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 March 31, 2010 or

¨ 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, Changchun City, Jilin Province, China

(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 ¨

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 ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” 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 May 20, 2010, there were 18,340,539 shares of the Company’s common stock outstanding.

CHINA TRACTOR HOLDINGS, INC.

TABLE OF CONTENTS

FORM 10-Q

March 31, 2010

PART I - FINANCIAL INFORMATION

	Item 1. Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (unaudited)		3
	Condensed Consolidated Statements of Income (unaudited)		4
	Condensed Consolidated Statements of Cash Flows (unaudited)		5
	Notes to the Condensed Consolidated Financial Statements (unaudited)		6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3. Quantitative and Qualitative Disclosure About Market Risks		28
	Item 4. Controls and Procedures		28

PART II - OTHER INFORMATION

	Item 1.	Legal Proceedings	30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 3.	Defaults Upon Senior Securities	30
	Item 4.	Reserved	30
	Item 5.	Other Information	30

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

	March 31, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	27,902		$	15,967
Other receivables, net of allowance for doubtful accounts		80,197			53,053
Taxes recoverable		58,378			57,952
Assets held for sale		-			4,729,298
Due from related parties		1,317,351			284,553
Total current assets		1,483,828			5,140,823

Property, plant and equipment, net		2,797			1,981
Intangible assets		54,994			484,610
Land use right		696,745			700,267
Long-term equity investments		392,252			392,189
Receivable from sale of discontinued operation		12,316,964			9,799,333

TOTAL ASSETS	$	14,947,580		$	16,519,203

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Short-term loans	$	731,411		$	731,294
Accounts payable		459,100			459,026
Advance from customers		11,956			11,954
Salary payable		-			26,745
Accrued expenses and other payables		415,721			380,408
Borrowing from third parties		1,316,540			1,316,328
Due to related parties		1,764,084			573,255

Total current liabilities		4,698,812			3,499,010

STOCKHOLDERS’ EQUITY
Comon shares, authorized, issued and outstanding; 18,340,539 shares as of December 31, 2009 and 2008, par value $0.0001 per share		1,834			1,834
Additional paid-in capital		15,183,273			15,183,273
Accumulated other comprehensive income		2,542,148			2,540,091
Accumulated deficit		(7,810,180	)		(5,119,841	)

TOTAL CHINA TRACTOR HOLDINGS, INC. SHAREHOLDERS' EQUITY		9,917,075			12,605,357
Noncontrolling Interest		331,693			414,836
TOTAL STOCKHOLDERS’ EQUITY		10,248,768			13,020,193

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,947,580		$	16,519,203

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

CHINA TRACTOR HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

	Three Months Ended March 31
	2010			2009

Net revenue	$	-		$	-
Cost of sales		(1,590	)		-

Gross profit (loss)		(1,590	)		-
Operating expenses:
Sales and marketing expenses		(412	)		-
General and administrative expenses		(81,231	)		(113,490	)
Provision for impairment of assets		-			(43,136	)

Profit/(Loss) from operations		(83,233	)		(156,626	)

Equity in earnings in investee		-			(22,235	)
Interest expense		(20,406	)		(1,929	)
Other expenses		(22	)		(9,826	)

Loss from continuing operations		(103,661	)		(190,616	)
Discontinued operations, net of income taxes (including loss on disposal of $3,264,057 in 2009)		(2,669,884	)		254,166

Net income/(loss)		(2,773,545	)		63,550

Less: Net loss/(income) attributable to noncontrolling interest		83,206			(133,473	)

Net (loss) attributable to China Tractor Holdings, Inc.		(2,690,339	)		(69,923	)

Other comprehensive income		2,121			39,142

Comprehensive (loss)		(2,688,218	)		(30,781	)

Comprehensive (loss) attributable to noncontrolling interest		(64	)		(78,579	)

Comprehensive (loss) attributable to China Tractor Holdings, Inc.	$	(2,688,282	)	$	(109,360	)

Basic and diluted (loss) per commom share:
Basic and Diluted	$	(0.15	)	$	(0.00	)

Weighted average common shares outstanding:
Basic and Diluted		18,340,539			18,340,539

