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 September 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
    Noo




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 o    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 November 9, 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
                  2Consolidated
      Balance Sheets
                  2Consolidated
      Statements of Income and Comprehensive Income
                  3Consolidated
      Statements of Cash Flows
                  4Notes
      to Unaudited Financial Statements
                  5Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  15Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  20Item
      4T.
                  Controls
      and Procedures
                  20PART
      II—OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  21Item
      1A.
                  Risk
      Factors
                  21Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  21Item
      3.
                  Defaults
      Upon Senior Securities
                  21Item
      4.
                  (Removed
      and Reserved)
                  21Item
      5.
                  Other
      Information
                  21Item
      6.
                  Exhibits
                  21Signatures
                  22







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.


1




ITEM 1.
            Financial
      Statements




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Balance Sheets




September 30, 2010
              
              
              December 31, 2009(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              22,019,075
              
              
              $
              10,174,528Restricted
      cash
              
              
              16,766,400
              
              
              
              33,054,466Accounts
      receivable, net
              
              
              8,086,338
              
              
              
              4,098,729Notes
      receivable
              
              
              1,525,046
              
              
              
              7,153,450Advance
      to suppliers
              
              
              1,215,389
              
              
              
              1,649,685Inventories
              
              
              7,552,949
              
              
              
              8,132,681Other
      receivables
              
              
              1,357,477
              
              
              
              126,657Total
      current assets
              
              
              58,522,674
              
              
              
              64,390,196Property
      and equipment, net
              
              
              13,982,838
              
              
              
              13,204,825Commercial
      leasing assets, net
              
              
              36,919,327
              
              
              
              36,710,934Land
      use rights, net
              
              
              5,020,311
              
              
              
              4,988,817Long-term
      investment
              
              
              -
              
              
              
              888,960TOTAL
      ASSETS
              
              $
              114,445,150
              
              
              $
              120,183,732LIABILITIES
      AND EQUITYCurrent
      liabilities:Short-term
      bank loans
              
              $
              39,811,218
              
              
              $
              27,195,342Accounts
      payable
              
              
              7,420,710
              
              
              
              6,175,266Notes
      payable
              
              
              25,748,400
              
              
              
              50,020,476Advance
      from customers
              
              
              1,350,051
              
              
              
              127,419Due
      to related party- current portion
              
              
              54,394
              
              
              
              2,979,171Income
      tax payable
              
              
              6,371,495
              
              
              
              5,277,239Other
      payables
              
              
              4,203,057
              
              
              
              2,900,942Loan
      from employees
              
              
              1,539,733
              
              
              
              1,476,292Total
      current liabilities
              
              
              86,499,058
              
              
              
              96,152,147Due
      to related party- long-term portion
              
              
              -
              
              
              
              1,986,114Total
      Liabilities
              
              
              86,499,058
              
              
              
              98,138,261COMMITMENTS
      AND CONTIGENCIESEquity:Common
      stock ($.001 par value; 50,000,000 shares authorized, 26,000,000 shares
      issued and outstanding as of September 30, 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
              
              
              21,416,192
              
              
              
              16,179,230Accumulated
      other comprehensive income
              
              
              1,952,204
              
              
              
              1,347,371Total
      Equity attributable to China Ruitai Shareholders
              
              
              27,672,219
              
              
              
              21,830,424Noncontrolling
      interests
              
              
              273,873
              
              
              
              215,047Total
      Equity
              
              
              27,946,092
              
              
              
              22,045,471TOTAL
      LIABILITIES AND EQUITY
              
              $
              114,445,150
              
              
              $
              120,183,732




See
notes to unaudited consolidated financial statements.


2




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Statements of Income and Comprehensive Income





Three months ended September 30,
              
              
              Nine months ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)Sales
              
              $
              11,180,701
              
              
              $
              10,181,155
              
              
              $
              32,590,132
              
              
              $
              26,876,118Cost
      of sales (note a)
              
              
              7,590,381
              
              
              
              6,864,455
              
              
              
              22,742,820
              
              
              
              17,347,059Gross
      margin
              
              
              3,590,320
              
              
              
              3,316,700
              
              
              
              9,847,312
              
              
              
              9,529,059Operating
      expensesGeneral
      and administrative expenses
              
              
              436,218
              
              
              
              515,882
              
              
              
              936,328
              
              
              
              2,014,852Selling
      expenses
              
              
              432,914
              
              
              
              317,260
              
              
              
              1,322,299
              
              
              
              1,051,231Total
      operating expense
              
              
              869,132
              
              
              
              833,142
              
              
              
