UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




x
            Annual
      report pursuant to section 13 or 15(d) of the Securities Exchange Act
      of 1934.
              For
      the fiscal year ending December 31,
2008




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  000-52716




China
Tractor Holdings, Inc.


(Exact
name of registrant as specified in its charter)




Delaware
            
            98-0445019(State
      or other jurisdiction
              of
      incorporation or organization)
            
            (IRS
      Employer
              Identification
      number)Kalun
      Industrial Park, JiuTai Economic
              Development
      Zone
            
            N/A(Address
      of Principal Executive Offices)
            
            (Zip
      Code)




86-431-82561001


(Registrant’s
Telephone Number, Including Area Code)




Securities
registered pursuant to Section 12(b) of the Act:





None





Securities
registered pursuant to Section 12(g) of the Act: None





Title
of Each Class


Common
Stock, $.001 par value per share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  o




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. o





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  xNO  o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





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





Large accelerated filer o
            Accelerated filer o
            Non-accelerated filer o
            Smaller reporting company ý




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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $8,715,423 as of June
30, 2008 (based on the closing price for such stock as of June 30,
2008).





As of
April 6, 2009, there were 18,340,539 shares of common stock, par value $0.001
per share, of the registrant outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None





TABLE OF
CONTENTS





PART
      IItem
      1.
              Business
              1Item
      1A.
              Risk
      Factors
              11Item
      1B.
              Unresolved
      Staff Comments
              24Item
      2.
              Properties
              24Item
      3.
              Legal
      Proceedings
              24Item
      4.
              Submission
      of Matters to a Vote of Security HoldersPART
      IIItem
      5.
              Market
      For Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              25Item
      6.
              Selected
      Financial Data
              25Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              26Item 7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              32Item
      8.
              Financial
      Statements and Supplementary Data
              32Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              32Item 9A.
              Controls
      and Procedures
              32Item 9B.
              Other
      Information
              33PART
      IIIItem
      10.
              Directors
      and Executive Officers of the Registrant
              34Item
      11.
              Executive
      Compensation
              36Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              37Item
      13.
              Certain
      Relationships and Related Transactions
              37Item
      14.
              Principal
      Accounting Fees and Services
              38PART
      IVItem
      15.
              Exhibits





PART
I




ITEM
1.  BUSINESS




History





References
in this Form 10-K to the “Company,” “we,” “our” and “us” refer to China
Tractor Holding, Inc. and our consolidated subsidiaries.





We were
incorporated in the state of Delaware on April 13, 2004 as Royaltech Corp., with
our principal place of business in Montreal, Quebec, Canada.  At that
time, we were a developmental stage company in the business of the development,
manufacturing and marketing of biotech products.  In September 2008,
we consummated a share exchange with Densen Equipment Ltd., whereby we acquired
all the assets of Densen Equipment Ltd. in exchange for approximately 91.3% of
our common stock.





As a
result of the share exchange with Densen Equipment Ltd., Densen Machinery
Investment Limited, a Hong Kong limited corporation ("Densen Machinery"), became
our wholly-owned subsidiary. In June 2005, Densen Machinery invested an
aggregate of $15,180,000 to establish Changchun Densen Agricultural Machinery
Equipment Co., Ltd. (“Changchun Densen”). Changchun Densen commenced operations
on September 27, 2005 and is engaged in the research, development and production
of low-speed vehicles, including tractors and construction machinery. Changchun
Densen acquired certain trademark rights from Changchun Tractor (Group) Co.,
Ltd. on January 9, 2007 for a 3% equity interest in Densen Machinery. Changchun
Densen changed its corporate name to Changchun Densen Changtuo Agricultural
Machinery Equipment Co., Ltd. On November 20, 2007, Changchun Densen and
State-owned Assets Supervision and Administration Commission of Changchun (the
“Commission”) started a joint venture to establish Chang Tuo Agricultural
Machinery Equipment Group Co., Ltd. (“Chang Tuo”).  The business
operation of Chang Tuo is currently our sole business.  Our corporate
structure is illustrated by the diagram below:











Description
of Business





Our
business is the research development and production of low-speed agriculture
machinery and vehicles, including small, medium and large sized tractors and
construction machinery.  Our products are categorized into three
types: tractors, combine harvesters and other farming machinery.  We
manufacture over 50 kinds of tractors, ranging from 18 to 90 horsepower. All
these products have passed strict inspection and certification standards imposed
by the Chinese central government, as well as applicable provincial
government(s). We manufacture two types of corn combines (two-lane and
four-lane) and harvesting dryer swathers. Our harvesting dryer swather has
obtained patent protection in China. We also manufacture various multi-purpose
farm machinery, dragged welding machines and trenchers.  The Company
has three domestic sales networks, with over 80 distributors centered at major
food producing areas and agriculture bases throughout China.  We have
also established a complete after-sales service network for customers. The
primary market for our products is the People’s Republic of
China.


1





We
believe we possess the following competitive advantages which differentiate us
from our competitors:





1)
Quality and Brand Advantage. “Chang TuoTM” brand tractors have a 50-year history
and is one of oldest tractor brands in China. The Company plans to take
advantage of the “Chang TuoTM” trademark. During our trial production phase in
2007, our market share in Jilin, Henglongjiong and Liaoning provinces and Inner
Mongolia areas reached about 5%. We expect continued growth in our market and
brand through upgrading product quality and improving our after-sales service
system.





2) Price
advantage. The Company is located in the center of three provinces in Northeast
China, Changchun Jiutai Economic Development Zone, where the local resources are
rich, including an adequate supply of electricity (from the well-known Fengman
Power Station and Huaneng Power Plant). As such, the price of the power is
relatively low. The area of Changchun Jiutai Economic Development Zone is 10
square kilometers with favorable labor cost. The Company’s location has
convenient transportation and is near most of the equipment parts suppliers who
are located in Changchun Jiutai Agricultural Machinery and Equipment Industry
Park. Our location saves transportation cost for materials purchasing,
warehousing and products transporting.





3) Policy
advantages. Our company is considered among the leading enterprises in Changchun
Economic Development Zone Jiutai Kalun Industrial Park, and local government
provides us certain preferential benefits such as various tax incentives and
investment credits. They have also provided favorable terms to some of our parts
and components suppliers who decided to relocate to the
Park.  Furthermore, the Company’s products also enjoy various levels
of national agricultural machine purchase subsidies, especially in Jilin
province where the subsidy is 50%. The Company also receives other grant and
financial support from various local entities.





Our
Industry





General





The
agricultural machinery industry is a generic term for various re-production,
in-production and post-production of power machinery used for plant production,
as the well as forestry, animal husbandry and fishery industries. Tractor
manufacturing is the dominant industry within the agricultural machinery
industry. The main products in the tractor industry are wheel tractors, chain
track tractors, walking tractors and small four-wheel tractors.





Overview





For
China, as a developing country with large agricultural needs, there is an urgent
need to modernize its agricultural industry. According to “Statistical
Communiqué of China on the 2007 National Economic and Social Development” and
“National Land Resource Communiqué”, in 2007, China had only 9% of the world’s
cultivated land, or 121.73 million hectares, and 21% of the world’s population,
or 1.32 billion. In 2007, only 41% of Chinese farm work was done by machinery.
Over the past decade, China’s rapid growth in the nonagricultural economy has
brought tremendous changes in agricultural production, including both the demand
for, and the supply of, food in China.





We
believe agricultural mechanization is an inevitable step in China’s quest for
modernizing its agricultural industry. Since 2004, the Chinese government has
begun to focus on the agriculture industry, rural areas and farmers’ issues. We
believe the advancement of agricultural mechanization by the Chinese government
indicates a strong commitment to addressing the country’s short-term and
long-term agricultural concerns. Agriculture is further supported by the state
by various means, such as agricultural tax concession, and granting allowances
for food grain planting and providing better seeds to farmers’, whose incentive
for food grain planting has been greatly boosted. Farmers are increasing acreage
at the same time to seek more yield per acreage. This has stimulated the demand
for agricultural machinery


2





Tractors
are one of the leading products in agricultural mechanization. Annual tractor
production and sales volume, as well as tractor ownership, are important
indicators to evaluate the agricultural mechanization level of a country. With
the increase of farmers’ income, the implementation of a subsidies policy for
large and medium tractors, and product replacement cycle for older tractors, we
believe the Chinese tractor industry is entering an exciting new growth
stage.





The agricultural machinery
market in China





The
agricultural machinery market is developed and aided by favorable governmental
policies





It was
proposed in the “Number One Priority” issued by the central committee of the
Communist Party of China in both 2004 and 2005 that the Chinese government
should devote its resources to concentrate on:





·
              Supporting
      food grain production regions and developing China’s food grain
      industry;·
              Increasing
      farmer’s income; and





·
            Promoting
      the level of agricultural
mechanization.





The
Chinese central government has begun to provide various subsidies and incentives
to individual farmers, farm employees and farming enterprises for the purchasing
and replacement of farming equipment. The implementation of these policies has
greatly stimulated farmers’ demands for, and ability to purchase, machinery and
equipment.





The
recently passed Agricultural Mechanization Development Act (AMDA) has provided
further guidance and regulation for the Chinese agriculture equipment industry.
AMDA enhances many aspects of the industry, such as R&D, quality control and
incentive programs.





In order
to promote farming efficiency, some local governments carried out several
effective policies, such as integrating the land resources and increasing the
scale of farming land, which demands more agricultural machinery and equipment,
pushing forward the development of the agricultural machinery market as a
consequence.





The tractor industry in
China





The
Chinese tractor industry has long been dominated by small tractors. However, we
believe the recent high demand for medium and large tractors marks the start of
a long-term transition of China’s agricultural mechanization into a new stage.
The complexity and discrepancy of China’s farm land conditions in various
regions leads to different farming methods and technology. This requires the
Chinese tractor industry to develop more diversified and different products to
satisfy the various needs of customers through all regions in
China.





While we
believe the flourishing of the tractor market will lead to more competition, we
also believe well established players with better economies of scale, quality,
service, and distribution channels will gain greater market share. First, the
Chinese tractor industry has a very high barrier to entry. The industry is
historically dominated by well capitalized state owned enterprises (SOEs) and
large private companies. High upfront investment costs, long product cycles and
strong technology requirements are just some of the barriers preventing small
players entering this market. Second, many low level manufacturers in the
Chinese tractor industry, which in the past only depended on pricing advantage,
will be forced out. As the Chinese agriculture industry becomes more modernized,
the need for more diversified tractors is inevitable. We believe only the bigger
and stronger manufacturers with the capital and R&D capability will dominate
in the long run.


3


In the
future, we believe competition in the tractor market will concentrate on the
development of new products, the exploration of market potential, the functions
of products and the quality and brand of products.





Demand
Analysis and Prediction of Regional Tractor Market in China 2008 to
2010


(Provided
by China Social Economy Research Center)





(I)
General Analysis and prediction of domestic market


Year
                      
                      Quantity
      demanded2008
                      
                      2,415,0002009
                      
                      2,564,0002010
                      
                      2,703,000





(II)
Analysis and prediction of Northeast China market


Year
                  
                  Quantity
      demanded2008
                  
                  543,3752009
                  
                  576,9002010
                  
                  608,175





(III)
Analysis and prediction of North China market


Year
                  
                  Quantity
      demanded2008
                  
                  635,1452009
                  
                  674,3322010
                  
                  710,889





(IV)
Analysis and prediction of East China market


Year
                  
                  Quantity
      demanded2008
                  
                  219,7652009
                  
                  233,3242010
                  
                  245,973





(V)
Analysis and prediction of Mid South market


Year
                  
                  Quantity
      demanded2008
                  
                  236,6702009
                  
                  251,2722010
                  
                  264,894




(VI)
Analysis and prediction of Southwest market


Year
                  
                  Quantity
      demanded2008
                  
                  328,4402009
                  
                  348,7042010
                  
                  367,608





(VII)
Analysis and prediction of Northwest market


Year
                  
                  Quantity
      demanded2008
                  
                  451,6052009
                  
                  479,4682010
                  
                  505,461





4




Combine Harvester
Sector





In China,
corn is basically harvested by manual labor. It is estimated that less than 3%
of corn farmers in China use combine harvesters for their operation. We think an
exciting and unique market segment exists for combine harvesters in
China.





As corn
has become a multi-purpose crop which can be used in variety of ways, the
ability of corn to be locally processed has increased dramatically, and demand
has well exceeded supply. As the price of corn increases, more and more acreage
in China is planted for corn production. This, in turn, sparks demand for
combine harvesters in China. Through 2003, the planted area of corn was
59,563,845 acres. The total quantity of corn combines in China was only 4,100
units, which means that the mechanical harvest rate was less than 2%. At the end
of 2007, the number of corn harvesters was about 18,000 ~ 20,000 units. As
forecasted by China Social Economy Research Center (CSERC), the total number of
corn harvesters will reach 500,000 units and the rate of mechanical harvest will
increase to 60%. We seek to take full advantage advantage of this trend, as we
are located in the middle of the northeast region of China, which is known as
the “Corn Belt” of China.





Our
Products





Our
products are categorized into the following three types: Tractors, Combine
Harvesters and other Farming Machinery.





Tractors





We
manufacture over 50 kinds of tractors, ranging from 18-90 HP. All these products
have passed the strict inspection and certification standards imposed by the
Chinese central government, as well as applicable provincial government(s).
Furthermore, over 20 kinds of our tractors have been included in China’s
Preferred Agricultural Machinery List and benefits from the government subsidy
policy.




Combine
Harvester





We
manufacture two types of corn combines (two-lane and four-lane) and harvesting
dryer swathers. Our harvesting dryer swather has obtained patent protection in
China.





Other Farming
Machinery





We also
manufacture various multi-purpose farm machinery, dragged welding machines and
trenchers.





The
Company has three domestic sales networks, with over 80 distributors centered at
major food producing areas and agriculture bases in China.





We have
also established a complete after-sales service network for to
customers.





Production
Lines





Current production
lines





At
present, we have one 150-linear-meter production line for small tractors and one
108-linear-meter production line for large and medium tractors. About 60,000 to
80,000 tractors can be manufactured per year on each production. In addition, we
have one complete-tractor inspection line. After a tractor is fully assembled
and comes out of the production line, it goes onto the inspection line for
checking and testing of its dynamic tune, exhaust, deflection angle, braking,
sideslip, lighting, load and running-in, according to customary national
standards and industry standards. This ensures all our tractors meet the
requirements of the quality standards of a finished product.


5





Production
      lines
                      
                      Quantity
                      
                      Annual
                        production
                        capacity
                      
                      Product
      / usagesmall
      tractors line
                      
                      1
                      
                      60,000-80,000
                      
                      small
      tractorslarge
      and medium tractors line
                      
                      1
                      
                      60,000-80,000
                      
                      large
      and medium tractorsInspection
      line
                      
                      1
                      
                      60,000-80,000
                      
                      small,
      large and medium tractorsCombine
      harvesters line
                      
                      1
                      
                      5,000-10,000
                      
                      combine
      harvesters




In 2007,
we manufactured 7,738 small tractors. We realized $8,660,202 sales revenue in
2007.





In 2008,
we  manufactured 13,585 tractors and realized $25,929,006 sales
revenue. Among them, 12,080 were small tractors and 1,505 were large and medium
tractors.




Price
of Our Product





The
fluctuation of our sales prices is mainly influenced by the prices of raw
materials, such as steel, and costs of parts from our suppliers. Historically,
management has been able to offset increases in our cost of raw materials
through increased pricing of our products.





Our
Suppliers





Composition
of product, main suppliers and the percentage they share





At
present, we have 120 suppliers for components and parts. The main components and
suppliers are and the percentage of parts supplied by each as
follows:





Supplier
                    
                    PercentageShandong
      Laiyang Laichai Diesel Engine Co., Ltd.
                    
                    
                    26.67
                    %Mudanjiang
      Densen Hualin Tire Co., Ltd.
                    
                    
                    14.71
                    %Rongcheng
      City Haishan Machine Manufacturing Co., Ltd.
                    
                    
                    35.38
                    %Weifang
      City Fuhua Locomotive Factory
                    
                    
                    5.66
                    %Hubei
      Camel Battery Co., Ltd.
                    
                    
                    5.52
                    %Shandong
      Guotai Tractor Parts Co., Ltd.
                    
