Attached files
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EX-32.2 - China Tractor Holdings, Inc. | v181203_ex32-2.htm |
EX-31.2 - China Tractor Holdings, Inc. | v181203_ex31-2.htm |
EX-32.1 - China Tractor Holdings, Inc. | v181203_ex32-1.htm |
EX-31.1 - China Tractor Holdings, Inc. | v181203_ex31-1.htm |
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,
2009
|
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
ChangChun
City, P.R.China
|
130507
|
|
(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 x NO 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 x No o
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $703,054 as of June 30,
2009 (based on the closing price for such stock as of June 30,
2009).
As of
April 1, 2010, there were 18,340,539 shares of common stock, par value $0.001
per share, of the registrant outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None
2
TABLE OF
CONTENTS
PART
I
|
4 | |
Item
1.
|
Business
|
4
|
Item
1A.
|
Risk
Factors
|
|
Item
1B.
|
Unresolved
Staff Comments
|
|
Item
2.
|
Properties
|
8
|
Item
3.
|
Legal
Proceedings
|
8
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
8
|
PART
II
|
9
|
|
Item
5.
|
Market
For Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
9
|
Item
6.
|
Selected
Financial Data
|
10
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
17
|
Item
8.
|
Financial
Statements and Supplementary Data
|
17
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
17
|
Item 9A.
|
Controls
and Procedures
|
17
|
Item 9B.
|
Other
Information
|
18
|
PART
III
|
19
|
|
Item
10.
|
Directors
and Executive Officers of the Registrant
|
19
|
Item
11.
|
Executive
Compensation
|
21
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
22
|
Item
13.
|
Certain
Relationships and Related Transactions
|
22
|
Item
14.
|
Principal
Accounting Fees and Services
|
23
|
|
||
PART
IV
|
25
|
|
Item
15.
|
Exhibits
|
25
|
3
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”). Up until December
1, 2009, the business operation of Chang Tuo was the sole business of the
Company.
On
December 1, 2009, the Company entered into a letter of intent to transfer all
shares owned by the Company in Chang Tuo to the Commission. As a result, on
December 1, 2009, the Company lost control over Chang Tuo as the Commission took
over Chang Tuo’s management and operations. Accordingly, Chang Tuo is reported
as a discontinued operation in accordance with ASC 205-20. The shares
of Chang Tuo will be sold to the Commission at the price of approximately
$9,799,333 (RMB67,000,000). The transfer of the shares is expected to be
completed on or about May 1, 2010.
Description
of Business
We currently do not have any
operations. Upon the closing of the transfer of the shares in Chang
Tuo, to be completed on or about May 1, 2010, we expect to receive a sum of
$9,799,333. Management has not yet decided on the future
plans.
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.
4
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.
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:
5
·
|
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.
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.
6
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.
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.
7
ITEM 2. DESCRIPTION OF
PROPERTY
None.
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. Reserved
8
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,
2009.
|
High
|
Low
|
||||||
2010
First Quarter
|
$ | 0.10 | $ | 0.10 | ||||
2009 by
Quarter
|
||||||||
January
1 - March 31
|
$ | 1.80 | 1.20 | |||||
April
1 - June 30
|
$ | 1.20 | 1.20 | |||||
July
1 - September 30*
|
$ | 1.20 | .75 | |||||
October
1 - December 31*
|
$ | 1.31 | 0.45 | |||||
|
||||||||
2008 by
Quarter
|
||||||||
January
1 - March 31
|
$ | 1.80 | 1.20 | |||||
April
1 - June 30
|
$ | 1.20 | 1.20 | |||||
July
1 - September 30*
|
$ | 1.20 | .75 | |||||
October
1 - December 31*
|
$ | 1.31 | 0.45 |
* 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, 2010, the closing price for shares of our common stock, as reported by the
Over-the-Counter Bulletin Board, was $0.10.
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 9, 2010, there were 123 registered holders of our
common stock. As of April 9, 2010, 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.
9
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.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and notes
thereto and the other financial information included elsewhere in this
report.
Note on Forward Looking
Statements
This yearly report on Form 10-K includes and incorporates by reference
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934
with respect to our financial condition, results of operations, plans,
objectives, future performance and business, which are usually identified by the
use of words such as “will,” “may,” “anticipates,” “believes,” “estimates,”
“expects,” “projects,” “plans,” “predicts,” “continues,” “intends,” “should,”
“would,” or similar expressions. We intend for these forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and are
including this statement for purposes of complying with these safe harbor
provisions.
These forward-looking statements reflect our current views and expectations
about our plans, strategies and prospects, which are based on the information
currently available and on current assumptions.
We cannot give any guarantee that these plans, intentions or expectations will
be achieved. Investors are cautioned that all forward-looking statements involve
risks and uncertainties, and actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including those Risk Factors set forth in our Form 8-K filed with the SEC on
September 15, 2008. Listed below and discussed elsewhere in this yearly 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 yearly report. These risks,
uncertainties and contingencies include, but are not limited to, the
following:
You
should read this document with the understanding that our actual future results
may be materially different from what we expect. We may not update these
forward-looking statements, even though our situation may change in the future.
We qualify all of our forward-looking statements by these cautionary
statements.
We are a
Delaware Corporation incorporated on April 13, 2004 under the name Royaltech
Corp. From inception to September 2008, we were a developmental stage company
focused on developing and manufacturing clinical diagnostic kits in the People’s
Republic of China (“PRC”). From inception to September 2008, we had not
manufactured or sold any products, and had limited operating
history.
On
September 9, 2008, we entered into a share exchange agreement with by Densen
Equipment Ltd. (“DEL”), which resulted in a change of control. For acquiring all
the assets of DEL, the former shareholders of DEL acquired over 90% of the
issued and outstanding shares of our common stock. The former officers and
directors of DEL were also appointed to serve as our officers and directors.
Following the acquisition of these assets, we changed our corporate name to
China Tractor Holdings, Inc. and our business is focused on the research,
production, and sales of low-speed vehicles, tractors and construction machinery
in the PRC, through our wholly owned subsidiary, Densen Machinery Investment
Limited, incorporated in Hong Kong in April 2005 ("Densen Machinery"). For
further details regarding the share exchange transaction with DEL, please see
our Current Report on Form 8-K, filed with the SEC on September 15,
2008.
10
Up until
December 1, 2009 Our corporate structure is summarized in the chart below and
the accompanying summary:
On
December 1, 2009, the Company entered into a letter of intent to transfer all
shares owned by the Company in Chang Tuo to the Commission. As a result, on
December 1, 2009, the Company lost control over Chang Tuo as the Commission has
taken over its management and operations. Accordingly, Chang Tuo is reported as
a discontinued operation in accordance with ASC 205-20. The shares of
Chang Tuo will be sold to the Commission at the price of approximately
$9,799,333 (RMB67,000,000). The transfer of the shares is expected to be
completed on or about May 1, 2010.
After the
completion of the transaction, the Company will have no substantial business
operations until it enters a new industry through merger or acquires other
operational entities. As a direct result of the incident, the
Company has experienced significant operating losses for the year ended December
31, 2009. The discontinued operation and the ensuing operating losses
raises substantial doubt as to the Company's ability to continue as a going
concern. Management is attempting to evaluate other potential
industries to enter.
Overview
At the
present time, our business 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 SOASACC entered
into a joint venture to establish Chang Tuo Chang Tuo to put itself in a better
position in the marketplace. As of September 30, 2008, the total registered
capital of Chang Tuo was RMB200,000,000 ($29.3 million) and was 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 its plan to promote the development of agriculture in the
northeast regions of China. The major markets for our products are located
mainly in the provinces of Jilin, Liaoning, Heilongjiang and Shandong. For the
changing of our business operation strategy, ownership in Chang Tuo will be
wholly transferred in a nearly future, we’ve reported Chang Tuo as discontinued
operation in our financial statement at the year ended December 31,
2009.
11
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles in the United States (“US GAAP”) requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments: allowance for doubtful accounts; income taxes; and
asset impairment.
Revenue
Recognition
In
accordance with US GAAP, revenue is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the service is
performed, and collection of the resulting receivable is reasonably
assured.
Revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collect ability is reasonably
assured. Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as advances from customers. Please see
Note 1 of our financial statements.
Allowance
for doubtful accounts
We
maintain an allowance for doubtful accounts to reduce trade receivable amounts
to their estimated realizable value. A 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 ASC 740 “Income Taxes”, previously
SFAS No. 109, which prescribes the use of the liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we establish a valuation
allowance. To the extent we establish a valuation allowance, or increase or
decrease this allowance in a period, we increase or decrease our income tax
provision in our statement of operations. If any of our estimates of our prior
period taxable income or loss prove to be incorrect, material differences could
impact the amount and timing of income tax benefits or payments for any period.
In addition, as a result of the significant change in the Company’s ownership,
the Company's future use of its existing net operating losses may be
limited.