              2,258,627
              
              
              
              3,066,083Income
      from operations
              
              
              2,721,188
              
              
              
              2,483,558
              
              
              
              7,588,685
              
              
              
              6,462,976Other
      income/(expense)Interest
      income
              
              
              267,465
              
              
              
              751,983
              
              
              
              834,077
              
              
              
              1,676,899Interest
      expense
              
              
              (536,097
              )
              
              
              (783,328
              )
              
              
              (1,665,194
              )
              
              
              (2,032,410
              )Commercial
      leasing income
              
              
              305,767
              
              
              
              -
              
              
              
              920,724
              
              
              
              -Cost
      of commercial leasing
              
              
              (215,831
              )
              
              
              -
              
              
              
              (643,961
              )
              
              
              -Other
      income/(expense)
              
              
              (9,812
              )
              
              
              (20,275
              )
              
              
              11,875
              
              
              
              (189,323
              )Income
      before income tax expense
              
              
              2,532,680
              
              
              
              2,431,938
              
              
              
              7,046,206
              
              
              
              5,918,142Income
      tax expense
              
              
              633,170
              
              
              
              607,985
              
              
              
              1,756,548
              
              
              
              1,479,536Net
      income before allocation to noncontrolling interests
              
              
              1,899,510
              
              
              
              1,823,953
              
              
              
              5,289,658
              
              
              
              4,438,606Less:
      Net income attributable to noncontrolling interests
              
              
              18,995
              
              
              
              18,239
              
              
              
              52,696
              
              
              
              44,386Net
      income attributable to China Ruitai
              
              
              1,880,515
              
              
              
              1,805,714
              
              
              
              5,236,962
              
              
              
              4,394,220Other
      comprehensive incomeNet
      Income
              
              
              1,899,510
              
              
              
              1,823,953
              
              
              
              5,289,658
              
              
              
              4,438,606Foreign
      currency translation adjustment
              
              
              440,007
              
              
              
              21,150
              
              
              
              610,963
              
              
              
              42,703Comprehensive
      Income
              
              $
              2,339,517
              
              
              $
              1,845,103
              
              
              $
              5,900,621
              
              
              $
              4,481,309Less:
      Comprehensive income attributable to noncontrolling
    interests
              
              
              23,395
              
              
              
              18,450
              
              
              
              58,826
              
              
              
              44,813Comprehensive
      Income Attributable to China Ruitai
              
              $
              2,316,122
              
              
              $
              1,826,653
              
              
              $
              5,841,795
              
              
              $
              4,436,496Earnings
      per share - Basic and diluted
              
              $
              0.07
              
              
              $
              0.07
              
              
              $
              0.20
              
              
              $
              0.17Weighted
      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.


3




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows





Nine months ended September 30,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Cash
      flows from operating activities:Net
      income before allocation to noncontolling interests
              
              $
              5,289,658
              
              
              $
              4,438,606Adjustments
      to reconcile net income before noncontrolling interests to net cash
      provided by operation activitiesDepreciation
              
              
              1,777,706
              
              
              
              967,838Amortization
      of land use rights
              
              
              84,395
              
              
              
              80,328Stock
      based compensation
              
              
              -
              
              
              
              165,978Changes
      in operating assets and liabilities:Restricted
      cash
              
              
              16,769,400
              
              
              
              (1,057,036
              )Accounts
      receivable
              
              
              (3,823,581
              )
              
              
              (1,916,865
              )Notes
      receivable
              
              
              5,696,019
              
              
              
              -Advance
      to suppliers
              
              
              464,893
              
              
              
              -Inventories
              
              
              757,691
              
              
              
              1,497,306Other
      receivables
              
              
              (1,206,514
              )
              
              
              (885,615
              )Accounts
      payable
              
              
              1,081,040
              
              
              
              343,116Notes
      payable
              
              
              (25,007,000
              )
              
              
              11,691,617Advance
      from customers
              
              
              1,198,451
              
              
              
              (237,184
              )Income
      tax payable
              
              
              953,241
              
              
              
              970,622Other
      payables
              
              
              1,212,374
              
              
              
              (2,507
              )Net
      cash provided by operating activities
              
              
              5,247,773
              
              
              
              16,056,204Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (1,593,008
              )
              
              
              (1,282,358
              )Net
      cash used in investing activities
              
              
              (1,593,008
              )
              
              
              (1,282,358
              )Cash
      flows from financing activities:Proceeds
      from bank loans
              
              
              37,648,774
              
              
              
              5,115,079Repayment
      of bank loans
              
              
              (25,880,774
              )
              
