PINX:CAON Chang-On International Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

PINX:CAON Fair Value Estimate
Premium
PINX:CAON Consider Buying
Premium
PINX:CAON Consider Selling
Premium
PINX:CAON Fair Value Uncertainty
Premium
PINX:CAON Economic Moat
Premium
PINX:CAON Stewardship
Premium
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

or

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission File Number 001-08397

CHANG-ON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Utah 87-0302579
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

     514 No. 18 Building, High New Technology Development, Harbin  
     Heilongjiang Province, China N/A
(Address of principal executive offices) (Zip Code)

86-451-82695010
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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.
[X] YES      [   ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] YES      [   ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ] Accelerated filer [   ]
Non-accelerated filer [   ]
(Do not check if a smaller reporting company)
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act
[   ] YES      [X] NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
 [   ] YES      [    ] NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
97,307,366 common shares issued and outstanding as of August 10, 2012.


Table of Contents

PART I – FINANCIAL INFORMATION 3
   Item 1. Financial Statements 3
   Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
   Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
   Item 4. Controls and Procedures 14
PART II – OTHER INFORMATION 15
   Item 1. Legal Proceedings 15
   Item 2. Unregistered Sales of Equity Securities 15
   Item 3. Defaults Upon Senior Securities 15
   Item 4. Mine Safety Disclosures 15
   Item 5. Other Information 15
   Item 6. Exhibits 16
SIGNATURES 17

2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited interim consolidated financial statements of Chang-On International, Inc. follow. All currency references in this report are to U.S. dollars unless otherwise indicated.

3


CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company )
CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012

4


CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)

INDEX TO JUNE 30, 2012 CONSOLIDATED FINANCIAL STATEMENTS

  PAGE
CONSOLIDATED BALANCE SHEETS F2
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) F3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) F4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(DEFICIT) (UNAUDITED) F5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) F6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) F7-F16

F-1



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

    June 30,     December 31,  
    2012     2011  
    (Unaudited)        
   ASSETS            
Current Assets            
     Cash $  36   $  36  
     Prepaid and other receivables   315     317  
             Total Current Assets   351     353  
Property, plant and equipment, net (Note 4)   3,239     3,754  
             
             Total Assets $  3,590   $  4,107  
   LIABILITIES            
Current Liabilities            
     Trade accounts payable $  747   $  753  
     Accrued expenses   11,105     35,325  
     Deferred income-government grants (Note 5)   116,932     117,850  
     Due to shareholders (Note 6)   425,581     380,974  
             Total Current Liabilities   554,365     534,902  
             Total Liabilities   554,365     534,902  
   EQUITY (DEFICIT)            
Chang-On International, Inc Stockholders' Equity (Deficit):            
     Common stock, par value $0.001, authorized
         100,000,000 shares, issued and outstanding
         67,307,366 shares (Note 7)
 

67,307
   

67,307
 
     Additional paid in capital   3,067,959     3,067,959  
     Deficit   (3,506,006 )   (3,486,029 )
   Accumulated comprehensive income   (28,813 )   (30,735 )
             Total Chang-On International, Inc Stockholders' equity (deficit)   (399,553 )   (381,498 )
Noncontrolling interest   (151,222 )   (149,297 )
             
Total Equity (Deficit)   (550,775 )   (530,795 )
             
             Total Liabilities and Equity (Deficit) $  3,590   $  4,107  

See Notes to Financial Statements
F-2



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

                For the  
                            Period from  
                            November  
                            26, 2004  
    For the Three Months Ended     For the Six Months Ended     (inception) to  
    June 30,     June 30,     June 30,  
    2012     2011     2012     2011     2012  
Net sales $  -   $  -   $  -   $  -   $  93,776  
Cost of sales   -     -     -     -     (60,324 )
     Gross profit   -     -     -     -     33,452  
Expenses                              
     Salaries   3,793     3,693     7,598     7,341     158,978  
     Transportation   -     -     -     -     13,354  
     Office equipment   -     -     -     -     6,879  
     Water, electricity and gas   -     -     -     -     154,956  
     Other expenses   -     28     -     115     36,895  
     Advertisement   -     -     -     -     556  
     Rent expense   -     -     -     -     3,811  
     Depreciation   177     554     489     1,102     203,487  
     R & D expense   -     -     -     -     22,578  
     Repairs and maintenance   -     -     -     -     1,043  
     Gain on disposal of fixed assets   -     -     -     -     (7,730 )
     Stock compensation   -     -     -     -     2,400,000  
     Professional fees   6,800     3,000     15,044     6,000     145,680  
     Fixed assets impairment   -     -     -     -     669,813  
     Intangibles writedown   -     -     -     -     241,639  
     Inventory obsolescence   -     -     -     -     107,484  
Total Expenses   10,770     7,275     23,131     14,558     4,159,423  
Total expenses and loss from operations   (10,770 )   (7,275 )   (23,131 )   (14,558 )   (4,125,971 )
Other income   -     -     -     -     7,195  
                               