12
We are
subject to numerous domestic and foreign tax jurisdictions and tax agreements
and treaties among the various taxing authorities. Our operations in these
jurisdictions are taxed on various bases: income before taxes, deemed profits
and withholding taxes based on revenue. The calculation of our tax liabilities
involves consideration of uncertainties in the application and interpretation of
complex tax regulations in a multitude of jurisdictions across our global
operations.
We
recognize potential liabilities and record tax liabilities for anticipated tax
audit issues in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due. The tax
liabilities are reflected net of realized tax loss carry forwards. We adjust
these reserves upon specific events; however, due to the complexity of some of
these uncertainties, the ultimate resolution may result in a payment that is
different from our current estimate of the tax liabilities. If our estimate of
tax liabilities proves to be less than the ultimate assessment, an additional
charge to expense would result. If payment of these amounts ultimately proves to
be less than the recorded amounts, the reversal of the liabilities would result
in tax benefits being recognized in the period when the contingency has been
resolved and the liabilities are no longer necessary.
Changes
in tax laws, regulations, agreements and treaties, foreign currency exchange
restrictions or our level of operations or profitability in each taxing
jurisdiction could have an impact upon the amount of income taxes that we
provide during any given year.
Asset
Impairment
We
periodically evaluate the carrying value of other long-lived assets, including,
but not limited to, property and equipment and intangible assets, when events
and circumstances warrant such a review. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flows from
such asset is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Significant
estimates are utilized to calculate expected future cash flows utilized in
impairment analyses. We also utilize judgment to determine other factors within
fair value analyses, including the applicable discount rate.
Results
of Operations for the years ended December 31, 2009 and 2008
CHINA
TRACTOR HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE GAINS/LOSS
YEARS
ENDED DECEMBER 31, 2009 AND 2008
|
|
|
|
2009
|
|
2008
|
|
Change
|
||||||||||||||
|
|
|
|
|
|
|
|
Amount
|
|
%
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net
revenue
|
|
$ | 18,991 | $ | 191,191 | $ | (172,200 | ) |
|
(90 | %) | |||||||||||
Cost
of sales
|
|
|
(159,058 | ) |
|
(70,313 | ) |
|
(88,745 | ) |
|
126 | % | |||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Gross
profit/(loss)
|
|
|
(140,067 | ) |
|
120,878 |
|
(260,945 | ) |
|
(216 | %) | ||||||||||
Operating
expenses:
|
|
|
|
|
|
|||||||||||||||||
|
Selling
and general and administrative expenses
|
|
(349,539 | ) |
|
(211,149 | ) |
|
(138,390 | ) |
|
66 | % | |||||||||
|
Impairment
loss of assets
|
|
|
|
(2,543 | ) |
|
2,543 |
|
(100 | %) | |||||||||||
(Loss)
from operations
|
|
|
(489,606 | ) |
|
(92,814 | ) |
|
(396,792 | ) |
|
428 | % | |||||||||
Other
income
|
|
|
966 |
|
117,697 |
|
(116,731 | ) |
|
(99 | %) | |||||||||||
Income/(loss)
before income taxes
|
(488,640 | ) | 24,883 | (513,523 | ) | (2,064 | %) | |||||||||||||||
Discontinued
operations, net of tax
|
(3,328,549 | ) | 1,481,203 | (4,809,752 | ) | (325 | %) | |||||||||||||||
Net
income/(loss)
|
(3,817,189 | ) | 1,506,086 | (5,323,275 | ) | (353 | %) | |||||||||||||||
Net
income/(loss) attributable to noncontrolling interest
|
114,516 | (800,299 | ) | 914,815 | (114 | %) | ||||||||||||||||
Net
Income/(loss) attributable to China Tractor Holdings, Inc.
|
(3,702,673 | ) | 705,787 | (4,408,460 | ) | (625 | %) | |||||||||||||||
Other
comprehensive income/(loss)
|
39,701 | 943,830 | (904,129 | ) | (96 | %) | ||||||||||||||||
Comprehensive
income/(loss)
|
(3,662,972 | ) | 1,649,617 | (5,312,589 | ) | (322 | %) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Comprehensive
(loss) attributable to noncontrolling interest
|
|
(1,203 | ) |
|
(77,369 | ) |
|
(76,166 | ) |
|
(98 | %) | ||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Net
profit/(loss) attributable to stockholders
|
$ | (3,664,175 | ) | $ | 1,572,248 |
|
(5,236,423 | ) |
|
(342 | %) |
13
Revenue
Revenue
for the year ended December 31, 2009 was $18,991, compared to $191,191 for 2008,
a decrease of $172,200 or 90%. The decrease mainly resulted from Densen
transfering its operation to Chang Tuo in 2008, and the decline in its business
operations in 2009. In 2007, we established Chang Tuo with SOASACC and
transferred all business operations to Chang Tuo in 2008, resulting in almost
all finished tractors and raw materials being sold by Chang Tuo in 2009. In
2009, Densen primarily played a management role.
Cost
of sales
Cost of
sales for the year ended December 31, 2009 increased to $159,058 from $70,313
for 2008, an increase of $88,745 or 126%. The increase is resulted
from the impairment loss of raw materials. The cost of sales for the year 2009
included $16,939 from sales of raw materials and $142,119 from impairment loss
of inventory.
Gross
profit (loss)
The gross
loss for 2009 was $140,067, a decrease of $260,945 or 216% compared to gross
profit of $120,878 for 2008. The decrease is due to no business
operation and all revenue was resulted from the sales of out-of-date raw
materials in 2009. The cost of sales for year 2009 included $16,939
from sales of raw materials and $142,119 from impairment loss of
inventory.
Selling,
general and administrative expenses
Selling,
general and administrative expenses increased to $349,538 in 2009 from $211,149
in 2008, an increase of $138,389 or 66%. The increase
generally resulted from the increase of agency fee, which is $207,139 and
$52,562 respectively for the years ended December 31, 2009 and 2008. Agency fee
mainly includes audit fees.
Provision
for impairment of assets
The
provision for impairment of assets in 2008 represents the provision for accounts
receivable of $2,543.
14
Other
income/(expenses)-net
Other
income-net for 2009 was $966, compared to $117,697 for 2008. Other income for
2009 mainly consisted of subsidies from governments for international business
development of $2,924 while other expenses mainly consisted of interest. Other
income for the year ended December 31, 2009 mainly consisted of subsidies from
governments for agricultural machinery manufacturers of $71,816.
Non-controlling
interest
Non-controlling
interest resulted in loss of $113,313 and gain of $877,668 for 2009 and 2008
respectively, representing the 3% minority interest of Changchun Tractor in
Densen.
Other
comprehensive income
Other
comprehensive loss in 2009 was $39,701 compared to comprehensive income of
$943,830 in 2008. It represents the foreign currency translation income resulted
from appreciation of RMB against the US dollar.
Net
income/(loss)
Net loss
in the year ended December 31, 2009 was $3,664,175, compared to net income of
$1,572,248 in 2008. This mainly resulted from discontinued operations of Chang
Tuo. Subsidy income in Chang Tuo for the years ended December 31, 2009 and 2008
was $5,847 and $871,845 respectively. Interest expense in Chang Tuo for the
years ended December 31, 2009 and 2008 was $741,136 and $11,274 respectively. In
addition, loss on disposal of operations of Chang Tuo was $3,264,057 in
2009.
Liquidity
and Capital Resources
China
Tractor generally finances its operations from short-term loans from
domestic banks. As of December 31, 2009, we had cash and cash
equivalents of $15,967 which represented an increase of $15,549 from
$418 as of December 31, 2008.
Operating
Activities
The net
cash provided in operating activities in 2009 was $1,154,073 compared to
net cash used in operating activities was $1,641,809 in 2008. The net cash
inflow from operating activities in 2009 was mainly due to the decrease in
receivable from sale of discontinued operation of $1,030,412.
Investing
Activities
Net cash
used for investing activities amounted to $5,776,160 in 2009, primarily due
to increase in payments for construction in progress.
Financing
Activities
Net cash
provided by financing activities was $2,658,891 in the year ended
December 31, 2009 which included an inflow by short-term loans; a net
inflow from related party borrowings of $612,383 and a net inflow from third
party borrowings of $1,315,613.
Going
forward, over the next 12 months, China Tractor intends to continue to rely
on short-term loans to fund its operational cash needs.
15
Inflation
In the
opinion of management, inflation has not had a material effect on the Company's
financial condition or results of its operations.
Trends
and uncertainties
The
consolidated financial statements of the Company have been prepared in
accordance with US GAAP assuming the Company will continue as a going concern.
Under that assumption, it is expected that assets will be realized and
liabilities will be satisfied in the normal course of business. On December 1,
2009, the Company signed a letter of intent to transfer all shares owned by the
Company in Chang Tuo to SOASACC. After the completion of the
transaction, the Company will have no substantial business operations until it
enters a new industry through merger or acquisition of other operating
entities. As a direct result of this transfer of ownership, the
Company has experienced significant operating losses for the year ended December
31, 2009. The discontinued operation and the ensuing operating losses
raise substantial doubt as to the Company's ability to continue as a going
concern. Management is attempting to evaluate other potential
industries to enter.
