UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934




For
the quarterly period ended June 30, 2010




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934




For
the transition period
from                             to


Commission
File Number 000-04494


CHINA
      RUITAI INTERNATIONAL HOLDINGS CO., LTD.(Exact
      name of registrant as specified in its
charter)




Delaware
            
            13-5661446(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer Identification No.)Wenyang
      Town, Feicheng City, ShanDong, China
            
            271603(Address
      of principal executive offices)
            
            (Zip
      Code)




(86) 538 3850
703


(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the 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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Not
Applicable.




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
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:




Large
      accelerated filer o
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o
              (Do
      not check if a smaller
              reporting
      company)
            
            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  ̈    No x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of August 13, 2010, there were
outstanding 26,000,000 shares of the registrant’s common stock, par value $0.001
per share.









China Ruitai International
Holdings, Inc.




FORM
10-Q




INDEX




PART
      I—FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements
              1Consolidated
      Balance Sheets
              1Consolidated
      Statements of Income and Comprehensive Income
              2Consolidated
      Statements of Cash Flows
              3Notes
      to Unaudited Financial Statements
              4Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              13Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              18Item
      4T.
              Controls
      and Procedures
              18PART
      II—OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              18Item
      1A.
              Risk
      Factors
              18Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              18Item
      3.
              Defaults
      Upon Senior Securities
              19Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              19Item
      5.
              Other
      Information
              19Item
      6.
              Exhibits
              19Signatures
              
              20







PART
I—FINANCIAL INFORMATION




The
statements contained in this quarterly report on Form 10-Q, including under
the section titled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and other sections of this quarterly report, include
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
regarding our or our management’s expectations, hopes, beliefs, intentions or
strategies regarding the future. The words “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may
identify forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. The forward-looking statements
contained in this quarterly report are based on our current expectations and
beliefs concerning future developments and their potential effects on us. There
can be no assurance that future developments affecting us will be those that we
have anticipated. These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. Should one or more of
these risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may vary in material respects from those projected in
these forward-looking statements. We undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
Unless the content otherwise requires, all references to “we,” “us,” the
“Company” or “China Ruitai” in this Quarterly Report on Form 10-Q refers to
China Ruitai International Holdings Co., Ltd.




ITEM 1.
            Financial
      Statements





CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Balance Sheets





June 30, 2010
              
              
              December 31, 2009(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              12,169,117
              
              
              $
              10,174,528Restricted
      cash
              
              
              35,646,600
              
              
              
              33,054,466Accounts
      receivable, net
              
              
              7,708,993
              
              
              
              4,098,729Notes
      receivable
              
              
              4,577,235
              
              
              
              7,153,450Advance
      to suppliers
              
              
              2,024,448
              
              
              
              1,649,685Inventories
              
              
              7,455,295
              
              
              
              8,132,681Other
      receivables
              
              
              3,468,551
              
              
              
              126,657Total
      current assets
              
              
              73,050,239
              
              
              
              64,390,196Property
      and equipment, net
              
              
              13,928,075
              
              
              
              13,204,825Commercial
      leasing assets, net
              
              
              36,542,390
              
              
              
              36,710,934Land
      use rights, net
              
              
              4,969,850
              
              
              
              4,988,817Long
      term investment
              
              
              -
              
              
              
              888,960$
              128,490,554
              
              
              $
              120,183,732LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      bank loans
              
              $
              32,839,062
              
              
              $
              27,195,342Accounts
      payable
              
              
              7,718,548
              
              
              
              6,175,266Notes
      payable
              
              
              48,756,300
              
              
              
              50,020,476Advance
      from customers
              
              
              859,420
              
              
              
              127,419Due
      to related party- current portion
              
              
              467,251
              
              
              
              2,979,171Income
      tax payable
              
              
              5,543,077
              
              
              
              5,277,239Other
      payables
              
              
              3,192,663
              
              
              
              2,900,942Loan
      from employees
              
              
              1,507,404
              
              
              
              1,476,292Total
      current liabilities
              
              
              100,883,725
              
              
              
              96,152,147Due
      to related party- long-term portion
              
              
              2,000,254
              
              
              
              1,986,114Total
      Liabilities
              
              
              102,883,979
              
              
              
              98,138,261COMMITMENTS
      AND CONTIGENCIESStockholders’
      equity:Common
      stock ($.001 par value; 50,000,000 shares authorized, 26,000,000 shares
      issued and outstanding as of March 31, 2010 and December 31,
      2009)
              
              
              26,000
              
              
              
              26,000Additional
      paid-in capital
              
              
              2,908,171
              
              
              
              2,908,171Statutory
      reserve
              
              
              1,369,652
              
              
              
              1,369,652Retained
      earnings
              
              
              19,535,677
              
              
              
              16,179,230Accumulated
      other comprehensive income
              
              
              1,516,597
              
              
              
              1,347,371Total
      Equity of China Rutai Shareholders
              
              
              25,356,097
              
              
              
              21,830,424Equity
      attributable to noncontrolling interests
              
              
              250,478
              
              
              
              215,047Total
      Stockholders’ Equity
              
              
              25,606,575
              
              
              
              22,045,471$
              128,490,554
              
              
              $
              120,183,732


See
notes to unaudited consolidated financial statements.


1




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Statements of Income and Comprehensive Income





Three months ended June 30,
              
              
              Six months ended June 30,2010
              
              
              2009
              
              
              2010
              
              
              2009(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)Sales
              
              $
              11,171,175
              
              
              $
              8,463,783
              
              
              $
              21,409,431
              
              
              $
              16,694,963Cost
      of sales (note a)
              
              
              8,222,567
              
              
              
              5,506,063
              
              
              
              15,152,439
              
              
              
              10,482,604Gross
      margin
              
              
              2,948,608
              
              
              
              2,957,720
              
              
              
              6,256,992
              
              
              
              6,212,359Operating
      expenses:General
      and administrative expenses
              
              
              215,858
              
              
              
              683,737
              
              
              
              500,110
              
              
              
              1,498,970Selling
      expenses
              
              
              530,310
              
              
              
              444,994
              
              
              
              889,385
              
              
              
              733,971Total
      operating expense
              
              
              746,168
              
              
              
              1,128,731
              
              
              
              1,389,495
              
              
              
              2,232,941Income
      from operations
              
              
              2,202,440
              
              
              
              1,828,989
              
              
              
              4,867,497
              
              
              
              3,979,418Other
      income/(expense)Interest
      income
              
              
              175,432
              
              
              
              382,513
              
              
              
              566,612
              
              
              
              924,916Interest
      expense
              
              
              (550,610
              )
              
              
              (483,531
              )
              
              
              (1,129,097
              )
              
              
              (1,249,082
              )Commercial
      leasing income
              
              
              311,774
              
              
              
              -
              
              
              
              614,957
              
              
              
              -Cost
      of commercial leasing
              
              
              (214,123
              )
              
              
              -
              
              
              
              (428,130
              )
              
              
              -Other
      income/(expense)
              
              
              (16,608
              )
              
              
              (127,065
              )
              
              
              21,687
              
              
              
              (169,048
              )Income
      before income tax expense
              
              
              1,908,305
              
              
              
              1,600,906
              
              
              
              4,513,526
              
              
              
              3,486,204Income
      tax expense
              
              
              477,076
              
              
              
              400,225
              
              
              