Loss before provision for income tax   (10,770 )   (7,275 )   (23,131 )   (14,558 )   (4,118,776 )
Income tax provision   -     -     -     -     -  
Net loss   (10,770 )   (7,275 )   (23,131 )   (14,558 )   (4,118,776 )
Less: Net loss attributable to the noncontrolling interest   1,689     1,660     3,295     3,295     506,545  
Net loss attributable to Chang-On                              
International, Inc common stockholders $  (9,081 ) $  (5,615 ) $  (19,836 )   (11,263 ) $  (3,612,231 )
Net loss per share-basic and diluted $  (0.00 ) $  (0.00 ) $  (0.00 ) $  (0.00 )      
Weighted average shares outstanding-basic and diluted   67,307,366     67,307,366     67,307,366     67,307,366        

See Notes to Financial Statements
F-3



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)

                            For the Period  
                            from November  
                            26, 2004  
    For the Three Months Ended     For the Six Months Ended     (inception) to  
    June 30,     June 30,     June 30,  
    2012     2011     2012     2011     2012  
                               
Net loss $  (10,770 ) $  (7,275 ) $  (23,131 ) $  (14,558 ) $  (4,118,776 )
                               
Other comprehensive income(loss), net of tax:                              
   Foreign currency translation gain(loss)   3,768     (4,668 )   3,151     (7,520 )   (29,685 )
                               
Comprehensive loss   (7,002 )   (11,943 )   (19,980 )   (22,078 )   (4,148,461 )
   Comprehensive loss attributable to the noncontrolling interest   79     3,481     1,925     6,228     344,323  
                               
Comprehensive loss attributable to Chang-On International, Inc. $  (6,923 ) $  (8,462 ) $  (18,055 ) $  (15,850 ) $  (3,804,138 )

See Notes to Financial Statements
F-4



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JUNE 30, 2012
(UNAUDITED)

          Chang-On International, Inc. Stockholders        
          Common Stock     Additional                 Accumulated        
        $0.001 Par Value     Paid-in     Accumulated     Deferred     Comprehensive     Noncontrolling  
    Total     Shares     Amount     Capital     Deficit     Compensation     Income (loss)     Interest  
                                                 
Balance December 31, 2011 $  (530,795 )   67,307,366   $  67,307   $  3,067,959   $  (3,486,029 ) $  -   $  (30,735 ) $  (149,297 )
                                                 
Net loss   (23,131 )                     (19,977 )               (3,154 )
                                                 
Other comprehensive income   3,151                                   1,922     1,229  
                                                 
Balance June 30, 2012 $  (550,775 )   67,307,366   $  67,307   $  3,067,959   $  (3,506,006 ) $  -   $  (28,813 ) $  (151,222 )

See Notes to Financial Statements
F-5



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

          For the Period  
                from November  
                26, 2004  
    For the Six Months Ended     (inception) to June  
    June 30,     30,  
    2012     2011     2012  
Operating Activities:                  
Net loss $  (23,131 ) $  (14,558 ) $  (4,118,776 )
Adjustments to reconcile net loss to net cash used by                  
operations                  
Depreciation (cost and expense)   489     1,102     212,949  
Provision for obsolete inventories   -     -     107,484  
Impairment loss on intangible assets   -     -     241,639  
Impairment loss on fixed assets   -     -     669,813  
Gain on disposal of fixed assets   -     -     (7,730 )
Stock compensation   -     -     2,400,000  
Changes in operating assets and liabilities:                  
(Increase)/decrease in prepaid and other receivables   -     -     (293 )
(Increase)/decrease in inventory   -     -     (107,151 )
Increase/(decrease) in accounts payable   -     -     695  
Increase/(decrease) in accrued expenses   (24,220 )   (19,933 )   11,105  
Increase/(decrease) in deferred income-government grants   -     -     110,787  
Net cash used in operating activities   (46,862 )   (33,389 )   (479,478 )
Investing Activities                  
Purchase of fixed assets   -     -     (710,118 )
Loan to shareholders   -     -     (24,659 )
Repayment of loan from shareholders   -     -     24,659  
Net cash used in investing activities   -     -     (710,118 )
Financing Activities                  
Distribution to shareholders   -     -     (24,994 )
Capital contribution   -     -     274,103  
Proceeds from shareholder loans   44,607     39,743     1,008,996  
Repayment of loan to shareholders   -     -     (70,844 )
Net cash provided by financing activities   44,607     39,743     1,187,261  
Effect of exchange rate changes on cash   2,255     (5,202 )   2,371  
Increase(decrease) in cash   -     1,152     36  
Cash at beginning of period   36     3,924     -  
Cash at end of period $  36   $  5,076   $  36  
Supplemental Cash Flow Information:                  
Interest received (paid) during the year $  -   $  -   $  260  
Non-cash financing activities:                  
   Contribution of patent for equity $  -   $  -   $  241,639  
   Contribution of fixed assets for equity $  -   $  -   $  125,497  
   Stock issued in exchange for consulting services $  -   $  -   $  2,400,000  
   Conversion of shareholder's loan to paid in capital $  -   $  -   $  359,357  