Off-Balance
Sheet Arrangements
We had no
off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on the Company’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources, that are material to investors at
December 31, 2009 or 2008.
16
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-22 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 due to
material weaknesses in its internal control over financial reported as described
below. In addition, disclosure controls and procedures were not
effective because management requires a better understanding of its disclosure
obligations under the Exchange Act.
Management’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;
|
17
·
|
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,
2009 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,
including Section 404
|
c.
|
The
audit committee oversight was not effective in
2009.
|
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 2009 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.
18
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
|
Title
|
||
Lau
San
|
58
|
CEO,
Chairman
|
||
Liu
Jingdong
|
33
|
President,
Director
|
||
Chen
Guocheng
|
46
|
CFO,
Director
|
||
Changfu
Wang
|
68
|
Independent
Director
|
||
Dr.
Baoyun Qiao
|
44
|
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 WANG Independent
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.
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.
19
Code
of Conduct and Ethics
·
|
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.
20
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 2009, 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
($)
|
|||||||||||||||||||
Lau
San
|
2009
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|||||||||||||||||||
CEO
&
Chairman(1)
|
2008
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
(1) Lau
San became our CEO on September 9, 2008.
Following
the share exchange and reorganization effected on September 9, 2008, we have
decided, and our Chief Executive Officer has agreed that no compensation will be
paid in 2008 and 2009.
Director
Compensation
Directors
of our company may be paid for their expenses incurred in attending each meeting
of the directors. In addition to expenses, directors may be paid a sum for
attending each meeting of the directors or may receive a stated salary as
director. No payment precludes any director from serving our company in any
other capacity and being compensated for such service. During the fiscal year
ended December 31, 2009, our compensation to our directors is set forth in the
following table.
DIRECTOR
COMPENSATION
Name
(a)
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
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
|
0
|
||||||||||
Liu
Jingdong
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||
Chen
Guochen
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||
Wang
Changfu
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||
Qiao
Baoyun
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
21
Following
the share exchange and reorganization effected on September 9, 2008, we have
decided, and our Board of Directors have agreed that no compensation will be
paid to them in 2008 and 2009.
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 Stock
|
|||||||
Lau
Lau San
|
CEO
& Chairman
|
10,000,000
|
54.6
|
%
|
||||||
Liu
Jingdong
|
President,
Director
|
1,000,000
|
5.5
|
%
|
||||||
Chen
Guocheng
|
CFO,
Director
|
200,000
|
1.1
|
|||||||
Changfu
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
As of
December 31, 2009 and 2008, due from related parties was summarized as
follows:
2009
|
2008
|
|||||||
Lau
San
|
$ | 284,553 | $ | - | ||||
Mudanjiang
Binjiang Garden City
|
- | 1,900,128 | ||||||
Total
due from related parties
|
$ | 284,553 | $ | 1,900,128 |
A
director of the Company, Mr. Lau San, borrowed money from the Company. These
amounts are interest-free, unsecured and repayable on demand.
22
Due to related
parties
As of
December 31, 2009 and 2008, due to related parties was summarized as
follows:
2009
|
2008
|
|||||||
Lau
San
|
$ | - | $ | 1,005,084 | ||||
Changchun
Junming Machinery Co., Ltd. (“CJMCL”)
|
149,105 | 148,734 | ||||||
Shenzhen
Junsheng Property Management Co., Ltd. (“SJPMCL”)
|
14,626 | 14,590 | ||||||
Zhongji
North Machinery Co., Ltd. (“Zhongji North”)
|
409,524 | 413,666 | ||||||
Total
due to related parties
|
$ | 573,255 | $ | 1,582,074 |
The
Company borrowed from CJMCL, which is controlled by Mr. Lau San, a director of
the Company for use in operations. The loan bore no interest and the principal
is due upon demand.
The
Company borrowed from SJPMCL, which is controlled by Ms. Yang, Fengyan, Mr. Lau
San’s wife, for use in operations. The loan bore no interest and the principal
is due upon demand.
The
Company, as noncontrolling shareholder of Zhongji North, borrowed from Zhongji
North, to fund the Company’s operations. These amounts are
interest-free, unsecured and the principal is due upon demand.
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, 2009 and
December 31, 2008 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,
2009
|
December
31,
2008
|
|||||||
Audit
Fees
|
$ | 90,000 | $ | 90,000 | ||||
Audit
Related Fees
|
$ | - | $ | - | ||||
Tax
Fees
|
$ | - | $ | - | ||||
All
Other Fees
|
$ | - | $ | - | ||||
TOTAL
|
$ | 90,000 | $ | 90,000 |
23
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.
24
Part
IV
ITEM 15. EXHIBITS
Item Number
|
Description
|
|
(3)
|
Articles of Incorporation and
By-laws
|
|
3.1
|
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
Contracts
|
|
10.1
|
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 registrant
|
|
21.1*
|
List
of Subsidiaries
|
|
(31)
|
Section 302
Certification
|
|
31.1*
|
Certification
of Registrant’s Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
|
|
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
Certification
|
|
32.1*
|
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
25
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
shareholders of China Tractor Holdings, Inc.
We have
audited the consolidated statements of financial position of China Tractor
Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and 2008
and the related consolidated statements of operations and other comprehensive
income (loss), stockholders’ equity and cash flows for each of the years ended
December 31, 2009 and 2008. 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, 2009
and 2008, and the results of its operations and its cash flows for the years
then ended, in conformity with U.S. generally accepted accounting
principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred a loss of $3,702,673,
including loss from continuing operations of $488,640, that raises
substantial doubt about the Company’s ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Goldman Parks Kurland Mohidin LLP
Goldman
Parks Kurland Mohidin LLP
Encino,
California
April 15,
2010
F-1
FINANCIAL
INFORMATION
CHINA
TRACTOR HOLDINGS, INC.
CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
AS
OF DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 15,967 | $ | 1,979,153 | ||||
Accounts
receivable
|
- | 2,275,976 | ||||||
Other
receivables, net of allowance for doubtful accounts
|
53,053 | 470,632 | ||||||
Advance
to suppliers
|
- | 554,376 | ||||||
Inventories,
net
|
- | 8,960,235 | ||||||
Prepaid
expenses
|
- | 8,754 | ||||||
Taxes
recoverable
|
57,952 | 663,836 | ||||||
Assets
held for sale
|
4,729,298 | - | ||||||
Due
from related parties
|
284,553 | 1,900,128 | ||||||
Total
current assets
|
5,140,823 | 16,813,090 | ||||||
Property,
plant and equipment, net
|
1,981 | 21,832,068 | ||||||
Construction
in progress
|
- | 600,398 | ||||||
Intangible
assets
|
484,610 | 553,465 | ||||||
Land
use right
|
700,267 | 3,071,373 | ||||||
Land
use right deposit
|
- | 1,038,174 | ||||||
Long-term
equity investments
|
392,189 | 1,877,836 | ||||||
Receivable
from sale of discontinued operation
|
9,799,333 | - | ||||||
Deferred
tax asssets
|
- | 30,394 | ||||||
TOTAL
ASSETS
|
$ | 16,519,203 | $ | 45,816,798 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities
|
||||||||
Short-term
loans
|
$ | 731,294 | $ | 4,376,878 | ||||
Accounts
payable
|
459,026 | 6,628,498 | ||||||
Advance
from customers
|
11,954 | 282,235 | ||||||
Salary
payable
|
26,745 | 116,823 | ||||||
Accrued
expenses and other payables
|
380,408 | 718,450 | ||||||
Borrowing
from third parties
|
1,316,328 | - | ||||||
Due
to related parties
|
573,255 | 1,582,074 | ||||||
Total
current liabilities
|
3,499,010 | 13,704,958 | ||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Comon
shares, authorized, issued and outstanding; 18,310,539 shares as of
December 31, 2009 and 2008, par value $0.001 per share
|
1,831 | 1,831 | ||||||
Additional
paid-in capital
|
15,183,276 | 15,183,276 | ||||||
Accumulated
other comprehensive income
|
2,540,091 | 2,501,593 | ||||||
Accumulated
deficit
|
(5,119,841 | ) | (1,417,168 | ) | ||||
TOTAL
CHINA TRACTOR HOLDINGS, INC. SHAREHOLDERS' EQUITY
|
12,605,357 | 16,269,532 | ||||||
Noncontrolling
Interest
|
414,836 | 15,842,308 | ||||||
TOTAL
STOCKHOLDERS’ EQUITY
|
13,020,193 | 32,111,840 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 16,519,203 | $ | 45,816,798 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
CHINA
TRACTOR HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS
ENDED DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
Net
revenue
|
$ | 18,991 | $ | 191,191 | ||||
Cost
of sales
|
(159,058 | ) | (70,313 | ) | ||||
Gross
profit/(loss)
|
(140,067 | ) | 120,878 | |||||
Operating
expenses:
|
||||||||
Sales
and marketing expenses
|
(12,435 | ) | (631 | ) | ||||
General
and administrative expenses
|
(337,104 | ) | (210,518 | ) | ||||
Provision
for impairment of assets
|
- | (2,543 | ) | |||||
Profit/(Loss)
from operations
|
(489,606 | ) | (92,814 | ) | ||||
Equity
in earnings in investee
|
- | 26,065 | ||||||
Government
grant income
|
2,924 | 71,816 | ||||||
Other
income
|
95 | 20,083 | ||||||
Interest
expense
|
(1,930 | ) | - | |||||
Other
expenses
|
(123 | ) | (267 | ) | ||||
Income/(loss)
before income taxes
|
(488,640 | ) | 24,883 | |||||
Income
tax expenses
|
- | - | ||||||
Income/(loss)
from continuing operations
|
(488,640 | ) | 24,883 | |||||
Discontinued
operations, net of income taxes (including loss on disposal of $3,264,057
in 2009)
|
(3,328,549 | ) | 1,481,203 | |||||
Net
income/(loss)
|
(3,817,189 | ) | 1,506,086 | |||||
Less:
Net income attributable to noncontrolling interest
|
114,516 | (800,299 | ) | |||||
Net
Income/(loss) attributable to China Tractor Holdings, Inc.