                    
                    2.30
                    %Changyi
      City Wantai Casting Co., Ltd.
                    
                    
                    2.30
                    %All
      other component suppliers
                    
                    
                    7.46
                    %Total
                    
                    
                    100
                    %





Components
                    
                    PercentageDiesel
      engine
                    
                    
                    26.67
                    %Tire
      assembly
                    
                    
                    14.71
                    %Gearbox
                    
                    
                    11.03
                    %Rear
      axle
                    
                    
                    10.11
                    %Hydraulic
      part
                    
                    
                    7.35
                    %Covering
      part
                    
                    
                    6.89
                    %Chassis
      assembly
                    
                    
                    5.66
                    %Battery
                    
                    
                    5.52
                    %Clutch
      assembly
                    
                    
                    2.30
                    %Front
      axle
                    
                    
                    2.30
                    %Miscellaneous
                    
                    
                    7.46
                    %100
                    %


6


The cost
of our products is composed mainly of the eleven items presented in the table
above. Diesel engines accounts for a fairly large percentage of the cost.
Typically, we have an open bidding process to select the suppliers of all of our
components and parts, choosing a supplier based on price, quality and
service.




In
addition, to further improve the quality and reduce the production cost,
components and parts for some products are manufactured by our own
subsidiaries.





Our
Customers





Target
market





The
target market for small tractors is individual farmers. For large and medium
tractors and our other farming machinery, including combine harvesters, the
target market includes individual farmers, state-owned farms, government
supported projects, allowances by the government for agricultural machinery and
other government procurement.





Customers





Our
customers are mainly state-owned farms, government procurement and dealers and
farmers who buy products from these dealers.





Top
customers for the fiscal year ending December 31, 2008:


Client
                  
                  Amount
                  
                  PercentageNongan
      Fengshen Agricultural Machinery Co., Ltd
                  
                  $
                  3,500,401
                  
                  17
                  %Songyuan
      Dongfang Agricultural Machinery Co., Ltd
                  
                  
                  3,359,650
                  
                  17
                  %Gujiazi
      Jinbing Machinery Co., Ltd
                  
                  
                  1,525,389
                  
                  8
                  %Haerbing
      Xinhai Agricultural Machinery Co., Ltd
                  
                  
                  1,433,325
                  
                  7
                  %Changchun
      Jinyuan Agricultural Machinery Co., Ltd
                  
                  
                  1,133,291
                  
                  6
                  %Others
                  
                  
                  9,169,815
                  
                  46
                  %TOTAL
                  
                  $
                  20,121,871
                  
                  100
                  %





Our
Marketing





Sales
pattern





Our sales
pattern includes direct selling and utilizing first-level dealers
(distributors). Agencies may be established by us in regions with strong
purchasing power and although we currently have no place to do so.





Our sales
and marketing centers focus mainly on three northeast provinces (Jilin,
Henglongjiang, Liaoning) and Inner Mongolia, which are the main crop producing
areas in China. At present, 79 dealers have already been established, covering
the three northeast provinces and a large part of Inner Mongolia. In addition,
sales offices will be established in key selling areas to enlarge our sales
network and reinforce the after-sales service component of our
business.


7





Our
company’s “Chang TuoTM” brand has over 50 years of history. It is well known
among farmers in northeast China as a symbol for high quality and low price
agriculture machinery products. To aggressively take over the market of
northeast area and Inner Mongolia, and further expansion throughout China, we
are planning on the following advertising and public relationship
strategy:





1. We
plan to actively inform the market of the relaunch of “Chang TuoTM” products
after our company took over the business from the state-owned entity. We intend
to use various media outlets to get our story out, including TV and radio
advertising and outdoor advertisement at target areas.





2. To
continuously enhance customer recognition of “Chang TuoTM” products by delivering
a full line of high quality products, as well as provide great after-market
service.





3. To
work closely with our distributors and dealers to provide marketing
support.





4. To
strengthen our relationship with various governmental entities, including
provincial and municipal governments, and the bureau of farm machinery, in order
to obtain more favorable policies and support. We will lobby for more of our
products to be eligible for incentive and subsidy programs offered by the
government. We also intend to seek further purchase orders from government owned
entities. As an example, in Jilin Province, according to the official growth
plan by Jilin Province, the province will spend 2 billion RMB (about $300
million) before 2009 to buy new tractors for its farming industry, mainly large
and medium tractors.





Market
share





We are a
relatively new player in the Chinese agriculture machinery industry. Although
“Chang TuoTM” was a 50-year old brand when we took over the brand in 2005, its
products have not been on the market for a few years. After almost two years of
research and development and the building of our new manufacturing facilities,
our products were re-launched in 2007. We strive to continue expanding into
newer markets and regions in an attempt to increase our market share in
China.





Our
Competitors





Luoyang
First Tractor (a company whose shares are publicly traded in China) and Shandong
Foton (also publicly traded in China) are two leaders in the Chinese tractor
industry. Luoyang First Tractor, as the first Chinese State-owned tractor
factory, has a strong market position, and is focused on high-powered wheeled
tractors, and is rapidly developing mid-sized powered tractors. Shandong Foton,
while being a relative newcomer to the industry, has been growing dramatically
into a leader in a full range of products, including large, medium and small
tractors.




Many
global agriculture manufacturers have also established their presence in China.
Two such examples are Tianjin John Deere and Shanghai New Holland. Their product
focus is mainly on high-powered, large tractors, which contain more advanced
technology and with a relatively higher price.





Small,
privately-owned tractormakers are mainly located in Shandong and Hebei
provinces. Such enterprises mainly produce small tractors. Due to the serious
downturn of the small horsepower tractor market, and their weakness in
developing newer products, it appears most of these enterprises have ceased
production or are in the process of changing products.


8


Competitors
of Corn Harvester Product and Market Position





The
technology of domestic corn harvester manufacturers has not been well developed
yet. The usage of straw and the terrain for different places is not suitable for
large corn harvesters to operate. Our company produces two types of corn
harvesters, and both types are also manufactured by Shandong Haishan Co., our
key competitor. Shandong Haishan started producing corn harvesters earlier than
us and has won market share and popularity. Additional products we have in this
category include a corn cutting and drying machine, which cuts the corn
stover, dries them, and collects the corn stalks while retaining the integrity
of straw. We believe we own the only patent on this technology in China, and we
believe there is no other product using this technology available in the Chinese
market.





Our
Research and Development





The Company has 11 research and
development personnel, including eight senior researchers from the original
"Changchun Tractor" technology R & D department. Five of them are members of
the Jilin Council of Agricultural Machinery. Mr. Zhang Weiguo, the leader of our
R & D team, is the deputy chairman of the Jilin Council of Agricultural
Machinery, a member of the State Council of the Agricultural Mechanization, a
member of the State Agricultural Machinery Committee, and has earned a strong
reputation in this industry in China. Our research and development personnel
have improved and perfected the original design of the Changchun Tractor. We
also developed the corn cutting and drying machine for which we have a patent in
China.





Our
Intellectual Property





As
discussed, the Company owns the rights associated with the trademark “Chang
TuoTM” in China, and owns one Chinese patent on its corn cutting and drying
machine. The Company has a pending patent application on another product, which
is the medium tractor 554 series.





Our
Employees





The
Company has 129 employees, including 98 first line operators, 11 R & D
personnel and 20 for sales and administration.





We
believe our relationship with our employees is good. We compensate our employees
by salaries and bonus based on performance. We also provide training for our
staff from time to time to enhance their technical and product knowledge, as
well as their knowledge of industry quality standards. We have not experienced
any significant problems or disruption to our operations due to labor disputes,
nor have we experienced any difficulties in recruitment and retention of
experienced staff. As required by applicable Chinese laws, we have entered into
employment contracts with all of our officers, managers and employees. In
addition, we are required by Chinese laws to cover employees in China with
various types of social insurance. We have purchased social insurance for all of
our employees.





Regulations





We are
subject to national and local laws of China, including Chinese environmental
laws and regulations. Under the relevant Chinese environmental laws, all
manufacturing enterprises must submit an environmental impact report to the
relevant environmental protection authority before starting production
operations. In addition, manufacturing enterprise must engage professional
environmental organizations to monitor and report on pollutants and emission
regularly. We have taken necessary measures to control our discharges. We have
obtained written approval from the Environmental Protection Brueau of Jilin
Province to operate our business and we are currently in material compliance
with the Chinese environmental laws and regulations.





Reports
to Security Holders




We file
reports with the Securities and Exchange Commission, or SEC, including annual
reports and quarterly reports as well as other information we are required to
file pursuant to securities laws. You may read and copy materials we file with
the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC which is
http://www.sec.gov.


9


SPECIAL
NOTE ON FORWARD LOOKING STATEMENTS




In
addition to historical information, this Annual Report on Form 10-K contains
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  The forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. 
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled “Business”, “Risk Factors”, and
“Management’s Discussion and Analysis or Plan of Operation.”  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management’s opinions only as of the date thereof.  We undertake no
obligation to revise or publicly release the results of any revision of these
forward-looking statements.  Readers should carefully review the risk
factors described in this Annual Report and in other documents that we file from
time to time with the Securities and Exchange Commission.




In
some cases, you can identify forward-looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or
the negative of these terms or other comparable terminology. You should read
statements that contain these words carefully, because they discuss our
expectations about our future operating results or our future financial
condition or state other “forward-looking” information. There may be events in
the future that we are not able to accurately predict or control. You should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this Annual Report could substantially harm our business,
results of operations and financial condition, and that upon the occurrence of
any of these events, the trading price of our securities could decline. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, growth rates, levels of
activity, performance or achievements.





Except
as required by applicable law, including the securities laws of the United
States, we do not intend to update any of the forward-looking statements to
conform these statements to actual results. The following discussion should be
read in conjunction with our financial statements and the related notes that
appear elsewhere in this report.





We
cannot give any guarantee that these plans, intentions or expectations will be
achieved. All forward-looking statements involve risks and uncertainties, and
actual results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including those factors described in
the “Risk Factors” section of this Annual Report. Listed below and discussed
elsewhere in this Annual Report are some important risks, uncertainties and
contingencies that could cause our actual results, performances or achievements
to be materially different from the forward-looking statements included in this
Annual Report. These risks, uncertainties and contingencies include, but are not
limited to, the following:




·
            our
      ability to finance our operations on acceptable terms, either through the
      raising of capital, the incurrence of convertible or other indebtedness or
      through strategic financing
partnerships;




·
            our
      ability to retain members of our management team and our
      employees;




·
            our
      ability to retain existing clients or attract new
  clients;·
            our
      ability to adapt to the rapid technological change constantly occurring in
      the areas in which we provide
services;





·
              
              ·
            our
      ability to offer  services at prices which ares acceptable to
      clients;
              
              our
      ability to pay our debts;


10





·
            competition
      that may arise in the future; and





·
            identifying
      suitable acquisition candidates and integrating new
      acquisitions.





The
foregoing does not represent an exhaustive list of risks. Please see “Risk
Factors” below for additional risks which could adversely impact our business
and financial performance. Moreover, new risks emerge from time to time and it
is not possible for our management to predict all risks, nor can we assess the
impact of all risks on our business or the extent to which any risk, or
combination of risks, may cause actual results to differ from those contained in
any forward-looking statements. All forward-looking statements included in this
Report are based on information available to us on the date of this Report.
Except to the extent required by applicable laws or rules, we undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. All subsequent
written and oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements contained throughout this Report.





RISK
FACTORS





RISKS
ASSOCIATED WITH INVESTING IN OUR COMPANY





Our
business, operations and financial condition are subject to various risks. Some
of these risks are described below and you should take these risks into account
in making a decision to invest in our common stock. If any of the following
risks actually occurs, we may not be able to conduct our business as currently
planned and our financial condition and operating results could be seriously
harmed. In that case, the market price of our common stock could decline and you
could lose all or part of your investment in our common stock.




We
have a limited operating history and limited historical financial information
upon which you may evaluate our performance.




We are in
our early stages of development and face risks associated with a new company in
a growth industry. We may not successfully address these risks and uncertainties
or successfully implement our operating strategies. If we fail to do so, it
could materially harm our business to the point of having to cease operations
and could impair the value of our common stock to the point investors may lose
their entire investment. Even if we accomplish these objectives, we may not
generate positive cash flows or the profits we anticipate in the
future.





Unless
we achieve profitability and positive cash flow, we may not be able to continue
operations, and may not continue to remain as a going concern.





We have
accumulated deficit of $1,417,168, as of December 31, 2008 and have suffered
losses from operations in the past. Our financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amount of liabilities that might be necessary should we be unable
to continue in existence.





The
Company’s continuation as a “going concern” is dependent upon ongoing profitable
operations and related positive cash flow and to satisfaction of our immediate
cash needs by external financing as needed.


We anticipate that we may need to
raise additional capital to expand our operations. Our failure to raise
additional capital will significantly affect our ability to fund our proposed
activities.





To expand
our operations, we will be required to raise additional funds. We do not know if
we will be able to acquire additional financing an acceptable terms, if at all.
Our failure to obtain additional funds would significantly limit or eliminate
our ability to fund our expansion activities and may harm our future business
prospects.


11


We
incur additional costs as a publicly traded company which may cause us to be
unable to operate profitably and we may also have difficulty establishing
adequate management, legal and financial controls which are necessary to operate
as a public company.





We are
subject to significant additional costs as a publicly traded company. These
costs include, among other things, increased legal and accounting
costs.


Most of
our operations are in the PRC. We may have difficulty in hiring and retaining a
sufficient number of qualified personal to work in the PRC.  We may
experience difficulty in establishing management, legal and financial controls,
collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that are standard in
the U.S.  We may have difficulty establishing adequate management,
legal and financial controls in the PRC.  Therefore, we may, in turn,
experience difficulties in implementing and maintaining adequate internal
controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and
other applicable laws, rules and regulations.  This may result in
significant deficiencies or material weaknesses in our internal controls which
could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations and the requirements of the
Sarbanes-Oxley Act of 2002.  Any such deficiencies, weaknesses or lack
of compliance could have a materially adverse effect on our business and the
public announcement of such deficiencies could adversely impact our stock
price.





Our
disclosure controls and procedures and internal controls over financial
reporting have been materially deficient.




Our
management, under the supervision and with the participation of our CEO and CFO,
has evaluated the effectiveness of our disclosure controls and procedures and
internal control over financial reporting as defined in Exchange Act Rules
13a-15(e) and (f) and15d-15(e) and (f) as of the end of the period covered by
this Report based upon the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on such evaluation, our management has made an assessment that our
disclosure controls and procedures and  internal control over
financial reporting are not effective as of December 31, 2008.





Our
business is affected by the cyclical nature of the markets we
serve.





Demand
for our products depends upon general economic conditions in the markets. Our
sales depend in part upon our customers’ replacement or repair cycles. Adverse
economic conditions, including a decrease in commodity prices, may cause
customers to forego or postpone new purchases in favor of repairing existing
machinery. Downward economic cycles may result in reductions in sales of our
products, which may reduce our profits.





Our
success depends, in part, on the quality, efficacy and safety of our
products.




Our
success depends, in part, on the quality, efficacy and safety of our products.
If our products are found to be defective or unsafe, or if they otherwise fail
to meet our customers’ standards, our relationships with customers and consumers
could suffer, the appeal of our brands could be diminished, and we could lose
sales and/or become subject to liability claims, any of which could have a
material adverse effect on our business, prospects, results of operations or
financial condition.





Changes
in price and significant shortages of component products could interrupt our
business operations or plans for growth.





We are a
significant user of steel and many commodities are required for the manufacture
of our products. Increases in the prices of such commodities can be expected to
increase our costs which would negatively impact profits.


12





We rely
on suppliers to secure component products, particularly steel, required for the
manufacture of our products. Eight of our suppliers provide more than 90% of the
materials used in our production. A disruption in deliveries from our suppliers
or a decrease in availability of such components or commodities could have an
adverse affect on our ability to meet our commitments to customers and will
increase our operating costs. We believe our source of supply of raw materials
will be generally sufficient for our needs for the foreseeable future. However,
our results of operations and financial condition could be negatively impacted
should the supply turn out to be insufficient for our operations or should
prices for such components.





Because we are a
holding company with substantially all of our operations conducted through our
subsidiaries, our performance will be affected by the performance of such
subsidiaries.