See Notes to Financial Statements
F-6



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND

Chang-On International, Inc. (the “Company”) was incorporated under the laws of the State of Utah as Gold Standard, Inc. on November 28, 1972 and changed its name to Chang-On International, Inc. on April 18, 2007. The Company is principally engaged in the business of waste recycling and reutilization in the People’s Republic of China (“PRC”) through its majority-owned subsidiary, Chang-On International Limited (“Chang-On”).

Chang-On was incorporated as a Hong Kong limited liability company on September 8, 2006 to facilitate a merger between a U.S. company and a PRC business entity. On December 29, 2006, under the terms of a Share Exchange Agreement, the Company agreed to acquire all the outstanding capital stock of Chang-On in return for the issuance of 60,000,000 shares of common stock.

Chang-On is a holding company that owns 61% of the registered capital of Harbin Hongbo Environment Protection Material, Inc. (“Hongbo”) a corporation formed under the laws of the PRC on November 26, 2004. Hongbo is engaged in the business of manufacturing construction materials from waste products. All Hongbo’s business is currently in the PRC.

In January 2011, the Company acquired 100% shares of Sino Health Management Limited (“Sino Health”). Sino Health was incorporated as a Hong Kong limited liability company on December 8, 2010. Sino Health has nominal assets and liabilities as of June 30, 2012 and there has been no significant transaction in Sino Health since its inception.

The Company is considered to be a development stage company, as it has not generated substantial revenues from operations.

Note 2 - GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company has accumulated deficits of $3,506,006 at June 30, 2012 that includes losses of $23,131 for the six months ended June 30, 2012. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going basis and do not include any adjustments that might result from the outcome of this uncertainty.

At June 30, 2012, the Company has suffered losses from development stage activities to date. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  • Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars.

F-7



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

These consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011 and notes thereto contained in the Annual Report on Form 10-K of the Company filed with the United States Securities and Exchange Commission (the “SEC”) on April 13, 2012. Interim results are not necessarily indicative of the results for the full year.

  • Principles of Consolidation

These consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation. Inter-company transactions have been eliminated in consolidation. The functional currency of the Company’s operations is Reminbi (“RMB”)

  • Use of Estimates

In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates. The Company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

  • Fair Value of Financial Instruments

The Company adopted the standard “Fair Value Measurements”, codified with ASC 820 and effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.

ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e. the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost. ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

 

Level 3:

Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

F-8



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

  • Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, the Company has a concentration of credit risk related to these uninsured deposits.

  • Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average cost method. Costs include direct material, direct labor and applicable manufacturing overhead. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if market value is below cost. Management also regularly evaluates the composition of the Company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

  • Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method. Additions and improvement that substantially extend the useful life of the property, plant and equipment are capitalized. Property, plant and equipment are depreciated to their estimated residual values over their estimated useful lives, and reviewed for impairment in accordance with the standard, “Accounting for the Impairment or Disposal of Long-Lived Assets”, codified with ASC 360.

  • Construction in Progress

Construction in progress represents direct costs of construction or acquisition incurred. Capitalization of these costs ceases and construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.

  • Intangible Assets

The Company periodically analyzes its intangible assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through the measurement of undiscounted operating cash flows on a basis consistent with U.S. GAAP.

  • Related Parties

The caption “Due from shareholders” represents loans receivable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are not considered current assets.

The caption “Due to shareholders” represents loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are deemed payable on demand. Refer to Note 6.

F-9



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  • Comprehensive Income

The standard, “Reporting Comprehensive Income”, codified with ASC 220, requires disclosure of all components of comprehensive income and loss on an annual and interim basis. Comprehensive income and loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s other comprehensive income arose from the effect of foreign currency translation adjustments.

  • Revenue Recognition

Revenues are recognized when finished products are shipped to unaffiliated customers, both title and the risks and rewards of ownership are transferred, or services have been rendered and accepted, and collectability is reasonably assured.