|
(3,702,673 | ) | 705,787 | |||||
Other
comprehensive income/(loss)
|
39,701 | 943,830 | ||||||
Comprehensive
income/(loss)
|
(3,662,972 | ) | 1,649,617 | |||||
Comprehensive
(loss) attributable to noncontrolling interest
|
(1,203 | ) | (77,369 | ) | ||||
Comprehensive
income/(loss) attributable to China Tractor Holdings, Inc.
|
$ | (3,664,175 | ) | $ | 1,572,248 | |||
Basic
and diluted income/(loss) per commom share:
|
||||||||
Basic
|
$ | (0.20 | ) | $ | 0.04 | |||
Diluted
|
(0.20 | ) | 0.04 | |||||
Weighted
average common shares outstanding:
|
||||||||
Basic
|
18,310,539 | 18,310,539 | ||||||
Diluted
|
18,310,539 | 18,310,539 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
CHINA
TRACTOR HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2009 AND 2008
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income/loss
|
$ | (3,817,189 | ) | $ | 1,506,086 | |||
Adjustments
to reconcile net income/(loss) to cash provided (used) by operating
activities:
|
||||||||
Loss
from discontinued operations
|
3,328,549 | - | ||||||
Depreciation
and amortization
|
67,557 | 766,377 | ||||||
Provision
for doubtful receivables
|
- | 80,981 | ||||||
Investment
income
|
- | (125,113 | ) | |||||
Deferred
tax assets
|
- | (29,922 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
- | (2,240,654 | ) | |||||
Inventories
|
161,602 | (7,523,917 | ) | |||||
Advances
to suppliers
|
- | 527,885 | ||||||
Other
receivables
|
96,370 | (310,173 | ) | |||||
Prepaid
expenses
|
- | (5,425 | ) | |||||
Due
from related party
|
1,030,412 | - | ||||||
Accounts
payable
|
(6,128 | ) | 5,535,605 | |||||
Advance
from customers
|
- | 235,935 | ||||||
Accrued
expenses and other current liabilities
|
292,900 | (59,474 | ) | |||||
Cash
provided by operating activities
|
1,154,073 | (1,641,809 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Cash
paid for long- term investment
|
- | (545,801 | ) | |||||
Purchase
of property and equipment and other long-term assets
|
(3,797,425 | ) | (1,927,085 | ) | ||||
Cash
decrease due to disposal of subsidiaries
|
(1,978,735 | ) | - | |||||
Cash
increase due to acquisition of subsidiaries
|
- | 207 | ||||||
Net
cash used for investing activities
|
(5,776,160 | ) | (2,472,679 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from short-term loan
|
803,985 | 4,308,952 | ||||||
Proceeds
from (payments to) related parties - net
|
612,383 | (1,097,430 | ) | |||||
Proceeds
from third party borrowings
|
1,315,613 | - | ||||||
Repayments
of short-term loan
|
(73,090 | ) | - | |||||
Net
cash provided by financing activities
|
2,658,891 | 3,211,522 | ||||||
Effect
of exchange rate changes on cash
|
10 | 167,880 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
(1,963,186 | ) | (735,086 | ) | ||||
Cash
and cash equivalents, beginning balance
|
1,979,153 | 2,714,239 | ||||||
Cash
and cash equivalents, ending balance
|
$ | 15,967 | $ | 1,979,153 | ||||
Supplemental cash flow data: | ||||||||
Income
tax paid
|
- | - | ||||||
Interest
paid
|
- | - |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
CHINA
TRACTOR HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS
ENDED DECEMBER 31, 2008 AND 2009
Shares
|
Common
Stock
|
Additional
Paid-in Capital
|
Other
comprehensive income (loss)
|
Accumulated
deficit
|
Total
|
|||||||||||||||||||
Balance
December 31, 2007
|
16,720,354 | 1,672 | 15,183,228 | $ | 1,557,763 | $ | (2,122,955 | ) | $ | 14,619,708 | ||||||||||||||
Recapitalization
of Densen on reverse acquisition
|
1,590,185 | 159 | 48 | 207 | ||||||||||||||||||||
Foreign
Currency Translation
|
943,830 | - | 943,830 | |||||||||||||||||||||
Net
income
|
- | 705,787 | 705,787 | |||||||||||||||||||||
Balance
December 31, 2008
|
18,310,539 | 1,831 | 15,183,276 | $ | 2,501,593 | $ | (1,417,168 | ) | $ | 16,269,532 | ||||||||||||||
Foreign
Currency Translation
|
- | 38,498 | - | 38,498 | ||||||||||||||||||||
Net
income
|
- | - | (3,702,673 | ) | (3,702,673 | ) | ||||||||||||||||||
Balance
December 31, 2009
|
$ | 18,310,539 | $ | 1,831 | $ | 15,183,276 | $ | 2,540,091 | $ | (5,119,841 | ) | $ | 12,605,357 |
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, 2009 AND 2008
NOTE 1 - ORGANIZATION AND
PROPOSED BUSINESS OPERATIONS
China
Tractor Holdings, INC. ("China Tractor") was incorporated in April 2005 in Hong
Kong. In June 2005, China Tractor signed an agreement with Densen Investment
Limited (“Densen Investment”) to obtain assets from Densen Investment. China
Tractor invested $15,180,000 to establish Changchun Densen Agriculture Machinery
Manufacturing Co., Ltd. (“Changchun Densen”) on September 27, 2005. Changchun
Densen is engaged in the R&D and production of low-speed vehicles, tractors
and construction machinery. According to the revised articles of association
dated January 9, 2007, Changchun Tractor (Group) Co., Ltd. (“Changchun Tractor”)
invested a trademark of $471,445 to Changchun Densen. After this investment,
Changchun Tractor obtained 3% equity in Changchun Densen. On April 23, 2007, the
company name of Changchun Densen was changed to Changchun Densen Changtuo
Agriculture Machinery Manufacturing Co., Ltd. Based on an agreement signed on
November 20, 2007, Changchun Densen and State-owned Assets Supervision and
Administration Commission of Changchun (“SOASACC”) jointly invested to establish
Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang Tuo”). The
total registered capital of Chang Tuo is RMB200,000,000 ($29.3 million) which
includes 50% (RMB100,000,000) from SOASACC, 47.5% (RMB95,000,000) from Changchun
Densen and 2.5% (RMB5,000,000) from the operator, Mr. Yu Han. Chang Tuo is
engaged in the R&D and production of low-speed vehicles, tractors and
construction machineries, and sales of agricultural machinery and
accessories.
Pursuant
to the Share Exchange Agreement by and among Royaltech Corp. (“Royaltech”), a
Delaware corporation, China Tractor, and the shareholders of all the outstanding
shares of Densen Machinery, on September 9, 2008 (the “Closing Date”), Royaltech
issued 16,720,354 shares of its common stock for all the issued and outstanding
shares of China Tractor. The former shareholders of China Tractor acquired 91.3%
of the issued and outstanding shares of Royaltech. This transaction resulted in
a change in control of Royaltech to the former shareholders of China Tractor.
Immediately after the closing of the Share Exchange and the Stock Purchase
Agreements, Royaltech had 18,310,539 shares of Common Stock issued and
outstanding. In connection with the change in control, Mr. Lau San became
Chairman of the Board of Directors and Chief Executive Officer, Mr. Lau Jingdong
became President, and Mr. Chen Guocheng became Chief Financial Officer of
Royaltech. This transaction was accounted for as a recapitalization of China
Tractor and not as a business combination. Accordingly, no pro forma information
is presented. The historical financial statements are those of China
Tractor.
The share
exchange agreement also states Royaltech’s existing shareholders assumed all the
liabilities of Royaltech at the date of merger.