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

CHINA TRACTOR HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

	2010			2009
Cash flows from operating activities:
Net income (loss)	$	(2,773,545	)	$	63,550
Adjustments to reconcile net income/(loss) to cash (used) by operating activities:
Loss from discontinued operations		2,669,884			-
Depreciation and amortization		16,047			209,294
Reserve for inventory obsolescence		-			(19,844	)
Provision for doubtful receivables		-			7,903
Investment income		-			106,728
Deferred tax assets		-			9,643
Changes in operating assets and liabilities:
Accounts receivable		-			(1,516,878	)
Inventories		-			(3,720,842	)
Advances to suppliers		-			(746,653	)
Other receivables		(27,136	)		(582,407	)
Receivable from sale of discontinued operation		1,861			-
Accounts payable		-			2,432,835
Advance from customers		-			1,223,262
Accrued expenses and other current liabilities		8,087			638,031
Net cash used by operating activities		(104,802	)		(1,895,378	)

Cash flows from investing activities:
Purchase of property and equipment and other long-term assets		(41,252	)		(262,497	)
Net cash used by investing activities		(41,252	)		(262,497	)

Cash flows from financing activities:
Proceeds from short-term loan		-			6,645,644
Proceeds from (payments to) related parties - net		157,986			(318,115	)
Repayments of short-term loan		-			(73,029	)
Net cash provided by financing activities		157,986			6,254,500

Effect of exchange rate changes on cash		3			3,275

Net increase (decrease) in cash and cash equivalents		11,935			4,099,900

Cash and cash equivalents, beginning balance		15,967			1,978,957

Cash and cash equivalents, ending balance	$	27,902		$	6,078,857

Supplemental cash flow data:
Income tax paid	$	-		$	-
Interest paid	$	-		$	173,850

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

NOTE 1 - ORGANIZATION AND PROPOSED BUSINESS OPERATIONS

China Tractor Holdings, Inc. ("China Tractor") was incorporated in April 2005 in Hong Kong. In June 2005, China Tractor signed an agreement with Densen Investment Limited (“Densen Investment”) to obtain assets from Densen Investment. China Tractor invested $15,180,000 to establish Changchun Densen Agriculture Machinery Manufacturing Co., Ltd. (“Changchun Densen”) on September 27, 2005. Changchun Densen is engaged in the R&D and production of low-speed vehicles, tractors and construction machinery. According to the revised articles of association dated January 9, 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. Based on an 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 ($29.3 million) 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 for all the issued and outstanding shares of China Tractor. The former shareholders of China Tractor acquired 91.3% of the issued and outstanding shares of Royaltech. This transaction resulted in a change in control of Royaltech to the former shareholders of China Tractor. Immediately after the closing of the Share Exchange and the Stock Purchase Agreements, Royaltech had 18,310,539 shares of Common Stock issued and outstanding. In connection with the change in control, Mr. Lau San became Chairman of the Board of Directors and Chief Executive Officer, Mr. Lau Jingdong became President, and Mr. Chen Guocheng became Chief Financial Officer of Royaltech. This transaction was accounted for as a recapitalization of China Tractor and not as a business combination. Accordingly, no pro forma information is presented. The historical financial statements are those of China Tractor.

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

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

On December 1, 2009, we entered into a stock transfer agreement to transfer all shares owned in Chang Tuo to SOASACC. On March 15, 2010, we signed stock transfer agreement with SOASACC, the total consideration of this transfer is $12,316,964 (RMB84,200,000), including $8,124,515 (RMB55,540,000) for the transfer of all shares owned in Chang Tuo, $3,262,094 (RMB22,300,000) for the transfer of the phase II plant and $930,355 (RMB6,360,000) for the transfer of the trademark of “CT”. The agreement was approved by Changchun government on April 19, 2010 with a government document numbered Changfupifu [2010] No.1. We will dispose all shares owned in Chang Tuo accordingly. Therefore, we report the results of operations of Chang Tuo as discontinued operations in accordance with ASC 205-20.

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, its 100%-owned subsidiary, Densen machinery, its 97%-owned subsidiary Changchun Densen for the three months ended March 31, 2010 and 2009. All significant inter-company accounts and transactions were eliminated in consolidation.