As
substantially all of our operations are conducted through our subsidiaries, we
will be dependent on the cash flow of our subsidiaries to meet our obligations.
Specifically, we have no operations independent of those of Changchun Densen,
and our principal assets are our investments in Changchun Densen. As a result,
we are dependent upon the performance of Changchun Densen and we will be subject
to the financial, business and other factors affecting Changchun Densen, as well
as general economic and financial conditions.




Because
virtually all of our assets are held by operating subsidiaries, the claims of
our stockholders will be structurally subordinate to all liabilities,
obligations and trade payables of such subsidiaries. In the event of our
bankruptcy, liquidation or reorganization, our assets and those of our
subsidiaries will be available to satisfy the claims of our stockholders only
after all of our and our subsidiaries’ liabilities and obligations have been
paid in full.




We
may not successfully manage our growth.





Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management, administrative, operational and financial resources. To manage this
growth, if any, we may need to expand our facilities, augment our operational,
financial and management systems, and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business and
future prospects may be harmed.





The
continued services and leadership of our senior management is critical to our
ability to maintain growth and any loss of key personnel could adversely affect
our business.





We
depend, to a large extent, on the abilities and operations of our current
management team. We have a particular reliance upon Lau San, our chairman and
chief executive officer, for the direction of our business and leadership in our
growth effort. The loss of the services of Lau San, or our other officers may
have a material adverse effect on our business and prospects. We cannot
guarantee that Lau San will continue to be available to us, or that we will be
able to find a suitable replacement for Lau San on a timely basis.





In
addition, we have not obtained life insurance on any of our key personnel. If
any of them were to be seriously injured and become unable to work, our business
and future prospects could be adversely affected.





We
are in a highly competitive industry and failure to respond to our competition
could adversely affect our business.





We
operate in a highly competitive environment, and our outlook depends on a
forecast of our share of industry sales predicated on our ability to compete
with others in the marketplace. We compete against a number of companies, many
of which have longer operating histories, established markets and far greater
financial, advertising, research and development, manufacturing, marketing,
personnel and other resources than we currently have or may reasonably expect to
have in the foreseeable future.  Competitive pressures may necessitate
price reductions, which can adversely affect revenues and profits. There can be
no assurance that our products will be able to compete successfully with other
companies. Thus, our share of industry sales could be reduced due to aggressive
pricing or product strategies pursued by competitors, unanticipated product or
manufacturing difficulties, our failure to price our products competitively or
an unexpected buildup in competitors' new machines or dealer-owned rental
fleets, leading to severe downward pressure on machine rental rates and/or used
equipment prices.


13





If we fail to
adequately protect or enforce our intellectual property rights, or to secure
rights to patents 
of others,
the value of our intellectual property rights could
diminish.




Our
success, competitive position and future revenues will depend in part on our
ability to obtain and maintain patent protection for our products, methods,
processes and other technologies, to preserve our trade secrets, to prevent
third parties from infringing on our proprietary rights and to operate without
infringing the proprietary rights of third parties.





To date,
we have secured one patent and have one patent applications pending
with  the State Intellectual Property Office of the PRC. However, we
cannot predict the degree and range of protection patents will afford us against
competitors. Third parties may find ways to invalidate or otherwise circumvent
our proprietary technology. Third parties may attempt to obtain patents claiming
aspects similar to our patent applications. If we need to initiate litigation or
administrative proceedings, such actions may be costly whether we win or
lose.





Our
success also depends on the skills, knowledge and experience of our scientific
and technical personnel, consultants, advisors, licensors and contractors. To
help protect our proprietary know-how and inventions for which patents may be
unobtainable or difficult to obtain, we rely on trade secret protection and
confidentiality agreements. If any of our intellectual property is disclosed,
our value would be significantly impaired, and our business and competitive
position would suffer.





If
we infringe the rights of third parties, we could be prevented from selling
products, forced to pay damages and compelled to defend against
litigation.




If our
products, methods, processes and other technologies infringe proprietary rights
of other parties, we could incur substantial costs, and may have to obtain
licenses (which may not be available on commercially reasonable terms, if at
all), redesign our products or processes, stop using the subject matter claimed
in the asserted patents, pay damages, or defend litigation or administrative
proceedings, which may be costly whether it wins or loses. All of the above
could result in a substantial diversion of valuable management
resources.




We
believe we have taken reasonable steps, including comprehensive internal and
external prior patent searches, to ensure we have freedom to operate and that
our development and commercialization efforts can be carried out as planned
without infringing others’ proprietary rights. However, we cannot guarantee that
no third party patent has been filed or will be filed that may contain subject
matter of relevance to our development, causing a third party patent holder to
claim infringement. Resolving such issues has traditionally resulted, and could
in our case result, in lengthy and costly legal proceedings, the outcome of
which cannot be predicted accurately.





We
could be subject to litigation and contingencies.





We face
an inherent business risk of exposure to various types of claims and lawsuits,
and may be involved in various intellectual property, product liability,
personal injury, product warranty, environmental claims and lawsuits, including
other legal proceedings that arise in the ordinary course of our business. We
could in the future incur judgments or enter into settlements of lawsuits and
claims that could have a material adverse effect on our results of operations in
any particular period. In addition, any insurance we may have may not provide
adequate coverage against any such claims.


14


Our
business is sensitive to government spending.





Many of
our customers in China depend substantially on government funding. In addition,
we sell products to governments and government agencies in China. Any decrease
or delay in government funding of agriculture industry could cause our revenues
and profits to decrease.





RISKS
ASSOCIATED WITH DOING BUSINESS IN CHINA





Changes
in government monetary and fiscal policies could adversely affect our
results.





Like most
countries, China has established central banks to regulate monetary systems and
influence economic activities, generally by adjusting interest rates. Interest
rate changes affect overall economic growth, which affect our customers’
abilities to finance machine purchases and can change the optimal time to keep
machines in a fleet. Also, government spending, including subsidies, finances
much infrastructure development, such as highways, airports, sewer and water
systems and dams. Tax regulations determine depreciation lives and the amount of
money users can retain, both of which influence investment decisions.
Developments more unfavorable than anticipated, such as declines in government
revenues, decisions to reduce public spending or increases in taxes or changes
in the tax system, could negatively impact our results.





We
face the risk that changes in the policies of the Chinese government could have
significant impact upon the business we may be able to conduct in China and the
profitability of such business.




The
economy of China is at a transition from a planned economy to a market oriented
economy subject to five-year and annual plans adopted by the government.
Policies of the Chinese government can have significant effects on the economic
conditions of China. Under our current leadership, the Chinese government has
been following a model of market economy under socialism. We believe the PRC
will continue to strengthen its economic and trading relationships with foreign
countries and business development in China will follow market forces. However,
there can be no assurance the Chinese government will continue to pursue these
policies, including national policies to promote agriculture and farmers. The
Chinese government may significantly alter such policies at any time, especially
in the event of a change in leadership, social or political disruption, or other
circumstances affecting China’s political, economic or social life.





A change
in policies by the Chinese government could adversely affect our interests by,
among other factors:changes in
laws, regulations or the interpretation thereof; confiscatory taxation;
restrictions on currency conversion, imports or sources of supplies; or the
expropriation or nationalization of private enterprises.





The
PRC laws and regulations governing our current business operations and
contractual arrangements are uncertain, and if we are found to be in violation
thereof, we could be subject to sanctions. In addition, any changes in such PRC
laws and regulations may have a material and adverse effect on our business and
prospects.




There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business, and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. New laws and regulations that affect
existing and proposed future businesses may also be applied retroactively. We
cannot predict what effect the interpretation of existing or new PRC laws or
regulations may have on our businesses. As a result of these substantial
uncertainties, there is a risk we may be found in violation of any current or
future PRC laws or regulations which could have a material adverse impact on our
financial condition, results of operations and future business
prospects.


15


A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect our customers, demand for our services and our
business.





All of
our operations are conducted in the PRC and all of our revenues are generated
from sales to businesses operating in the PRC. We anticipate that sales of our
products in China will continue to represent a substantial proportion of our
total sales in the near future.  Although the PRC economy has grown
significantly in recent years, such growth may not continue. A slowdown in
economic growth or other adverse changes in the PRC economy may affect demand
for agricultural equipment. A slowdown in overall economic growth, an economic
downturn or recession or other adverse economic developments in the PRC may
materially reduce the demand for our products and in turn reduce our results of
operations.




Inflation
in China could negatively affect our profitability and growth.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation.  Rapid economic growth can lead to growth in the
money supply and rising inflation.  If prices for our products rise at
a rate that is insufficient to compensate for the rise in the costs of supplies,
it may have an adverse effect on our profitability.  These factors
have led to the adoption by the Chinese government, from time to time, of
various corrective measures designed to restrict the availability of credit or
regulate growth and contain inflation.  High inflation may in the
future cause the Chinese government to impose controls on credit and/or prices,
or to take other action, which could inhibit economic activity in China, and
thereby harm the market for our products.




If
relations between the United States and China deteriorate our stock price may
decrease and we may experience difficulties accessing the U.S. capital
markets.




At
various times during recent years, the United States and China have had
disagreements over political and economic issues. Controversies may arise in the
future between these two countries. Any political or trade controversies between
the United States and China could impact the market price of our common stock
and our ability to access US capital markets.




Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
stockholders.





The
Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign
Owend Enterprise Law Implementing Rules (1990), as amended contain the principal
regulations governing dividend distributions by wholly foreign owned
enterprises. Under these regulations, wholly foreign owned enterprises may pay
dividends only out of their accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. Additionally, the
Company is required to set aside a certain amount of their accumulated profits
each year, if any, to fund certain reserve funds. These reserves are not
distributable as cash dividends except in the event of liquidation and cannot be
used for working capital purposes.





Changes
in foreign exchange regulations in the PRC may affect our ability to pay
dividends in foreign currency or conduct other foreign exchange
business.





The value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the PRC’s political and economic
conditions. As we rely entirely on revenues earned in the PRC, our cash flows,
revenues and financial condition will be affected by any significant revaluation
of the RMB. For example, to the extent that we need to convert U.S. dollars we
receive from an offering of our securities into RMB for our operations, if the
RMB appreciates against the U.S. dollar, the RMB equivalent of the US dollar we
convert would be reduced. Conversely, if we decide to convert our RMB into U.S.
dollars for the purpose of making payments for dividends on our common shares or
for other business purposes and the U.S. dollar appreciates against the RMB, the
U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the
depreciation of significant U.S. dollar denominated assets could result in a
charge to our income statement and a reduction in the value of these
assets.


16





Since
1994 the PRC has pegged the value of the RMB to the U.S. dollar. However, on
July 21, 2005, the Chinese government changed its policy of pegging the value of
Chinese RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a
narrow and managed band against a basket of certain foreign currencies. It is
possible the Chinese government could adopt a more flexible currency policy,
which could result in more significant fluctuation of THE RMB against the U.S.
dollar. We can offer no assurance the RMB will be stable against the U.S. dollar
or any other foreign currency.




PRC
State Administration of Foreign Exchange (“SAFE”) Regulations regarding offshore
financing activities by PRC residents have under gone continuous changes which
may increase the administrative burden we face and create regulatory
uncertainties that could adversely affect our business.





Recent
regulations promulgated by the PRC State Administration of Foreign Exchange, or
SAFE, regarding offshore financing activities by PRC residents have undergone a
number of changes which may increase the administrative burden we
face.  The failure by our stockholders who are PRC residents to make
any required applications and filings pursuant to such regulations may prevent
us from being able to distribute profits and could expose us and our PRC
resident stockholders to liability under PRC law.





In 2005,
SAFE promulgated regulations in the form of public notices, which require
registrations with, and approval from, SAFE on direct or indirect offshore
investment activities by PRC resident individuals.  The SAFE
regulations require that if an offshore company directly or indirectly formed by
or controlled by PRC resident individuals, known as “SPC,” intends to acquire a
PRC company, such acquisition will be subject to strict examination by the SAFE.
Without registration, the PRC entity cannot remit any of its profits out of the
PRC as dividends or otherwise.





Because
our principal assets are located outside of the United States and all of our
directors and officers reside outside of the United States, it may be difficult
for you to enforce your rights based on  United States Federal
securities laws against us and our officers and directors in the United States
or to enforce judgments of United States courts against us or them in the
PRC.




All of
our officers and directors reside outside of the United States. In addition, our
operating subsidiaries are located in the PRC and substantially all of their
assets are located outside of the United States. China does not have a treaty
with the United States providing for the reciprocal recognition and enforcement
of judgments of courts. It may therefore be difficult for investors in the
United States to enforce their legal rights against us in the courts of either
the United States or the PRC and, even if civil judgments are obtained in courts
of the United States, to enforce such judgments in PRC courts. Further, it is
unclear if extradition treaties now in effect between the United States and the
PRC would permit effective enforcement against us or our officers and directors
of criminal penalties, under the United States federal securities laws or
otherwise.





We
may have limited legal recourse under PRC law if disputes arise under our
contracts with third parties.





The
Chinese government has enacted laws and regulations dealing with matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade. However, their experience in implementing, interpreting and enforcing
these laws and regulations is limited, and our ability to enforce commercial
claims or to resolve commercial disputes is unpredictable. If our new business
ventures are unsuccessful, or other adverse circumstances arise from these
transactions, we face the risk that the parties to these ventures may seek ways
to terminate the transactions, or may hinder or prevent us from accessing
important information regarding the financial and business operations of these
acquired companies. The resolution of these matters may be subject to the
exercise of considerable discretion by agencies of the Chinese government, and
forces unrelated to the legal merits of a particular matter or dispute may
influence their determination. Any rights we may have to specific performance,
or to seek an injunction under PRC law, in either of these cases, are severely
limited, and without a means of recourse by virtue of the Chinese legal system,
we may be unable to prevent these situations from occurring. The occurrence of
any such events could have a material adverse effect on our business, financial
condition and results of operations. Although legislation in China over the past
25 years has significantly improved the protection afforded to various forms of
foreign investment and contractual arrangements in China, these laws,
regulations and legal requirements are relatively new and their interpretation
and enforcement involve uncertainties which could limit the legal protection
available to us, and foreign investors. The inability to enforce or obtain a
remedy under any of our future agreements could result in a significant loss of
business, business opportunities or capital and could have a material adverse
impact on our operations.


17





We
must comply with the Foreign Corrupt Practices Act.




We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some of our competitors, are not subject to these
prohibitions. If our competitors engage in these practices, they may receive
preferential treatment, giving them an advantage in securing business or with
government officials who might give them priority in obtaining new licenses,
which would put us at a disadvantage. Although we inform our personnel that such
practices are illegal, we can not assure you that our employees or other agents
will not engage in such conduct for which we might be held responsible. If our
employees or other agents are found to have engaged in such practices, we could
suffer severe penalties which could adversely impact our financial condition and
future operating prospects.





PRC
regulations relating to mergers and acquisitions of domestic enterprises by
foreign investors may increase the administrative burden we face and create
regulatory uncertainties.





On August
8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, or
MOFCOM, the State Assets Supervision and Administration Commission, or SASAC,
the State Administration for Taxation, the State Administration for Industry and
Commerce, the China Securities Regulatory Commission, or CSRC, and SAFE jointly
adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors, or the M&A Rule, which became effective on September 8,
2006.  The M&A Rule purports, among other things, to require
offshore special purpose vehicles, or SPVs, formed for overseas listing purposes
through acquisitions of PRC domestic companies and controlled by PRC companies
or individuals, to obtain the approval of the CSRC prior to publicly listing
their securities on an overseas stock exchange.





On
September 21, 2006, pursuant to the M&A Rule and other PRC laws and
regulations, the CSRC, in its official website, promulgated relevant guidance
with respect to the issues of listing and trading of domestic enterprises’
securities on overseas stock exchanges (the “Administrative Permits”), including
a list of application materials with respect to the listing on overseas stock
exchanges by SPVs.





Based on
our understanding of current PRC Laws, we are not sure whether the M&A Rule
would require us or our entities in China to obtain the CSRC approval in
connection with the transaction contemplated by the exchange agreement when
entered into on September 9, 2008 in connection with the share growth
prospects.





Further,
if the PRC government finds that we or our Chinese shareholders did not obtain
the CSRC approval, which CSRC may think we should have obtained we could be
subject to severe penalties.  The M&A Rule does not stipulate the
specific penalty terms, so we are not able to predict what penalties we may
face, and how such penalties will affect our business operations or future
strategy.