On
September 19, 2008, Royaltech amended Article I of its Certificate of
Incorporation to change its corporate name from “Royaltech Corp.) to “China
Tractor Holdings, Inc.” (“China Tractor”, or “the Company”, or “We”, or
“us”)
F-6
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
On
December 1, 2009, the Company entered into a stock transfer agreement to
transfer all shares owned in Chang Tuo to SOASACC. Such agreement will be
implemented in the near future. In the meantime, as of December
31, 2009, the statements of operations of the Company report the results of
operations of Chang Tuo as discontinued operations.
NOTE 2 - BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation
The
accompanying consolidated financial statements include the accounts of China
Tractor, its 100%-owned subsidiary, Densen machinery, its 97%-owned subsidiary
Changchun Densen for the year ended December 31, 2009 and 2008. All
significant inter-company accounts and transactions were eliminated in
consolidation.
Basis of
Presentation
The
consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”), assuming the Company will continue as a going concern.
Under that assumption, it is expected assets will be realized and liabilities
will be satisfied in the normal course of business. On December 1, 2009, the
Company signed a letter of intent to transfer all shares owned by the Company in
Chang Tuo to SOASACC. As discussed in Note 19 to the financial
statements, Chang Tuo was reported as discontinued operation as the Company lost
its control before the end of 2009. After the completion of the
transaction, the Company will have no substantial business operations until it
enters a new industry through merger or acquires other operational
entities. As a direct result of the incident, the Company has
experienced significant operating losses for the year ended December 31, 2009.
The discontinued operation and the ensuing operating losses raises
substantial doubt as to the Company's ability to continue as a going
concern. Management is attempting to evaluate other potential
industries to enter.
Use of
Estimates
The
preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the consolidated financial statements and the amount
of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the
estimates are made. However, actual results could differ materially from those
results.
F-7
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Risks and
Uncertainties
The
Company is subject to substantial risks from, among other things, intense
competition associated with the industry in general, other risks associated with
financing, liquidity requirements, rapidly changing customer requirements,
limited operating history, foreign currency exchange rates and the volatility of
public markets.
Comprehensive
Income
The
Company adopted the provisions of ASC 220 “Reporting Comprehensive Income”,
previously SFAS No. 130, establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set of
general purpose financial statements.
ASC 220
defines comprehensive income is comprised of net income and all changes to the
statements of stockholders' equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to stockholders,
including adjustments to minimum pension liabilities, accumulated foreign
currency translation, and unrealized gains or losses on marketable
securities.
Foreign Currency
Transactions
The
reporting currency of the Company is the US $. The functional currency of PRC
subsidiaries is RMB. The financial statements of PRC subsidiaries are translated
to United States dollars using quarter-end exchange rates as to assets and
liabilities and average exchange rates as to revenues, expenses and cash
flows. Capital accounts are translated at their historical exchange
rates when the capital transaction occurred. Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the statement of shareholders’ equity. Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.
The
balance sheet amounts with the exception of equity at December 31, 2009 were
translated 6.8372 RMB to $1.00 compared to 6.8542 RMB at December 31,
2008. The equity accounts were stated at their historical exchange
rate. The average translation rates applied to the income and cash
flow statement amounts for the years ended December 31, 2009 and 2008 were
6.84092 RMB and 6.96225 RMB to $1.00 respectively.
Translations
adjustments resulting from this process are included in accumulated other
comprehensive loss in the consolidated statement of stockholders’ equity and
were $2,540,091 and $2,501,593 as of December 31, 2009 and 2008,
respectively.
F-8
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Cash and Cash
Equivalents
For
Statement of Cash Flows purposes, the Company considers all cash on hand and in
banks, including accounts in book overdraft positions, certificates of deposit
and other highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents. The Company
maintains cash with various banks and trust companies located in
China. Cash accounts are not insured or otherwise
protected. Should any bank or trust company holding cash deposits
become insolvent, or if the Company is otherwise unable to withdraw funds, the
Company would lose the cash on deposit with that particular bank or trust
company.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Accounts are written
off against the allowance when it becomes evident collection will not
occur.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on a
weighted average basis and includes all expenditures incurred in bringing the
goods to the point of sale and putting them in a saleable
condition. In assessing the ultimate realization of inventories, the
management makes judgments as to future demand requirements compared to current
or committed inventory levels. Our reserve requirements generally
increase as our projected demand requirements; or decrease due to market
conditions and product life cycle changes. The Company estimates the
demand requirements based on market conditions, forecasts prepared by its
customers, sales contracts and orders in hand.
In
addition, the Company estimates net realizable value based on intended use,
current market value and inventory ageing analyses. The Company
writes down inventories for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventories and their estimated
market value based upon assumptions about future demand and market
conditions.
Property, Plant and
Equipment
Property,
plant and equipment are recorded at cost. Gains or losses on
disposals are reflected as gain or loss in the year of disposal. All
ordinary repair and maintenance costs are expensed as
incurred. Expenditures for maintenance and repairs are expensed as
incurred. Major renewals and betterments are charged to the property
accounts while replacements, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed in the current
period.
F-9
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of assets as set out below.
Estimated
Useful Life
|
|
Plant
and Building
|
30-40
years
|
Machinery
and Equipment
|
10
years
|
Office
Furniture and Equipment
|
5
years
|
Transportation
Equipment
|
5
years
|
Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until on item is completed and ready for intended
use.
Capitalized
Interest
Interest
associated with major development and construction projects is capitalized and
included in the cost of the project. When no debt is incurred
specifically for a project, interest is capitalized on amounts expended on the
project using weighted-average cost of the Company’s outstanding
borrowings. Capitalization of interest ceases when the project is
substantially complete or development activity is suspended for more than a
brief period. Capitalized interest for the years ended of December 31, 2009 and
2008 were $60,723 and Nil respectively.
Land Use
Rights
Land use
right is stated at cost less accumulated amortization. Amortization is provided
using the straight-line method over the designated terms of the lease of 50
years obtained from the relevant PRC land authority.
Other Intangible
Assets
Other
intangible assets include non-patent techniques, trademarks and capitalized
accounting software. The cost of intangible assets is stated at cost less
accumulated amortization. Amortization is provided using the straight-line
method over estimated useful lives.
F-10
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Long-Term
Investment
The
Company accounted for its 5% investment in Zhongji North Machinery Co., Ltd,
(Zhongji North) using the cost method, under which the share of Zhongji North’
net income is recognized in the period in which it is earned.
Impairment of Long-Lived
Assets
In
accordance with ASC 360,
“Property, Plant and Equipment”, previously SFAS No. 144, the Company
reviews the carrying values of long-lived assets, including property, plant and
equipment, land use right and other intangible assets, whenever facts and
circumstances indicate the assets may be impaired. Recoverability of assets to
be held and used is measured by comparing the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the asset. If an
asset is considered impaired, the impairment is measured by the amount by which
the carrying amount the asset exceeds the fair value. Assets to be disposed of
are reported at the lower of the carrying amount or fair value, less costs of
disposal. The Company reviews its investments to identify and
evaluate investments that have an indication of possible impairment. Factors
considered in determining whether a loss is temporary include the length of time
and extent to which fair value has been less than the cost basis, the financial
condition and near-term prospects of the investee, and our intent and ability to
hold the investment for a period of time sufficient to allow for any anticipated
recovery in market value. Credit losses and other-than-temporary impairments
declines in fair value that are not expected to recover are
expensed.
Revenue
Recognition
The
Company recognizes sales in accordance with United States Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue
Recognition in Financial Statements” and SAB No. 104, “Revenue Recognition.” The
Company recognizes revenue when the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or services were
rendered, (iii) the price to the customer is fixed or determinable and (iv)
collection of the resulting receivable is reasonably assured. After the
customers of the Company taking the goods and signing on the shipping order, the
Company considers the signed shipping order as customer acceptance and the risk
of goods is transferred, as the price in invoice or sales contract with
customers is fixed, the Company recognize revenue accordingly. Revenue is not
recognized until title and risk of loss is transferred to the customer, which
occurs upon delivery of goods, and objective evidence exists that customer
acceptance provisions have were met. Provisions for discounts and returns are
provided for at the time the sale is recorded, and are recorded as a reduction
of sales. The Company bases its estimates on historical experience taking into
consideration the type of products sold, the type of customer, and the type of
specific transaction in each arrangement. Revenues represent the invoiced value
of goods, net of value added tax (“VAT”).
F-11
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
The
Company provides a product warranty to customers; meanwhile, as an assembling
company, all parts are purchased from related suppliers, suppliers provide a
same terms warranty to the Company as that the Company provides to customers. In
case customers claim problem products to the Company, the Company will claim the
related parts to suppliers accordingly. Further more, the labor costs and
overheads related to the problem products are not material compared to the parts
cost, so the company do not accrue any warranty liabilities in financial
statements.