              
              -Repayment
      in amount due to a related party
              
              
              (4,046,323
              )
              
              
              (14,820,016
              )Proceeds
      from loans from employees
              
              
              28,215
              
              
              
              (88,694
              )Net
      cash provided by/ (used in) financing activities
              
              
              7,749,892
              
              
              
              (9,793,631
              )Effect
      of exchange rate fluctuation on cash and cash equivalents
              
              
              439,890
              
              
              
              16,239Net
      increase in cash and cash equivalents
              
              
              11,404,657
              
              
              
              4,980,215Cash
      and cash equivalents- beginning of period
              
              
              10,174,528
              
              
              
              5,319,456Cash
      and cash equivalents-end of period
              
              
              22,019,075
              
              
              
              10,315,910Supplemental
      disclosure of  cash flow information:Cash
      paid for interest expense
              
              $
              1,665,194
              
              
              $
              2,038,052Cash
      paid for income tax
              
              $
              803,069
              
              
              $
              515,767Supplemental
      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


4




CHINA
RUITAI INTERNATIONAL HOLDINGS CO., LTD. AND SUBSIDIARIES


Notes
to Unaudited Consolidated Financial Statements




1.           ORGANIZATION
AND DESCRIPTION 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 September 30, 2010 and for the
three and nine-month periods ended September 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 September 30, 2010, its consolidated results of
operations for the three and nine-month periods ended September 30, 2010 and
2009 and its cash flows for the nine-month periods ended September 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.


5




Principle
of consolidation




The
accompanying 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 warrant 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 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.




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.




After May
2010, FASB issued several ASUs-ASU-20 through ASU-26, which do not require
adoption until a future date are not expected to have a material impact on the
consolidated financial statement 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 September 30, 2010 and December 31, 2009 was:





September 30, 2010
              
              
              December 31, 2009(Unaudited)Accounts
      receivable
              
              $
              9,696,656
              
              
              $
              5,705,298Less:
      Allowance for doubtful accounts
              
              
              (1,610,318
              )
              
              
              (1,606,569
              )$
              8,086,338
              
              
              $
              4,098,729




Allowance
for doubtful accounts movement for nine months ended September 30,
2010:





December 31,
                  2009
              
              
              Provision
              
              
              Recovery
              
              
              Write-off
              
              
              September 30,
                  2010Allowance
      for doubtful accounts
              
              $
              (1,606,569
              )
              
              $
              (143,458
              )
              
              $
              139,709
              
              
              $
              -
              
              
              $
              (1,610,318
              )




6




4.           NOTES
RECEIVABLE




Notes
receivables of $1,525,046 as of September 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, bear
no interest and are accepted by banks.




5.           INVENTORIES




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





September 30,
                  2010
              
              
              December 31,
                  2009(Unaudited)Raw
      materials
              
              $
              2,775,465
              
              
              $
              2,467,368Work
      in progress
              
              
              1,662,506
              
              
              
              931,629Finished
      goods
              
              
              3,114,978
              
              
              
              4,733,684$
              7,552,949
              
              
              $
              8,132,681




6.           PROPERTY
AND EQUIPMENT, NET




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





September 30,
                  2010
              
              
              December 31,
                  2009(Unaudited)Buildings
              
              $
              8,984,756
              
              
              $
              8,296,979Machinery
      and equipment
              
              
              11,345,893
              
              
              
              9,653,846Office
      equipment and furniture
              
              
              86,047
              
              
              
              76,589Motor
      vehicles
              
              
              476,012
              
              
              
              465,069Less:
      Accumulated depreciation
              
              
              (6,912,975
              )
              
              
              (5,626,814
              )Construction
      in progress
              
              
              3,105
              
              
              
              339,156$
              13,982,838
              
              
              $
              13,204,825




The
depreciation expenses were $606,896 and $333,868 for the three months ended
September 30, 2010 and 2009; and $1,777,706 and $967,838 for the nine months
ended September 30, 2010 and 2009, respectively.




7.           LAND
USE RIGHTS, NET




Land use
rights, net consist of the following:





September 30,
                  2010
              
              
              December 31,
                  2009(Unaudited)Land
      use right
              
              
              5,537,242
              
              
              
              5,409,952Less:
      Accumulated amortization
              
              
              (516,931
              )
              
              
              (421,135
              )$
              5,020,311
              
              
              $
              4,988,817




Amortization
expenses were $30,151 and $26,828 for the three months ended September 30, 2010
and 2009; and $84,395 and $80,328 for the nine months ended September 30, 2010
and 2009, respectively.