  • Research and Development Costs

Research and development costs are expensed to operations as incurred.

  • Income Tax

The Company accounts for income taxes in accordance with the standard, “Accounting for Income Taxes”, codified with ASC 740. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

  • Segment Information

The standard, “Disclosures about Segments of an Enterprise and Related Information”, codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in one business segment (research, development, production, marketing and sales) and in one geographical segment (China), as all of the Company’s current operations are carried out in China.

  • Foreign Currency Translation

The Company’s functional currency is Chinese Renminbi (“RMB”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.

F-10



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The consolidated financial statements of the Company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation”, codified with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive income. At June 30, 2012 and December 31, 2011, the cumulative translation adjustments of ($28,813) and ($30,735), respectively, were classified as items of accumulated other comprehensive income (loss) in the stockholders’ equity section of the balance sheet. For the six months ended June 30, 2012 and 2011, other comprehensive income (loss) was $3,151 and ($7,520), respectively.

The exchange rates used to translate amounts in RMB into U.S. dollars for the purposes of preparing the consolidated financial statements were as follows: As of June 30, 2012 and December 31, 2011, the Company used the period-end rates of exchange for assets and liabilities of $1 to RMB6.3551 and $1 to RMB6.3056, respectively. For the six months ended June 30, 2012 and 2011, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.3175 and $1 to RMB6.5383, respectively. The Company used historical rates for equity.

  • Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At June 30, 2012, the Company had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to the Company’s net loss.

  • Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

  • New Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This standard clarifies guidance on how to measure fair value and is largely consistent with existing fair value measurement principles. The ASU also expands existing disclosure requirements for fair value measurements and makes other amendments. For the Company, this ASU is effective prospectively beginning January 1, 2012. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.

F-11



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard requires entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, the earnings-per share computation does not change. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. In addition, the previous option to disclose reclassification adjustments in the notes to the financial statements is also eliminated, as reclassification adjustments will be required to be shown on the face of the statement under the new standard. For the Company, this ASU is effective retrospectively beginning January 1, 2012. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures About Offsetting Assets and Liabilities, which creates new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. Certain disclosures of the amounts of certain instruments subject to enforceable master netting arrangements or similar agreements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial position. The ASU is effective January 1, 2013 with retrospective application required. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s results of operations or financial condition.

In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact our financial statements.

The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

Note 4 - PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment consist of the following:

    June 30,     December 31,  
    2012     2011  
             
Office Equipment $  8,241   $  8,305  
Vehicle   7,396     7,454  
    15,637     15,759  
Less: Accumulated Depreciation   (12,398 )   (12,005 )
  $  3,239   $  3,754  

F-12



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual percentages applied are:

Machinery and Equipment   10%  
Office Equipment   20%  
Vehicle   10%  

The depreciation was $489 and $1,102, including cost and operating expense, for the six months ended June 30, 2012 and 2011, respectively.

Note 5 - GOVERNMENT GRANTS

Receipts of government grants to encourage research and development activities which are non-refundable are credited to deferred income upon receipt. The Company recognizes government grants income when the government completes inspection on the regulated use of the grants by issuing the certificate. There was no government grants income recognized for the six months ended June 30, 2012 or 2011. As of June 30, 2012, government grants of $116,932 were recorded as deferred income.

Note 6 - DUE TO SHAREHOLDERS

Due to shareholders consists of the following:

    June 30,     December 31,  
    2012     2011  
Yukun Li $  26,750   $  26,960  
Guomin Li   306,405     300,828  
Qingwei Zhou   1,923     1,923  
Bing Xiao   90,503     51,263  
  $  425,581   $  380,974  

Guomin Li has been a shareholder of Hongbo since November 2006. Guomin Li was also the Company’s President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director before February 22, 2010. Qingwei Zhou has been a shareholder of Chang-On since September 2006. Under the Agreement for the Share Exchange on December 29, 2006, Guomin Li and Qingwei Zhou acquired 17,400,000 and 36,600,000 shares of Gold Standard, Inc. respectively.

On February 22, 2010, Guomin Li sold 10,000,000 shares of the Company to Bing Xiao who also took over Guomin Li’s positions as the Company’s President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director.

Note 7 - COMMON STOCK

Under the Share Exchange Agreement, the Company issued to the shareholders of Chang-On 60,000,000 shares of common stock. The Company had 1,307, 366 shares of common stock issued and outstanding before the closing of the share exchange. On March 23, 2007, the Company filed an S-8 to register 6,000,000 shares of common stock for stock based compensation. The Company had a total of 67,307,366 shares issued and outstanding as of June 30, 2012.

F-13



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 8 - OPERATING RISK

Concentrations of Credit Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions to mitigate the fact there is no deposit insurance.