The
Company does not offer promotional payments, customer coupons, rebates or other
cash redemption offers to its customers. Deposits or advance payments from
customers prior to delivery of goods and passage of title of goods are recorded
as advanced from customers.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740 “Income Taxes”,
previously SFAS No. 109. Under this method, deferred income taxes are
recognized for the estimated tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts and each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established to reduce deferred tax
assets to the amount expected to be realized when, in management’s opinion; it
is more likely than not that some portion of the deferred tax assets will not be
realized. The provision for income taxes represents current taxes
payable net of the change during the period in deferred tax assets and
liabilities.
Earnings (loss) Per
Share
The
Company reports earnings per share in accordance with the provisions of ASC 260
“Earnings Per Share”, previously SFAS No. 128. ASC 260 requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per
share. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted average common
shares outstanding during the period. Diluted earnings per share
takes into account the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into common
stock using the treasury method.
Common
stock equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method, at
either the beginning of the respective period presented or the date of issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company’s net income (loss) position at the calculation
dates.
F-12
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Fair Value of Financial
Instruments
ASC 820
“Fair Value
Measurements and Disclosures”, previously FAS
157, adopted January 1, 2008, defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosure requirements for fair value measures. The carrying amounts
reported in the balance sheets for current receivables and payables qualify as
financial instruments. Management concluded the carrying values are a
reasonable estimate of fair value because of the short period of time between
the origination of such instruments and their expected realization and if
applicable, their stated interest rate approximates current rates
available. The three levels are defined as follows:
· Level
1 inputs to the valuation methodology are quoted prices (unadjusted)
for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the assets or liability, either directly or indirectly,
for substantially the full term of the financial instruments.
· Level
3 inputs to the valuation methodology are unobservable and
significant to the fair value.
The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820 as of December 31, 2009 are as follows:
The
Company's financial instruments include cash and cash equivalents, restricted
cash, accounts receivable, notes receivables, other receivables, accounts
payable, notes payable and convertible notes payable. Cash and cash
equivalents consist primarily of high rated money market funds at a variety of
well-known institutions with original maturities of three months or
less. Restricted cash represents time deposits on account to secure
short-term bank loans and notes payable. Management estimates that the carrying
amounts of the non related party financial instruments approximate their fair
values due to their short-term nature.
Fair
Value Measurements at Reporting Date Using Quoted Prices in
Carrying
value as Of December 31
|
Active markets
For identical Assets
|
Significant
other Observable
Inputs
|
Significant
Unobservable Inputs
|
|||||||||||||
2009
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Cash
and cash equivalents
|
$ | 15,967 | $ | 15,967 | - | - |
F-13
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Concentration of
Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade and
bills receivables. As of December 31, 2009, substantially all of the Company’s
cash and cash equivalents were held by major financial institutions located in
the PRC, which management believes are of high credit quality. With respect to
trade receivables, the Company extends credit based on an evaluation of the
customer’s financial condition. The Company generally does not require
collateral for trade receivables and maintains an allowance for doubtful
accounts of trade receivables.
Noncontrolling
Interests
Effective
January 1, 2009, the Company adopted the provisions of ASC 810, previously SFAS
No. 160 “Noncontrolling Interests in Consolidated Financial Statements-reported
in equity” for reporting noncontrolling interest (“NCI”) in a
subsidiary. As a result, the Company reported NCI as a separate
component of Stockholders’ Equity in the Condensed Consolidated Balance Sheet.
Additionally, the Company reported the portion of net income and comprehensive
income (loss) attributed to the Company and NCI separately in the Condensed
Consolidated Statement of Operations. The Company also included a
separate column for NCI in the Consolidated Statement of Changes in
Equity. All related disclosures were adjusted
accordingly. Prior year amounts associated with NCI in the financial
statements and accompanied footnotes were retrospectively adjusted to conform to
the adoption.
Statement of Cash
Flows
In
accordance with ASC 230, “Statement of Cash Flows”, previously SFAS No. 95, cash
flows from the Company's operations are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet.
Recent Accounting
Pronouncements
Noncontrolling
Interests (Included in ASC 810 “Consolidation”, previously SFAS No. 160
“Noncontrolling Interests in Consolidated Financial Statements”, an amendment of
ARB No. 51). SFAS 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. We
adopted SFAS 160 on January 1, 2009. As a result, we reclassified
financial statement line items within our Condensed Consolidated Balance Sheets
and Statements of Income and Comprehensive Income for the prior period to
conform to this standard.
F-14
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Business
Combinations (Included in ASC 805 “Business Combinations”, previously SFAS No.
141(R)). This ASC guidance revised SFAS No. 141, “Business
Combinations” and addresses the accounting and disclosure for identifiable
assets acquired, liabilities assumed, and noncontrolling interests in a business
combination. The adoption of this standard had no material impact on
the Company’s financial statements.
Intangibles-Goodwill
and Other (Included in ASC 350”, previously FASB staff position (“FSP”) FAS
142-3, Determination of the Useful Life of Intangible Assets). FSP
FAS 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible
Assets”. This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. FSP FAS 142-3 is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. Early adoption is prohibited. The
adoption of this standard had no material effect on the Company's financial
statements.
Business
Combinations (Included in ASC 805, previously FSP No. 141R-1 “Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies”). FSP 141R-1 amends the provisions in FASB Statement 141R
for the initial recognition and measurement, subsequent measurement and
accounting, and disclosures for assets and liabilities arising from
contingencies in business combinations. FSP 141R-1 eliminates the
distinction between contractual and non-contractual contingencies, including the
initial recognition and measurement criteria in Statement 141R and instead
carries forward most of the provisions in SFAS 141 for acquired
contingencies. FSP 141R-1 is effective for contingent assets and
contingent liabilities acquired in evaluating the impact of SFAS
141(R). The management is in the process of evaluating the impact of
adopting this standard on the Company’s financial statements.
Fair
Value Measurements and Disclosures (Included in ASC 820, previously FSP No.
157-4, “Determining Whether a Market is Not Active and a Transaction Is Not
Distressed”). FSP No. 157-4 clarifies when markets are illiquid or
that market pricing may not actually reflect the “real” value of an
asset. If a market is determined to be inactive and market price is
reflective of a distressed price then an alternative method of pricing can be
used, such as a present value technique to estimate fair value. FSP
No. 157-4 identifies factors to be considered when determining whether or not a
market is inactive. FSP No. 157-4 would be effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009 and shall be applied
prospectively. The adoption of this standard had no material effect
on the Company's financial statements.
F-15
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Investments
- Debt and Equity Securities - Overall - Transition and Open Effective Date
Information (Included in ASC 320-10-65, previously FASB Staff Position No. 115-2
and Statement of Financial Accounting Standards No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”). ASC 320-10-65
amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities through increased consistency in the timing of impairment recognition
and enhanced disclosures related to the credit and noncredit components of
impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and equity securities
regarding expected cash flows, credit losses, and securities with unrealized
losses. The adoption of this statement had no material impact on the
Company’s financial statements.
Interim
Disclosures about Fair Value of Financial Instruments (Included in ASC 825
“Financial Instruments”, previously FSP SFAS No. 107-1). This
guidance requires that the fair value disclosures required for all financial
instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”, be included in interim financial
statements. This guidance also requires entities to disclose the
method and significant assumptions used to estimate the fair value of financial
instruments on an interim and annual basis and to highlight any changes from
prior periods. FSP 107-1 was effective for interim periods ending
after September 15, 2009. The adoption of FSP 107-1 had no material
impact on the Company’s financial statements.
Subsequent
Events (Included in ASC 855 “Subsequent Events”, previously SFAS No.
165). SFAS No.165, “Subsequent Events” establishes accounting and
disclosure requirements for subsequent events. SFAS 165 details the
period after the balance sheet date during which we should evaluate events or
transactions that occur for potential recognition or disclosure in the financial
statements, the circumstances under which we should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the required disclosures for such events. We adopted this
statement effective June 1, 2009 and have evaluated all subsequent events
through the filing date with the SEC.
Accounting
for Transfers of Financial Assets (To be included in ASC 860 “Transfers and
Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial
Assets - an Amendment of FASB Statement No. 140”). SFAS 166 addresses
information a reporting entity provides in its financial statements about the
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement in transferred financial assets. Also, SFAS 166 removes
the concept of a qualifying special purpose entity, limits the circumstances in
which a transferor derecognizes a portion or component of a financial asset,
defines participating interest and enhances the information provided to
financial statement users to provide greater transparency. SFAS 166
is effective for the first annual reporting period beginning after November 15,
2009 and will be effective for us as of January 1, 2010. The
management is in the process of evaluating the impact of adopting this standard
on the Company’s financial statements.
F-16
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Consolidation
of Variable Interest Entities – Amended (To be included in ASC 810
“Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No.
46(R)”). SFAS 167 amends FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities,” to require an enterprise
to perform an analysis to determine the primary beneficiary of a variable
interest entity; to require ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity and to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity. SFAS 167 also requires
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. SFAS 167 is effective for the first annual reporting period
beginning after November 15, 2009 and will be effective for us as of January 1,
2010. The management is in the process of evaluating the impact of
adopting this standard on the Company’s financial statements.
