest

Non-controlling interest resulted in income of $514,559 for the nine months ended September 30, 2009 representing the 3% non-controlling interest of Changchun Tractor in Densen and 52.5% non-controlling interest in Chang Tuo and 30% non-controlling interest of Qilida.

Net loss/income

Net loss for the nine months ended September 30, 2009 was $828,125 compared to a net income of $601,098 for the same period in 2008. The decrease mainly resulted from the drop of revenue and the increase of selling, general and administrative expenses and provision and impairment expenses as explained above.

Liquidity and Capital Resources

~~However~~As shown in the accompanying financial statements, the Company suffered accumulated ~~our~~deficit ~~working~~of ~~capital~~$2,245,293 ~~was~~as of September 30, 2009 and $1,~~972~~417,~~472~~168 as of December 31, 2008. In addition, our ~~wholly-owned subsidiary,~~working ~~Densen~~capital ~~Machinery~~as isof aSeptember ~~recipient~~30, of2009 ~~subsidies~~was negative ~~and~~$939,628. The ~~tax~~Company ~~incentives~~has relied upon cash from its ~~the~~financing ~~Chinese~~activities ~~government~~to fund its ongoing operations as ~~part~~it ofhas ~~its~~not ~~plan~~been able to generate ~~promote~~sufficient ~~the~~cash ~~development~~from ofits operating activities in the past. We have ~~agriculture~~begun ~~industry~~to achieve profitability in ~~the~~2008, ~~northeast~~but ~~regions~~there ofis ~~China.~~no Weassurance ~~expect~~that ~~these~~it will ~~subsidies~~continue ~~and~~to ~~tax~~be ~~incentives~~able to ~~continue~~do so in the ~~near~~ future. ~~and~~If ~~improve~~we ~~our~~fail to maintain ~~liquidity~~profitability, ~~although~~we cannot predict how long we can incur losses or whether we will become profitable again, or if the ~~current~~Company’s ~~world-wide~~business ~~economic~~will ~~crisis~~improve. ~~may~~These factors ~~cause~~raise substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern depends on the ~~Chinese~~success of ~~government~~our plan to ~~discontinue~~seek ~~these~~funding ~~incentives~~sources and ~~subsidies.~~the ~~Further,~~success ~~demand~~of ~~for~~our future ~~agricultural~~operations. The ~~machines~~financial ~~continues~~statements do not include any adjustments to reflect bethe ~~robust~~possible infuture ~~China,~~effects ~~including~~on the ~~provinces~~ recoverability and classification of assets ~~Jilin,~~or ~~Liaoning,~~the ~~Heilongjiang~~amounts and ~~Shangdong,~~classification ~~areas~~of liabilities that ~~are~~may ~~major~~result ~~markets~~from ~~for~~the ~~our~~outcome ~~products~~of this uncertainty.

25However, Densen Machinery, our wholly owned subsidiary, and Chang Tuo, our 47.5% owned subsidiary are recipients of subsidies or 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. 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~~nine months ended ~~June~~September 30, 2009 ~~was~~ amounted to $75,~~047~~097,~~469~~337, compared to the net cash used by operating activities during the ~~six~~ nine months ended ~~June~~September 30, 2008 of $21,~~204~~289,~~506~~422. The net cash outflow from operating activities in 2009 was mainly due to an increase in ~~accounts~~inventory ~~receivable~~ of $35,~~295~~264,~~269~~866, ~~inventories~~accounts receivable of $4899,~~829~~591,~~257,~~ and advances to suppliers of $2634,~~171~~582 and loss of $1,~~770~~342, ~~less~~685, by netting off an increase in accounts payable of $21,~~492~~101,~~962,~~346 ~~advances~~and ~~from~~non-cash ~~customers~~expenses or provision of $~~102~~1,~~834~~654,829. The ~~depreciation~~increase ~~and~~of ~~amortization~~receivables ofcan ~~$423,293,~~be angenerally ~~increase~~net inoff ~~minority~~the ~~interest~~increase of ~~$264,168~~payables. The increase in ~~both~~inventories ~~operating~~was ~~assets~~mainly ~~and~~due to ~~liabilities~~our ~~were~~new ~~mainly~~production ~~due~~line tothat ~~increase~~is ofcooperated ~~sales~~with New Holland, which needs additional spare-parts and ~~operating~~products for production and in production ~~scale~~line. In addition, inthe ~~order~~increase of inventory is mainly due to ~~achieve~~more inventory ~~larger~~reserve ~~market~~for ~~share,~~winter wesales in 2009 and early winter sales in 2010 which ~~offered~~are ~~longer~~the ~~credit~~peak ~~period~~sales toseasons ~~our~~in ~~customers~~a year. The cash ~~inflow~~outflow during the same period of 2008 is mainly due to the increase in accounts receivable, inventory and ~~inventory~~advance to suppliers of $15,~~770~~732,~~187~~437 ~~and~~in $3total,~~618,765~~ ~~respectively,~~by netting off increase in accounts payable of $32,~~614~~007,~~542~~526 and ~~decrease~~increase inof ~~accrued~~other liabilities of $759,882, non-cash expenses of $~~255~~609,~~309~~863, and ~~depreciation~~the ~~and amortization~~income of $~~364~~1,~~174~~256,111. Generally, the increase of working capital during the same period of 2008 was to satisfy for the volume increase due to the seasonal fluctuation.