Basis of Presentation

The consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), assuming the Company will continue as a going concern. Under that assumption, it is expected assets will be realized and liabilities will be satisfied in the normal course of business. On March 15, 2010, the Company signed a stock transfer agreement to transfer all shares owned by the Company in Chang Tuo to SOASACC, and the agreement was approved by Changchun government on April 19, 2010. As discussed in Note 18 to the financial statements, Chang Tuo was reported as discontinued operation as the Company lost its control before the end of 2009. After the completion of the transaction, the Company will have no substantial business operations until it enters a new industry through merger or acquires other operational entities. As a direct result of the incident, the Company has experienced significant operating losses for the three months ended March 31, 2010. The discontinued operation and the ensuing operating losses raise substantial doubt as to the Company's ability to continue as a going concern. Management is attempting to evaluate other potential industries to enter.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

Risks and Uncertainties

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

Comprehensive Income

The Company 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 March 31, 2010 were translated 6.8361 RMB to $1.00 compared to 6.8456 RMB at March 31, 2009. 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 periods ended March 31, 2010 and 2009 were 6.836034 RMB and 6.84659 RMB to $1.00 respectively.

Translations adjustments resulting from this process are included in accumulated other comprehensive loss in the consolidated statement of stockholders’ equity and were $2,542,148 and $2,540,091 as of March 31, 2010 and December 31, 2009, respectively.

Cash and Cash Equivalents

For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company maintains cash with various banks and trust companies located in China. Cash accounts are not insured or otherwise protected. Should any bank or trust company holding cash deposits become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash on deposit with that particular bank or trust company.

Accounts Receivable

The Company’s policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Accounts are written off against the allowance when it becomes evident collection will not occur.

Inventories

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

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

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal. All ordinary repair and maintenance costs are expensed 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.

Long-Term Investment

The Company accounted for its 5% investment in Zhongji North Machinery Co., Ltd, (Zhongji North) using the cost method, under which the share of Zhongji North’ net income is recognized in the period in which it is earned.

Impairment of Long-Lived Assets

In accordance with ASC 360, “Property, Plant and Equipment”, previously SFAS No. 144, 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. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Credit losses and other-than-temporary impairments declines in fair value that are not expected to recover are expensed.

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 Taxes

The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”, previously SFAS No. 109. 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.

Earnings (loss) Per Share

The Company reports earnings per share in accordance with the provisions of ASC 260 “Earnings Per Share”, previously SFAS No. 128. ASC 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.

Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculation 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 March 31, 2010 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.

Fair Value Measurements at Reporting Date Using Quoted Prices in

	Carrying value as Of March 31		Active markets For identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs
	2010		(Level 1)		(Level 2)		(Level 3)

Cash and cash equivalents	$	27,902,	$	27,902		-		-

Concentration of 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 March 31, 2010, 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 SFAS No. 95, cash flows from the Company's operations are 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.

Business Combinations (Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R)). This ASC guidance revised SFAS No. 141, “Business Combinations” and addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. The adoption of this standard had no material impact on the Company’s financial statements.

Intangibles-Goodwill and Other (Included in ASC 350”, previously FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of this standard had no material effect on the Company's financial 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.

Reclassifications

Certain prior year amounts were reclassified to conform to the manner of presentation in the current year.

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.

Subsequent Events (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165). SFAS No.165, “Subsequent Events” establishes accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the balance sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. We adopted this statement effective June 1, 2009 and have evaluated all subsequent events through the filing date with the SEC.

Accounting for Transfers of Financial Assets (To be included in ASC 860 “Transfers and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an Amendment of FASB Statement No. 140”). SFAS 166 addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Also, SFAS 166 removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. SFAS 166 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 adoption of the ASC 860 had no material impact on the Company’s financial statements.

Consolidation of 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 adoption of the amendment had no material impact on the Company’s financial statements.

FASB Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1). In June 2009, the Financial Accounting Standard Board (“FASB”) approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and 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.