7




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 September 30, 2010,
the net carrying value of the building was $36,919,327.




9.           LONG
TERM INVESTMENT




The
long-term investment of $888,960 as of December 31, 2009 represented an
investment 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 and the nine months ended
September 30, 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 receivable
from the Company accordingly.




10.      
  SHORT-TERM BANK LOANS




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





September 30, 2010
              
              
              December 31, 2009(Unaudited)Loan
      from China Citic Bank Qingdao Branch, with an interest rate of 5.841%,
      guaranteed by Shandong Runyin Biological Co., Ltd., matured on September
      21, 2010
              
              
              -
              
              
              
              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, matured 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., matured on June 1,
      2010
              
              
              -
              
              
              
              1,316,329




8





September 30, 2010
              
              
              December 31, 2009(Unaudited)Loan
      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
              
              
              1,497,000
              
              
              
              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
              
              
              2,245,500
              
              
              
              -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
              
              
              1,143,708
              
              
              
              -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
              
              
              1,242,510
              
              
              
              -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
              
              
              1,497,000
              
              
              
              -Loan
      from Shanghai Pudong Development Bank Jinan Branch, with an interest rate
      of 5.31%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , matured on
      August 20, 2010
              
              
              -
              
              
              
              2,925,174Loan
      from Shanghai Pudong Development Bank Jinan Branch, with an interest rate
      of 5.31%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , matured on
      September 3, 2010
              
              
              -
              
              
              
              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
              
              
              4,491,000
              
              
              
              -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
              
              
              2,994,000
              
              
              
              -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
              
              
              1,497,000
              
              
              
              -




9





September 30, 2010
              
              
              December 31, 2009(Unaudited)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
              
              
              1,497,000
              
              
              
              -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
              
              
              1,347,300
              
              
              
              -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
              
              
              1,047,900
              
              
              
              -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 maturing on May 17, 2011
              
              
              898,200
              
              
              
              -Loan
      from Agriculture Bank of China WenYang Branch, with an interest rate of
      5.31%, guaranteed by Shandong RunYin Biological Co., Ltd and, maturing on
      May 16, 2011
              
              
              2,994,000
              
              
              
              -Loan
      from Bank of China Feicheng Branch, with an interest rate of 5.31%,
      guaranteed by Shandong Ashide Chemicals Co., Ltd., maturing on September
      18, 2011
              
              
              1,946,100
              
              
              
              -Loan
      from Shanghai Pudong Development Bank Jinan Branch, with an interest rate
      of 5.31%, guaranteed by Feicheng Ashide Chemicals Co., Ltd. , maturing on
      September 2, 2011
              
              
              5,988,000
              
              
              
              -Loan
      from China Citic Bank Qingdao Branch, with an interest rate of 5.841%,
      guaranteed by the company’s shareholder Lv Xingfu, maturing on September
      28, 2011
              
              
              2,994,000
              
              
              
              -Loan
      from China Citic Bank Qingdao Branch, with an interest rate of 4.868%,
      guaranteed by Shandong Runyin Biological Co., Ltd., maturing on August 27,
      2011
              
              
              4,491,000
              
              
              
              -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
              
              
              -
              
              
              
              1,462,587




10





September 30, 2010
              
              
              December 31, 2009(Unaudited)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 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$
              39,811,218
              
              
              $
              27,195,342




The
interest expenses for these bank loans were $816,056 and $380,564 for the three
months ended September 30, 2010 and 2009; and $1,665,194 and $1,149,496 for the
nine months ended September 30, 2010 and 2009, respectively. The weighted
average interest rates for these bank loans were 5.38% and 5.78% at September
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 $886,860 and
$1,036,549 for the three months and $3,064,093 and $2,417,037 for the nine
months ended September 30, 2010 and 2009 from Shandong Ruitai, respectively. The
cost of sales includes steam purchased from a related party but the precise
amount could not reasonably be determined.




Sale
of long term investment




The
long-term investment of $888,960 as of December 31, 2009 represented an
investment 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 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. In September 2010, the Company
repaid all the outstanding debt in advance. As of September 30, 2010, the
balance of $54,394 represents a new current payable to related party, which
occurred during the third quarter of 2010.




The
balance of amount due to related party was as follows:





September 30, 2010
              
              
              December 31, 2009(Unaudited)Due
      to Shandong Ruitai-current portion
              
              $
              54,394
              
              
              $
              2,979,171Due
      to Shandong Ruitai-long-term portion
              
              
              -
              
              
              
              1,986,114Total
              
              $
              54,394
              
              
              $
              4,965,285




11




12.         NOTES
PAYABLE




The
Company issues notes to certain suppliers which are guaranteed by the Company’s
banks in lieu 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 $16,766,400 and $33,054,466 as of
September 30, 2010 and December 31, 2009, respectively.