In
addition, the M&A Rule establishes additional procedures and requirements
that could make some acquisitions of Chinese companies by foreign investors more
time-consuming and complex, including requirements in some instances that the
PRC Ministry of Commerce be notified in advance of any change-of-control
transaction and in some situations, require approval of the PRC Ministry of
Commerce when a foreign investor takes control of a Chinese domestic enterprise.
In the future, we may grow our business in part by acquiring complementary
businesses, although we do not have any plans to do so at this
time.  The M&A Rule also requires PRC Ministry of Commerce
antitrust review of any change-of-control transactions involving certain types
of foreign acquirers.  Complying with the requirements of the M&A
Rule to complete such transactions could be costly time-consuming, and any
required approval processes, including obtaining approval from applicable
regulatory authorities, could hamper or prevent us from implementing our
strategic initiatives.


18





The
Chinese government exerts substantial influence over the manner in which we
conduct our business activities.





We are
dependent on our relationship with the local government in the province in which
we operate our business.  Chinese government has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Our ability to operate
in China may be harmed by changes in its laws and regulations, including those
relating to taxation, environmental regulations, land use rights, property and
other matters.  We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the governments retain broad discretion in dealing with violations of
laws and regulations, including levying fines, revoking business licenses and
requiring actions necessary for compliance. In particular, licenses, permits and
beneficial treatments issued or granted to us by relevant governmental bodies
are subject to periodic review and reassessment and may be revoked at a later
time under contrary findings of higher regulatory bodies. If renewals, or new
permits, business licenses or approvals required in connection with existing or
new facilities or activities, are not granted or are delayed, or if existing
permits, business licenses or approvals are revoked or substantially modified,
we will suffer a material adverse effect. If new standards are applied to
renewals or new applications, it could prove costly to us to meet any new level
of compliance.





Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties.





It
may be difficult to protect our intellectual property rights under PRC
law.





Intellectual
property rights in China are still developing, and there are uncertainties
involved in their protection and the enforcement of such
protection.  We will need to pay special attention to protecting its
intellectual property and trade secrets.  Failure to do so could lead
to the loss of a competitive advantage that could not be compensated by a
damages award.





The
PRC government could revoke our land rights, which would leave us without our
operational capabilities.





Under
Chinese law, only the government owns land, and the government issues to tenants
the rights to use property.  Use rights can be revoked and the tenants
forced to vacate at any time when redevelopment of the land is in the public
interest.  The public interest rationale is interpreted quite broadly
and the process of land appropriation may be less than
transparent.  Each of our two operating subsidiaries rely on these
land use rights as the cornerstone of their operations, and the loss of such
rights would have a material adverse effect on our company.





We
currently enjoy government subsidies, and the loss of or reduction in these
benefits may materially and adversely affect our business and results of
operations.





In 2008,
we were granted subsidies from the Chinese government of approximately $40 per
small tractor and approximately $3,600 for each medium tractor.  These
subsidies allow us to price our products more favorably to our customers, which
resulted in an increase in sales.  If the Chinese government
discontinues the subsidies, we would be forced to increase the sales price of
our products which may hurt our sales revenue.


19





Under
the New Enterprise Income Tax (“EIT”) Law, we may be classified as a “resident
enterprise” of China. Such classification will likely result in unfavorable tax
consequences to us and our non-PRC stockholders.





China
passed the New EIT Law and its implementing rules, both of which became
effective on January 1, 2008.  Under the New EIT Law, an enterprise
established outside of China with “de facto management bodies” within China is
considered a “resident enterprise,” meaning that it can be treated in a manner
similar to a Chinese enterprise for enterprise income tax purposes. the
implementing rules of the New EIT Law define de facto management as “substantial
and overall management and control over the production and operations,
personnel, accounting, and properties” of the enterprise.  Because the
New EIT Law and its implementing rules are new, no official interpretation or
application of this new “resident enterprise” classification is
available.  Therefore, it is unclear how tax authorities will
determine tax residency based on the facts of each case.





If the
PRC tax authorities determine that we are a “resident enterprise” for PRC
enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. First, we may be subject to the enterprise income tax at a rate of
25% on our worldwide taxable income as well as PRC enterprise income tax
reporting obligations. In our case, this would mean that income such as interest
on offering proceeds and non-China source income would be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the New EIT Law
and its implementing rules dividends paid to us from our PRC subsidiaries would
qualify as “tax-exempt income,” we cannot guarantee such dividends will not be
subject to a 10% withholding tax, as the PRC foreign exchange control
authorities, which enforce the withholding tax, have not yet issued guidance
with respect to the processing of outbound remittances to entities that are
treated as resident enterprises for PRC enterprise income tax purposes. Finally,
it is possible that future guidance issued with respect to the new “resident
enterprise” classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC stockholders, and
with respect to gains derived by our non-PRC stockholders from transferring our
shares.





In
addition, under the New EIT Law, dividends payable by a FIE to any of its
foreign non-resident enterprise investors shall be subject to a 10% withholding
tax, unless such foreign non-resident enterprise investor’s jurisdiction of
incorporation has signed a tax treaty or arrangement for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on income
with China that provides for a reduced rate of withholding tax on
dividends.





Because
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks customarily covered by insurance in the United
States.





Business
insurance is not readily available in the PRC.  To the extent we
suffer a loss of a type which would normally be covered by insurance in the
United States, such as product liability and general liability insurance, we
would incur significant expenses in both defending any action and in paying any
claims that result from a settlement or judgment.





We
are subject to the environmental protection laws of China, which will likely
increase our operating costs.





Our
manufacturing process may produce by-products such as effluent, gases and noise,
which are harmful to the environment.  We are subject to
multiple  laws governing environmental protection, such as “the Law on
Environmental Protection in the PRC” and “the Law on  Prevention of
Effluent Pollution  in the PRC,” as well as standards set by the
relevant governmental authorities determining the classification of different
wastes and proper disposal.  Under the relevant Chinese environmental
laws, all manufacturing enterprises must submit an environmental impact report
to the relevant environmental protection authority before starting operations.
In addition, manufacturing enterprises must engage professional environmental
organizations to monitor and report on pollutants and emission regularly. We
have taken necessary measures to control our discharges. We have obtained
written approval from the Environmental Protection Brueau of Jilin Province to
operate our business and we are currently in material compliance with the
Chinese environmental laws and regulations.


20





China is
experiencing substantial problems with environmental
pollution.  Accordingly, it is likely that the national, provincial
and local governmental agencies will adopt stricter pollution
controls.  There can be no assurance that future changes in
environmental laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities.  Our
profitability may be adversely affected if additional or modified environmental
control regulations are imposed upon us.





Price
controls may affect both our revenues and net income.




The laws
of the PRC provide for the government to fix and adjust prices. Although our
products, most of which are agricultural machinery, are not presently subject to
price controls, it is possible price controls may be imposed in the future,
especially when China is trying to promote agriculture. To the extent we are
subject to price control, our revenue, gross profit, gross margin and net income
will be affected since the revenue we derive from our sales will be limited and,
unless there is also price control on the products we purchase from our
suppliers, we may face no limitation on our costs. Further, if price controls
affect both our revenue and our costs, our ability to be profitable and the
extent of our profitability will be effectively subject to determination by the
applicable regulatory authorities in the PRC.





RISKS
ASSOCIATED WITH INVESTING IN OUR COMMON STOCK





There
can be no assurance that an established trading market will
develop.





Although
quotations for our common stock appear on the OTC Bulletin Board, the absence of
a large trading volume in the common stock indicates there is no established
trading market for the common stock. We can provide no assurance an established
trading market will develop in the future or that you will be able to sell all
or any portion of the holdings when you choose.




If
a trading market for our common stock does develop, trading prices may be
volatile and sporadic, which could depress the market price of our common stock
and make it difficult for our stockholders to resell their shares.




In the
event a trading market develops, the market price of our common stock may be
based on factors that may not be indicative of future market performance.
Consequently, the market price of our common stock may vary greatly. If a market
for our common stock develops, there is a significant risk our stock price may
fluctuate dramatically in the future in response to any of the following
factors, some of which are beyond our control:





·
            variations
      in our quarterly operating results;


·
            announcements
      that our revenue or income/loss levels are below analysts'
      expectations;


·
            general
      economic slowdowns;


·
            changes
      in market valuations of similar
companies;


·
            announcements
      by us or our competitors of significant contracts;
  or


·
            acquisitions,
      strategic partnerships, joint ventures or capital
    commitments.




This
volatility could depress the market price of our common stock for reasons
unrelated to operating performance. Moreover, the OTC Bulletin Board is not a
stock exchange, and trading of securities on the OTC Bulletin Board is often
more sporadic than trading of securities listed on a quotation system like
Nasdaq or a stock exchange like the American Stock Exchange. Accordingly, our
stockholders may have difficulty reselling any of their shares.


21


There is no
assurance our common stock will remain on the OTC Bulletin
Board.





In order
to maintain the quotation of our common stock on the OTC Bulletin Board, we must
remain a reporting company under the Securities Exchange Act of 1934. It is
possible our common stock could be removed from the OTC Bulletin Board and be
traded on the Pink Sheets. In either venue, an investor may find it difficult to
obtain accurate quotations as to the market value of the common stock. In
addition, if we fail to meet the criteria set forth in SEC regulations, various
requirements would be imposed by law on broker-dealers who sell our securities
to persons other than established customers and accredited investors.
Consequently, such regulations may deter broker-dealers from recommending or
selling our common stock, which may further affect its liquidity. This would
also make it more difficult for us to raise additional capital.




We
are subject to the reporting requirements of the federal securities
laws.





We are a
public reporting company in the United States and, accordingly, subject to the
information and reporting requirements of the Securities Exchange Act of 1934
and other federal securities laws, and the compliance obligations of the
Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly
reports and other information with the SEC will cause our expenses to be higher
than they would be if we were a privately-held company. We are also required to
prepare our financial statements in accordance with US GAAP, which further
increases our operating expenses.





We
have no dividend history and have no intention to pay dividends in the
foreseeable future.





We have
never paid dividends on or in connection with any class of our common stock and
do not intend to pay any dividends to common stockholders for the foreseeable
future.





Our
officers, directors and principal stockholders own approximately 85% of our
outstanding shares of common stock, allowing these stockholders to control
matters requiring approval of our stockholders.





All of
our officers and directors as a group own, in the aggregate, approximately 61.4%
of our outstanding shares of common stock, giving them such concentrated control
reduces your ability to influence the direction of the company and may adversely
affect the price of our common stock. Control over matters requiring approval by
our security holders, including the election of directors.




Trading
of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s
sales practice requirements, which may limit a stockholder’s ability to buy and
sell our stock.




Our stock
is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9
which generally defines “penny stock” to be any equity security that has a
market price (as defined) less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. Our securities are covered
by the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
“accredited investors”. The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe the penny stock rules discourage investor interest in,
and limit the marketability of, our common stock.


22




Financial
Industry Regulatory Authority (FINRA) sales practice requirements may also limit
a stockholder’s ability to buy and sell our stock.




In
addition to the “penny stock” rules promulgated by the Securities and Exchange
Commission (see above for a discussion of penny stock rules), FINRA rules
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes there is a high probability that speculative low priced securities will
not be suitable for at least some customers. FINRA requirements make it more
difficult for broker-dealers to recommend their customers buy our common stock,
which may limit your ability to buy and sell our stock, which could have an
adverse effect on the market price for our shares and on your ability to dispose
of your securities.


23


ITEM
1B. UNRESOLVED STAFF COMMENTS





None.





ITEM 2. DESCRIPTION OF
PROPERTY




Our main
offices and manufacturing facility is located in Jilin Province, China and
consists of approximately 320,000 square meters. Our main manufacturing area,
which includes a production assembly workshop, assembly lines and quality
detection lines, occupies almost half the space in our complex. This complex
also holds about 7,500 square meters of office buildings, 9,400 square meters of
residential housing for our employees, 4,000 square meters for staff training,
1,200 square meters for cafeterias and dining halls and 6,000 square meters of
warehouse space.





ITEM 3. LEGAL PROCEEDINGS




From time
to time, we may become involved in various lawsuits and legal proceedings that
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating
results.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS




No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2008.


24


PART
II




ITEM
      5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





(a)Market
Information. The following
chart sets forth the closing high and low sales prices of our common stock for
each quarter from January 1, 2007 through December 31,
2008.




High
                  
                  
                  Low2008 by
      QuarterJanuary
      1 - March 31
                  
                  $
                  1.80
                  
                  
                  
                  1.20April
      1 - June 30
                  
                  $
                  1.20
                  
                  
                  
                  1.20July
      1 - September 30*
                  
                  $
                  1.20
                  
                  
                  
                  .75October
      1 - December 31*
                  
                  $
                  1.31
                  
                  
                  
                  0.452007 by
      Quarter 1July
      1 - September 30
                  
                  $
                  7.65
                  
                  
                  
                  0.90October
      1 - December 31
                  
                  $
                  2.55
                  
                  
                  $
                  0.90





* A
reverse split of one for fifteen was effected on August 12, 2008.





1
            Our
      common stock received approval to be quoted on the OTC Bulletin Board on
      June 21, 2007.





On April
15, 2009, the closing price for shares of our common stock, as reported by the
Over-the-Counter Bulletin Board, was $0.51.





No
prediction can be made as to the effect, if any, that future sales of shares of
our common stock or the availability of our common stock for future sale will
have on the market price of our common stock prevailing from time-to-time. The
registration of additional shares of our common stock and the sale of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price of our common stock.





(b) Record
Holders. As of April 6, 2009, there were 123 registered holders of our
common stock. As of April 6, 2009, there were 18,340,539 shares of common stock
issued and outstanding.





(c) Dividends.
We have not paid dividends on our common stock in the past and do not anticipate
doing so in the foreseeable future. We currently intend to retain future
earnings, if any, to fund the development and growth of our business. In
addition, the Loan and Security Agreement with Access Capital requires that we
obtain their consent prior to paying any dividends.




(d) Sales of
Unregistered Securities




During
the period covered by this report we did not issue any other securities that
were not registered under the Securities Act of 1933, as amended, except as
previously disclosed in a quarterly report on Form 10-Q or a current report on
Form 8-K.




ITEM
6. SELECTED FINANCIAL DATA




We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
providing the information contained in this item pursuant to Regulation
S-K.


25


ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.




History





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





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





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











Overview





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





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


26


Critical
Accounting Policies and Estimates
 
 The
preparation of our consolidated financial statements in conformity with
generally accepted accounting principles (“GAAP”) in the United States requires
us to make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments: allowance for doubtful accounts; income taxes; and
asset impairment.
 
 Revenue
Recognition
 
 In
accordance with generally accepted accounting principles ("GAAP") in the United
States, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed, and
collection of the resulting receivable is reasonably assured.
 
 Revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collect ability is reasonably
assured. Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as advances from customers. Please see
our Note 1 of the notes accompanying our financial statements.
 
 Provisions
for discounts and returns are provided for at the time the related sales are
recorded, and are reflected as a reduction of sales. The Company bases its
estimates on historical experience taking into consideration the type of
products sold, the type of customer, and the type of specific transaction in
each arrangement.
 
 Allowance
for doubtful accounts
  We
maintain an allowance for doubtful accounts to reduce trade receivable amounts
to their estimated realizable value. A considerable amount of judgment is
required when we assess the realization of accounts receivables, including
assessing the probability of collection and the current credit-worthiness of
each customer. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, an additional
provision for doubtful accounts could be required.. In estimating the provision
for doubtful accounts, we consider:
 
 (i)           the
aging of the accounts receivable;
 (ii)          trends
within and ratios involving the age of the accounts receivable;
 (iii)         the
customer mix in each of the aging categories and the nature of the
receivable;
 (iv)        our
historical provision for doubtful accounts;
 (v)         the
credit worthiness of the customer;
 (vi)        the
economic conditions of the customer’s industry as well as general economic
conditions, among other factors.
 
 Income
taxes
  We
account for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes. SFAS 109 prescribes the use of the liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we establish a valuation
allowance. To the extent we establish a valuation allowance, or increase or
decrease this allowance in a period, we increase or decrease our income tax
provision in our statement of operations. If any of our estimates of our prior
period taxable income or loss prove to be incorrect, material differences could
impact the amount and timing of income tax benefits or payments for any period.
In addition, as a result of the significant change in the Company’s ownership,
the Company's future use of its existing net operating losses may be
limited.
 