As a result of our implementation of the Codification during the year ended December 31, 2009, previous references to new accounting standards and literature are no longer applicable. In the current year 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 became effective for the Company’s annual financial statements for the year ended December 31, 2009. The adoption of ASC 820 had no material impact on the Company’s financial statements.

In 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 adoption of the accounting standards update had no material impact on the Company’s financial statements.

On February 25, 2010, the FASB issued ASU 2010-09 Subsequent Events Topic 855 “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives — Recognition. All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU is effective for the Company on July 1, 2010. Early adoption is permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

NOTE 3 ACCOUNTS RECEIVABLE

As of March 31, 2010 and December 31, 2009, the Company’s accounts receivable consisted of the following:

	2010			2009
				（Audited）
Accounts receivable	$	2,590		$	2,590
Less: Allowance for doubtful accounts		(2,590	)		(2,590	)

Accounts receivable, net	$	-		$	-

NOTE 4 INVENTORIES

Inventories, by major categories, as of March 31, 2010 and December 31, 2009 were as follows:

	2010			2009
				(Audited)
Raw materials	$	142,611		$	140,998
Low value consumables		461			461
Materials on consignment for further processing		737			737
		143,809			142,196

Less: Allowance for obsolete inventories		(143,809	)		(142,196	)

Inventories, net	$	-		$	-

NOTE 5 TAXES RECOVERABLE

As of March 31, 2010 and December 31, 2009, tax recoverable comprised the following:

	2010			2009
				(Audited)
Input VAT	$	1,850,139		$	1,788,216
Output VAT		(1,806,708	)		(1,806,416	)
VAT Paid		14,814			14,811
Offset input VAT of FA		-			61,067
Other		133			274

Total	$	58,378		$	57,952

Changchun Densen is subject to value-added tax at a low rate of 13% and an ordinary rate of 17% for its tractor sales and raw materials sales respectively.

NOTE 6 OTHER RECEIVABLES

As of March 31, 2010 and December 31, 2009, other receivables comprised the following:

	2010		2009
			(Audited)
Advance to employees for business purposes	$	22,609	$	3,372
Prepayment		6,389		5,803
Other		51,199		43,878
		80,197		53,053
Less: Allowance for doubtful accounts		-		-

Total other receivables, net	$	80,197	$	53,053

NOTE 7 PROPERTY, PLANT AND EQUIPMENT

As of March 31, 2010 and December 31, 2009, property, plant and equipment consisted of the following:

	2010			2009
				(Audited)
Cost:
Office Furniture and Equipment	$	5,144		$	4,141
Total at cost		5,144			4,141

Less: Accumulated depreciation		(2,347	)		(2,160	)

Total property, plant and equipment, net	$	2,797		$	1,981

Depreciation for the three months ended March 31, 2010 and March 31, 2009 was $186 and $2,754 respectively.

NOTE 8 RECEIVABLE FROM SALE OF DISCONTINUED OPERATION

As of March 31, 2010 and December 31, 2009, receivable from sale of discontinued operation was as follow:

	2010		2009
			(Audited)
Discontinued operation	$	12,316,964	$	9,799,333

The Company signed a agreement with SOASACC to transfer all shares owned by the Company in Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”) and construction of phase II plant of the Company. Details please refer to Note 1.

NOTE 9 LAND USE RIGHTS

As of March 31, 2010 and December 31, 2009, land use rights were as follows:

	2010			2009
				(Audited)
Cost of land use right	$	712,497		$	712,382

Less: Accumulated amortization		(15,752	)		(12,115	)
		696,745			700,267

Less: Impairment loss on land use right		-			-

Land use rights, net	$	696,745		$	700,267

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

Amortization expense for the three months ended March 31, 2010 and March 31, 2009 was $3,635 and nil. The estimated annual amortization for land use rights for the next five years as of March 31, 2010 and thereafter is expected to be as follows by years:

2011	$	14,541
2012		14,541
2013		14,541
2014		14,541
2015		14,541
Thereafter		624,040

Total	$	696,745

NOTE 10 INTANGIBLE ASSETS

As of March 31, 2010 and December 31, 2009, the Company’s intangible assets were summarized as follows:

	Useful life	2010			2009
					(Audited)
Amortizable intangible assets:
Trademark	10 years	$	-		$	539,695
Capitalized accounting software	10 years		6,877			6,875
Non-patent techniques	10 years		87,769			87,755
Total at historical cost			94,646			634,325

Less: Total accumulated amortization			(39,652	)		(149,715	)

Other intangible assets, net		$	54,994		$	484,610

Trademark was transferred to SOASACC according to the stock transfer agreement signed on March 15, 2010, please refer to Note 1 for detail.