13.        OTHER
PAYABLES




Other
payables as of September 30, 2010 and December 31, 2009 consisted of the
following:





September 30, 2010
                
                
                December 31, 2009(Unaudited)Other
      taxes payable
                
                $
                2,043,432
                
                
                $
                1,334,268Payroll
      and sales commission payable
                
                
                1,190,232
                
                
                
                1,273,683Loan
      to third party
                
                
                318,412
                
                
                
                -Others
                
                
                650,981
                
                
                
                292,991$
                4,203,057
                
                
                $
                2,900,942




Other
taxes payable mainly consisted of value added tax payable and will be paid in
due course. The Company is subject to value added tax (“VAT”) for manufacturing
products. The applicable VAT rate is 17% for products sold in the PRC. The
amount of VAT liability is determined by applying the applicable tax rate to the
amount of goods sold (output VAT) less VAT paid on purchases made with the
relevant supporting invoices (input VAT).




14.         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 8).  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 $305,767 was treated as commercial
leasing income and depreciation expense $215,831 was recorded as cost of
commercial leasing for the three months ended September 30, 2010. Commercial
leasing income was $920,724 and related cost were $643,961 for the nine months
ended September 30, 2010.  All transactions related to this is
recorded in other income and expenses.




15.       
 INCOME TAXES




The tax
payables balance of $6,371,495 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 $633,170 and $607,985 for the three months ended September 30,
2010 and 2009, respectively, representing PRC current income taxes. Income tax
expenses were $1,756,548 and $1,479,536 for the nine months ended September 30,
2010 and 2009, respectively, representing PRC current income
taxes.  The effective income tax rate was also 25% for the period
presented.


12




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.




The
Company has a deferred tax asset on net operating losses of approximately
$184,280 as of September 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 a sufficient operation 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 trend, the valuation allowance will be reversed
accordingly.




16.        CONCENTRATIONS
AND CREDIT RISKS




At
September 30, 2010 and December 31, 2009, the Company had a credit risk exposure
of cash in banks of $22,019,075 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 within 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 September 30, 2010 and 2009, the Company’s largest
customer accounted for 14% and 13%, respectively, of the Company’s net revenue.
During the nine months ended September 30, 2010 and 2009, the Company has no
single customer accounting for over 10% of the Company’s net revenue. The
outstanding accounts receivable balances for the Company’s largest customer were
$746,706 and $811,233 as of September 30, 2010 and December 31, 2009,
respectively.




Major
Suppliers




During
the three months ended September 30, 2010 and 2009, the Company’s four largest
suppliers together accounted for 65% and 64%, respectively, of the Company’s
total purchases. During the nine months ended September 30, 2010 and 2009, the
Company’s four largest suppliers together accounted for 64% and 52%,
respectively, of the Company’s total purchases. The account payable balances for
the company’s four largest suppliers were $627,306 and $375,049 as of September
30, 2010 and December 31, 2009, respectively.




17.        WARRANT




During
March 2008, the Company engaged a consultant to conduct a program of investor
relations activities, for an initial period of twelve months ended February 28,
2009, and continuing on a month-to-month basis thereafter upon mutual consent.
Under the terms of the agreement, the consultant is 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 was 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-Scholes pricing model with assumptions summarized below, for a total of
$174,000, which is being amortized over the prospective beneficial
period.


13





Grant Date
                        
                        
                        Exercise
                        
                        
                        
                        Risk Free
                        
                        
                        ExpectedStock Price
                        
                        
                        Price
                        
                        Warrant Life
                        
                        Interest Rate
                        
                        
                        Volatility$2.90
                        
                        
                        
                        $3.05
                        
                        4.0
      years
                        
                        
                        2.00%
                        
                        
                        
                        51%




Warrant
costs charged to operations as consulting fees for the three and nine months was
$0 and $0,and $0 and $29,000, for the periods ended September 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-Scholes pricing model with
assumptions summarized below, for a total value 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
September 30, 2010 and 2009 was $0 and $0, respectively. Warrant costs charged
to operation as consultant fees for the nine months ended September 30, 2010 and
2009 was $0 and $136,978, respectively.




The
warrant agreement contained a cash settlement and down round protection clause,
hence the warrants should be accounted for as 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.