 27
 
 We are
subject to numerous domestic and foreign tax jurisdictions and tax agreements
and treaties among the various taxing authorities. Our operations in these
jurisdictions are taxed on various bases: income before taxes, deemed profits
and withholding taxes based on revenue. The calculation of our tax liabilities
involves consideration of uncertainties in the application and interpretation of
complex tax regulations in a multitude of jurisdictions across our global
operations.
 
 We
recognize potential liabilities and record tax liabilities for anticipated tax
audit issues in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due.. We adjust these
reserves upon specific events; however, due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is different
from our current estimate of the tax liabilities. If our estimate of tax
liabilities proves to be less than the ultimate assessment, an additional charge
to expense would result. If payment of these amounts ultimately proves to be
less than the recorded amounts, the reversal of the liabilities would result in
tax benefits being recognized in the period when the contingency has been
resolved and the liabilities are no longer necessary.
 
 Changes
in tax laws, regulations, agreements and treaties, foreign currency exchange
restrictions or our level of operations or profitability in each taxing
jurisdiction could have an impact upon the amount of income taxes that we
provide during any given year.
 
 Asset
Impairment
  We
periodically evaluate the carrying value of other long-lived assets, including,
but not limited to, property and equipment and intangible assets, when events
and circumstances warrant such a review. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flows from
such asset is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Significant
estimates are utilized to calculate expected future cash flows utilized in
impairment analyses. We also utilize judgment to determine other factors within
fair value analyses, including the applicable discount rate.
 
 Results
of Operations for the years ended December 31, 2008 and 2007
 
 CHINA
TRACTOR HOLDINGS, INC.
 STATEMENTS
OF CONSOLIDATED OPERATIONS AND OTHER COMPREHENSIVE
 GAINS/LOSS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 
 2008
                                                
                                                
                                                2007
                                                
                                                
                                                VarianceAmount
                                                
                                                
                                                %Net
      revenue
                                                
                                                $
                                                26,598,861
                                                
                                                
                                                $
                                                8,660,202
                                                
                                                
                                                $
                                                17,938,659
                                                
                                                
                                                
                                                207
                                                %Cost
      of sales
                                                
                                                
                                                (23,775,510
                                                )
                                                
                                                
                                                (8,559,947
                                                )
                                                
                                                
                                                (15,215,563
                                                )
                                                
                                                
                                                178
                                                %Gross
      profit
                                                
                                                
                                                2,823,351
                                                
                                                
                                                
                                                100,255
                                                
                                                
                                                
                                                2,723,096
                                                
                                                
                                                
                                                2716
                                                %Operating
      expenses:Selling
      and general and administrative expenses
                                                
                                                
                                                (1,840,133
                                                )
                                                
                                                
                                                (807,584
                                                )
                                                
                                                
                                                (1,032,549
                                                )
                                                
                                                
                                                128
                                                %Impairment
      loss of assets
                                                
                                                
                                                (80,981
                                                )
                                                
                                                
                                                (639,251
                                                )
                                                
                                                
                                                558,270
                                                
                                                
                                                
                                                -87
                                                %Profit/(Loss)
      from operations positive
                                                
                                                
                                                902,237
                                                
                                                
                                                
                                                (1,346,580
                                                )
                                                
                                                
                                                2,248,817
                                                
                                                
                                                
                                                -167
                                                %Other
      income/(expenses)
                                                
                                                
                                                1,078,924
                                                
                                                
                                                
                                                (129,032
                                                )
                                                
                                                
                                                1,207,956
                                                
                                                
                                                
                                                -936
                                                %Minority
      interest
                                                
                                                
                                                (800,299
                                                )
                                                
                                                
                                                102,041
                                                
                                                
                                                
                                                (902,340
                                                )
                                                
                                                
                                                -884
                                                %Income
      tax expenses
                                                
                                                
                                                (475,076
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (475,076
                                                )
                                                
                                                
                                                N/ANet
      profit/(loss) attributable to stockholders
                                                
                                                
                                                705,786
                                                
                                                
                                                
                                                (1,373,571
                                                )
                                                
                                                
                                                2,079,357
                                                
                                                
                                                
                                                -151
                                                %Other
      comprehensive income/(loss)
                                                
                                                
                                                1,021,199
                                                
                                                
                                                
                                                1,005,899
                                                
                                                
                                                
                                                15,300
                                                
                                                
                                                
                                                2
                                                %Comprehensive
      income/(loss)
                                                
                                                $
                                                1,726,985
                                                
                                                
                                                $
                                                (367,672
                                                )
                                                
                                                
                                                2,094,657
                                                
                                                
                                                
                                                -570
                                                %
 
 28
 
 Revenue
 
 Revenue
for the year ended December 31, 2008 was $26,598,861, as compared to $8,660,202
for the year ended December 31, 2007, an increase of $17,938,659 or
207%.  The increase is mainly resulted from the Chinese government’s
policies for agriculture related business that started in 2008.  In
2008, we were granted subsidies from the Chinese government of approximately $40
per small tractor, which represents 3% of the unit selling price of the average
small tractor.  In 2008, we were also granted subsidies from the
Chinese government of approximately $3,600 per medium tractor, which represented
50% of the unit selling price of the average medium tractor.  After
the respective unit price subsidies, we are able to lower our unit selling price
to a more affordable target price for our customers.  As such, our
sales volume in 2008 increased substantially compared to 2007.
 
 Cost
of sales
 
 Cost of
sales for the year ended December 31, 2008 increased to $23,775,510 from
$8,559,947 for the year ended December 31, 2007, an increase of $15,215,563 or
178%.  The increase in cost of sales is in line with the increase of
our sales.
 
 Gross
profit
 
 The gross
profit for the year ended December 31, 2008 was $2,823,351, which was an
increase of $2,723,096 or 2,716% compared to $100,255 for the year ended
December 31, 2007.  The increase of gross profit is due to increase of
gross margin and sales volume.  The improvement of gross margin in
2008 is the results of various factors, including government subsidies, change
in sales mix, increase of production capacity to lower our unit cost and more
production experience contributed to lower unit cost. Of these factors, the
government subsidies are the main driving force for the increase of our gross
margin.
 
 Selling,
general and administrative expenses
 
 Selling,
general and administrative expenses increased to $1,840,133 for the year ended
December 31, 2008 from $807,584 in 2007, an increase of $1,032,549 or
127%.  The increase general resulted from the increased sales and
marketing work related to our increase in sales, which is
207%.  However, depreciation and amortization was $766,377 in 2008
compared to $604,685 in 2007, a slight increase.
 
 Provision
and impairment expenses
 
 The
provision and impairment expenses of $80,981 for the year ended December 31,
2008 represents the provision for obsolete inventory and allowance of advances
to suppliers. The provision and impairment expenses in 2007 represents the
impairment of land use rights.
 
 Other
income/ (expenses)-net
 
 Other
income-net for the year ended December 31, 2008 was $1,078,924, as compared to
other expenses-net of $129,032 for year 2007. Other income for the year ended
December 31, 2008 mainly consisted of subsidies from governments for
agricultural machinery manufacturers of $943,660 and equity in earnings of
Zhongji North, an investee of the company, of $125,113. Other expenses for the
year ended December 31, 2007 mainly consisted of interest expenses related to
bank loans.
 
 29
 
 Income
tax expenses
 
 Income
tax expenses for the year ended December 31, 2008 represent accrued income tax
in Chang Tuo owed from the profit occurred in 2008.
 
 Minority
interest
 
 Minority
interest resulted in loss of $800,299 for the year ended December 31, 2008
representing the 3% minority interest of Changchun Tractor in Densen and 52.5%
minority interest in Chang Tuo.
 
 Net
loss/income
 
 Net
income in the year ended December 31, 2008 was $705,786, compared to a net loss
of $1,373,571 in 2007. The Company had a net income in year 2008 because the
Company increased production and sales volume of the small, medium and big
tractors and improved the gross margin of product sales.
 
 Comprehensive
income
 
 Comprehensive
income in year 2008 was $1,021,199 compared to $1,005,899 in 2007. It represents
the foreign currency translation income resulted from appreciation of Renmenbi
against US dollar.
 
 Liquidity
and Capital Resources
 
 As shown
in the accompanying financial statements, the Company suffered accumulated
deficit of $1,410,859 as of December 31, 2008 and $2,122,955 as of December 31,
2007. The Company has relied upon cash from its financing activities to fund its
ongoing operations as it has not been able to generate sufficient cash from its
operating activities in the past. We have begun to achieve profitability in
2008, but there is no assurance that it will continue to be able to do so in the
future. If we fail to maintain profitability, we cannot predict how long we can
incur losses or whether we will become profitable again, or if the Company’s
business will improve. These factors raise substantial doubt as to our ability
to continue as a going concern. Our ability to continue as a going concern
depends on the success of our plan to seek funding sources and the success of
our future operations. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
 
 However,
our working capital was positive $4,146,306.  In addition, our wholly
owned subsidiary, Densen Machinery is a recipient of subsidies and tax
incentives from the Chinese government as part of their plan to promote the
development of the agriculture industry in the northeast regions of China. We
expect that these subsidies and tax incentives to continue in the near future
and improve our liquidity, although the current world-wide economic crisis may
cause the Chinese government to discontinue these incentives and subsidies.
Further, demand for agricultural machines continues to be robust in China,
including the provinces of Jilin, Liaoning, Heilongjiang and Shangdong, areas
that are major markets for our products.
 
 Operating
Activities
 
 The net
cash used in operating activities during the year ended December 31, 2008
amounted to $1,641,810, compared to the net cash provided by operating
activities during the year ended December 31, 2007 of $1,406,823. The net cash
outflow from operating activities during year 2008 was mainly due to an increase
in accounts receivable of $2,240,654, inventories of $7,523,917, and prepaid
expenses and other assets of $315,598, by netting off an increase in accounts
payable of $5,535,605, advances from customers of $235,605, depreciation and
amortization of $766,377, an increase in minority interest of $800,299 and net
profit of $705,786.   The increase in both operating assets and
liabilities were mainly due to increase of sales and operating
scale.  Especially the increase of inventory and accounts payable is
mainly due to year end reserve for spring sales in early 2009.  The
cash inflow during 2007 is mainly due to the decrease in inventory and advance
to suppliers of $1,255,498 and $115,925 respectively, increase in accounts
payable of $121,553 and accrued liabilities of $245,677, and depreciation,
amortization and impairment of $1,230,808, by netting off the net loss of
$1,416,052.
 
 30
  Investing
Activities
 
 Net cash
used in investing activities amounted to $2,472,679 during the year ended
December 31, 2008, compared to $5,775,989 in 2007. The net cash outflow during
year 2008 primarily consisted of the cash outflow resulting from purchase of
property and equipment of $1,927,085 and cash paid for an investment in
subsidiary of $545,801. The cash outflow during the same period of 2007 is
resulted from cash paid for purchase of property and equipment of $4,699,478 and
an investment in subsidiary of $1,076,511.  The cash outflows in
investing activities were mainly resulted from expansion of our production
capacity and resources.
 
 Financing
Activities
 
 Net cash
provided by financing activities amounted to $3,211,522 during year 2008,
compared to cash provided by financing activities amounted to $6,916,144 during
year 2007. The net cash inflow during year 2008 was due to proceeds from short
term loan of $4,308,952 and repayment to related parties of
$1,097,430.  While the cash outflow during year 2007 consists of
contributed capital from minority equity holder of $13,128,184 and proceeds from
related party of $286,411 by netting off the repayment of short-term loans and
long term loans of $6,498,451 in total.
 
 Inflation
 
 In the
opinion of management, inflation has not had a material effect on the Company's
financial condition or results of its operations.
 
 Trends
and uncertainties
 
 Our
wholly owned subsidiary, Densen Machinery is a recipient of subsidies from the
Chinese government as part of their plan to promote the development of the
agriculture industry in the northeast regions of China. We expect that these
subsidies will continue in the near future and improve our liquidity, although
the current world-wide economic crisis may cause the Chinese government to
discontinue these incentives and subsidies. Further, demand for agricultural
machines continues to be robust in China, including the provinces of Jilin,
Liaoning, Heilongjiang and Shangdong, areas that are major markets for our
products. The Company’s operations are affected by seasonal factors sales of our
products are affected by shifts in seasonal cultivating trends. On the
agricultural machinery business, the first quarter and third quarter are the
off-season for sales; the second quarter and fourth quarter are the peak season
for sales.
 
 Off-Balance
Sheet Arrangements
 
 There are
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on the Company’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources, that are material to
investors.
  31
 
 ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
providing the information contained in this item pursuant to Regulation
S-K.
  ITEM
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Our
Consolidated Financial Statements and Notes thereto and the report of Goldman
Parks Kurland Mohidin LLP, our independent registered public accounting firm,
are set forth on pages F-1 through F-17 of this Report.
  ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  None
 .
 ITEM
9A. CONTROLS AND PROCEDURES
  Evaluation
of controls and procedures.
  As of the
end of the period covered by this Annual Report, the Company’s management, with
the participation of the Company’s Chief Executive Officer and Chief Financial
Officer (“the Certifying Officers”), conducted evaluations of the Company’s
disclosure controls and procedures. As defined under Sections 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the term “disclosure controls and procedures” means controls and other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms. Disclosure controls and
procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including the Certifying Officers, to allow timely
decisions regarding required disclosures. Based on this evaluation, the
Certifying Officers have concluded that the Company’s disclosure controls and
procedures were not effective to ensure that material information is recorded,
processed, summarized and reported by management of the Company on a timely
basis in order to comply with the Company’s disclosure obligations under the
Exchange Act and the rules and regulations promulgated thereunder. The Chief
Executive Officer’s and Chief Financial Officer’s conclusion regarding the
Company’s disclosure controls and procedures is based on management’s conclusion
that there exists a lack of personnel and technological resources is a material
weakness in our disclosure controls and procedures.
  Manaagement’s
Report on Internal Controls Over Financial Reporting..
  Our Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)
  Internal
control over financial reporting is promulgated under the Exchange Act as a
process designed by, or under the supervision of, our CEO and CFO and effected
by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:
 
 ·
              Pertain to the maintenance of
      records that in reasonable detail accurately and fairly reflect the
      transactions and dispositions of our
  assets;
 
 32
 
 ·
              Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles,
      and that our receipts and expenditures are being made only in accordance
      with authorizations of our management and directors;
      and
 
 ·
              Provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition or
      disposition of our assets that could have a material effect on the
      financial statements.
  Readers
are cautioned that internal control over financial reporting, no matter how well
designed, has inherent limitations and may not prevent or detect misstatements.
Therefore, even effective internal control over financial reporting can only
provide reasonable assurance with respect to the financial statement preparation
and presentation.
  Our
management, under the supervision and with the participation of our CEO and CFO,
has evaluated the effectiveness of our disclosure controls and procedures and
internal controls over financial reporting as defined in Exchange Act Rules
13a-15(e) and (f) and 15d-15(e) and (f) as of the end of the period covered by
this Report based upon the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on such evaluation, our management has made an assessment that our
internal control over financial reporting is not effective as of December 31,
2008 for the following reasons:
 
 a.
              Our
      internal accounting staff do not have sufficient U.S. GAAP knowledge and
      experiences
 b.
              Our
      senior financial staff lacks knowledge of internal control
      obligations
  We plan
to take the following steps to remediate the significant deficiencies in
internal control over financial reporting that are identified
above.
 
 a.     Hire
a senior accounting staff who has experiences in U.S. GAAP and SOX 404 to
oversee the financial reporting process in order to ensure the Company’s
compliance with U.S. GAAP and security laws.
 b.     Provide
training to accounting staff on U.S. GAAP
 
 This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.
 
 Changes
in internal control over financial reporting.
  No
significant changes were made in our internal control over financial reporting
during the Company’s fourth quarter of 2008 that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
  ITEM 9B. OTHER INFORMATION
 
 Not
applicable.
 
 33
 
 PART
III
 
 ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL
 PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
 
 The
following table sets forth the names and ages of our current directors and
executive officers, the principal offices and positions with us held by each
person and the date such person became a director or executive officer. Each
year the stockholders elect the members of our Board of Directors
 The
following sets forth the name and position of each of our current executive
officers and directors.
 