Other intangible assets were stated at cost less accumulated amortization. The amortization of other intangible assets for the three months ended March 31, 2010 and 2009 was $15,861 and $15,836 respectively. The estimated amortization expense for the next five years as of March 31, 2010 and thereafter is expected to be as follows by years:

2011	$	9,465
2012		9,465
2013		9,465
2014		9,465
2015		9,465
Thereafter		7,669

Total	$	54,994

NOTE 11 LONG-TERM INVESTMENTS

As of March 31, 2010 and December 31, 2009, the Company’s investment consisted of:

	2010				2009
					(Audited)
Zhongji North Machinery Co., Ltd.		5	%	392,252		5	%	$	392,189

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.

NOTE 12 SHORT-TERM LOANS

Short-term loans are due to various financial institutions which are normally due within one year. As of March 31, 2010 and December 31, 2009, the Company’s short term loans consisted of the following:

	2010		2009
			(Audited)
From Jilin Jiutai Rural Commercial Bank Chengqu-Branch, due from March 27, 2009 to March 24, 2010. With interest at 11.16%, secured by the Company’s land use right.	$	731,411	$	731,294

Short-term loan is overdue since March 24, 2010. The company will repay it when the stock transfer transaction with SOASACC is completed.

NOTE 13 ACCRUED EXPENSES AND OTHER PAYABLES

As of March 31, 2010 and December 31, 2009, the accrued expenses and other liabilities of the Company were summarized as follows:

	2010		2009
			(Audited)
Accrued expenses	$	206,172	$	195,756
Acquisition of assets		94,148		94,133
Warrant Deposit		21,292		21,289
Others		94,109		69,230

Total accrued expenses and other payables	$	415,721	$	380,408

The security deposit is deposit from clients for the maintenance of tractors.

NOTE 14 BORROWING FROM THIRD PARTY

As of March 31, 2010 and December 31, 2009, the borrowing from third party was summarized as follows:

	2010		2009
			(Audited)
Zheng Yin	$	146,282	$	146,258
Shanghai Sibo Education Co., Ltd.		1,170,258		1,170,070

Total borrowing from third party	$	1,316,540	$	1,316,328

The borrowing from third party has no repayment term and bore no interest. Borrowed for operational use, they will be repaid in the near future.

NOTE 15 RELATED PARTY BALANCE AND TRANSCATIONS

Due from related parties

As of March 31, 2010 and December 31, 2009, due from related parties was summarized as follows:

	2010		2009
			(Audited)
Lau San	$	300,690	$	284,553
Mudanjiang Binjiang Garden City (MBGC)		431,532
Changtuo		585,129		-

Total due from related parties	$	1,317,351	$	284,553

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

The amount due from MBGC was a short term loan. Mudanjiang Binjiang Garden City was controlled by Mr.Lau San, the director of the Company. The borrowing bore no interest, and had no formal repayment terms.

The amount due from Changtuo represented a short term loan. The borrowing bore no interest, and had no formal repayment terms.

Due to related parties

As of March 31, 2010 and December 31, 2009, due to related parties was summarized as follows:

	2010		2009
			(Audited)
Changchun Junming Machinery Co., Ltd. (“CJMCL”)	$	1,339,866	$	149,105
Shenzhen Junsheng Property Management Co., Ltd. (“SJPMCL”)		14,628		14,626
Zhongji North Machinery Co., Ltd. (“Zhongji North”)		409,590		409,524

Total due to related parties	$	1,764,084	$	573,255

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 NONCONTROLLING INTERESTS

Noncontrolling interests on the consolidated statement of income and comprehensive income of ($83,142) and $212,052 for the three months ended March 31, 2010 and 2009 respectively, represented the noncontrolling shareholders’ proportionate share of the net income/(loss) of the Company.