A significant percentage of the Company’s business is generated from a small number of customers. However, due to the immaterial amount of revenue generated, the Company does not believe they are exposed to significant concentration of credit risk in this area.

Source of Supply
The Company purchases components for its products from a number of suppliers. However, on occasion, a customer’s specifications may require it to purchase components from a specific supplier. The Company does not have any long term contracts with any of its suppliers, and the Company believes that alternative suppliers are available. Although the Company has not been subject to shortages for any of its components, since it does not have long-term contracts, the Company may be subject to cutbacks and price increases which it may not be able to pass on to its customers in the event that the demand for components generally exceeds the capacity of its suppliers.

Country Risk
The Company has significant investments in the PRC. The operating results of the Company may be adversely affected by changes in the political and social conditions in the PRC and by changes in Chinese government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. There can be no assurance; however, those changes in political and other conditions will not result in any adverse impact.

Note 9 - EMPLOYEE BENEFIT PLAN

Full time employees of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees' salaries. The total provisions for such employee benefits were $0 for the six months ended June 30, 2012 and 2011.

Note 10 - RESTRICTED RETAINED EARNINGS

Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). The Company did not make any appropriations to the reserve funds mentioned above due to lack of profits after tax since commencement of operations.

F-14



CHANG-ON INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 11 - SUBSEQUENT EVENTS

On August 6, 2012, the Company issued 30,000,000 shares of common stock at a price of $0.001 per share to Bing Xiao, the Company’s President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director. The newly issued 30,000,000 shares amount to approximately 30.8% of the Company’s current issued and outstanding shares of common stock.

F-15


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

Forward Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.

Our unaudited financial statements are stated in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.

As used in this current report and unless otherwise indicated, the terms "we", "us", "our" and "our company" mean Chang-On International, Inc., a Utah corporation, and our subsidiary Chang-On International Limited, a limited liability company incorporated under the laws of Hong Kong, unless otherwise indicated.

General Overview

We were incorporated under the laws of the State of Utah as Gold Standard, Inc., on November 28, 1972 and changed our name to Chang-On International, Inc. on April 18, 2007. We are principally engaged in the business of waste recycling and reutilization in the People’s Republic of China (“China”) through our wholly owned subsidiary, Chang-On International Limited, a limited liability company incorporated under the laws of Hong Kong on September 8, 2006 (“Chang-On HK”).

Chang-On HK is a holding company with one asset: 61% of the share capital of Harbin Hongbo Environment Protection Material, Inc. (“Hongbo”), a company incorporated under the laws of China. The remaining 39% of the share capital of Hongbo is owned by Guomin Li (29%), our former president, chief executive officer, chief financial officer, principal accouting officer and director, and Su Yu (10%), our director. Hongbo was incorporated in November 2004, and until September 2006 it was entirely engaged in developing its technology and manufacturing facility. From September 2006 to December 2006 it completed its first sales, realizing $43,023 in revenue. Because Hongbo has not yet produced significant revenues, it is still a development stage company for financial reporting purposes.

Our principal offices are located at 514 No. 18 Building, High New Technology Development, Harbin, Heilongjiang Province, China. Our fiscal year end is December 31. Our common stock is quoted on the OTC Bulletin Board under the symbol “CAON”.

5


Our Current Business

We are the majority owner of Hongbo through our wholly owned subsidiary, Chang-On HK. Hongbo manufactures construction materials from waste products (“SF material”) and has filed 11 Chinese patents to protect its proprietary products and production techniques. Its innovation in the construction materials industry has been recognized by both the Chinese government, which awarded Su Yu, our director, the “Gold Medal for Industrial Innovation Contribution,” and by the industry itself, as demonstrated by the Gold Medal awarded to Hongbo at the Hong Kong International New Technology and Product Exposition.

Hongbo’s business is the development and production of products utilizing SF material, which is a composite of waste plastic and coal ash. Hongbo currently obtains the waste plastic from six recycling facilities in Harbin and obtains the coal ash from the Harbin Power Station. It removes these two burdens from the environment and transforms them into a highly variable construction material, producing no pollution in the process, which means that it does not incur significant expenses relating to environmental regulation compliance. Since Hongbo’s inception it has not experienced any shortage in the availability of these waste products and we do not anticipate that it will experience any shortages for the foreseeable future.

Intellectual Property

Hongbo’s accumulation of patents should provide it with a significant competitive advantage in the future. Currently, it holds 11 separate Chinese patents for proprietary products and manufacturing processes, including patents for:

  • solidified SF board;
  • temperature controlling board;
  • SF material well cover and base;
  • pressing and injection method for the manufacture of SF material; and
  • method of calculation while manufacturing combined materials.