              1,123,378
              
              
              
              871,551Net
      income before allocation to noncontrolling interests
              
              
              1,431,229
              
              
              
              1,200,681
              
              
              
              3,390,148
              
              
              
              2,614,653Less:
      Net income attributable to noncontrolling interests
              
              
              14,312
              
              
              
              12,007
              
              
              
              33,701
              
              
              
              26,147Net
      income attributable to China Ruitai
              
              
              1,416,917
              
              
              
              1,188,674
              
              
              
              3,356,447
              
              
              
              2,588,506Other
      comprehensive incomeNet
      Income
              
              
              1,431,229
              
              
              
              1,200,681
              
              
              
              3,390,148
              
              
              
              2,614,653Foreign
      Currency Translation Adjustment
              
              
              103,929
              
              
              
              1,339
              
              
              
              170,956
              
              
              
              21,553Comprehensive
      Income
              
              $
              1,535,158
              
              
              $
              1,202,020
              
              
              $
              3,561,104
              
              
              $
              2,636,206Less:
      Comprehensive income attributable to noncontrolling
    interests
              
              
              16,042
              
              
              
              12,028
              
              
              
              35,431
              
              
              
              26,363Comprehensive
      Income Attributable to China Ruitai
              
              $
              1,519,116
              
              
              $
              1,189,992
              
              
              $
              3,525,673
              
              
              $
              2,609,843Earnings
      per share - Basic and diluted
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.13
              
              
              $
              0.10Weighted
      average number of common shares outstanding - Basic and
      diluted
              
              
              26,000,000
              
              
              
              26,000,000
              
              
              
              26,000,000
              
              
              
              26,000,000





(note a:
The cost of sales includes steam purchased from a related party but the precise
amount could not reasonably be determined, for detail, please refer to footnote
11)





See
notes to unaudited consolidated financial statements.


2




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows





Six
      months ended June 30,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Cash
      flows from operating activities:Net
      income before allocation to noncontolling interests
              
              $
              3,390,148
              
              
              $
              2,614,653Adjustments
      to reconcile net income before noncontrolling interests to net cash
      provided by/(used in) operation activitiesDepreciation
              
              
              1,170,810
              
              
              
              633,970Amortization
      of land use rights
              
              
              54,244
              
              
              
              53,500Stock
      based compensation
              
              
              -
              
              
              
              165,978Changes
      in operating assets and liabilities:Restricted
      cash
              
              
              (2,346,400
              )
              
              
              (10,082,958
              )Accounts
      receivable
              
              
              (3,565,273
              )
              
              
              (1,793,548
              )Notes
      receivable
              
              
              2,615,532
              
              
              
              (778,556
              )Advance
      to suppliers
              
              
              (361,417
              )
              
              
              -Inventories
              
              
              732,041
              
              
              
              1,084,961Other
      receivables
              
              
              (3,326,248
              )
              
              
              (513,093
              )Accounts
      payable
              
              
              1,492,701
              
              
              
              437,914Notes
      payable
              
              
              (1,613,150
              )
              
              
              10,229,087Advance
      from customers
              
              
              727,868
              
              
              
              188,658Income
      tax payable
              
              
              227,259
              
              
              
              358,439Other
      payables
              
              
              269,815
              
              
              
              (9,203
              )Net
      cash (used in)/provided by operating activities
              
              
              (532,070
              )
              
              
              2,589,802Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (1,369,347
              )
              
              
              (1,146,764
              )Net
      cash used in investing activities
              
              
              (1,369,347
              )
              
              
              (1,146,764
              )Cash
      flows from financing activities:Proceeds
      from bank loans
              
              
              22,428,651
              
              
              
              730,648Repayment
      of bank loans
              
              
              (17,002,601
              )
              
              
              -Repayment
      in amount due to a related party
              
              
              (1,630,614
              )
              
              
              (5,597,857
              )Loan
      from employees
              
              
              20,517
              
              
              
              (38,566
              )Net
      cash provided by financing activities
              
              
              3,815,953
              
              
              
              (4,905,775
              )Effect
      of exchange rate fluctuation on cash and cash equivalent
              
              
              80,053
              
              
              
              8,420Net
      increase/(decrease) in cash and cash equivalent
              
              
              1,994,589
              
              
              
              (3,454,317
              )Cash
      and cash equivalent- beginning of period
              
              
              10,174,528
              
              
              
              5,319,456Cash
      and cash equivalent-end of period
              
              
              12,169,117
              
              
              
              1,865,139Supplemental
      disclosure of  cash flow information:Cash
      paid for interest expense
              
              $
              1,129,181
              
              
              $
              1,249,083Cash
      paid for income tax
              
              $
              896,164
              
              
              $
              515,713Supplemental
      disclosure of noncash investing and financing activities:Repayment
      in amount due to related party by transferring out long-term investment at
      cost (see Note 9)
              
              $
              888,960
              
              
              $
              -Collection
      in amount due from related party by receiving the ownership in real estate
      property at fair value (see Note 8)
              
              $
              -
              
              
              $
              36,710,934




See
notes to unaudited consolidated financial statements


3




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements




1.
            ORGANIZATION
      AND DISCRIPTION OF BUSINESS




China
Ruitai International Holdings Co., Ltd. (“China Ruitai” or the “Company”) was
initially organized under the laws of the State of Delaware on November 15, 1955
as Inland Mineral Resources Corp. The Company subsequently changed its name to
Parker-Levitt Corporation, and in 1997 changed its name to Commercial Property
Corporation, and in 2006 changed its name to Shandong Ruitai Chemical Co., Ltd.
On March 12, 2007, the Company changed its name to China Ruitai International
Holdings Co., Ltd. On February 26, 2007, the Company changed its fiscal year end
from October 31 to December 31.




On August
29, 2007, the Company entered into a Share Exchange Agreement with Pacific
Capital Group Co., Ltd., (“Pacific Capital Group”), a corporation incorporated
under the laws of the Republic of Vanuatu, and the stockholders of Pacific
Capital Group (the “Stockholders”). Pursuant to the Share Exchange Agreement,
the Stockholders agreed to transfer all of the issued and outstanding shares of
common stock in Pacific Capital Group to the Company in exchange for the
issuance of an aggregate of 22,645,348 shares of the Company’s common stock to
the Stockholders, thereby causing Pacific Capital Group to become a wholly-owned
subsidiary of the Company and TaiAn RuiTai Cellulose Co., Ltd. (“TaiAn Ruitai”),
Pacific Capital Group’s majority-owned operating subsidiary, a Chinese limited
liability company, to become a majority owned subsidiary of the Company. The
parties closed the share exchange contemplated by the Share Exchange Agreement
on November 8, 2007.




Pacific
Capital Group was incorporated on November 23, 2006 under the laws of the
Republic of Vanuatu as a holding company, for the purposes of seeking and
consummating a merger or acquisition with a business entity.  On April 26,
2007, following the approval by the relevant governmental authorities in the
People’s Republic of China (the “PRC”), Pacific Capital Group acquired a 99%
ownership interest in TaiAn Ruitai, which was formed in the PRC on November 10,
1999 with registered capital of $2,391,840. As a result of the transaction,
TaiAn Ruitai became a 99% majority-owned subsidiary of Pacific Capital
Group.