NOTE 17 DISCONTINUED OPERATION

On December 1, 2009, we entered into a stock transfer agreement to transfer all shares owned in Chang Tuo to SOASACC. On March 15, 2010, we signed stock transfer agreement with SOASACC, the total consideration of this transfer is $12,316,964 (RMB84,200,000), including $8,124,515 (RMB55,540,000) for the transfer of all shares owned in Chang Tuo, $3,262,094 (RMB22,300,000) for the transfer of the phase II plant and $930,355 (RMB6,360,000) for the transfer of the trademark of “CT”. The agreement was approved by Changchun government on April 19, 2010 with a government document numbered Changfupifu [2010] No.1. We will dispose all shares owned in Chang Tuo accordingly, expected to be on or before November 30, 2010. Therefore, we report the results of operations of Chang Tuo as discontinued operations in accordance with ASC 205-20.

NOTE 18 INCOME TAX

Changchun Densen is 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 pre-tax accounting income/(loss) of our subsidiaries were as follows, for the three months ended March 31, 2010 and 2009:

	2010			2009

Changchun Densen	$	(2,773,545	)	$	63,550

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2010 and 2009:

	2010			2009

US statutory rates		34.0	%		34.0	%
Tax rate difference		(9.0	)%		(9.0	)%
Valuation allowance		(25.0	)%		(25.0	)%

Tax per financial statements		0.0	%		0.0	%

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 March 31, 2010 and 2009 and believes its exposure to interest rate risk is not material.

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

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

Note on Forward Looking Statements

This quarterly report on Form 10-Q includes and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 with respect to our financial condition, results of operations, plans, objectives, future performance and business, which are usually identified by the use of words such as “will,” “may,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “plans,” “predicts,” “continues,” “intends,” “should,” “would,” or similar expressions. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with these safe harbor provisions.

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

We cannot give any guarantee that these plans, intentions or expectations will be achieved. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those Risk Factors set forth in our Form 10-K filed with the SEC on April 15, 2010.

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 (“PRC”). 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 Densen Equipment Ltd. (“DEL”), which resulted in a change of control. For acquiring all the assets of DEL, the former shareholders of DEL acquired over 90% of the issued and outstanding shares of our common stock. The former officers and directors of DEL 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 PRC, through our wholly owned subsidiary, Densen Machinery Investment Limited, incorporated in Hong Kong in April 2005 ("Densen Machinery") and its joint-venture operating subsidiary, Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”). For further details regarding the share exchange transaction with DEL, please see our Current Report on Form 8-K, filed with the SEC on September 15, 2008.

On December 1, 2009, we entered into a stock transfer agreement to transfer all shares owned in Chang Tuo to the State-owned Assets Supervision and Administration Commission of Changchun (“SOASACC”). On March 15, 2010, we signed stock transfer agreement with SOASACC, the total consideration of this transfer is $12,316,964 (RMB84,200,000), including $8,124,515 (RMB55,540,000) for the transfer of all shares owned in Chang Tuo, $3,262,094 (RMB22,300,000) for the transfer of the phase II plant and $930,355 (RMB6,360,000) for the transfer of the Chang Tuo’s trademark. The agreement was approved by the Changchun city government on April 19, 2010. We will dispose all shares owned in Chang Tuo pursuant to the agreement, on or before November 30, 2010. Therefore, we have reported the results of operations of Chang Tuo as discontinued operations in accordance with ASC 205-20.

After the completion of the transaction, the Company will have no substantial business operations until it enters a new industry through merger or acquires other operational entities. As a direct result of the incident, the Company has experienced significant operating losses for the three months ended March 31, 2010. The discontinued operation and the ensuing operating losses raise substantial doubt as to the Company's ability to continue as a going concern. Management is attempting to evaluate other potential industries to enter.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States (“US GAAP”) 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 US GAAP, 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 Note 1 of our financial statements.