18.        EARNINGS
PER SHARE





Three months ended September 30,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Numerator
      used in basic net income per share:Net
      income attributable to China Ruitai Shares
              
              $
              1,880,515
              
              
              $
              1,805,714Weighted
      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 and diluted
              
              $
              0.07
              
              
              $
              0.07





Nine months ended September 30,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Numerator
      used in basic net income per share:Net
      income attributable to China Ruitai Shares
              
              $
              5,236,962
              
              
              $
              4,394,220Weighted
      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 and diluted
              
              $
              0.20
              
              
              $
              0.17




14




As of
September 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 November 15, 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 and transactions that occurred after September 30,
2010 and through the date of this report, and has determined that the Company
did not have any material subsequent events that require adjustment to or
disclosure in the consolidated financial statements during this
period.




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 nine months ended September 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 Nine Month Period Ended September 30, 2010 Compared to the
Nine Month Period Ended September 30, 2009




Revenue




Revenue.  During
the nine month period ended September 30, 2010, we had revenues of $ 32,590,132
compared to revenues of $26,876,118 during the nine month period ended September
30, 2009, an increase of approximately 21.3%. The increase in revenue was
primarily attributable to: (i) a shift of our product portfolio into additional
sales in high-priced products in the pharmaceutical, food and cosmetics
industries; and (ii) the expansion of our customer base.




Cost of
Sales.  During the nine month period ended September 30, 2010,
our cost of sales was $22,742,820 compared to costs of sales of $17,347,059 for
the nine month period ended September 30, 2009, an increase of approximately
31.1%. This increase in cost of sales resulted primarily from the increase of
sales and an overall increase in the cost of raw materials, particularly ginned
cotton.




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
$1,322,299 for the nine month period ended September 30, 2010 compared to
selling expenses of $1,051,231 for the nine month period ended September 30,
2009, an increase of approximately 25.8%. This increase was primarily
attributable to an increase in freight charges and commissions as a result
of an increase in sales.


15




General and Administrative
Expenses.  General and administrative expenses totaled $936,328
for the nine month period ended September 30, 2010 compared to $2,014,852 for
the nine month period ended September 30, 2009, a decrease of approximately
53.5%. The main reason for the decrease was we collected several advances from
suppliers and customer balances for accounts receivable in the first six months
of 2010 which were previously written off as bad debt during the last year. This
was also the result of management increasing its control of accounts receivables
and advances to suppliers.




Income
from Operations




For the
nine month period ended September 30, 2010, our income from operations was
$7,588,685 compared to income from operations of $6,462,976 for the nine month
period ended September 30, 2009, an increase of approximately 17.4%. 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 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 exchange 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 $920,724 for the nine
month period ended September 30, 2010.




Interest
Income




For the
nine month period ended September 30, 2010, our interest income was $834,077
compared to interest income of $1,676,899 for the nine month period ended
September 30, 2009, a decrease of approximately $842,822, or 50.3%. 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
nine month period ended September 30, 2010, we incurred interest expense in the
amount of $1,665,194 compared to interest expense of $2,032,410 for the nine
month period ended September 30, 2009, a decrease of $367,216, or approximately
18.1%. The decrease in interest expense resulted primarily from the
decrease in notes payable.




Income
Tax Expense




Our
income tax expense was $1,756,548 for the nine month period ended September 30,
2010 compared to $1,479,536 for the nine month period ended September 30, 2009,
an increase of $277,012, or approximately 18.7%.  This increase is
primarily attributable to an increase in profits before income taxes and
minority interest.




Net
Income




We had
net income of $5,289,658 for the nine month period ended September 30, 2010
compared to $4,438,606 for the nine month period ended September 30, 2009, an
increase of $851,052, or approximately 19.2%.  This increase is
primarily attributable to an increase in sales revenue and a decrease in general
and administrative expenses.


16




Results
of Operations for the Three Month Period Ended September 30, 2010 Compared to
the Three Month Period Ended September 30, 2009




Revenue




Revenue.  During
the three month period ended September 30, 2010, we had revenues of $11,180,701
compared to revenues of $10,181,155 during the three month period ended
September 30, 2009, an increase of approximately 9.8%. The increase in revenue
was primarily attributable to: (i) the increase of sales to the
pharmaceutical, food and cosmetics industries; (ii) our price increase in the
third quarter resulted in lower sales from the high-priced elastic construction
industry; and (iii) the gradual shift of our product portfolio resulted in less
seasonality in the third quarter than we normally experience.