To drive Hongbo’s technological advantage, it has implemented a program of providing advanced education for its employees that enables them to maintain the technological lead Hongbo has developed. To date, the company has financed advanced technological education for several of its employees in Chinese universities. If and when we generate sufficient working capital, our plan is to send Hongbo’s employees abroad to obtain usable knowledge from the worldwide community.

Employees

We currently have 6 employees, all of whom are employed with Hongbo on a full time basis.

Legislation and Government Regulation

The national, provincial and local governments in the China are highly bureaucratized. The day-to-day operations of Hongbo’s business require us to interact frequently with representatives of Chinese government institutions. The effort to obtain the registrations, licenses and permits necessary to carry out our business activities can be daunting. Significant delays can result from the need to obtain governmental approvals, which can have an adverse effect on the profitability of our operations. In addition, compliance with regulatory requirements applicable to the handling and processing of waste materials may increase the cost of our operations, which could adversely affect our profitability. So far, the Chinese government has been very supportive of our technology and has provided us with a $100,000 grant as well as a five year exemption from income tax.

6


Results of Operations

Revenues

The following summary of our results of operations should be read in conjunction with our unaudited interim financial statements for the three and six months ended June 30, 2012 and 2011.

Our operating results for the three and six months ended June 30, 2012 and 2011 are summarized as follows:

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2012     2011     2012     2011  
Net Sales $  Nil   $  Nil   $  Nil   $  Nil  
Cost of Sales $  Nil   $  Nil   $  Nil   $  Nil  
Expenses $  10,770   $  7,275   $  23,131   $  14,558  
Net Loss $  (10,770 ) $  (7,275 ) $  (23,131 ) $  (14,558 )

Expenses

Our total expenses for the three month periods ended June 30, 2012 and 2011 are outlined in the table below:

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2012     2011     2012     2011  
Salaries $  3,793   $  3,693   $  7,598   $  7,341  
Other expenses $  Nil   $  28   $  Nil   $  115  
Depreciation $  177   $  554   $  489   $  1,102  
Professional fees $  6,800   $  3,000   $  15,044   $  6,000  

Expenses for the three month period ended June 30, 2012, increased by 48% as compared to the comparative period in 2011 primarily as a result of increased professional fees. Expenses for the six month period ended June 30, 2012, increased by 59% as compared to the comparative period in 2011 primarily as a result of increased professional fees.

Revenue

We have earned revenues of $Nil and $Nil, respectively, for the three month periods ended June 30, 2012 and 2011 and revenues of $Nil and $Nil, respectively, for the six month periods ended June 30, 2012 and 2011. Our sales have remained unchanged for the three and six month periods ended June 30, 2012 and 2011.

Liquidity and Capital Resources

Working Capital

    At     At        
    June 30,     December 31,     Increase/  
    2012     2011     Decrease  
Current Assets $  351   $  353   $  (0.57)%  
Current Liabilities $  554,365   $  534,902   $  3.64%  
Working Capital (deficit) $  (554,014 ) $  (534,549 ) $  3.64%  

7


Cash Flows

    Six Months     Six Months  
    Ended     Ended  
    June 30,     June 30,  
    2012     2011  
Net Cash Provided by (Used in) Operating Activities $  (46,862 ) $  (33,389 )
Net Cash Provided by Investing Activities $  Nil   $  Nil  
Net Cash Provided by Financing Activities $  44,607   $  39,743  
Net Increase (Decrease) in Cash During the Period $  Nil   $  1,152  

As of June 30, 2012, we had $36 in cash, $351 in total current assets, $554,365 in total current liabilities and a working capital deficit of $554,014. As of December 31, 2011, we had a working capital deficit of $534,549.

We are dependent on funds raised through equity financing and proceeds from shareholder loans. Our net loss of $4,118,776 from our inception on November 26, 2004 to June 30, 2012 was funded primarily by such financing and loans, as well as other capital contributions.

From our inception on November 26, 2004 to June 30, 2012 we spent $479,478 on operating activities. During the six months ended June 30, 2012 we spent $46,862 on operating activities, whereas we spent $33,389 on operating activities during the same period in fiscal 2011. The increase in our expenditures on operating activities during the six months ended June 30, 2012 was primarily due to higher net loss.

From our inception on November 26, 2004 to June 30, 2012 we spent $710,118 on investing activities, which was primarily in the form of the purchase of fixed assets. We did not spend any money on investing activities during the six months ended June 30, 2012 or 2011.