TaiAn
Ruitai is the only one of these affiliated companies that is engaged in business
operations. China RuiTai and Pacific Capital Group are holding companies, whose
business is to hold an equity ownership interest in TaiAn Ruitai. TaiAn Ruitai
is engaged in the production, sales, and exportation of deeply processed
chemicals, with a primary focus on non-ionic cellulose ether products. TaiAn
Ruitai’s assets exist solely in the PRC, and its revenues are derived from its
operations therein.




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Basis
of presentation





The
consolidated interim financial information as of June 30, 2010 and for the three
and six-month periods ended June 30, 2010 and 2009 have been prepared without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”).  Certain information and footnote disclosures,
which are normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America, have
been condensed or omitted pursuant to such rules and regulations, although we
believe that the disclosures made are adequate to provide for fair
presentation.  The interim financial information should be read in
conjunction with the Financial Statements and the notes thereto, included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2009, previously filed with the SEC.





In the
opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of the Company’s consolidated
financial position as of June 30, 2010, its consolidated results of operations
for the three and six-month periods ended June 30, 2010 and 2009 and its cash
flows for the six-month periods ended June 30, 2010 and 2009, as applicable,
have been made. The interim results of operations are not necessarily indicative
of the operating results for the full fiscal year or any future
periods.


4




Principle
of consolidation




The
consolidated financial statements include China Ruitai International Co., Ltd.,
Pacific Capital Group Co., Ltd. and TaiAn RuiTai Cellulose Co., Ltd. All
inter-company transactions and balances have been eliminated in
consolidation.




Use
of Estimates




The
preparation of unaudited interim consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
and disclosed in the financial statements and the accompanying notes. Actual
results could differ materially from these estimates. Management evaluates the
estimates on an ongoing basis, including those related to accounts receivable
and useful lives of property and equipment, fair values of warrants to purchase
our common stock, and income taxes. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities.




Recently
issued accounting pronouncements





In
February 2010, the FASB issued Accounting Standards Update (ASU) 2010-09 to
amend ASC 855, Subsequent Events. As a result of the ASU, SEC registrants will
not disclose the date through which management evaluated subsequent events in
the financial statements - either in originally issued financial statements or
reissued financial statements. This change addresses practice issues for SEC
registrants with respect to processes around issuing financial statements and
SEC registration requirements (e.g., incorporation by reference of previously
issued financial statements).





In April
2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades - a
consensus of the FASB Emerging Issues Task Force.  The amendments in
this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010.  Earlier
application is permitted.  The Company does not expect the provisions
of ASU 2010-13 to have a material effect on the financial position, results of
operations or cash flows of the Company.





The FASB
issued ASU 2010-17, Revenue Recognition - Milestone Method (Topic 605):
Milestone Method of Revenue Recognition.  This ASU codifies the
consensus reached in EITF Issue No. 08-9, “Milestone Method of Revenue
Recognition.” The amendments to the Codification provide guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research or development transactions.
Consideration that is contingent on achievement of a milestone in its entirety
may be recognized as revenue in the period in which the milestone is achieved
only if the milestone is judged to meet certain criteria to be considered
substantive. Milestones should be considered substantive in their entirety and
may not be bifurcated. An arrangement may contain both substantive and
nonsubstantive milestones, and each milestone should be evaluated individually
to determine if it is substantive.





ASU
2010-17 is effective on a prospective basis for milestones achieved in fiscal
years, and interim periods within those years, beginning on or after June 15,
2010. Early adoption is permitted. If a vendor elects early adoption and the
period of adoption is not the beginning of the entity’s fiscal year, the entity
should apply 2010-17 retrospectively from the beginning of the year of adoption.
Vendors may also elect to adopt the amendments in this ASU retrospectively for
all prior periods. The Company does not expect the provisions of ASU 2010-19 to
have a material effect on the financial position, results of operations or cash
flows of the Company





ASU
2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan Is
Part of a Pool That Is Accounted for as a Single Asset, codifies the consensus
reached in EITF Issue No. 09-I, “Effect of a Loan Modification When the Loan Is
Part of a Pool That Is Accounted for as a Single Asset.” The amendments to the
Codification provide that modifications of loans that are accounted for within a
pool under Subtopic 310-30 do not result in the removal of those loans from the
pool even if the modification of those loans would otherwise be considered a
troubled debt restructuring. An entity will continue to be required to consider
whether the pool of assets in which the loan is included is impaired if expected
cash flows for the pool change. ASU 2010-18 does not affect the accounting for
loans under the scope of Subtopic 310-30 that are not accounted for within
pools. Loans accounted for individually under Subtopic 310-30 continue to be
subject to the troubled debt restructuring accounting provisions within Subtopic
310-40.


5





ASU
2010-18 is effective prospectively for modifications of loans accounted for
within pools under Subtopic 310-30 occurring in the first interim or annual
period ending on or after July 15, 2010. Early application is permitted. Upon
initial adoption of ASU 2010-18, an entity may make a one-time election to
terminate accounting for loans as a pool under Subtopic 310-30. This election
may be applied on a pool-by-pool basis and does not preclude an entity from
applying pool accounting to subsequent acquisitions of loans with credit
deterioration. The Company does not expect the provisions of ASU 2010-18 to have
a material effect on the financial position, results of operations or cash flows
of the Company





In May
2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign
Currency Issues: Multiple Foreign Currency Exchange Rates.  The
amendments in this Update are effective as of the announcement date of March 18,
2010. The Company does not expect the provisions of ASU 2010-19 to have a
material effect on the financial position, results of operations or cash flows
of the Company.





Other
accounting standards that have been issued or proposed by FASB that do not
require adoption until a future date are not expected to have a material impact
on the consolidated financial statements upon adoption.




3.
            ACCOUNTS
      RECEIVABLE, NET




Accounts
receivable are recognized and carried at original sales amounts less an
allowance for uncollectible accounts, as needed. Accounts receivable as
of June 30, 2010 and December 31, 2009 was:





June 30, 2010
                
                
                December 31, 2009(Unaudited)Accounts
      receivable
                
                $
                9,410,616
                
                
                $
                5,705,298Less:
      Allowance for doubtful accounts
                
                
                (1,701,623
                )
                
                
                (1,606,569
                )$
                7,708,993
                
                
                $
                4,098,729




Allowance
for doubtful accounts movement for six months ended June 30, 2010:





December
                    31, 2009
                
                
                Provision
                
                
                Reverse
                
                
                Write-off
                
                
                June 30,
                    2010Allowance
      for doubtful accounts
                
                $
                (1,606,569
                )
                
                $
                (231,601
                )
                
                $
                136,547
                
                
                $
                -
                
                
                $
                (1,701,623
                )




4.
            NOTES
      RECEIVABLE




Notes
receivables of $4,577,235 as of June 30, 2010 and $7,153,450 as of December 31,
2009 represents bank acceptance notes the Company received from customers for
sales of products. The notes have maturity durations of 3 to 6 months, and are
accepted by banks.