 Name
                  
                  Age
                  
                  TitleLau
      San
                  
                  57
                  
                  CEO,
      ChairmanLiu
      Jingdong
                  
                  32
                  
                  President,
      DirectorChen
      Guocheng
                  
                  45
                  
                  CFO,
      DirectorChangfu
      Wang
                  
                  67
                  
                  Independent
      DirectorDr.
      Baoyun Qiao
                  
                  43
                  
                  Independent
      Director
  LAU San Chairman of the Board
of Directors and Chief Executive Officer. Mr. Lau became our Chairman and Chief
Executive Officer on September 9, 2008, upon consummation of our share exchange
with Densen. Mr. Lau is the founder of Densen and Changchun Densen, and served
as Chairman of these two companies since their inception in 2005. From 1992 to
2005, Mr. Lau was mainly engaged in real estate development through Densen
Investment Co., Ltd., which was established in December 1991. In 2003, Mr. Lau
was elected as member of the Chinese People's Political Consultative Conference
of Heilongjiang Province Vice President of the Overseas Friendship Association
of Heilongjiang Province and Vice President of the Federation of Chinese
Businessmen. Mr. Lau graduated from University of Heilongjiang, with a Masters
degree in Law.
 
 Jingdong LIU President
and Director. Mr. Liu became President and Director on September 9, 2008, upon
consummation of our share exchange with Densen. Mr. Liu has been the President
of Changchun Densen since its inception in 2005, and is in charge of purchasing
and sales management. Mr. Liu graduated with a Bachelor of Economic Management
from the North York University of Canada in 2004. Mr. Jingdong Liu is the son of
Mr. Lau San.
 
 Guocheng CHEN Chief
Financial Officer and Director. Mr. Chen became a Director and our
Chief Financial Officer on September 9, 2008, upon consummation of our share
exchange with Densen. Mr. Chen has been the Chief Financial Officer of Changchun
Densen since October 2005. He has 25 years experience in corporate accounting
and finance. From 2001 to October 2005, he served as the Chief Financial Officer
of Changchun Dahe Company, a Hong Kong listed company. From 1984 to 2001, Mr.
Chen worked for Shulan Mining Bureau, and held the positions of Financial
Controller, Chief Financial Officer, and Director of Operations. Mr. Chen
graduated with a Bachelor of Industrial Accounting from Jilin Economic Trade
College.
 
 Changfu WANGIndependent
Director. Mr. Wang became our Independent Director on September 9, 2008, upon
consummation of our share exchange with Densen. Before joining us, Mr. Wang was
a top provincial official. He served as Vice Secretary General of Heilongjiang
provincial government from March 2003 to March 2008. During the period of 1965
to 2003, Mr. Wang was engaged in forestry resource management for Heilongjiang
provincial government and served as Director of Bureau for Main Office of
Heilongjiang Forestry Industry. Mr. Wang graduated with a Bachelor of Forestry
Industry from Northeast Forestry Industry College.
 
 34
 
 Dr. Baoyun
QIAO Independent Director. Dr. Qiao became our Independent Director
on September 9, 2008 upon consummation of our share exchange with Densen. He is
a Professor of Economics and Dean at the China Academy of Public Finance and
Policy, at the Central University of Finance and Economics since July, 2008. Dr.
Qiao graduated from Georgia State University, where he earned his Ph.D. in
economics. He has been a senior research associate of Georgia State University
since January, 2003. He has published numerous papers and his research interest
is in the area of finance, public economics, development economics and
macroeconomics as well as China’s economy. Professor Qiao has served as the Vice
President of Chinese Economist Society since 2007.
 
 Code
of Conduct and Ethics
 
 Our Board
of Directors adopted a Code of Business Conduct and Ethics.  As
adopted, our Code of Business Conduct and Ethics sets forth written standards
designed to deter wrongdoing and to promote:
 
 ·
              honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;
 
 ·
              full, fair, accurate, timely and
      understandable disclosure in reports and documents we file with, or submit
      to, the SEC and in other public communications made by
      us;
 
 ·
              compliance
      with applicable governmental laws, rules and
  regulations;
 
 ·
              the
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the Code;
and
 
 ·
              accountability for adherence to
      the Code.
 
 A copy of
our Code of Business Conduct and Ethics has been filed with the SEC as an
exhibit to this report. The Code of Business Conduct and Ethics is available at
our website at www.densen.com.cn. We will provide a copy, without charge, to any
person desiring a copy of the Code of Business Conduct and Ethics, by written
request to Kalun Industrial Zone, Jiutai Economic Development Zone, Changchun
City, Jilin Province, People’s Republic of China, Attention: CTHL Corporate
Secretary.
 
 Director
Independence
 
 The Board
has reviewed each of the directors’ relationships with the Company in
conjunction with the definitions set out in NASDAQ Rule 4200(a)(15) and has
affirmatively determined that two of our directors, Changfu Wang and Baoyun
Qiao, are independent of management and free of any relationship that would
interfere with the independent judgment as members of the Board of Directors or
any committee thereof.
  Committees
of the Board of Directors
 
 Our Board
of Directors in its entirety acts as the audit committee, nominating committee
and compensation committee. Our Board of Directors may create an audit
committee, nominating committee and compensation committee in the future. Our
Board of Directors intends to adopt charters for these committees at such time
as the committee is created.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than 10% of a registered class
of our equity securities (“ten percent stockholders”) to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission.  Officers, directors and ten percent stockholders are charged
by the SEC regulations to furnish us with copies of all Section 16(a) forms they
file.
  35
 
 
 Based
solely upon a review of copies of Section 16(a) reports and representations
received by us from reporting persons, and without conducting any independent
investigation of our own, in fiscal year 2008, our officers, directors and ten
percent stockholders are in compliance with Section 16(a), except that the Form
3s filed by each of our officers and directors, Lau San, Liu Jingdong, Chen
Guochen, Wang Changfu, and Qiao Baoyun were late.
 
 ITEM 11. EXECUTIVE
COMPENSATION.
 
 The
following table sets forth the compensation paid by the Company for services
rendered for the past two completed fiscal years to the principal executive
officer at the end of the year ended December 31, 2008. We did not have any
officer whose cash compensation exceeded $100,000.  No equity awards
were given to our officers and directors.
 
 SUMMARY COMPENSATION
TABLE
 
 Name and
                                  Principal
                                  Position
                                
                                Year
                                
                                Salary
                                  ($)
                                
                                
                                Bonus
                                  ($)
                                
                                
                                Stock
                                  Awards
                                  ($)
                                
                                
                                Option
                                  Awards
                                  ($)
                                
                                
                                Non-Equity
                                  Incentive Plan
                                  Compensation
                                  ($)
                                
                                
                                Change in
                                  Pension Value
                                  and
                                  Nonqualified
                                  Deferred
                                  Compensation
                                  Earnings
                                  ($)
                                
                                
                                All Other
                                  Compensation
                                  ($)
                                
                                
                                Total
                                  ($)Lau
      San
                                  CEO
      &
                                  Chairman(1)
                                
                                2008
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                NilChenxi
      Shi (2)
                                
                                2008
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil2007
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
                                
                                
                                
                                Nil
  (1) Lau
San became our CEO on September 9, 2008.
 (2)
Chenxi Shi resigned as President and CEO on September 9, 2008.
 
 Following
the share exchange and reorganization effected on September 9, 2008, we have
decided, and our Chief Executive Officer, has agreed that no compensation will
be paid in 2008.
 
 Director
Compensation
  Directors
of our company may be paid for their expenses incurred in attending each meeting
of the directors. In addition to expenses, directors may be paid a sum for
attending each meeting of the directors or may receive a stated salary as
director. No payment precludes any director from serving our company in any
other capacity and being compensated for such service. During the fiscal year
ended December 31, 2008, our compensation to our directors is set forth in the
following table.
  DIRECTOR
COMPENSATION
 
 Name
      (a)
                      
                      Fees
                        Earned
                        or Paid
                        in Cash
                        ($)
                      
                      
                      Stock
                        Awards
                        ($)
                      
                      
                      Option
                        Awards
                        ($)
                      
                      
                      Non-Equity
                        Incentive
      Plan
                        Compensation
                        ($)
                      
                      
                      Non-Qualified
                        Deferred
                        Compensation
                        Earnings
                        ($)
                      
                      
                      All
      Other
                        Compensation
                        ($)
                      
                      
                      Total
      ($)Lau
      San
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0Liu
      Jingdong
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0Chen
      Guochen
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0Wang
      Changfu
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0Qiao
      Baoyun
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
  36
  Board of
Directors have agreed that no compensation will be paid to them in
2008.
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  The table
sets forth below certain information regarding the beneficial ownership of our
common stock, our only class of outstanding voting securities, as of April 6,
2009, based on 18,340,539 aggregate shares of common stock outstanding as of
such date, by: (i) each person who is known by us to own beneficially more than
5% of our outstanding common stock with the address of each such person, (ii)
each of our present directors and officers, and (iii) all officers and directors
as a group.
 
 Unless
otherwise indicated, we believe all persons named in the table have sole voting
and investment power with respect to all common shares beneficially owned by
them.
 
 Name and Address of
                                    Beneficial Owner
                                  
                                  Title, if any
                                  
                                  Amount and Nature of Beneficial
                                    Ownership
                                  
                                  
                                  Percentage of
                                    Common StockLau
      Lau San
                                  
                                  CEO
      & Chairman
                                  
                                  
                                  10,000,000
                                  
                                  
                                  
                                  54.6
                                  %Liu
      Jingdong
                                  
                                  President,
      Director
                                  
                                  
                                  1,000,000
                                  
                                  
                                  
                                  5.5
                                  %Chen
      Guocheng
                                  
                                  CFO,
      Director
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  1.1Changfu
      Wang
                                  
                                  Independent
      Director
                                  
                                  
                                  50,000
                                  
                                  
                                  
                                  *Dr.
      Baoyun Qiao
                                  
                                  Independent
      Director
                                  
                                  
                                  30,000
                                  
                                  
                                  
                                  *All
      of our officers and directors as a group (5 individuals)
                                  
                                  
                                  
                                  
                                  11,280,000
                                  
                                  
                                  
                                  61.4
                                  %
 
 *less
than 1%
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS
 
 Prior to the beginning of the
fiscal year and prior to the share exchange we were parties to the following
related party transactions:
 
 The
director of the Company, Mr. Lau San, loaned money to the Company for working
capital. These amounts are interest- free, unsecured and repayable on
demand.  The payable balances as of December 31, 2008 and 2007 are
$1,005,084 and $125,838 respectively.
 
 The
balance of due to related parties under Mudanjiang Bingjiang Garden City
represented consideration payable to the Company for the construction of
properties. Mr. Lau San, the director of the Company, has a controlling interest
in Mudanjiang Bingjiang Garden City. The balance was interest free and was
repaid in March 2008.
 
 The
Company borrowed money from Changchun Junming Machinery Co., Ltd, which is
controlled by Mr. Lau San, the director of the Company for use in operations.
The loan bore no interest and the principal is due upon
demand.   The payable balances as of December 31, 2008 and 2007
are $148,734 and $341,805, respectively.
 
 The
Company borrowed money from Shenzhen Junsheng Property Management Co., Ltd.,
which is controlled by Ms. Yang, Fengyan, Mr. Lau San’s wife, for use in
operations. The loan bore no interest and the principal is due upon
demand.  The payable balances as of December 31, 2008 and 2007 are
$14,590 and nil respectively.
 
 37
 
 The
Company, as minority shareholder of Zhongji North, borrowed money from Zhongji,
to fund the Company’s operations. These amounts are interest-free, unsecured and
the principal is due upon demand.  The payable balances as of December
31, 2008 and 2007 are $413,666 and $233,329 respectively.
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 The
following table sets forth fees billed to us by our independent registered
public accounting firms during the fiscal years ended December 31, 2008 and
December 31, 2007 for: (i) services rendered for the audit of our annual
financial statements and the review of our quarterly financial statements; (ii)
services by our independent registered public accounting firms that are
reasonably related to the performance of the audit or review of our financial
statements and that are not reported as audit fees; (iii) services rendered in
connection with tax compliance, tax advice and tax planning; and (iv) all other
fees for services rendered.
  December
                      31, 2008
                    
                    
                    December
                      31, 2007Audit
      Fees
                    
                    $
                    90,000
                    
                    
                    $
                    90,000Audit
      Related Fees
                    
                    $
                    -
                    
                    
                    $
                    -Tax
      Fees
                    
                    $
                    -
                    
                    
                    $
                    -All
      Other Fees
                    
                    $
                    -
                    
                    
                    $
                    -TOTAL
                    
                    $
                    90,000
                    
                    
                    $
                    90,000
 
 Audit Committee
Policies
 
 The Board
of Directors is solely responsible for the approval in advance of all audit and
permitted non-audit services to be provided by the independent auditors
(including the fees and other terms thereof), subject to the de minimus
exceptions for non-audit services provided by Section 10A(i)(1)(B) of the
Exchange Act, which services are subsequently approved by the Board of Directors
prior to the completion of the audit. None of the fees listed above are for
services rendered pursuant to such de minimus exceptions.
 
 38
 
 Part
IV
 
 ITEM 15. EXHIBITS
  Item
                    Number
                  
                  Description(3)
                  
                  Articles of Incorporation and
      By-laws3.1
                  
                  Certificate
      of Incorporation (incorporated by reference from our Registration
      Statement on Form SB-2, filed on February 13, 2006)3.2
                  
                  Certificate
      of Amendment filed with the Delaware Secretary of State on July 31, 2008
      effective August 12, 2008 (incorporated by reference from our Current
      Report on Form 8-K, filed on August 12, 2008)3.3
                  
                  Bylaws
      (incorporated by reference from our Registration Statement on Form SB-2
      filed on February 13, 2006)(10)
                  
                  Material
      Contracts10.1
                  
                  Licensing
      Agreement dated October 2004 between Royaltech Corp. and Mr. Kang Zhang
      (incorporated by reference from our Registration Statement on Form SB-2
      filed on February 13, 2006)10.2
                  
                  Investment
      Agreement dated January 10, 2006 between Royaltech Corp. and Aventech
      Capital Inc. for 350,000 shares (incorporated by reference from our
      Registration Statement on Form SB-2 filed on February 13,
      2006)10.3
                  
                  Investment
      Agreement dated January 10, 2006 between Royaltech Corp. and Alliance PKU
      Management Consultants Ltd for 350,000 shares (incorporated by reference
      from our Registration Statement on Form SB-2 filed on February 13,
      2006)10.4
                  
                  Investment
      Agreement dated January 10, 2006 between Royaltech Corp. and Hong Sheng
      for 30,000 shares (incorporated by reference from our Registration
      Statement on Form SB-2 filed on February 13, 2006)10.5
                  
                  Form
      of Subscription Agreement (incorporated by reference from our Registration
      Statement on Form SB-2 filed on February 13, 2006)10.6
                  
                  Pro-Forma
      Invoice dated December 22, 2004 from China Westerprises Canada Holdings to
      Royaltech Corp. (incorporated by reference from our Registration Statement
      on Form SB-2 filed on February 13, 2006)10.7
                  
                  Pro-Forma
      Invoice dated August 11, 2005 from China Westerprises Canada Holdings to
      Royaltech Corp. (incorporated by reference from our Registration Statement
      on Form SB- 2 filed on February 13, 2006)10.8
                  
                  Share
      Exchange Agreement, entered into on September 8, 2008, by and among
      Royaltech, Densen, and the shareholders of all the outstanding shares of
      Densen. (incorporated by reference from our Current Report on Form 8-K,
      filed on September 15, 2008)10.9
                  
                  Stock
      Purchase Agreement, entered into on September 8, 2008, by and between
      Royaltech and FirsTrust Group Inc. (incorporated by reference from our
      Current Report on Form 8-K, filed on September 15,
2008)(21)
                  
                  Subsidiaries
      of the registrant21.1*
                  
                  List
      of Subsidiaries(31)
                  
                  Section 302
      Certification31.1*
                  
                  Certification
      of Registrant’s Chief Executive Officer pursuant to Rule
      13a-14(a)/15d-14(a) of the Securities Exchange Act of
  1934.  39
  31.2*
                  
                  Certification
      of Registrant’s Chief Financial Officer pursuant to Rule
      13a-14(a)/15d-14(a) of the Securities Exchange Act of
  1934.(32)
                  
                  Section 906
      Certification32.1*
                  
                  Certification
      of Registrant’s Chief Executive Officer pursuant to Rule
      13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
      Section 1350.32.2*
                  
                  Certification
      of Registrant’s Chief Financial Officer pursuant to Rule
      13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
      Section 1350
 ____________________
 * filed
herewith
 
 40
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
shareholders of China Tractor Holdings, Inc.
 