From our inception on November 26, 2004 to June 30, 2012 we received $1,187,261 from financing activities, which consisted of $274,103 in capital contribution and $1,008,996 in net proceeds from shareholder loans, less $24,994 in distributions to shareholders and $70.844 for repayment of a loan to a shareholder. During the six months ended June 30, 2012 we received $44,607 from financing activities, all of which was in the form of proceeds from shareholder loans, whereas we received $39,743 from financing activities during the same period in fiscal 2011, all of which was also in the form of proceeds from shareholder loans.

From our inception on November 26, 2004 to June 30, 2012 we also experienced a loss of $29,685 in connection with foreign exchange translation. During the six months ended June 30, 2012 we gained $3,151 due to the effect of exchange rates, whereas we lost $7,520 due to the same effect during the same period in fiscal 2011.

We will require additional funds to fund our budgeted expenses over the next 12 months. These funds may be raised through, equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.

We anticipate that our expenses over the next 12 months (beginning August 2012) will be approximately $900,000 as described in the table below. These estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources.

8



Description   Potential     Estimated  
    Completion     Expenses  
    Date     ($)  
             
Research and development costs for further products and manufacturing processes   12 months     250,000  
Salaries   12 months     25,000  
Utility expenses   12 months     25,000  
Investor relations costs   12 months     80,000  
Marketing expenses   12 months     400,000  
Professional fees   12 months     60,000  
Other administrative expenses   12 months     60,000  
Total         900,000  

Our other administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and general office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting and auditing fees.

Based on our planned expenditures, we will require approximately $900,000 to proceed with our business plan over the next 12 months. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.

We intend to raise the balance of our cash requirements for the next 12 months from private placements, shareholder loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us.

Even though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for funding our operations as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our operations. In the absence of such financing, we may be forced to abandon our business plan.

Going Concern

Our financial statements for the three and six month periods ended June 30, 2012 have been prepared on a going concern basis and contain an additional explanatory paragraph which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have generated limited revenues, have achieved losses since our inception, and rely upon the sale of our common stock and proceeds from shareholder loans to fund our operations. If we are unable to raise equity or secure alternative financing, we may not be able to continue our operations and our business plan may fail.

If our operations and cash flow improve, management believes that we can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations.

9


Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Critical Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars.

These consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements of our company for the year ended December 31, 2011 and notes thereto contained in the Annual Report on Form 10-K of our company filed with the United States Securities and Exchange Commission (the “SEC”) on April 13, 2012. Interim results are not necessarily indicative of the results for the full year.

Principles of Consolidation

These consolidated financial statements include the accounts of our company and all its majority-owned subsidiaries which require consolidation. Inter-company transactions have been eliminated in consolidation. The functional currency of our company’s operations is Reminbi (“RMB”)

Use of Estimates

In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates. Our company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Fair Value of Financial Instruments

Our company adopted the standard “Fair Value Measurements”, codified with ASC 820 and effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.

ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e. the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost. ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

10



Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of our company.

 

Level 3:

Unobservable inputs. Unobservable inputs reflect the assumptions that our company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. Our company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, our company has a concentration of credit risk related to these uninsured deposits.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average cost method. Costs include direct material, direct labor and applicable manufacturing overhead. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if market value is below cost. Management also regularly evaluates the composition of our company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method. Additions and improvement that substantially extend the useful life of the property, plant and equipment are capitalized. Property, plant and equipment are depreciated to their estimated residual values over their estimated useful lives, and reviewed for impairment in accordance with the standard, “Accounting for the Impairment or Disposal of Long-Lived Assets”, codified with ASC 360.

Construction in Progress

Construction in progress represents direct costs of construction or acquisition incurred. Capitalization of these costs ceases and construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.

Intangible Assets

Our company periodically analyzes its intangible assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through the measurement of undiscounted operating cash flows on a basis consistent with U.S. GAAP.

11


Related Parties

The caption “Due from shareholders” represents loans receivable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are not considered current assets.

The caption “Due to shareholders” represents loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are deemed payable on demand. Refer to Note 6.

Comprehensive Income

The standard, “Reporting Comprehensive Income”, codified with ASC 220, requires disclosure of all components of comprehensive income and loss on an annual and interim basis. Comprehensive income and loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our company’s other comprehensive income arose from the effect of foreign currency translation adjustments.

Revenue Recognition

Revenues are recognized when finished products are shipped to unaffiliated customers, both title and the risks and rewards of ownership are transferred, or services have been rendered and accepted, and collectability is reasonably assured.

Research and Development Costs

Research and development costs are expensed to operations as incurred.

Income Tax

Our company accounts for income taxes in accordance with the standard, “Accounting for Income Taxes”, codified with ASC 740. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before our company is able to realize their benefits, or that future deductibility is uncertain.