Income taxes

We account for income taxes in accordance with ASC 740 “Income Taxes”, previously SFAS No. 109, which 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 three months ended March 31, 2010 and 2009

CHINA TRACTOR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE GAINS/LOSS

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

	2010			2009			Change
							Amount			%

Net revenue	$	-		$	-		$	-			-
Cost of sales		(1,590	)		-			(1,590	)		N/A

Gross profit/(loss)		(1,590	)		-			(1,590	)		N/A
Operating expenses:
Selling and general and administrative expenses		(81,643	)		(113,490	)		31,847			(28	)%
Impairment loss of assets		-			(43,136	)		43,136			(100	)%
(Loss) from operations		(83,233	)		(156,626	)		73,393			(47	)%
Equity in earnings in investee		-			(22,235	)		22,235			(100	)%

Interest expense		(20,406	)		(1,929	)		(18,477	)		958	%
Other		(22	)		(9,826	)		9,804			(100	)%

Income/(loss) before income taxes		(103,661	)		(190,616	)		86,955			(46	)%
Discontinued operations, net of tax		(2,669,884	)		254,166			(2,924,050	)		(1,150	)%

Net income/(loss)		(2,773,545	)		63,550			(2,837,095	)		(4,464	)%
Net income/(loss) attributable to noncontrolling interest		83,206			(133,473	)		216,679			(162	)%

Net Income/(loss) attributable to China Tractor Holdings, Inc.		(2,690,339	)		(69,923	)		(2,620,416	)		3,748	%

Other comprehensive income/(loss)		2,121			39,142			(37,021	)		(95	)%

Comprehensive income/(loss)		(2,688,218	)		(30,781	)		(2,657,437	)		8,633	%

Comprehensive (loss) attributable to noncontrolling interest		(64	)		(78,579	)		78,515			(100	)%

Net profit/(loss) attributable to stockholders	$	(2,688,282	)	$	(109,360	)		(2,578,922	)		2,358	%

Revenue

We had no revenue for the three months ended March 31, 2010 and 2009 from continuing operatons.

Cost of sales

Cost of sales for the three months ended March 31, 2010 increased to $1,590 from nil for the same period of 2009, an increase of $1,590. The cost of sales for the three months ended March 31, 2010 all resulted from the impairment loss of raw materials.

Gross profit (loss)

The gross loss for the three months ended March 31, 2010 was $1,590, a decrease of $1,590 compared to gross profit of nil for the three months ended March 31, 2009. The decrease is due to no business operation and out-of-date raw materials in 2010. The cost of sales for the three months ended March 31, 2010 is all from impairment loss of inventory.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to $81,643 in the three months ended March 31, 2010 from $113,490 in three months ended March 31, 2009, a decrease of $31,847 or 28%. The decrease generally resulted from the decrease of agency fee, which is $15,432 and $89,859 respectively for the three months ended March 31, 2010 and 2009. The decrease in agency fee mainly resulted from the decrease of assets valuation fee, corresponding with the mortgage security for short-term loan in 2009.

Provision for impairment of assets

The provision for impairment of assets in three months ended March 31, 2009 represents the provision for other receivables of $43,136.

Other income/(expenses)-net

Other expenses-net for three months ended March 31, 2010 was $20,428, compared to $33,990 for three months ended March 31, 2009. Other expenses for three months ended March 31, 2010 mainly consisted of interest expense of $20,406. Other expenses for the three months ended March 31, 2009 mainly consisted of investment loss of $22,235.

Non-controlling interest

Non-controlling interest resulted in loss of $83,142 and gain of $212,052 for three months ended March 31, 2010 and three months ended March 31, 2009 respectively, representing the 3% minority interest of Changchun Tractor in Densen.

Other comprehensive income

Other comprehensive loss in three months ended March 31, 2010 was $2,121 compared to comprehensive income of $39,142 in the same period of 2009. It represents the foreign currency translation income resulted from appreciation of RMB against the US dollar.

Net income/(loss)

Net loss in three months ended March 31, 2010 was $2,688,282, compared to net loss of $109,360 in three months ended March 31, 2009, increase $2,177,504 or 1,991%, mainly resulted from discontinued operations of Chang Tuo.

Liquidity and Capital Resources

China Tractor generally finances its operations from short-term loans from domestic banks. As of March 31, 2010, we had cash and cash equivalents of $27,902 which represented an increase of $11,935 from $15,967 as of December 31, 2009.