6




5.
            INVENTORIES




Inventories
on June 30, 2010 and December 31, 2009 consisted of the following:





June 30, 2010
                
                
                December 31, 2009(Unaudited)Raw
      materials
                
                $
                3,342,998
                
                
                $
                2,467,368Work
      in progress
                
                
                1,123,962
                
                
                
                931,629Finished
      goods
                
                
                2,988,335
                
                
                
                4,733,684$
                7,455,295
                
                
                $
                8,132,681




6.
            PROPERTY
      AND EQUIPMENT, NET




Property
and equipment as of June 30, 2010 and December 31, 2009 consisted of the
following:





June 30, 2010
                
                
                December 31, 2009(Unaudited)Buildings
                
                $
                8,794,439
                
                
                $
                8,296,979Machinery
      and equipment
                
                
                10,675,413
                
                
                
                9,653,846Office
      equipment and furniture
                
                
                79,409
                
                
                
                76,589Motor
      vehicles
                
                
                468,381
                
                
                
                465,069Less:
      Accumulated depreciation
                
                
                (6,412,977
                )
                
                
                (5,626,814
                )Construction
      in progress
                
                
                323,410
                
                
                
                339,156$
                13,928,075
                
                
                $
                13,204,825




The
depreciation expenses was $1,170,810 and $633,970 for the six months ended June
31, 2010 and 2009, respectively.




7.
            LAND
      USE RIGHTS, NET




Land use
rights, net consist of the following:





June 30, 2010
                
                
                December 31, 2009(Unaudited)Land
      use right
                
                
                5,448,469
                
                
                
                5,409,952Less:
      Accumulated amortization
                
                
                (478,619
                )
                
                
                (421,135
                )$
                4,969,850
                
                
                $
                4,988,817




Amortization
expenses were $27,122 and $26,754 for the three months ended June 30, 2010 and
2009, respectively; and $54,244 and $53,500 for the six months ended June 30,
2010 and 2009, respectively.




8.
            COMMERCIAL
      LEASING ASSETS




On
December 31, 2009, Shandong Ruitai Chemicals Co., Ltd.(“Shandong Ruitai”) and
TaiAn Ruitai entered into a Set-Off Agreement to settle the outstanding balance
Shandong Ruitai owed to TaiAn Ruitai. Pursuant to the terms of the Set-Off
Agreement, TaiAn Ruitai agreed to allow Shandong Ruitai to repay a total of
$31,745,649 by transferring 100% of Shandong Ruitai’s ownership interest in real
estate property located in Beijing, China, commonly known as Taishan Building or
Building No. 36, Xibahe Dongli, Chaoyang District, Beijing, China (“Taishan
Building” or the “Property”). In conjunction with the Set-Off Agreement, the
parties engaged an appraisal firm certified by local government to perform an
independent appraisal of the Property.  The firm appraised the fair market
value of the Property as of December 31, 2009 to be $36,710,934.




Taishan
Building is a residential building with 47 apartments and is entirely rented to
Beijing Shengmei Hotel Management Company, operated as a budget hotel, for a
period ending March 31, 2028. The Company treats Taishan Building as commercial
leasing assets and provides depreciation over 43 years. At June 30, 2010, the
net carrying value of the building was $36,542,390.


7




9.
            LONG
      TERM INVESTMENT




The
long-term investment of $888,960 as of December 31, 2009 represented equity
investments in the Wenyang Xinyong Bank, a local state owned bank in Wenyang
County, Shandong Province, PRC. The long-term investment represented
approximately 2% of the equity ownership. The investments are transferable in
accordance with the laws of the PRC. The investments were carried using the cost
method. The Company did not purchase any additional long-term investments during
the three months ended March 31, 2010 and 2009, respectively. Dividend income on
these investments is recorded when received. There were no dividends received
for the three months ended March 31, 2010 and 2009, respectively.




On March
31, 2010, the Company signed Investment Transfer Agreement (“the Agreement”)
with Shandong Ruitai. Pursuant to the Agreement, long-term investment in Wenyang
Xinyong Bank was transferred to Shandong Ruitai at its carrying value of
$888,960. As an exchange, Shandong Ruitai reduced its balance of loan payable to
the Company accordingly.


8




10.
            SHORT-TERM
      BANK LOANS




Short-term
bank loans at June 30, 2010 and December 31, 2009 consist of the
following:





June 30, 2010
              
              
              December 31, 2009(Unaudited)Loan
      from China Citic Bank Qingdao Branch, with an interest rate of 5.841%,
      guaranteed by Shandong Ruiyin Biological Co., Ltd., maturing on September
      21, 2010
              
              
              2,946,000
              
              
              
              2,925,174Loan
      from China Communication Bank Tai’an Branch, with an interest rate of
      5.841%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , matured on
      June 11, 2010
              
              
              -
              
              
              
              1,462,587Loan
      from Agricultural Bank of China Wenyang Branch, with an interest rate of
      6.903%, guaranteed by Feicheng Golden Dragon Co., Ltd. , matured on May
      28, 2010
              
              
              -
              
              
              
              2,925,174Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Feicheng Ashide Chemicals, maturing on May 25,
      2010
              
              
              -
              
              
              
              1,023,811Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Shandong Ashide Chemicals Co., Ltd., maturing on June 1,
      2010
              
              
              -
              
              
              
              1,316,329Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.841%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd.  , maturing on
      April 22, 2011
              
              
              1,473,000
              
              
              
              1,462,587Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Shandong Ashide Chemicals Co., Ltd., matured on June 13,
      2010
              
              
              -
              
              
              
              1,462,587Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., maturing on March 9,
      2011
              
              
              2,209,500
              
              
              
              -Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, matured on May 28, 2010
              
              
              -
              
              
              
              877,552Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, maturing on January 19, 2011
              
              
              1,125,372
              
              
              
              -Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, maturing on January 19, 2011
              
              
              1,222,590
              
              
              
              -Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Co., Ltd., and the Company’s shareholder Lv
      Xingfu , maturing on January 18, 2011
              
              
              1,473,000
              
              
              
              -Loan
      from Shanghai Pudong Development Bank Jinan Branch, with an interest rate
      of 5.31%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , maturing on
      August 20, 2010
              
              
              2,946,000
              
              
              
              2,925,174Loan
      from Shanghai Pudong Development Bank Jinan Branch, with an interest rate
      of 5.31%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , maturing on
      September 3, 2010
              
              
              2,946,000
              
              
              
              2,925,174Loan
      from Shenzhen Development Bank, with an interest rate of 5.31%, guaranteed
      by Shangdong Ruitai Cellulose Co., Ltd. maturing on December 10,
      2010
              
              
              4,419,000
              
              
              
              -Loan
      from Weihai City Commercial Bank, with an interest rate of 5.841%,
      guaranteed by Shangdong Ruitai Cellulose Co., Ltd. maturing on June 9,
      2011
              
              
              2,946,000
              
              
              
              -Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., maturing on April 14,
      2011
              
              
              1,473,000
              
              
              
              -Loan
      from China Communication Bank TaiAn Branch, with an interest rate of
      5.841%, guaranteed by Feicheng Ashide Chemicals Co., Ltd., maturing on
      June 18, 2011
              
              
              1,473,000
              
              
              
              -Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., maturing on June 1,
      2011
              
              
              1,325,700
              
              
              
              -Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., maturing on May 18,
      2011
              
              
              1,031,100
              
              
              
              -Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group and the Company’s shareholder
      Lv Xingfu Xingfu maturing on May 17, 2011
              
              
              883,800
              
              
              
              -Loan
      from Agriculture Bank of China WenYang Branch, with an interest rate of
      5.31%, guaranteed by Shandong RuiYin Biological Co., Ltd and, maturing on
      May 16, 2011
              