FASB
Accounting Standards Codification (Accounting Standards Update “ASU”
2009-1). In June 2009, the Financial Accounting Standard Board
(“FASB”) approved its Accounting Standards Codification (“Codification”) as the
single source of authoritative United States accounting and reporting standards
applicable for all non-governmental entities, with the exception of the SEC and
its staff. The Codification is effective for interim or annual
financial periods ending after September 15, 2009 and impacts our financial
statements as all future references to authoritative accounting literature will
be referenced in accordance with the Codification. There were no
changes to the content of our financial statements or disclosures as a result of
implementing the Codification.
As a
result of our implementation of the Codification during the year ended December
31, 2009, previous references to new accounting standards and literature are no
longer applicable. In the current year financial statements, we will
provide reference to both new and old guidance to assist in understanding the
impacts of recently adopted accounting literature, particularly for guidance
adopted since the beginning of the current fiscal year but prior to the
Codification.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update
2009-05”), an update to ASC 820, Fair Value Measurements and
Disclosures. This update provides amendments to reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities. Among other provisions, this update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the valuation techniques described in
ASC Update 2009-05. ASC Update 2009-05 will become effective for the
Company’s annual financial statements for the year ended December 31, 2009. The
adoption of ASC 820 had no material impact on the Company’s financial
statements.
F-17
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
In
October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus
of the FASB Emerging Issues Task Force”. This update provides
application guidance on whether multiple deliverables exist, how the
deliverables should be separated and how the consideration should be allocated
to one or more units of accounting. This update establishes a selling
price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be
based on vendor-specific objective evidence, if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling
price if neither vendor-specific or third-party evidence is
available. The Company will be required to apply this guidance
prospectively for revenue arrangements entered into or materially modified after
January 1, 2011; however, earlier application is permitted. The
management is in the process of evaluating the impact of adopting this standard
on the Company’s financial statements.
NOTE
3 ACCOUNTS RECEIVABLE
As of
December 31, 2009 and 2008, the Company’s accounts receivable consisted of the
following:
2009
|
2008
|
|||||||
Accounts
receivable
|
$ | 2,590 | $ | 2,278,559 | ||||
Less:
Allowance for doubtful accounts
|
(2,590 | ) | (2,583 | ) | ||||
Accounts
receivable, net
|
$ | - | $ | 2,275,976 |
NOTE
4 INVENTORIES
Inventories,
by major categories, as of December 31, 2009 and 2008 were as
follows:
2009
|
2008
|
|||||||
Raw
materials
|
$ | 140,998 | $ | 4,435,034 | ||||
Work
in progress
|
- | 1,119,496 | ||||||
Low
value consumables
|
461 | 123,437 | ||||||
Packaging
materials
|
- | 1,579 | ||||||
Materials
on consignment for further processing
|
737 | 18,638 | ||||||
Finished
goods
|
- | 3,284,065 | ||||||
142,196 | 8,982,249 | |||||||
Less:
Allowance for obsolete inventories
|
(142,196 | ) | (22,014 | ) | ||||
Inventories,
net
|
$ | - | $ | 8,960,235 |
F-18
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
5 TAXES RECOVERABLE
As of
December 31, 2009 and 2008, tax recoverable comprised the
following:
2009
|
2008
|
|||||||
Input
VAT
|
$ | 1,788,216 | $ | 7,115,252 | ||||
Unpaid
VAT transfer out
|
286 | 96 | ||||||
Output
VAT
|
(1,806,416 | ) | (6,177,609 | ) | ||||
Input
VAT Transfer Out
|
- | (20 | ) | |||||
VAT
Paid
|
14,811 | - | ||||||
Offset
input VAT of FA
|
61,067 | 239,240 | ||||||
IIT
payable
|
- | (164 | ) | |||||
Corporate
income tax
|
- | (512,959 | ) | |||||
Total
|
$ | 57,952 | $ | 663,836 |
Changchun
Densen is subject to value-added tax at a low rate of 13% and an ordinary rate
of 17% for its tractor sales and raw materials sales respectively.
NOTE
6 OTHER RECEIVABLES
As of
December 31, 2009 and 2008, other receivables comprised the
following:
2009
|
2008
|
|||||||
Advance
to employees for business purposes
|
$ | 3,372 | $ | 123,698 | ||||
Prepayment
|
5,803 | 28,827 | ||||||
Rebate
receivable
|
48,496 | |||||||
Other
|
43,878 | 284,201 | ||||||
53,053 | 485,222 | |||||||
Less:
Allowance for doubtful accounts
|
- | (14,590 | ) | |||||
Total
other receivables, net
|
$ | 53,053 | $ | 470,632 |
NOTE
7 PROPERTY, PLANT AND EQUIPMENT
As of
December 31, 2009 and 2008, property, plant and equipment consisted of the
following:
2009
|
2008
|
|||||||
Cost:
|
||||||||
Plant
and Building
|
20,940,518 | |||||||
Machinery
and Equipment
|
1,967,750 | |||||||
Office
Furniture and Equipment
|
$ | 4,141 | $ | 125,881 | ||||
Transportation
Equipment
|
- | 296,274 | ||||||
Total
at cost
|
4,141 | 23,330,423 | ||||||
Less:
Accumulated depreciation
|
(2,160 | ) | (1,498,355 | ) | ||||
Total
property, plant and equipment, net
|
$ | 1,981 | $ | 21,832,068 |
F-19
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Depreciation
for the years ended December 31, 2009 and 2008 was $4,159 and $641,735 respectively.
NOTE
8 CONSTRUCTION IN PROGRESS
As of
December 31, 2008, construction in progress was as follow:
Phase
II plant project
|
$ | 600,398 |
The
Company started the construction of phase II plant in 2008 to increase the
production of tractors.
NOTE
9 ASSETS HELD FOR SALE
As of
December 31, 2009, assets held for sale was as follow:
Phase
II plant project
|
$ | 4,729,298 |
The
Company started the construction of phase II plant in 2008. On December 1, 2009,
the Company entered into a letter of intent to transfer all shares owned by the
Company in Chang Tuo Agricultural Machinery Equipment Group Co., Ltd. (“Chang
Tuo”) to SOASACC, the Company discontinued the construction of phase II plant
and plans to transfer it to SOASACC as well.
F-20
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
10 LAND USE RIGHTS
As of
December 31, 2009, land use rights were as follows:
2009
|
2008
|
|||||||
Cost
of land use right
|
$ | 712,382 | $ | 3,950,862 | ||||
Less:
Accumulated amortization
|
(12,115 | ) | (113,278 | ) | ||||
700,267 | 3,767,195 | |||||||
Less:
Impairment loss on land use right
|
- | (695,822 | ) | |||||
Land
use rights, net
|
$ | 700,267 | $ | 3,071,373 |
The
Company obtained the right from the relevant PRC land authority for forty nine
years to use the land on which the office premises, production facilities and
warehouse of the Company are situated.
Amortization
expense for the year ended December 31, 2009 was $12,109. The estimated annual
amortization for land use rights for the next five years as of December 31, 2009
and thereafter is expected to be as follows by years:
2010
|
$ | 14,538 | ||
2011
|
14,538 | |||
2012
|
14,538 | |||
2013
|
14,538 | |||
2014
|
14,538 | |||
Thereafter
|
627,577 | |||
Total
|
$ | 700,267 |
NOTE
11 LAND USE RIGHTS DEPOSIT
Land use
right deposit as of December 31, 2008 was $1,038,174. The land use right deposit
represented the prepayment to obtain the land use rights in the
future.
NOTE
12 OTHER INTANGIBLE ASSETS
As of
December 31, 2009 and 2008, the Company’s intangible assets were summarized as
follows:
Useful
life
|
2009
|
2008
|
|||||||
Amortizable
intangible assets:
|
|||||||||
Trademark
|
10
years
|
$ | 539,695 | $ | 538,356 | ||||
Capitalized
accounting software
|
10
years
|
6,875 | 14,185 | ||||||
Non-patent
techniques
|
10
years
|
87,755 | 87,538 | ||||||
Total
at historical cost
|
634,325 | 640,079 | |||||||
Less:
Total accumulated amortization
|
(149,715 | ) | (86,614 | ) | |||||
Other
intangible assets, net
|
$ | 484,610 | $ | 553,465 |
F-21
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Other
intangible assets were stated at cost less accumulated amortization. The
amortization of other intangible assets for the years ended December 31, 2009
and 2008 was $63,398 and $61,758 respectively. The estimated amortization
expense for the next five years as of December 31, 2009 and thereafter is
expected to be as follows by years:
2010
|
$ | 63,433 | ||
2011
|
63,433 | |||
2012
|
63,433 | |||
2013
|
63,433 | |||
2014
|
63,433 | |||
Thereafter
|
167,445 | |||
Total
|
$ | 484,610 |
NOTE
13 LONG-TERM INVESTMENTS
As of
December 31, 2009 and 2008, the Company’s investment consisted of:
2009
|
2008
|
|||||||
Zhongji
North Machinery Co., Ltd.
|
5%
|
392,189
|
24%
|
$ 1,877,836
|
Zhongji
North was established on November 22, 2007 and the total registered capital is
RMB50,000,000. Zhongji North’s principal activities are development,
manufacturing, sale and foreign trading of agricultural machineries and other
machineries, manufacturing and sale of parts and accessories of agricultural
machineries and other machineries.