Cost of
Sales.  During the three month period ended September 30, 2010,
our cost of sales was $7,590,381 compared to costs of sales of $6,864,455 for
the three month period ended September 30, 2009, an increase of approximately
10.6%. This increase in cost of sales was primarily attributable to the
increase in sales and an overall increase in the cost of raw materials, as
the price of ginned cotton has more than doubled from $911 per ton for the three
month period ended September 30, 2009 to $1,783 per ton for the three month
period ended September 30, 2010; however, the price increase of ginned
cotton is somewhat mitigated by the successful application of wood pulp as a raw
material into the production process as wood pulp is one-third of the price of
ginned cotton.




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
$432,914 for the three month period ended September 30, 2010, compared to
selling expenses of $317,260 for the three month period ended September 30,
2009, an increase of approximately 36.5%. This increase results primarily from
an increase in freight charges and sales commissions as a result of an
increase in sales.




General and Administrative
Expenses.  General and administrative expenses totaled $436,218
for the three month period ended September 30, 2010 compared to $515,882 for the
three month period ended September 30, 2009, a decrease of approximately 15.4%.
The main reason for the decrease was the elimination of a consulting fee
generated in the third quarter of 2009.  No similar expense occurred
in the third quarter of 2010.




Income
from Operations




For the
three month period ended September 30, 2010, our income from operations was
$2,721,188 compared to income from operations of $2,483,558 for the three month
period ended September 30, 2009, an increase of approximately 9.6%. This
increase was primarily attributable to a slight increase in operating expenses
and an increase in sales.




Commercial
Leasing Income and Costs




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 exchange 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 $305,767 for the three month period ended September 30,
2010.




17




Interest
Income




For the
three month period ended September 30, 2010, our interest income was $267,465
compared to interest income of $751,983 for the three month period ended
September 30, 2009, a decrease of approximately $484,518, or 64.4%. 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.
However, the decrease of interest income was partially offset by the additional
interest income generated from the bank deposit.




Interest
Expense




For the
three month period ended September 30, 2010, we incurred interest expense in the
amount of $536,097 compared to interest expense of $783,328 for the three month
period ended September 30, 2009, a decrease of approximately 31.6%. The decrease
in interest expense resulted primarily from the decrease in notes payable for
the three month period ended September 30, 2010.




Income
Tax Expense




Our
income tax expense was $633,170 for the three month period ended September 30,
2010 compared to $607,985 for the three month period ended September 30, 2009,
an increase of $25,185 or approximately 4.1%.  This increase is
primarily attributable to an increase in profits before income
taxes.




Net
Income




We had
net income of $1,899,510 for the three month period ended September 30, 2010
compared to $1,823,953 for the three month period ended September 30, 2009, an
increase of $75,557, or approximately 4.1%.  This increase is
primarily attributable to a small increase in sales revenue mitigated by a
simultaneous small increase in operating expenses.




Inventories




As of
September 30, 2010, we had inventories of $7,552,949 compared to inventories of
$8,132,681 as of December 30, 2009, a decrease of $579,732, or approximately
7.1%. The decrease in inventories from 2010 to 2009 was the result of an
increase in our inventory control efficiency. We further improved our methods of
control, especially in construction sales, to ensure minimum inventory
production is precisely based on the orders from construction industry
clients.




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
September 30, 2010: (i) our total current assets were $58,522,674 compared to
total current assets of $64,390,196 at December 31, 2009, a decrease of
$5,867,522, or approximately 9.1%; and (ii) our total assets were $114,445,150
as of September 30, 2010 compared to $120,183,732 as of December 31, 2009, a
decrease of $5,738,582, or approximately 4.8%.  Our total assets
decreased 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 September 30, 2010, our cash and cash
equivalents were $22,019,075 compared to $10,174,528 at December 31, 2009, an
increase of $11,844,547, or approximately 116.4%.  This increase was
primarily attributable to the increase of short term borrowings.




Accounts
Receivable.  As of September 30, 2010, our accounts receivable
were $8,086,338 compared to accounts receivable of $4,098,729 at December 31,
2009, an increase of $3,987,609, or approximately 97.3%. This increase was
primarily attributable to our increase in sales.  In addition, we
extended the accounts receivable collection period for our existing credit
worthy customers and new customers while we further penetrate into the
pharmaceutical, food and cosmetics industries.


18




Restricted
Cash.  As of September 30, 2010, our restricted cash was
$16,766,400 compared to restricted cash of $33,054,466 at December 31, 2009, a
decrease of $16,288,066, or approximately 49.3%.  This decrease was
primarily attributable to a 48.5% decrease in notes payable.