              
              2,946,000
              
              
              
              -Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.841%,
      guaranteed by Shandong Ashide Chemicals Co., Ltd., matured on January 28,
      2010
              
              
              -
              
              
              
              438,776Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.841%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., matured on March 24,
      2010
              
              
              -
              
              
              
              877,552Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.841%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., matured on March 17,
      2010
              
              
              -
              
              
              
              1,316,328Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.841%,
      guaranteed by Feicheng Ashide Chemicals Co., Ltd., matured on February 26,
      2010
              
              
              -
              
              
              
              1,462,587Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, matured on January 18, 2010
              
              
              -
              
              
              
              1,117,416Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, matured on January 24, 2010
              
              
              -
              
              
              
              1,213,947Loan
      from Feicheng Rural Credit Cooperatives, with an interest rate of 5.31%,
      guaranteed by Shandong Juyuan Mining Group Co., Ltd and the Company’s
      shareholder Lv Xingfu, matured on January 17, 2010
              
              
              -
              
              
              
              1,462,587$
              32,839,062
              
              
              $
              27,195,342




The
interest expenses for these bank loans were $461,635 and $359,095 for the three
months ended June 30, 2010 and 2009, respectively; and $849,138 and $768,932 for
the six months ended June 30, 2010 and 2009, respectively. The weighted average
interest rates for these bank loans were 5.61% and 5.68% at June 30, 2010 and
2009, respectively.




11.
            RELATED
      PARTY TRANSACTIONS AND BALANCES




Purchase




The
Company purchases hot steam from Shandong Ruitai Chemicals Co., Ltd.(“Shandong
Ruitai”) which is owned by Mr. Xingfu Lv, the President, and Mr. Dianming Ma,
the CEO of the Company. The Company purchased hot steam aggregating $1,018,258
and $745,369 and $2,177,233 and $1,380,488 from Shandong Ruitai for the three and six months ended June
30, 2010 and 2009, respectively. The cost of sales includes steam purchased from
a related party but the precise amount could not reasonably be
determined


9


Sale
of long term investment
  The
long-term investment of $888,960 as of December 31, 2009 represented equity
investments in the Wenyang Xinyong Bank, a local state owned bank in Wenyang
County, Shandong Province, PRC. On March 31, 2010, the Company transferred this
long-term investment to Shandong Ruitai at its carrying value of $888,960
against the loan payable to Shandong Ruitai. For additional details, please
refer to Note 9.
  Due
to related party
  On
December 31, 2009, the Company and Shandong Ruitai signed a Set-Off Agreement,
pursuant to which Shandong Ruitai agreed that the Company may repay $4,965,285
within two years, and $1,986,114 could be repaid after one year. The interest
shall be calculated at a rate of 7.2% per annum.
  The
balance of amount due to related party was as follows:
 
 June 30, 2010
                  
                  
                  December 31, 2009(Unaudited)Due
      to Shandong Ruitai-current portion
                  
                  $
                  467,251
                  
                  
                  $
                  2,979,171Due
      to Shandong Ruitai-long-term portion
                  
                  
                  2,000,254
                  
                  
                  
                  1,986,114Total
                  
                  $
                  2,467,505
                  
                  
                  $
                  4,965,285
  12.
              NOTES
      PAYABLE
  The
Company issues notes to certain suppliers which are guaranteed by the
Company’s
banks in leu of payment of accounts payable. Terms of these notes payable vary
depending on the negotiations with individual suppliers. Typical terms are six
months. On the maturity dates, the note holders present these notes to the
banks to draw cash based on the note amounts. The Company is subject to a bank
fee of 0.05% on the outstanding notes.
  The
Company is required to make a restricted security deposit between 50% and 100%
of the face amount of the notes in the banks until the notes are settled.
Restricted cash for this purpose amounted to $35,646,600 and $33,054,466 as of
June 30, 2010 and December 31, 2009, respectively.
  13.
              COMMERCIAL
      LEASING INCOME AND COST OF COMMERCIAL
LEASING
  The
Company obtained an ownership interest in Taishan Building from Shandong Ruitai
in lieu of the loan repayment (see Note 9).  Taishan Building is a
residential building with 47 apartments and is entirely rented to Beijing
Shengmei Hotel Management Company, operated as a budget hotel, for a period
ending March 31, 2028. The rental income of $311,774 was treated as commercial
leasing income and depreciation expense $214,123 was recorded as cost of
commercial leasing for the three months ended June 30, 2010. Commercial leasing
income was $614,957, and related cost were $428,130 for the six months ended
June 30, 2010.
  14.
              INCOME
      TAXES
  The tax
payables balance of $5,543,007 represents the income tax accrual of TaiAn
Ruitai, and TaiAn Ruitai is subject to PRC income tax at a rate of
25%.
  Income
tax expenses were $477,076 and $400,225 for the three months ended June 30, 2010
and 2009, respectively, representing PRC current income taxes. Income tax
expenses were $1,123,378 and $871,551 for the six months ended June 30, 2010 and
2009, respectively, representing PRC current income taxes.  The
effective income tax rate was also 25% for the period presented.
  The
Company has not recorded tax provision for U.S. and Vanuatu taxes as they have
no assessable profits arising in or derived from United States or
Vanuatu.
  10
  The
Company has a deferred tax asset on net operating losses of approximately
$184,280 as of June 30, 2010. The ultimate realization of deferred tax
assets depends on the generation of future taxable income during the periods in
which those net operating losses are available. The Company considers projected
future taxable income and tax planning strategies in making its assessment. At
present, the Company does not have sufficient operations in the United States to
conclude that it is more-likely-than-not that the Company will be able to
realize all of its tax benefits in the near future and therefore a valuation
allowance of $184,280 was established for the full value of the deferred tax
asset.
  A
valuation allowance will be maintained until sufficient positive evidence exists
to support the reversal of any portion or all of the valuation allowance. Should
the Company start operations in the United States in future periods with
supportable trends, the valuation allowance will be reversed
accordingly.
  15.
              CONCENTRATIONS
      AND CREDIT RISKS
  At June
30, 2010 and December 31, 2009, the Company had a credit risk exposure of cash
in banks of $12,169,117 and $10,174,528 respectively that is uninsured by the
government authority. To limit exposure to credit risk relating to deposits, the
Company primarily places cash deposits only with large financial institution in
the PRC with acceptable credit ratings.
  The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC as well as by the general
state of the PRC’s economy. The business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
  Major
Customers
  During
the three months ended June 30, 2010 and 2009, the Company’s four largest
customers together accounted for 15% and 30%, respectively, of the Company’s net
revenue. During the six months ended June 30, 2010 and 2009, the Company’s four
largest customers together accounted for 35% and 26%, respectively, of the
Company’s net revenue. The outstanding account receivable balances for the
company’s four largest customers were $1,948,074 and $1,038,294 as of June 30,
2010 and December 31, 2009, respectively.
  Major
Suppliers
  During
the three months ended June 30, 2010 and 2009, the Company’s four largest
suppliers together accounted for 57% and 53%, respectively, of the Company’s
total purchases. During the six months ended June 30, 2010 and 2009, the
Company’s four largest suppliers together accounted for 57% and 50%,
respectively, of the Company’s total purchases. The account payable balances for
the company’s four largest suppliers were $610,959 and $375,049 as of June 30,
2010 and December 31, 2009, respectively.
  16.
              WARRANT
  During
March 2008 the Company engaged a consultant to conduct a program of investor
relations activities, for an initial period of twelve months ending
on February 28, 2009, and continuing on a month-to-month basis thereafter
upon mutual consent. The terms of the agreement are for the consultant to
receive a cash payment per month plus a warrant to purchase 150,000 shares of
the Company’s restricted common stock at an exercise price of $3.05 per share.
The warrant has a term of four (4) years and is vested 50% on March 1, 2008 and
50% on September 30, 2008. The Management valued the warrant at $1.16 per share
using the Black-Schole pricing model with assumptions summarized below, for a
total of $174,000, which is  being amortized over the prospective
beneficial period.
 