F-22
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
14 SHORT-TERM LOANS
Short-term
loans are due to various financial institutions which are normally due
within one year. As of December 31, 2009, the Company’s short term loans
consisted of the following:
2009
|
2008
|
|||||||
From
Jilin Jiutai Rural Commercial Bank Chengqu-Branch, due from March 27,
2009 to March 24, 2010. With interest at 11.16%, secured by
the Company’s land use right.
|
$ | 731,294 | $ | |||||
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 | |||||||
Total
short-term loans
|
$ | 731,294 | $ | 4,376,878 |
NOTE
15 ACCRUED EXPENSES AND OTHER PAYABLES
As of
December 31, 2009 and 2008, the accrued expenses and other liabilities of the
Company were summarized as follows:
2009
|
2008
|
|||||||
Accrued
expenses
|
$ | 195,756 | $ | - | ||||
Acquisition
of assets
|
94,133 | 63,109 | ||||||
Warrant
Deposit
|
21,289 | 109,013 | ||||||
borrowing
from third party
|
- | 542,441 | ||||||
Others
|
69,230 | 3,887 | ||||||
Total
accrued expenses and other payables
|
$ | 380,408 | $ | 718,450 |
The
security deposit is deposit from clients for the maintenance of
tractors.
NOTE
16 BORROWING FROM THIRD PARTY
As of
December 31, 2009, the borrowing from third party was summarized as
follows:
Zheng
Yin
|
$ | 146,258 | ||
Shanghai
Sibo Education Co., Ltd.
|
1,170,070 | |||
Total
accrued expenses and other payables
|
$ | 1,316,328 |
F-23
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
The
borrowing from third party has no repayment term and bore no
interest. Borrowed for operational use, they will be repaid in the
near future.
NOTE
17 RELATED PARTY BALANCE AND TRANSCATIONS
Due from related
parties
As of
December 31, 2009 and 2008, due from related parties was summarized as
follows:
2009
|
2008
|
|||||||
Lau
San
|
$ | 284,553 | $ | - | ||||
Mudanjiang
Binjiang Garden City
|
- | 1,900,128 | ||||||
Total
due from related parties
|
$ | 284,553 | $ | 1,900,128 |
A
director of the Company, Mr. Lau San, borrowed money from the Company. These
amounts are interest-free, unsecured and repayable on demand.
Due to related
parties
As of
December 31, 2009 and 2008, due to related parties was summarized as
follows:
2009
|
2008
|
|||||||
Lau
San
|
$ | - | $ | 1,005,084 | ||||
Changchun
Junming Machinery Co., Ltd. (“CJMCL”)
|
149,105 | 148,734 | ||||||
Shenzhen
Junsheng Property Management Co., Ltd. (“SJPMCL”)
|
14,626 | 14,590 | ||||||
Zhongji
North Machinery Co., Ltd. (“Zhongji North”)
|
409,524 | 413,666 | ||||||
Total
due to related parties
|
$ | 573,255 | $ | 1,582,074 |
F-24
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
The Company borrowed from CJMCL, which is controlled by Mr. Lau San, a director of the Company for use in operations. The loan bore no interest and the principal is due upon demand.
The
Company borrowed from SJPMCL, which is controlled by Ms. Yang, Fengyan, Mr. Lau
San’s wife, for use in operations. The loan bore no interest and the principal
is due upon demand.
The
Company, as noncontrolling shareholder of Zhongji North, borrowed from Zhongji
North, to fund the Company’s operations. These amounts are
interest-free, unsecured and the principal is due upon demand.
NOTE
18 GOVERNMENT GRANT INCOME
The
Company records government grants when received and shows it as government grant
income on the face of consolidated statements of operations and other
comprehensive income (loss). All subsidies are nonrefundable.
In 2009,
Changchun Densen received a $2,924 subsidy from Jiutai Municipal Bureau of
Finance (“JMBF”) for the international business development. In 2008, Changchun
Densen received a $71,816 subsidy from JMBF for the improvement of the assembly
line of big and medium tractors.
NOTE
19 NONCONTROLLING INTERESTS
Noncontrolling
interests on the consolidated statement of income and comprehensive income of
$(114,516) and $800,299 for the years ended December 31, 2009 and 2008
respectively, represented the noncontrolling shareholders’ proportionate share
of the net income/(loss) of the Company.
NOTE
20 DISCONTINUED OPERATION
On
December 1, 2009, the Company entered into a letter of intent to transfer all
shares owned by the Company in Chang Tuo to SOASACC. As of December 31, 2009,
the Company lost control over Chang Tuo as SOASACC took over the management and
operations of Chang Tuo. Accordingly, Chang Tuo is reported as a discontinued
operation in accordance with ASC 205-20. The estimated transfer price is
$9,799,333 (RMB67,000,000). The final agreement is expected to be closed
around May 1, 2010.
NOTE
21 INCOME TAX
Changchun
Densen is governed by the Income Tax Law of the PRC concerning the private-run
enterprises, which are generally subject to tax at a statutory rate of 25% on
income reported in the statutory financial statements after appropriated tax
adjustments.
F-25
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
Changchun
Densen is exempt from income tax in PRC for two years starting from the 1st
profitable year or 2008, whichever is earlier, and subject to 50% discount on
normal income tax rate for the following three years.
The
pre-tax accounting income/(loss) of our subsidiaries were as follows, for the
years ended December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Changchun
Densen
|
$ | (488,640 | ) | $ | 24,883 |
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended December 31, 2009 and 2008:
2009
|
2008
|
||
US
statutory rates
|
34.0%
|
34.0%
|
|
Tax
rate difference
|
(9.0%)
|
(9.0%)
|
|
Valuation
allowance
|
(25.0%)
|
(25.0%)
|
|
Effect
of tax holiday
|
0.0%
|
0.0%
|
|
Non-deductable
expenses
|
0.0%
|
0.0%
|
|
Equity
in earnings of investee
|
0.0%
|
0.0%
|
|
Tax
per financial statements
|
0.0%
|
0.0%
|
NOTE
22 OPERATING RISK
(a)
|
Country
risk
|
Currently,
the Company’s revenues are primarily derived from the sale of agriculture
tractors to customers in the People’s Republic of China (“PRC”). The Company
hopes to expand its operations to other countries, however, such expansion has
not commenced and there is no assurance that the Company will be able to achieve
such expansion. Therefore, a downturn or stagnation in the economic environment
of the PRC could have a material adverse effect on the Company’s financial
condition.
(b)
|
Products
risk
|
In
addition to competing with other manufacturers of agricultural machinery, the
Company competes with larger PRC companies which have greater funds available
for expansion, marketing, research and development and the ability to attract
more qualified personnel. These PRC companies may be able to offer products at a
lower price. There can be no assurance the Company will remain competitive
should this occur.
F-26
CHINA
TRACTOR HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
(c)
|
Exchange
risk
|
The
Company can not guarantee the Renminbi, US dollar exchange rate will remain
steady, therefore the Company could post the same profit for two comparable
periods and post higher or lower profit depending on exchange rate of Renminbi
and US dollars. The exchange rate could fluctuate depending on changes in the
political and economic environments without notice.
(d)
|
Political
risk
|
Currently,
PRC is in a period of growth and is openly promoting business development in
order to bring more business into PRC. Additionally PRC currently allows a
Chinese corporation to be owned by a United States corporation. If the laws or
regulations relating to ownership of a Chinese corporation are changed by the
PRC government, the Company's ability to operate the PRC subsidiaries could be
affected.
(e)
|
Interest
risk
|
The
Company is exposed to interest rate risk arising from short-term variable rate
borrowings from time to time. The Company’s future interest expense will
fluctuate in line with any change in borrowing rates. The Company does not have
any derivative financial instruments as of December 31, 2009 and 2008 and
believes its exposure to interest rate risk is not material.
F-27
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, 2010
/s/
Lau San
|
|
Lau
San
|
|
Chief
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 Chairman
|
April
15, 2010
|
||
Lau
San
|
||||
/s/ Chen
Guocheng
|
Chief
Financial Officer and Director
|
April
15, 2010
|
||
Chen
Guochen
|
||||
/s/ Liu
Jingdong
|
President
and Director
|
April
15, 2010
|
||
Glenn
Peipert
|
||||
/s/ Changfu
Wang
|
Director
|
April
15, 2010
|
||
Changfu
Wang
|
||||
Dr.
Baoyun Qiao
|
Director
|
|||
26