 We have
audited the balance sheets of China Tractor Holdings, Inc. and Subsidiaries (the
“Company”) as of December 31, 2008 and 2007 and the related statements of
operations and other comprehensive income (loss), shareholders equity and cash
flows for the years ended December 31, 2008 and 2007.  These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of internal control
over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2008
and 2007, and the results of its operations and its cash flows for the years
ended December 31, 2008 and 2007 in conformity with U.S. generally accepted
accounting principles.
 
 /s/
Goldman Parks Kurland Mohidin LLP
 
 Goldman
Parks Kurland Mohidin LLP
 Encino,
California
 April 14,
2009
 
 F-1
  PART
I - FINANCIAL INFORMATION
  CHINA
TRACTOR HOLDINGS, INC.
 CONSOLIDATED
BALANCE SHEETS
 AS
OF DECEMBER 31, 2008 AND 2007
 
 December31,2008
                          
                          
                          December 31, 2007ASSETSCurrent
      assetsCash
      and cash equivalents
                          
                          $
                          1,979,153
                          
                          
                          $
                          2,714,239Accounts
      receivable
                          
                          
                          2,275,976
                          
                          
                          
                          2,421Other
      receivables, net of allowance for doubtful accounts
                          
                          
                          470,632
                          
                          
                          
                          174,183Advance
      to suppliers
                          
                          
                          554,376
                          
                          
                          
                          1,076,042Inventories,
      net
                          
                          
                          8,960,235
                          
                          
                          
                          1,224,578Prepaid
      expenses
                          
                          
                          8,754
                          
                          
                          
                          3,039Taxes
      recoverable
                          
                          
                          663,836
                          
                          
                          
                          276,912Due
      from related parties
                          
                          
                          1,900,128
                          
                          
                          
                          -Total
      current assets
                          
                          
                          16,813,090
                          
                          
                          
                          5,471,414Property,
      plant and equipment, net
                          
                          
                          21,832,068
                          
                          
                          
                          20,196,721Construction
      in progress
                          
                          
                          600,398
                          
                          
                          
                          -Intangible
      assets
                          
                          
                          553,465
                          
                          
                          
                          571,604Land
      use right
                          
                          
                          3,071,373
                          
                          
                          
                          2,937,090Land
      use right deposit
                          
                          
                          1,038,174
                          
                          
                          
                          590,337Long-term
      equity investments
                          
                          
                          1,877,836
                          
                          
                          
                          1,121,122Deferred
      tax assets
                          
                          
                          30,394
                          
                          
                          
                          -TOTAL
      ASSETS
                          
                          $
                          45,816,798
                          
                          
                          $
                          30,888,288LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesShort-term
      loans
                          
                          $
                          4,376,878
                          
                          
                          $
                          -Accounts
      payable
                          
                          
                          6,628,498
                          
                          
                          
                          942,396Advance
      from customers
                          
                          
                          282,235
                          
                          
                          
                          39,904Salary
      payable
                          
                          
                          116,823
                          
                          
                          
                          4,956Accrued
      expenses and other payables
                          
                          
                          718,450
                          
                          
                          
                          156,951Due
      to related parties
                          
                          
                          1,582,074
                          
                          
                          
                          1,085,215Total
      current liabilities
                          
                          
                          13,704,958
                          
                          
                          
                          2,229,422MINORITY
      INTERESTS
                          
                          
                          15,764,939
                          
                          
                          
                          14,039,158STOCKHOLDERS’
      EQUITYCommon
      shares, issued and outstanding; 18,310,539 and 16,720, 534 shares, par
      value $0.001 per share
                          
                          
                          1,831
                          
                          
                          
                          1,672Additional
      paid-in capital
                          
                          
                          15,183,276
                          
                          
                          
                          15,183,228Accumulated
      other comprehensive income
                          
                          
                          2,578,962
                          
                          
                          
                          1,557,763Accumulated
      deficit
                          
                          
                          (1,417,168
                          )
                          
                          
                          (2,122,955
                          )TOTAL
      STOCKHOLDERS’ EQUITY
                          
                          
                          16,346,901
                          
                          
                          
                          14,619,708TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
                          $
                          45,816,798
                          
                          
                          $
                          30,888,288
 
 The
accompanying notes are an integral part of the consolidated financial
statements
 
 F-2
 
 CHINA
TRACTOR HOLDINGS, INC.
 STATEMENTS
OF CONSOLIDATED OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
  For the Year
                                      Ended December 312008
                                    
                                    
                                    2007Net
      revenue
                                    
                                    $
                                    26,598,861
                                    
                                    
                                    $
                                    8,660,202Cost
      of sales
                                    
                                    
                                    (23,775,510
                                    )
                                    
                                    
                                    (8,559,947
                                    )Gross
      profit
                                    
                                    
                                    2,823,351
                                    
                                    
                                    
                                    100,255Operating
      expenses:Sales
      and marketing expenses
                                    
                                    
                                    (276,924
                                    )
                                    
                                    
                                    (123,747
                                    )General
      and administrative expenses
                                    
                                    
                                    (1,563,209
                                    )
                                    
                                    
                                    (683,837
                                    )Provision
      and impairment loss of assets
                                    
                                    
                                    (80,981
                                    )
                                    
                                    
                                    (639,251
                                    )Profit/(Loss)
      from operations
                                    
                                    
                                    902,237
                                    
                                    
                                    
                                    (1,346,580
                                    )Equity
      in earnings in investee
                                    
                                    
                                    125,113Interest
      income
                                    
                                    
                                    7,692
                                    
                                    
                                    
                                    9,321Gain/(Loss)
      on disposal of fixed assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    362Government
      grant income
                                    
                                    
                                    943,660
                                    
                                    
                                    
                                    65,641Other
      income
                                    
                                    
                                    48,534
                                    
                                    
                                    
                                    587Interest
      expense
                                    
                                    
                                    (11,274
                                    )
                                    
                                    
                                    (203,241
                                    )Other
      expenses
                                    
                                    
                                    (34,801
                                    )
                                    
                                    
                                    (1,702
                                    )Profit/(Loss)
      before income taxes and minority interests
                                    
                                    
                                    1,981,161
                                    
                                    
                                    
                                    (1,475,612
                                    )Minority
      interest
                                    
                                    
                                    (800,299
                                    )
                                    
                                    
                                    102,041Profit/(loss)
      before income taxes
                                    
                                    
                                    1,180,862
                                    
                                    
                                    
                                    (1,373,571
                                    )Income
      tax expenses
                                    
                                    
                                    (475,076
                                    )
                                    
                                    
                                    -Net
      profit/loss attributable to stockholders
                                    
                                    
                                    705,786
                                    
                                    
                                    
                                    (1,373,571
                                    )Other
      comprehensive income/(loss)
                                    
                                    
                                    1,021,199
                                    
                                    
                                    
                                    1,005,899Comprehensive
      income/(loss)
                                    
                                    $
                                    1,726,985
                                    
                                    
                                    $
                                    (367,672
                                    )
 
 The
accompanying notes are an integral part of the consolidated financial
statements
 
 F-3
 
 CHINA
TRACTOR HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR
THE YEAR ENDED DECEMBER 31, 2008 AND 2007
 
 Shares
                      
                      
                      Common
                        Stock
                      
                      
                      Additional
                        Paid-in
                        Capital
                      
                      
                      Other
                        comprehensive
                        income (loss)
                      
                      
                      Accumulated
                        surplus/(Deficit)
                      
                      
                      TotalBalance
      December 31, 2006
                      
                      $
                      16,720,354-
                      
                      
                      $
                      1,672
                      
                      
                      $
                      15,183,228
                      
                      
                      $
                      551,864
                      
                      
                      $
                      (749,384
                      )
                      
                      $
                      14,987,380Capital
      contribution
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Fractional
      shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Issuance
      of shares for services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Foreign
      Currency Translation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,005,899
                      
                      
                      
                      -
                      
                      
                      
                      1,005,899Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,373,571
                      )
                      
                      
                      (1,373,571
                      )Balance
      December 31, 2007
                      
                      $
                      16,720,354
                      
                      
                      $
                      1,672
                      
                      
                      $
                      15,183,228
                      
                      
                      $
                      1,557,763
                      
                      
                      $
                      (2,122,955
                      )
                      
                      $
                      14,619,708Recapitalization
      of Densen on reverse acquisition
                      
                      
                      1,590,185
                      
                      
                      
                      159
                      
                      
                      
                      48
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      207Foreign
      Currency Translation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,021,199
                      
                      
                      
                      -
                      
                      
                      
                      1,021,199Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      705,787
                      
                      
                      
                      705,787Balance
      December 31, 2008
                      
                      $
                      18,310,539
                      
                      
                      $
                      1,831
                      
                      
                      $
                      15,183,276
                      
                      
                      $
                      2,578,962
                      
                      
                      $
                      (1,417,168
                      )
                      
                      $
                      16,346,901
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-4
 
 CHINA
TRACTOR HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF  CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 
 2008
                                
                                
                                2007Cash
      flows from operating activities:Net
      income/loss
                                
                                $
                                705,786
                                
                                
                                $
                                (1,416,052
                                )Adjustments
      to reconcile net income/(loss) to cash provided (used) by operating
      activities:
                                
                                
                                -
                                
                                
                                
                                -Minority
      interest
                                
                                
                                800,299
                                
                                
                                
                                (59,560
                                )Depreciation
      and amortization
                                
                                
                                766,377
                                
                                
                                
                                604,685Provision
      for doubtful receivables
                                
                                
                                80,981
                                
                                
                                
                                (13,652
                                )Impairment
      of intangible assets
                                
                                
                                -
                                
                                
                                
                                626,123Investment
      income
                                
                                
                                (125,113
                                )
                                
                                
                                -Deferred
      tax assets
                                
                                
                                (29,922
                                )
                                
                                
                                -Changes
      in operating assets and liabilities:Accounts
      receivable
                                
                                
                                (2,240,654
                                )
                                
                                
                                (92,788
                                )Inventories
                                
                                
                                (7,523,917
                                )
                                
                                
                                1,255,498Advances
      to suppliers
                                
                                
                                527,885
                                
                                
                                
                                115,925Prepaid
      expenses and other assets
                                
                                
                                (315,598
                                )
                                
                                
                                19,414Accounts
      payable
                                
                                
                                5,535,605
                                
                                
                                
                                121,553Advance
      from customers
                                
                                
                                235,935
                                
                                
                                
                                -Accrued
      expenses and other current liabilities
                                
                                
                                (59,474
                                )
                                
                                
                                245,677Cash
      provided (used) by operating activities
                                
                                
                                (1,641,810
                                )
                                
                                
                                1,406,823Cash
      flows from investing activities:Cash
      paid for long- term investment
                                
                                
                                (545,801
                                )
                                
                                
                                (1,076,511
                                )Purchase
      of property and equipment and other long-term assets
                                
                                
                                (1,927,085
                                )
                                
                                
                                (4,699,478
                                )Net
      cash used for investing activities
                                
                                
                                (2,472,886
                                )
                                
                                
                                (5,775,989
                                )Cash
      flows from financing activities:Contributed
      Capital - Minority
                                
                                
                                -
                                
                                
                                
                                13,128,184Proceeds
      on short-term loan
                                
                                
                                4,308,952
                                
                                
                                
                                -Proceeds
      from related parties - net
                                
                                
                                (1,097,430
                                )
                                
                                
                                286,411Repayments
      on short-term loan
                                
                                
                                -
                                
                                
                                
                                (5,185,633
                                )Repayments
      on long-term loan
                                
                                
                                -
                                
                                
                                
                                (1,312,818
                                )Net
      cash provided by financing activities
                                
                                
                                3,211,522
                                
                                
                                
                                6,916,144Effect
      of exchange rate changes on cash
                                
                                
                                168,088
                                
                                
                                
                                109,522Net
      increase (decrease) in cash and cash equivalents
                                
                                
                                (735,086
                                )
                                
                                
                                2,656,500Cash
      and cash equivalents, beginning balance
                                
                                
                                2,714,239
                                
                                
                                
                                57,739Cash
      and cash equivalents, ending balance
                                
                                $
                                1,979,153
                                
                                
                                $
                                2,714,239
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-5




CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
1—ORGANIZATION AND PROPOSED BUSINESS OPERATIONS





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





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





The share
exchange agreement also states that the existing shareholders of Royaltech have
assumed all the liabilities of Royal tech at the date of merger.





On the
Closing Date, Royaltech issued 16,720,354 shares of Common Stock to the former
shareholders of Densen or their designees in exchange for all the issued and
outstanding shares of Densen. Immediately after the closing of the Share
Exchange and the Stock Purchase Agreements, Royaltech had 18,310,539 shares of
Common Stock issued and outstanding.


F-6


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





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





Principles of
Consolidation





The accompanying consolidated
financial statements include the accounts of China Tractor Holdings, Inc., its
97%-owned subsidiary Changchun Densen Changtuo Agriculture Machinery
Manufacturing Co., Ltd. (“Changchun Densen”), its 70%-owned subsidiary Jilin
Qilida Bearing Co., Ltd. (“JQBC”) and its 47.5%-owned joint venture Chang Tuo
Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”) as of and for the
year ended December 31, 2008. As the Company appointed 4 directors of total 7
seats of Chang Tuo, the accounts of Chang Tuo is included in this consolidation.
All significant inter-company accounts and transactions have been eliminated in
consolidation.





Basis of
Presentation





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





Use of
Estimates





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


F-7


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





Foreign Currency
Translation





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





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





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





Fair Value of Financial
Instruments





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


It is
management’s opinion that the Company is not exposed to significant interest,
price or credit risks arising from these financial instruments.





In
respect of foreign currency risk, the Company is exposed to this risk arising
from import purchase transactions and recognized trade payables as they will
affect the future operating results of the Company. The Company did not have any
hedging transactions during the reporting periods.





Risks and
Uncertainties





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





Cash and Cash
Equivalents





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


F-8


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





Accounts
Receivable





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





Inventories





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





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





Property, Plant and
Equipment





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





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


F-9


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





Land Use
Rights





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





Other Intangible
Assets





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





Capitalized
Interest





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





Impairment
of Long-Lived Assets





In
accordance with Statement of Financial Accounting Standards (SFAS) No.144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company
reviews the carrying values of long-lived assets, including property, plant and
equipment, land use right and other intangible assets, whenever facts and
circumstances indicate that the assets may be impaired. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net undiscounted cash flows expected to be generated by the
asset. If an asset is considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the asset exceeds the
fair value. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs of disposal. For 2008, the Company performed
annual impairment review of long-lived assets and concluded that there was an
impairment loss of land use right of $695,822.


F-10


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





Revenue
Recognition





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





The
Company does not offer promotional payments, customer coupons, rebates or other
cash redemption offers to its customers.





Deposits
or advance payments from customers prior to delivery of goods and passage of
title of goods are recorded as advanced from customers.





Income
Taxes





The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes”. Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts and each
year-end based on enacted tax laws and statutory rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized when, in management’s opinion; it is more likely than not that
some portion of the deferred tax assets will not be realized. The provision for
income taxes represents current taxes payable net of the change during the
period in deferred tax assets and liabilities. The Company adopted FIN 48,
Accounting for Uncertainty in Tax Positions.





Comprehensive
Income





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





SFAS
No.130, “Reporting Comprehensive Income,” establishes standards for reporting
and displaying comprehensive income and its components in the consolidated
financial statements. Accumulated other comprehensive income (loss) includes
foreign currency translation adjustments.


F-11


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





Long-Term
Investments





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





Recent Accounting
Pronouncements





In July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).
This interpretation requires that we recognize in our financial statements, the
impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year.
The adoption of FIN 48 has no material effect on our financial
statements.





In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial
statements


for an
interim period within that fiscal year. The provisions of this statement should
be applied prospectively as of the beginning of the fiscal year in which this
Statement is initially applied, except in some circumstances where the statement
shall be applied retrospectively. The adoption of SFAS 157 has no material
effect on our financial statements.