 Grant Date
                            
                            
                            Exercise
                            
                            
                            
                            Risk Free
                            
                            
                            ExpectedStock Price
                            
                            
                            Price
                            
                            Warrant Life
                            
                            Interest Rate
                            
                            
                            Volatility$
                            2.90
                            
                            
                            $
                            3.05
                            
                            4.0
      years
                            
                            
                            2.00
                            %
                            
                            
                            51
                            %
  11
  Warrant
costs charged to operation as consulting fees for the three and six months was
$0 and $0 respectively, and $0 and $29,000, for the periods ended June 30, 2010
and 2009, respectively.
  On May
19, 2008, the Company engaged a consultant as its exclusive investment banker
and agent for a one-year period ended May 19, 2009, and subject to cancellation
by thirty (30) days written notice by certified mail. As part of compensation to
the consultant, the Company issued the consultant a warrant to purchase 200,000
shares of the Company’s common stock at a price of $4.00 per share. The warrant
has a term of five (5) years and was issued on May 19, 2008. The Management
valued the warrant at $1.84 per share using the Black-Schole pricing model with
assumptions summarized below, for a total of $368,000, which will be amortized
over the prospective beneficial period.
 
 Grant Date
                            
                            
                            Exercise
                            
                            
                            
                            Risk Free
                            
                            
                            ExpectedStock Price
                            
                            
                            Price
                            
                            Warrant Life
                            
                            Interest Rate
                            
                            
                            Volatility$
                            4.00
                            
                            
                            $
                            4.00
                            
                            5.0
      years
                            
                            
                            2.00
                            %
                            
                            
                            51
                            %
  Warrant
costs charged to operation as consultant fees for the three months ended June
30, 2010 and 2009 was $0 and $44,978, respectively. Warrant costs charged to
operation as consultant fees for the six months ended June 30, 2010 and 2009 was
$0 and $136,978, respectively.
  The
warrant agreement contained cash settlement and down round protection clauses,
hence the warrant should be accounted for as a liability from its issuance date
at its fair value with changes in value included in earnings each reporting
period. The Company treated it as equity due to an immaterial
difference.
  17.
              EARNINGS
      PER SHARE
 Three months ended June 30,2010
                
                
                2009(unaudited)
                
                
                (unaudited)Numerator
      used in basic net income per share:Net
      income attributable to China Ruitai Shares
                
                $
                1,416,917
                
                
                $
                1,188,674Weighted
      average common shares outstanding
                
                
                26,000,000
                
                
                
                26,000,000Weighted
      average common shares outstanding used in computing diluted earnings
      per ordinary share
                
                
                26,000,000
                
                
                
                26,000,000Earnings
      per common share-basic
                
                $
                0.05
                
                
                $
                0.05Earnings
      per common share-diluted
                
                $
                0.05
                
                
                $
                0.05
 
 Six months ended June 30,2010
                
                
                2009(unaudited)
                
                
                (unaudited)Numerator
      used in basic net income per share:Net
      income attributable to China Ruitai Shares
                
                $
                3,356,447
                
                
                $
                2,588,506Weighted
      average common shares outstanding
                
                
                26,000,000
                
                
                
                26,000,000Weighted
      average common shares outstanding used in computing diluted earnings
      per ordinary share
                
                
                26,000,000
                
                
                