Segment Information

The standard, “Disclosures about Segments of an Enterprise and Related Information”, codified with ASC 280, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. Our company believes that it operates in one business segment (research, development, production, marketing and sales) and in one geographical segment (China), as all of our company’s current operations are carried out in China.

Foreign Currency Translation

Our company’s functional currency is Chinese Renminbi (“RMB”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.

12


The consolidated financial statements of our company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation”, codified with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive income. At June 30, 2012 and December 31, 2011, the cumulative translation adjustments of ($28,813) and ($30,735), respectively, were classified as items of accumulated other comprehensive income (loss) in the stockholders’ equity section of the balance sheet. For the six months ended June 30, 2012 and 2011, other comprehensive income (loss) was $3,151 and ($7,520), respectively.

The exchange rates used to translate amounts in RMB into U.S. dollars for the purposes of preparing the consolidated financial statements were as follows: As of June 30, 2012 and December 31, 2011, our company used the period-end rates of exchange for assets and liabilities of $1 to RMB6.3551 and $1 to RMB6.3056, respectively. For the six months ended June 30, 2012 and 2011, our company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.3175 and $1 to RMB6.5383, respectively. Our company used historical rates for equity.

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At June 30, 2012, our company had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to our company’s net loss.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This standard clarifies guidance on how to measure fair value and is largely consistent with existing fair value measurement principles. The ASU also expands existing disclosure requirements for fair value measurements and makes other amendments. For our company, this ASU is effective prospectively beginning January 1, 2012. The adoption of this standard did not have a material impact on our company’s consolidated results of operations or financial condition.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard requires entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, the earnings-per share computation does not change. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. In addition, the previous option to disclose reclassification adjustments in the notes to the financial statements is also eliminated, as reclassification adjustments will be required to be shown on the face of the statement under the new standard. For our company, this ASU is effective retrospectively beginning January 1, 2012. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on our company’s consolidated results of operations or financial condition.

13


In December 2011, the FASB issued ASU No. 2011-11, Disclosures About Offsetting Assets and Liabilities, which creates new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. Certain disclosures of the amounts of certain instruments subject to enforceable master netting arrangements or similar agreements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial position. The ASU is effective January 1, 2013 with retrospective application required. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on our company’s results of operations or financial condition.

In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact our financial statements.

Our company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.

As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14


PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 2. Unregistered Sales of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

15


Item 6. Exhibits

Exhibit Description
Number  
(3)

(i) Articles of Incorporation; (ii) By-laws

3.1

Amendment to By-Laws (incorporated by reference our Current Report on Form 8-K filed on July 10, 2006).

3.2

Amendment to By-Laws (incorporated by reference our Current Report on Form 8-K filed on April 9, 2007).

3.3

Certificate of Amendment of Certificate of Incorporation filed on April 18, 2007 (incorporated by reference our Current Report on Form 8-K filed on April 23, 2007).

(10)

Material Contracts

10.1

Share Exchange Agreement dated December 18, 2006 between our company and the shareholders of Chang-On International Limited (incorporated by reference to our Current Report on Form 8-K filed on December 19, 2006).

10.2

Indemnity Agreement dated December 29, 2006 among Gold Standard, Inc., the shareholders of Chang- On International Limited, Scott L. Smith and Leonard Burningham (incorporated by reference to our Current Report on Form 8-K filed on January 10, 2007).

(14)

Code of Ethics

14.1

Code of Ethics (incorporated by reference to our Annual Report on Form 10-K filed on March 31, 2011)

(21)

Subsidiaries of the Registrant
Chang-On International Limited, a limited liability company incorporated under the laws of Hong Kong

(31)

Rule 13a-14(a)/15d-14(a) Certifications

31.1*

Section 302 Certification under the Sarbanes-Oxley Act of 2002

(32)

Section 1350 Certifications

32.1*

Section 906 Certification under the Sarbanes-Oxley Act of 2002

101**

Interactive Data File

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


*

Filed herewith.

   
**

Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

16


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Chang-On International, Inc.
   
Date: August 14, 2012 /s/ Bing Xiao
  Bing Xiao
  President, Chief Executive Officer, Chief Financial
  Officer and Director
  (Principal Executive Officer, Principal Financial Officer
  and Principal Accounting Officer)

17


PINX:CAON Chang-On International Inc Quarterly Report 10-Q Filling

Chang-On International Inc PINX:CAON Stock - Get Quarterly Report SEC Filing of Chang-On International Inc PINX:CAON stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:CAON Chang-On International Inc Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices |  Most Recent Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:CAON Chang-On International Inc Quarterly Report 10-Q Filing - 3/31/2012  |  Next: PINX:CAPC Capstone Companies Inc Insider Activity 3 Filing - 7/9/2012