Operating Activities

The net cash used in operating activities in three months ended March 31, 2010 was $104,802 compared to net cash used in operating activities was $1,895,378 in three months ended March 31, 2009. The net cash outflow from operating activities in three months ended March 31, 2010 was mainly due to the increase in other receivables of $27,136.

Investing Activities

Net cash used for investing activities was $41,252 in three months ended March 31, 2010, due to increase in payments for construction in progress. Net cash used for investing activities was $262,497 in three months ended March 31, 2009. The decrease of $221,245 resulted from halting the construction of the phase II plant project in the first quarter of 2010.

Financing Activities

Net cash provided by financing activities was $157,986 in three months ended March 31, 2010 which due to a net inflow from related party borrowings of $157,986. Net cash provided by financing activities was $6,254,500 in three months ended March 31, 2009, due to a net inflow from short-term loan of $6,645,644.

Going forward, over the next 12 months, China Tractor intends to continue to rely on short-term loans to fund its operational cash needs.

Inflation

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

Trends and uncertainties

The consolidated financial statements of the Company were prepared in accordance with US GAAP assuming the Company will continue as a going concern. Under that assumption, it is expected that assets will be realized and liabilities will be satisfied in the normal course of business. On December 1, 2009, the Company entered into a stock transfer agreement to transfer all shares owned in Chang Tuo to SOASACC. On March 15, 2010, the Company signed stock transfer agreement with SOASACC, the total consideration of this transfer is $12,316,964 (RMB84,200,000), including $8,124,515 (RMB55,540,000) for the transfer of all shares owned in Chang Tuo, $3,262,094 (RMB22,300,000) for the transfer of the phase II plant and $930,355 (RMB6,360,000) for the transfer of the trademark of “CT”. The agreement was approved by Changchun government on April 19, 2010 with a government document numbered Changfupifu [2010] No.1, and the transfer of the shares are to be completed on or before November 30, 2010.

After the completion of the transaction, the Company will have no substantial business operations until it enters a new industry through merger or acquisition of other operating entities. As a direct result of this transfer of ownership, the Company has experienced significant operating losses for the three months ended March 31, 2010. The discontinued operation and the ensuing operating losses raise substantial doubt as to the Company's ability to continue as a going concern. Management is attempting to evaluate other potential industries to enter.

Off-Balance Sheet Arrangements

We had 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 at March 31, 2010 or 2009.

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 principal executive and financial officers conclusion regarding the Company's disclosure controls and procedures is based on management's conclusion that the Company's internal control over financial reporting are ineffective as identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 continues to be ineffective as of March 31, 2010. In connection with our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, our management assessed the effectiveness of the Company's internal control over financial reporting was not effective based on management's identification of the material weaknesses as follows:

Our internal accounting staff do not have sufficient U.S. GAAP knowledge and experiences

Our senior financial staff lacks knowledge of internal control obligations, including Section 404

The audit committee oversight was not effective.

We plan to take the following steps to remediate the significant deficiencies in internal control over financial reporting that are identified above.

a. Hire a senior accounting staff who has experiences in U.S. GAAP and SOX 404 to oversee the financial reporting process in order to ensure the Company’s compliance with U.S. GAAP and security laws.

b. Provide training to accounting staff on U.S. GAAP

Changes in Internal Control over Financial Reporting

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

Limitations on the Effectiveness of Internal Controls

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

PART II - OTHER INFORMATION

Item 1

Legal Proceedings

As of March 31, 2010, there were presently no material pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is the subject and, to the best of our knowledge, no such actions against us is contemplated or threatened.

Item 2

Unregistered Sales of Securities and Use of Proceeds

None.

Item 3

Defaults Upon Senior Securities

None.

Item 4

Reserved

Item 5

Other Information

None.

Item 6

Exhibits

31.1

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

31.2

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

32.1

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

32.2

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

In accordance with the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CHINA TRACTOR HOLDINGS, INC.

Dated: May 21, 2010	By:	/s/ Lau San
		Lau San
		Chief Executive Officer and Chairman

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

China Tractor Holdings, Inc. 10-Q