                26,000,000Earnings
      per common share-basic
                
                $
                0.13
                
                
                $
                0.10Earnings
      per common share-diluted
                
                $
                0.13
                
                
                $
                0.10
  12
  As of
June 30, 2010 and 2009, the Company had 350,000 outstanding warrants that could
potentially dilute basic income per share in the future, but which were excluded
in the computation of diluted income per share in the periods presented, as
their effect would have been anti-dilutive since the exercise price of these
warrant was higher than average market price during period
presented.
  19.
              COMMITMENTS
      AND CONTINGENCIES
  Commitments
and contingencies through August 16, 2010 have been considered by the Company
and none were noted which were required to be disclosed.
  20.
              SUBSEQUENT
      EVENT
  Management
has considered all events occurring through August 16, 2010, the date the
financial statements have been issued, and has determined that there are no such
events that are material to the financial statements, or all such material
events have been fully disclosed.
  ITEM 2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  Results of Operations
  The
following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results of operations and
financial condition for the six months ended June 30, 2010.  The following
discussion should be read in conjunction with the Financial Statements and
related Notes appearing elsewhere in this Form 10-Q.
  Results
of Operations for the Six Month Period Ended June 30, 2010 Compared to the Six
Month Period Ended June 30, 2009
  Revenue
  Revenue.  During
the six month period ended June 30, 2010, we had revenues of $21,409,431
compared to revenues of $16,694,963 during the six month period ended June 30,
2009, an increase of approximately 28.2%. The increase in revenue was primarily
attributable to: (i) the general improvement in the global economy which
stimulated the domestic and global demand for cellulose ethers, and the increase
in demand was reflected in the first and the second quarter of 2010; and (ii)
the offer of stable and cheaper prices in a period of increasing costs in raw
materials was well received by our customers. Our customer base is increasing at
a higher rate and our sales revenue increased as a result of new customer
orders.
  Cost of Sales.
 During the six month period ended June 30, 2010, our cost of sales was
$15,152,439 compared to costs of sales of $10,482,604 for the six month period
ended June 30, 2009, an increase of approximately 44.6%. This increase in cost
of sales resulted primarily from the increase of sales and an overall increase
in the costs of raw materials, particularly ginned cotton and
chloromethane
  Operating
Expenses
  Our
operating expenses are divided into selling expenses and general and
administrative expenses, both of which are discussed below:
  Selling Expenses.
 Selling expenses, which consist of sales commissions, freight charges,
travel and other selling expenses, totaled $889,385 for the six month period
ended June 30,2010, compared to the selling expenses of $733,971 for the six
month period ended June 30, 2009, an increase of approximately 21.2%. This
increase was primarily attributable to an increase in freight charges as a
result of the increase in sales.
  13
  General and Administrative
Expenses.  General and administrative expenses totaled $500,110 for
the six month period ended June 30, 2010 compared to $1,498,970 for the six
month period ended June 30, 2009, a decrease of approximately 66.6%. The main
reason for the decrease was due to we collected quite a few advance to suppliers
and accounts receivable which were perceived as bad debt during last year. This
was also the results of management increased their control in accounts
receivable and advance to suppliers.
  Income
From Operations
  For the
six month period ended June 30, 2010, our income from operations was $4,867,497
compared to income from operations of $3,979,418 for the six month period ended
June 30, 2009, an increase of approximately 22.3%. This increase was primarily
attributable to a decrease in operating expenses and an increase in
sales.
  Commercial
Leasing Income and cost
  Rental
income was from a newly acquired commercial property in Beijing. On December 31,
2009, we entered into a Set-Off agreement with our related party, Shandong
Ruitai Chemicals Co., Ltd. (“Shandong Ruitai”).  TaiAn, our
subsidiary, agreed to allow Shandong Ruitai to satisfy a total of $31,745,649 in
debt owed by Shandong Ruitai in return for Shandong Ruitai’s transfer of 100% of
its ownership interest in real property located in Beijing, China, commonly
known as Taishan Building or Building No. 36, Xibahe Dongli, Chaoyang District,
Beijing, China (the “Taishan Building”). As a result, starting in the first
quarter of 2010, the Taishan Building has generated rental income of $614,957
for the six month period ended June 30, 2010.
  Interest
Income
  For the
six month period ended June 30, 2010, our interest income was $566,612 compared
to interest income of $924,916 for the six month period ended June 30, 2009, a
decrease of approximately $358,304, or 38.7%. This decrease resulted primarily
from the full repayment of the loan from our related party, Shandong Ruitai, on
December 31, 2009, which reduced interest income from related
parties.
  Interest
Expense
  For the
six month period ended June 30, 2010, we incurred interest expense in the amount
of $1,129,097 compared to interest expense of $1,249,082 for the six month
period ended June 30, 2009, a decrease of approximately 9.6%. The decrease in
interest expense resulted primarily from the decrease in the weighted average
interest charged on a short-term loan.
  Income
Tax Expense
  Our
income tax expense was $1,123,378 for the six month period ended June 30, 2010
compared to $871,551 for the six month period ended June 30, 2009, an increase
of $251,827, or approximately 28.9%.  This increase is primarily
attributable to an increase in profits before income taxes and minority
interest.
  Net
Income
  We had
net income of $3,390,148 for the six month period ended June 30, 2010 compared
to $2,614,653 for the six month period ended June 30, 2009, an increase of
$775,495, or approximately 29.7%.  This increase is primarily attributable
to an increase in sales revenue and a decrease in general and administrative
expenses.
  14
  Results
of Operations for the Three Month Period Ended June 30, 2010 Compared to the
Three Month Period Ended June 30, 2009
  Revenue
  Revenue.  During
the three month period ended June 30, 2010, we had revenues of $11,171,175
compared to revenues of $8,463,783 during the three month period ended June 30,
2009, an increase of approximately 32%. The increase in revenue was primarily
attributable to: (i) the general improvement in the global economy, which
stimulated the domestic and global demand for cellulose ethers; (ii) we offered
a comparatively stable and cheaper sales price to our customers while our cost
of raw materials increased dramatically. As a result of implementing the new
competitive pricing strategy, we gained an additional 330 customers, which
further contributed to the increase in our revenue; and (iii) the demand for our
products in the construction industry was strong in the second quarter of 2010.
Revenue increased a lot for the three month period ended June 30, 2010 compared
with the three month period ended June 30, 2009. The pharmaceutical sector and
PVC sector revenue increased 28.4% and 38.6%, respectively.
  Cost of Sales.
 During the three month period ended June 30, 2010, our cost of sales was
$8,222,567 compared to costs of sales of $5,506,063 for the three month period
ended June 30, 2009, an increase of approximately 49.3%. This increase in cost
of sales resulted primarily from the increase of sales and an overall increase
in the costs of raw materials, in which ginned cotton doubled its price and
chloromethane increased its price per ton by 225%.
  Operating
Expenses
  Our
operating expenses are divided into selling expenses and general and
administrative expenses, both of which are discussed below:
  Selling Expenses.
 Selling expenses, which consist of sales commissions, freight charges,
travel and other selling expenses, totaled $530,310 for the three month period
ended June 30, 2010, compared to the selling expenses of $444,994 for the three
month period ended June 30, 2009, an increase of approximately 19.2%. This
increase results primarily from an increase of freight charge due to the
increase in sales.
  General and Administrative
Expenses.  General and administrative expenses totaled $215,858 for
the three month period ended June 30, 2010 compared to $683,737 for the three
month period ended June 30, 2009, a decrease of approximately 68.4%. The main
reason for the decrease was due to the collection of quite a few advances
to suppliers and accounts receivable which were perceived as bad debt during
last year. This was also the result of management increasing their control
in accounts receivable and advances to suppliers.
  Income
From Operations
  For the
three month period ended June 30, 2010, our income from operations was
$2,202,440 compared to income from operations of $1,828,989 for the three month
period ended June 30, 2009, an increase of approximately 20.4%. This increase
was primarily attributable to a decrease in operating expenses and an increase
in sales.
  Commercial
Leasing Income and cost
  Rental
income was from a newly acquired commercial property in Beijing. On December 31,
2009, we entered into a Set-Off agreement with our related party, Shandong
Ruitai.  TaiAn, our subsidiary, agreed to allow Shandong Ruitai to
satisfy a total of $31,745,649 in debt owed by Shandong Ruitai in return for
Shandong Ruitai’s transfer of 100% of its ownership interest in real property
located in Beijing, China, commonly known as Taishan Building. As a result,
starting in the first quarter of 2010, the Taishan Building has generated rental
income of $311,774 for the three month period ended June 30, 2010.
  Interest
Income
  For the
three month period ended June 30, 2010, our interest income was $175,432
compared to interest income of $382,513 for the three month period ended June
30, 2009, a decrease of approximately $207,081, or 54%. First, this decrease
resulted primarily from the full repayment of the loan from the related party,
Shandong Ruitai, on December 31, 2009, which reduced interest income. Second,
the decrease of interest income is partially offset by the additional interest
income generated from the bank deposit.
  15
  Interest
Expense
  For the
three month period ended June 30, 2010, we incurred interest expense in the