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





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


F-12


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective for the fiscal year beginning after December 15, 2008. Our
management is in the process of evaluating the impact that SFAS 160 will have on
the Company’s financial statements upon adoption.





In
December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”.
SFAS 141 (Revised) establishes principles and requirements for how the acquirer
of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. The
guidance will become effective for the fiscal year beginning after December 15,
2008. Our management is in the process of evaluating the impact that SFAS 141
(Revised) will have on the Company’s financial statements upon
adoption.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB Statement No. 133.”  SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.  Based on current conditions, the Company does not expect the
adoption of SFAS 161 to have a significant impact on its results of operations
or financial position.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  SFAS 162 will not have an impact
on the Company’s financial statements.





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


F-13


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
2   ACCOUNTS RECEIVABLE





As of
December 31, 2008 and 2007, the Company’s accounts receivable consist of the
following:





2008
                
                
                2007Accounts
      receivable
                
                $
                2,278,559
                
                
                $
                2,421Less:
      Allowance for doubtful accounts
                
                
                (2,583
                )
                
                
                -Accountants
      receivable, net
                
                $
                2,275,976
                
                
                $
                2,421





NOTE
3   INVENTORIES





Inventories,
by major categories, as of December 31, 2008 and 2007 are as
follows





2008
                      
                      
                      2007Raw
      materials
                      
                      $
                      4,435,034
                      
                      
                      $
                      768,567Work
      in progress
                      
                      
                      1,119,496
                      
                      
                      
                      -Low
      value consumables
                      
                      
                      123,437
                      
                      
                      
                      71,392Packaging
      materials
                      
                      
                      1,579
                      
                      
                      
                      -Materials
      on consignment for further processing
                      
                      
                      18,638
                      
                      
                      
                      -Finished
      goods
                      
                      
                      3,284,065
                      
                      
                      
                      384,6198,982,249
                      
                      
                      
                      1,224,578Less:
      Allowance for obsolete  inventories
                      
                      
                      (22,014
                      )
                      
                      
                      --
                      
                      
                      
                      -Inventories,
      net
                      
                      $
                      8,960,235
                      
                      
                      $
                      1,224,578


F-14


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
4   ADVANCE TO SUPPLIERS





Advance
to suppliers represent partial payments or deposits on inventory purchases and
amounted to $554,376 and $1,076,042 as of December 31, 2008 and 2007,
respectively.





NOTE
5   OTHER RECEIVABLES





As of
December 31, 2008 and 2007, the Company’s other receivables consist of the
following:





2008
                    
                    
                    2007Advance
      to employees for business purpose
                    
                    $
                    123,698
                    
                    
                    $
                    142,736Prepayment
                    
                    
                    28,827
                    
                    
                    
                    -Rebate
      receivable
                    
                    
                    48,496
                    
                    
                    
                    -Deposit
      for acquisition of long-term assets
                    
                    
                    -
                    
                    
                    
                    45,119Others
                    
                    
                    284,201
                    
                    
                    
                    -485,222
                    
                    
                    
                    187,855Less:
      Allowance for doubtful accounts
                    
                    
                    (14,590
                    )
                    
                    
                    (13,672
                    )Total
      other receivables, net
                    
                    $
                    470,632
                    
                    
                    $
                    174,183





NOTE
6    PROPERTY, PLANT AND EQUIPMENT





Property,
plant and equipment as of December 31, 2008 and 2007 consist of the
following:





2008
                  
                  
                  2007Cost:Plant
      and Building
                  
                  $
                  20,940,518
                  
                  
                  $
                  19,457,464Machinery
      and Equipment
                  
                  
                  1,967,750
                  
                  
                  
                  1,267,496Office
      Furniture and Equipment
                  
                  
                  125,881
                  
                  
                  
                  64,192Transportation
      Equipment
                  
                  
                  296,274
                  
                  
                  
                  209,923Total
      at cost
                  
                  
                  23,330,423
                  
                  
                  
                  20,999,075Less:
      Accumulated depreciation
                  
                  
                  (1,498,355
                  )
                  
                  
                  (802,354
                  )Total
      property, plant and equipment, net
                  
                  $
                  21,832,068
                  
                  
                  $
                  20,196,721




F-15


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008








Estimated useful lifePlant
      and Building
                  30-40
      yearsMachinery
      and Equipment
                  10
      yearsOffice
      Furniture and Equipment
                  5
      yearsTransportation
      Equipment
                  5
      years





Depreciation
expense for 2008 and 2007 was $641,735 and $543,912 respectively.





NOTE
7   LAND USE RIGHTS





Land use
rights were as follows:





2008
                  
                  
                  2007Cost
      of land use right
                  
                  $
                  3,950,862
                  
                  
                  $
                  3,702,438Less:
      Accumulated amortization
                  
                  
                  (183,667
                  )
                  
                  
                  (113,278
                  )3,767,195
                  
                  
                  
                  3,589,160Less:
      Impairment loss on land use right
                  
                  
                  (695,822
                  )
                  
                  
                  (652,070
                  )Land
      use rights, net
                  
                  $
                  3,071,373
                  
                  
                  $
                  2,937,090





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





An
amortization expenses for 2008 and 2007 was $61,813 and $69,885
respectively.





The
estimated annual amortization expense for land use rights for the next five
years and thereafter is expected to be as follows:





Year
                  
                  Amortization
                    Expenses2009
                  
                  $
                  61,8132010
                  
                  
                  61,8132011
                  
                  
                  61,8132012
                  
                  
                  61,8132013
                  
                  
                  61,813Thereafter
                  
                  
                  2,762,308Total
                  
                  $
                  3,071,373


F-16


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
8 LAND USE RIGHT DEPOSIT





Land use
right deposit was as following:





2008
                  
                  
                  2007Land
      use right deposit
                  
                  $
                  1,038,174
                  
                  
                  $
                  590,337





NOTE
9   OTHER INTANGIBLE ASSETS





As of
December 31, 2008 and 2007, the Company’s intangible assets related to the
Company’s acquisitions consisted of the following:





Useful life
                      
                      2008
                      
                      
                      2007Amortizable
      intangible assets:Trademark
                      
                      10
      years
                      
                      $
                      538,356
                      
                      
                      $
                      504,505Capitalized
      accounting software
                      
                      10
      years
                      
                      
                      14,185
                      
                      
                      
                      6,427Non-patent
      techniques
                      
                      10
      years
                      
                      
                      87,538
                      
                      
                      
                      82,033Total
      at historical cost
                      
                      
                      
                      
                      640,079
                      
                      
                      
                      592,965Less:
      Total accumulated amortization
                      
                      
                      
                      
                      (86,614
                      )
                      
                      
                      (21,361
                      )Other
      intangible assets, net
                      
                      
                      
                      $
                      553,465
                      
                      
                      $
                      571,604





Other
intangible assets are stated at cost less accumulated amortization. The
amortization of other intangible assets for 2008 and 2007 was $61,758 and
$12,531 respectively.





The
estimated amortization expense for the next five years and thereafter is
expected to be as follows:





Year
                  
                  Amortization
                    Expenses2009
                  
                  $
                  61,7582010
                  
                  
                  61,7582011
                  
                  
                  61,7582012
                  
                  
                  61,7582013
                  
                  
                  61,758Thereafter
                  
                  
                  244,675Total
                  
                  $
                  553,465


F-17


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
10   LONG TERM INVESTMENT





As of
December 31, 2008 and 2007, the Company’s investment consists of the
following:





2008
                
                2007Zhongji
      North Machinery Co., Ltd.
                
                
                24%
                $   1,877,836
                
                
                24%
                $   1,121,122





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





Balance
      Sheet as of December 312008
                                                                    
                                                                    
                                                                    2007AssetsCash
                                                                    
                                                                    $
                                                                    2,481,590
                                                                    
                                                                    
                                                                    $
                                                                    2,944,360Receivables
                                                                    
                                                                    
                                                                    3,499,959
                                                                    
                                                                    
                                                                    
                                                                    1,294,029Inventories
                                                                    
                                                                    
                                                                    1,895,571
                                                                    
                                                                    
                                                                    
                                                                    -Long-term
      assets
                                                                    
                                                                    
                                                                    2,054,884
                                                                    
                                                                    
                                                                    
                                                                    -Total
      assets
                                                                    
                                                                    $
                                                                    9,932,004
                                                                    
                                                                    
                                                                    $
                                                                    4,238,389Liabilities and shareholder’s equityPayables
                                                                    
                                                                    
                                                                    1,432,339
                                                                    
                                                                    
                                                                    
                                                                    -Long-term
      liabilities
                                                                    
                                                                    
                                                                    675,349
                                                                    
                                                                    
                                                                    
                                                                    -Paid-in
      capital
                                                                    
                                                                    
                                                                    7,294,797
                                                                    
                                                                    
                                                                    
                                                                    4,238,389Retained
      earnings
                                                                    
                                                                    
                                                                    521,303
                                                                    
                                                                    
                                                                    
                                                                    -Foreign
      currency translation
                                                                    
                                                                    
                                                                    8,216
                                                                    
                                                                    
                                                                    
                                                                    -Total
      liabilities and shareholder’s equity
                                                                    
                                                                    $
                                                                    9,932,004
                                                                    
                                                                    
                                                                    $
                                                                    4,238,389Income
      Statement for Years ended December 312008
                                                                    
                                                                    
                                                                    2007Revenue
                                                                    
                                                                    
                                                                    14,600,587
                                                                    
                                                                    
                                                                    
                                                                    -Cost
      of sales
                                                                    
                                                                    
                                                                    (13,143,044
                                                                    )
                                                                    
                                                                    
                                                                    -Gross
      margin
                                                                    
                                                                    
                                                                    1,457,543
                                                                    
                                                                    
                                                                    
                                                                    -Expenses
                                                                    
                                                                    
                                                                    (760,309
                                                                    )
                                                                    
                                                                    
                                                                    -Earning
      before income tax
                                                                    
                                                                    
                                                                    697,234
                                                                    
                                                                    
                                                                    
                                                                    -Income
      tax
                                                                    
                                                                    
                                                                    (175,931
                                                                    )
                                                                    
                                                                    
                                                                    -Net
      profit
                                                                    
                                                                    $
                                                                    521,303
                                                                    
                                                                    
                                                                    $
                                                                    -


F-18


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
11  SHORT-TERM LOANS





Short-term
loans represent amounts due to various financial institutions which are normally
due within one year. As of December 31, 2008, the Company’s short term loans
consisted of the followings:





Loan
      from Jilin bank Changchun Ruixiang Sub-Branch, due from December 10, 2008
      to November 26, 2009. with interest rate at 7.2540% per
      annum, pledged by the Company’s building and land use
      right
                        
                        $
                        4,376,878





NOTE
12   ACCRUED EXPENSES AND OTHER PAYABLES





As of
December 31, 2008 and 2007, the accrued expenses and other liabilities of the
Company are summarized as follows:





2008
                                  
                                  
                                  2007Other
      payables – equipment purchases payable
                                  
                                  $
                                  63,109
                                  
                                  
                                  $
                                  57,143–  warranty
      deposit
                                  
                                  
                                  109,013
                                  
                                  
                                  
                                  19,901–  borrowing
      from third party
                                  
                                  
                                  542,441
                                  
                                  
                                  
                                  68,361–  Others
                                  
                                  
                                  3,887
                                  
                                  
                                  
                                  11,546Total
      accrued expenses and other payables
                                  
                                  $
                                  718,450
                                  
                                  
                                  $
                                  156,951





The
Company borrowed money from a close friend of the shareholder, Mr. Lau San, for
use in operations. The loan bore no interest, without formal repayment
terms.  The balance of the loan as of December 31, 2008 and 2007
amounted to $542,441 and $68,361, respectively.





NOTE
13   RELATED PARTY BALANCE AND TRANSCATIONS





Due from related
parties





As of
December 31, 2008, the balance of due from related parties is presented
below:





Mudanjiang
      Binjiang Garden City
                
                $
                1,900,128


F-19


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





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




Due to related
parties





As of
December 31, 2008 and 2007, due to related parties is summarized as
follows:





2008
                  
                  
                  2007Lau
      San
                  
                  $
                  1,005,084
                  
                  
                  $
                  125,838Mudanjiang
      Bingjiang Garden City
                  
                  
                  -
                  
                  
                  
                  384,243Changchun
      Junming Machinery Co., Ltd
                  
                  
                  148,734
                  
                  
                  
                  341,805Shenzhen
      Junsheng Property Management Co., Ltd.
                  
                  
                  14,590Zhongji
      North Machinery Co., Ltd
                  
                  
                  413,666
                  
                  
                  
                  233,329Total
      due to related parties
                  
                  $
                  1,582,074
                  
                  
                  $
                  1,085,215





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





The
balance of due to related parties under Mudanjiang Bingjiang Garden City
represented consideration payable to the Company for the construction of
properties. Mr. Lau San, the director of the Company, has a controlling interest
in Mudanjiang Bingjiang Garden City. The balance was interest free and was
repaid in March 2008.





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





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





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





NOTE
14   G OVERNMENT GRANT INCOME





In 2008,
Chang Tuo received a $861,790 subsidy from Jiutai Municipal Bureau of Finance
for the improvement of the assembly line of big and medium tractors. Changchun
Densen received a $71,816 subsidy from Jiutai Municipal Bureau of Finance in
2008.


F-20


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
15   MINORITY INTERESTS





Minority
interests on the consolidated statement of income and comprehensive income of
$800,299 and $(102,041) for the year ended December 31, 2008 and 2007
respectively represents the minority shareholders’ proportionate share of the
net income/(loss) of the Company.





NOTE
16   INCOME TAX





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





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





Changchun
Densen had net operating profit of approximately $35,000 and net operating loss
of approximately $1,362,000 for the year ended December 31, 2008 and 2007,
respectively, while Chang Tuo had net operating profit of approximately
$1,504,000 and net operating loss of approximately $113,000 for the year ended
December 31, 2008 and 2007, respectively, while JQBC had net operating loss of
approximately $12,000 and Nil for the year ended December 31, 2008 and
2007.  A 100% valuation allowance has been established due to the
uncertainty of its realization.




The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for 2008:




2008
                  
                  
                  2007US
      statutory rates
                  
                  
                  (34
                  )%
                  
                  
                  (34
                  )%Tax
      rate difference
                  
                  
                  9
                  %
                  
                  
                  1
                  %Valuation
      allowance
                  
                  
                  (0.2
                  )%
                  
                  
                  (33
                  )%Effect
      of tax holiday
                  
                  
                  0.4
                  %Equity
      in earnings of investee
                  
                  
                  1.2
                  %Tax
      per financial statements
                  
                  
                  (23.6
                  )%
                  
                  
                  -


F-21


CHINA
TRACTOR HOLDINGS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008





NOTE
17   OPERATING RISK





(a)
            Country
      risk





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





(b)
            Products
      risk





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





(c)
            Exchange
      risk





The
Company can not guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of Renminbi
converted to US dollars on that date. The exchange rate could fluctuate
depending on changes in the political and economic environments without notice.
The exchange rate of Renminbi converted to US dollars as of December 31, 2008
and 2007 was 6.8542 and 7.3141 respectively.





(d)
            Political
      risk





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





(e)
            Interest
      risk





The
Company is exposed to interest rate risk arising from short-term variable rate
borrowings from time to time. The Company’s future interest expense will
fluctuate in line with any change in borrowing rates. The Company does not have
any derivative financial instruments as of December 31, 2008 and believes its
exposure to interest rate risk is not material.


F-22


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





Dated:
April 15, 2009


/s/ Lau SanLau
      SanChief
      Executive Officer and
Chairman




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.




Signature
                          
                          Title
                          
                          Date/s/ Lau San
                          
                          Chief
      Executive Officer and
                          
                          April
      15, 2009Lau
      San
                          
                          Chairman/s/ Chen Guocheng
                          
                          Chief
      Financial Officer and
                          
                          April
      15, 2009Chen
      Guochen
                          
                          Director/s/
      Liu Jingdong
                          
                          President
      and Director
                          
                          April
      15, 2009Glenn
      Peipert/s/
      Changfu Wang
                          
                          Director
                          
                          April
      15, 2009Changfu
      Wang/s/ Dr. Baoyun Qiao
                          
                          Director
                          
                          April
      15, 2009Dr.
      Baoyun Qiao


41