Long-term
Investment.  As of September 30, 2010, we did not have any
long-term investments compared to long-term 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.




Total
Current Liabilities




As of
September 30, 2010, our total current liabilities were $86,499,058 compared to
total current liabilities of $96,152,147 at December 31, 2009, a decrease of
$9,653,089, or approximately 10%.  This decrease was primarily
attributable to a 48.5% decrease of notes payable combined with the increase of
short-term borrowing as discussed below.




Notes
Payable.  As of September 30, 2010, our notes payable were
$25,748,400 compared to notes payable of $50,020,476 as of December 31, 2009, a
decrease of $24,272,076, or approximately 48.5%. This decrease was attributable
to continued repayment of the notes payable outstanding.




Short-term bank
loans.  As of September 30, 2010, short-term bank loans were
$39,811,218 compared to short-term bank loans of $27,195,342 as of December 31,
2009, an increase of $12,615,876, or approximately 46.4%. The increase in our
short-term bank loans was a result of our need to have enough cash for our
working capital requirements.




Accounts
Payable.  As of September 30, 2010, our accounts payable were
$7,420,710 compared to accounts payable of $6,175,266 as of December 31, 2009,
an increase of $1,245,444, or approximately 20.2%. The increase in our accounts
payable was attributable to an increase in the purchase of the raw materials as
a result of an increased number of sales orders.




Advance from
customers.  As of September 30, 2010, our advance from
customers was $1,350,051 compared to advance from customers of $127,419 as of
December 31, 2009, an increase of $1,222,632, or approximately 959.5%. The
increase in our advance from customers was attributable to an increase in demand
of our non-ionic cellulose ether products.




Operating
Activities




Net cash
of $5,247,773 was provided by operating activities during the nine month period
ended September 30, 2010 compared to net cash provided by operating activities
of $16,056,204 during the nine month period ended September 30, 2009,
representing a decrease of $10,808,431. The decrease in net cash provided by our
operating activities was primarily attributable to the following four reasons:
(i) a $16,769,400 increase in restricted cash for the nine month period ended
September 30, 2010 and a $1,057,036 decrease in restricted cash for the nine
month period ended September 30, 2009, which is a difference of $17,826,436.
This reflects a decrease of restricted cash on the balance sheet which was a
result of the decrease in restricted cash in proportion to the decrease in the
notes payable; (ii) a $3,823,581 decrease in accounts receivable for the nine
month period ended September 30, 2010 and a $1,916,865 decrease in accounts
receivable for the nine month period ended September 30, 2009, which is a
difference of $1,906,716. This reflects an increase of accounts receivable on
the balance sheet as a result of better credit terms we extended to our new and
existing pharmaceutical clients; (iii) a $25,007,000 decrease in notes payable
for the nine month period ended September 30, 2010 and a $11,691,617 increase in
notes payable for the nine month period ended September 30, 2009, which is a
difference of $36,698,617. This reflects a decrease of the notes payable on the
balance sheet due to our efforts to improve our debt to equity ratio; and (iv)
there was a $5,696,019 increase in notes receivables for the nine month period
ended September 30, 2010 and no increase in notes receivables for the nine month
period ended September 30, 2009, which is a difference of
$5,696,019.


19




Investing
Activities




During
the nine month period ended September 30, 2010, the net cash used in investing
activities was $1,593,008 compared to net cash used in investing activities of
$1,282,358 for the nine month period ended September 30, 2009, an increase of
$310,650 in the cash used in investing activities. The increase was due to an
increase in the purchase of property and equipment for operating
expansion.




Financing
Activities




During
the nine month period ended September 30, 2010, the net cash provided by
financing activities was $7,749,892 compared to net cash used by financing
activities of $9,793,631 for the nine month period ended September 30, 2009, an
increase of $17,543,523. This change in net cash provided by financing
activities was primarily attributable to the net effect of the borrowing of
$11,768,000 of bank loans and repayment of $4,046,323 to our related
party.




Off
Balance Sheet Arrangements




We do not
have any off-balance sheet arrangements.




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.


20




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 September 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.




ITEM 3.
            DEFAULTS
      UPON SENIOR SECURITIES




None.




ITEM 4.
            (REMOVED
      AND RESERVED)






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.




21




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:
      November 15, 2010
                By:
                /s/
      Dian Min MaDian
      Min Ma, Chief Executive Officer
                  (Principal
      Executive Officer)Date:
      November 15, 2010
                By:
                /s/
      Gang MaGang
      Ma, Chief Financial Officer
                  (Principal
      Financial Officer and Chief Accounting
Officer)




22