amount of $550,610 compared to interest expense of $483,531 for the three month
period ended June 30, 2009, an increase of approximately 13.9%. The increase in
interest expense resulted primarily from the increase of the short loan for the
three month period ended June 30, 2010.
  Income
Tax Expense
  Our
income tax expense was $477,076 for the three month period ended June 30, 2010
compared to $400,225 for the three month period ended June 30, 2009, an increase
of $76,851, or approximately 19.2%.  This increase is primarily
attributable to an increase in profits before income taxes and an increase of
minority interest from $1,600,906 in the three month period ended June 30, 2009
to $1,908,305 for the three month period ended June 30, 2010, an overall
increase of approximately 19.2%.
  Net
Income
  We had
net income of $1,431,229 for the three month period ended June 30, 2010 compared
to $1,200,681 for the three month period ended June 30, 2009, an increase of
$230,548, or approximately 19.2%.  This increase is primarily attributable
to an increase in sales revenue and a decrease in general and administrative
expenses.
  Inventories
  As of
June 30, 2010, we had inventories of $7,455,295 compared to inventories of
$8,132,681 as of December 31, 2009, a decrease of $677,386, or approximately
8.3%. The decrease in inventories from 2010 to 2009 was the result of an
increase in demand for our products along with the improvement in the economy.
In addition, we established a separate inventory management department which
monitors and improves the inventory control efficiency.
  Liquidity and Capital Resources
  We
anticipate that the existing cash and cash equivalents on hand, together with
the net cash flows generated from our business activities, will be sufficient to
meet our working capital requirements for our on-going projects and to sustain
the business operations for the next twelve months.
  Total
Current Assets & Total Assets
  As of
June 30, 2010: (i) our total current assets were $73,050,239 compared to total
current assets of $64,390,196 at December 31, 2009, an increase of $8,660,043,
or approximately 13.4%; and (ii) our total assets were $128,490,554 as of June
30, 2010 compared to $120,183,732 as of December 31, 2009, an increase of
$8,306,822, or approximately 6.9%  Our total assets increased due to
changes that we experienced in cash and cash equivalents, accounts receivable,
restricted cash, and the selling of equity investments, all of which are
discussed below.
  Cash and Cash
Equivalents.  As of June 30, 2010, our cash and cash equivalents
were $12,169,117 compared to $10,174,528 at December 31, 2009, an increase of
$1,994,589, or approximately 19.6%.  This increase was primarily
attributable to the increase of short term borrowing.
  Accounts Receivable.
 As of June 30, 2010, our accounts receivable were $7,708,993 compared to
accounts receivable of $4,098,729 at December 31, 2009, an increase of
$3,610,264, or approximately 88.1%. This increase was primarily attributable to
our increase in sales.  In addition, we adjusted our marketing
strategy to sell different products to different industry segments and extend
the accounts receivable payback period.
  Restricted Cash. As
of June 30, 2010, our restricted cash was $35,646,600 compared to restricted
cash of $33,054,466 at December 31, 2009, an increase of $2,592,134, or
approximately 7.84%.  This increase was primarily attributable to an
overall increase of the notes payable.
  Equity Investment. As
of June 30, 2010, we did not have any equity investments compared to equity
investments of $888,960 at December 31, 2009, a decrease of $888,960, or 100%.
 This decrease was primarily attributable to our transfer of a long-term
investment of $888,960 in Wenyang Xinyong Bank to Shandong Ruitai to reduce its
loan from Shandong Ruitai by the same amount.
  16
  Total
Current Liabilities
  As of
June 30, 2010, our total current liabilities were $100,883,725 compared to total
current liabilities of $96,152,147 at December 31, 2009, an increase of
$4,731,578, or approximately 4.9%.  This increase was primarily
attributable to an increase in short-term borrowings and accounts payable as
discussed below.
  Notes Payable.
 As of June 30, 2010, our notes payable were $48,756,300 compared to notes
payable of $50,020,476 as of December 31, 2009, a decrease of $1,264,176, or
approximately 2.53%. This decrease was attributable to continued repayment of
the notes payable outstanding.
  Short-term bank
loans.  As of June 30, 2010, short-term bank loans were $32,839,062
compared to short-term bank loans of $27,195,342 as of December 31, 2009,
an increase of $5,643,720, or approximately 20.8%. The increase in our
short-term bank loans was due to we need to meet requirement of increased
production level.
  Accounts Payable.
 As of June 30, 2010, our accounts payable were $7,718,548 compared to
accounts payable of $6,175,266 as of December 31, 2009, an increase of
$1,543,282, or approximately 25%. The increase in our accounts payable was
attributable to an increase in the purchase of the raw materials for demand of
increase sales orders.
  Operating
Activities
  Net cash
of $532,070 was used by operating activities during the six month period ended
June 30, 2010 compared to net cash provided by operating activities of
$2,589,802 during the six month period ended June 30, 2009, representing a
decrease of $3,121,872 The decrease in net cash provided by our operating
activities was primarily attributable to the following four reasons: (i) there
was a $2,346,400 decrease in restricted cash for six month period ended June
30,2010 and a $10,082,958 decrease in restricted cash for six month period ended
June 30,2010, which is a difference of 7,736,558; (ii) there was a $2,615,532
decrease in notes receivable for the six month period ended June 30, 2010 and a
$778,556 increase in notes receivable for the six month period ended June 30,
2009, which is a difference of $3,394,088; (iii) there was a $1,613,150 decrease
in notes payable for the six month period ended June 30, 2010 and a $10,229,087
increase in notes payable for the six month period ended June 30, 2010, which is
a difference of 11,842,237; and (iv) there was a $3,326,248 increase in other
receivables for the six month period ended June 30, 2010 and a $513,093 increase
in other receivables for the six month period ended June 30, 2010, which is a
difference of $2,813,155.
  Investing
Activities
  During
the six month period ended June 30, 2010, the net cash used in investing
activities was $1,369,347 compared to net cash used in investing activities of
$1,146,764 for the six month period ended June 30, 2009, an increase of $222,583
in the cash used in investing activities. The increase was due to an increase of
purchase of property and equipment of $222,583.
  Financing
Activities
  During
the six month period ended June 30, 2010, the net cash provided by financing
activities was $3,815,953 compared to net cash used by financing activities of
$4,905,775 for the six month period ended June 30, 2009, an increase of
$8,721,728 This change in net cash provided by financing activities was
primarily attributable to the net effect of the borrowing of $5,426,050 of bank
loans.
  Off
Balance Sheet Arrangements
  We do not
have any off-balance sheet arrangements.
  17
  ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Not
Applicable.
  ITEM 4T.
              CONTROLS
      AND PROCEDURES
  Disclosure
controls and procedures
  The
Securities and Exchange Commission defines the term “disclosure controls and
procedures” to mean the company's controls and other procedures of an issuer
that are designed to ensure that information required to be disclosed in the
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange 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 Securities Exchange Act of 1934 is
accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.  The Company maintains such a system of controls and
procedures in an effort to ensure that all information which it is required to
disclose in the reports it files under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
under the SEC's rules and forms and that information required to be disclosed is
accumulated and communicated to principal executive and principal financial
officers to allow timely decisions regarding disclosure.
  As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our chief executive officer and
chief financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures.  Based on this evaluation, our
chief executive officer and chief financial officer concluded that our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving the objectives of timely alerting them to material information
required to be included in our periodic SEC reports and of ensuring that such
information is recorded, processed, summarized and reported with the time
periods specified.  Our chief executive officer and chief financial
officer also concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report to provide
reasonable assurance of the achievement of these objectives.
  Changes
in internal control over financial reporting
  There was
no change in our internal control over financial reporting that occurred during
the three months ended June 30, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
  PART II
– OTHER INFORMATION
  ITEM 1.
              LEGAL
      PROCEEDINGS
  We are
not a party to any pending legal proceedings, and no such proceedings are known
to be contemplated. None of our directors, officers or affiliates, and no owner
of record or beneficial owner of more than 5.0% of our securities, or any
associate of any such director, officer or security holder is a party adverse to
us or has a material interest adverse to us in reference to pending
litigation.
  ITEM 1A.
              RISK
      FACTORS
  Not
Applicable.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  None.
  18
  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
  (a)
      The following exhibits are filed
herewith:
 
 Exhibit
                Number
              
              Description31.1
              
              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 Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
              
              Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
  19
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 CHINA RUITAI INTERNATIONAL HOLDINGS CO., LTD.Date:
      August 16, 2010
                
                By:
                /s/
      Dian Min MaDian
      Min Ma, Chief Executive Officer
                  (Principal
      Executive Officer)Date:
      August 16, 2010
                
                By:
                /s/ Gang
      MaGang
      Ma, Chief Financial Officer
                  (Principal
      Financial Officer and Chief Accounting
Officer)
  20