Investing Activities

Net cash used in investing activities ~~was~~amounted to $~~787~~2,~~516~~253,818 during the ~~six~~nine months ended September ~~June~~ 30, 2009, compared to $1,~~045~~173,~~104~~084 in the same period of 2008. The net cash outflow in 2009 primarily consisted of the cash outflow ~~from~~resulting from purchase of property and equipment of $~~819~~2,~~730~~286,035. The cash outflow during the same ~~comparable~~ period of 2008 isresulted from cash paid for purchase of property ~~and~~ and equipment of $1,~~045~~030,~~104~~411. The cash outflows in investing activities mainly resulted from expansion of our production capacity and resources.

Financing Activities

Net cash provided by financing activities ~~was~~amounted to $5,~~983~~480,~~334~~430 during the ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2009, compared to cash provided by financing activities amounting ofto $~~294~~322,~~996~~ 723 during the ~~comparable~~same period of 2008. The net cash inflow in 2009 was due to proceeds from short term ~~loans~~loan of $6,~~648~~649,~~907~~607 ~~less~~by ~~payments~~netting ~~and~~off ~~receipt from~~the payment to related parties of $~~621~~689,~~700~~294. ~~The~~ While ~~short~~the ~~term~~cash ~~loan~~inflow ~~will~~during the besame ~~repaid from~~period ~~our~~of ~~operation~~2008 ~~cash~~consists ~~flow~~of ~~generated~~proceeds ~~during~~from ~~the~~related ~~second~~parties ~~half~~– ~~year~~net of ~~2009~~$322,723.

Inflation

In the opinion of management, inflation has ~~not~~no ~~had a~~ material effect on the Company's financial condition or results of its operations.

Trends and uncertainties

~~Our~~Densen Machinery, our wholly- owned subsidiary, ~~Densen~~and ~~Machinery~~Chang isTuo, aour ~~recipient~~47.5% owned subsidiary are recipients of subsidies ~~and~~or 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 and 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.

2629

Off-Balance Sheet Arrangements

Due to managing concept conflicts, we are in the process of negotiating with the non-controlling party of Chang Tuo, the Commission, to buy off its 50% equity in Chang Tuo, our 47.5% owned subsidiary or sell off our 47.5% equity to it. The negotiations are in early stages and terms have not yet been agreed upon.

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.

2730

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 not 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.

The Company’s disclosure controls and procedures were not effective due to insufficient human resources. The Company currently does not have any full-time employees with sufficient knowledge of U.S. GAAP and disclosure control procedure, and relies exclusively on outside consultants. Further, the Company requires additional personnel and protocols to ensure that material information is recorded, processed, summarized by the Company and by its outside consultants in a timely matter and meet financial reporting requirements.

Changes in Internal Control over Financial Reporting

~~Further,~~There ~~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.

2831

PART II - OTHER INFORMATION

Item 1 Legal Proceedings

As of ~~March~~September 3130, 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 2 Unregistered Sales of Securities and Use of Proceeds

	Item 4	Submission of Matters to a Vote of Security Holders
		None.
	Item 5	Other Information
		None.
	Item 6	Exhibits

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.

2932

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
Dated: December 3, 2009	By:	/s/ Lau San
		Lau San
		Chief Executive Officer and Chairman
	By:	/s/ Chen Guochen
		Chen Guochen
		Chief Financial Officer and Director

~~By: /s/ Chen Guochen Chen Guochen Chief Financial Officer and Director~~33

Filing Compare · China Tractor Holdings, Inc.