UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





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





For the quarterly period ended June 30, 2010





or





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





For the transition period from ______________________ to ______________________





Commission file number: 001-08937





CHANG-ON INTERNATIONAL, INC.


(Exact name of registrant as specified in its charter)





Utah

87-0302579(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





514 No. 18 Building


High New Technology Development


Harbin, Heilongjiang Province, China


(Address of principal executive offices)





86-451-82695010


(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o





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 (of for such shorter period that the registrant was required to submit and post such files).  Yes þ   No o





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





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





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ





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





Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o   No o





APPLICABLE ONLY TO CORPORATE ISSUERS





As of August 16, 2010 the registrant’s outstanding common stock consisted of 67,307,366shares










Table of Contents




PART I – FINANCIAL INFORMATION
2Item 1. Financial Statements
2Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
3Item 3. Quantitative and Qualitative Disclosures About Market Risk
6Item 4. Controls and Procedures
7PART II – OTHER INFORMATION
8Item 1. Legal Proceedings
8Item 2. Unregistered Sales of Equity Securities
8Item 3. Defaults Upon Senior Securities
8Item 4. (Removed and Reserved)
8Item 5. Other Information
8Item 6. Exhibits
8


1




PART I – FINANCIAL INFORMATION





Item 1.  Financial Statements





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




Chang-On International, Inc.


(A Development Stage Company)





June 30, 2010




Consolidated Balance Sheets
F-1Consolidated Statements of Operations (Unaudited)
F-2Consolidated Statements of Comprehensive Loss (Unaudited)
F-3Consolidated Statements of Changes in Equity (Deficit) (Unaudited)
F-4Consolidated Statements of Cash Flows (Unaudited)
F-5Notes to Consolidated Financial Statements
F-6
 
 2
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 CONSOLIDATED BALANCE SHEETS
 June 30, 2010


December 31, 2009(Unaudited)ASSETSCurrent AssetsCash

$
78,181


$
27,884Prepaid and other receivables


50,432



293Inventories (Note 4)


38,562



38,305Total Current Assets


167,175



66,482Property, plant and equipment, net (Note 5)


346,231



361,211Total Assets

$
513,406


$
427,693LIABILITIESCurrent LiabilitiesTrade accounts payable

$
700


$
696Accrued expenses


16,097



31,525Government subsidy (Note 6)


109,580



78,089Due to shareholders (Note 7)


383,442



273,001Total Current Liabilities


509,819



383,311Total Liabilities


509,819



383,311EQUITYChang-On International, Inc Stockholders' Equity:Common stock, par value $0.001, authorized100,000,000 shares, issue and outstanding67,307,366 shares (Note 8)


67,307



67,307Additional paid in capital


3,067,959



3,067,959Deficit


(3,144,722
)


(3,067,189
)Deferred Compensation (Note 9)


-



(50,000
)Accumulated comprehensive income


(15,367
)


(15,605
)Total Chang-On International, Inc. Stockholders' equity


(24,823
)


2,472Noncontrolling interest


28,410



41,910Total Equity


3,587



44,382Total Liabilities and Equity

$
513,406


$
427,693
 
 See Notes to Financial Statements
 
 F-1
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the Three Months Ended

June 30,


For the Six Months Ended

June 30,


For the Period from November 26, 2004 (inception) to June 30,2010


2009


2010


2009


2010Net sales

$
-


$
-


$
-


$
-


$
93,776Cost of sales


-



-



-



-



(129,170
)Gross profit


-



-



-



-



(35,394
)ExpensesSalaries


3,517



3,514



7,032



7,025



129,371Transportation


-



-



-



-



13,354Office equipment


-



13



-



28



6,879Water, electricity and gas


3,346



3,310



10,676



20,316



128,797Other expenses


-



123



183



209



35,431Advertisement


-



-



-



-



556Rent expense


-



-



-



-



3,811Depreciation


8,649



8,641



17,294



17,276



183,188R & D expense


-



-



-



-



22,578Repairs and maintenance


-



-



-



-



1,043Gain on disposal of fixed assets


-



-



-



-



(7,730
)Stock compensation


-



50,000



50,000



167,500



2,400,000Professional fees


3,000



-



6,000



-



53,378Fixed assets impairment


-



-



-



-



345,962Intangibles writedown


-



-



-



-



241,639Total Expenses


18,512



65,601



91,185



212,354



3,558,257Total expenses and loss from operations


(18,512
)


(65,601
)


(91,185
)


(212,354
)


(3,593,651
)Other income


-



-



-



-



7,195Loss before provision for income tax


(18,512
)


(65,601
)


(91,185
)


(212,354
)


(3,586,456
)Income tax provision


-



-



-



-



-Net loss


(18,512
)


(65,601
)


(91,185
)


(212,354
)


(3,586,456
)Less: Net loss attributable to the noncontrolling interest


6,018



6,058



13,652



17,454



279,455Net loss attributable to Chang-On International, Inc.common stockholders

$
(12,494
)

$
(59,543
)

$
(77,533
)


(194,900
)

$
(3,307,001
)Basic and Fully Diluted Earnings per Share

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)Weighted average shares outstanding


67,307,366



67,307,366



67,307,366



67,307,366
 
 See Notes to Financial Statements
 F-2
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (UNAUDITED)
 For the Three Months Ended

June 30,


For the Six Months Ended

June 30,


For the Period from November 26, 2004 (inception) to June 30,2010


2009


2010


2009


2010Net loss

$
(18,512
)

$
(65,601
)

$
(91,185
)

$
(212,354
)

$
(3,586,456
)Other comprehensive income(loss), net of tax:Foreign currency translation gain(loss)


376



96



390



(298
)


(15,309
)Comprehensive loss


(18,136
)


(65,505
)


(90,795
)


(212,652
)


(3,601,765
)Comprehensive loss attributable to the noncontrolling interest


5,871



6,020



13,500



17,570



335,312Comprehensive loss attributable to Chang-On International, Inc.

$
(12,265
)

$
(59,485
)

$
(77,295
)

$
(195,082
)

$
(3,266,453
)
 
 See Notes to Financial Statements
 F-3
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
 FOR THE SIX MONTHS ENDED JUNE 30, 2010
 (UNAUDITED)
 
 Chang-On International, Inc. StockholdersCommon Stock


Additional








AccumulatedComprehensive


$0.001 Par Value


Paid-in


Accumulated


Deferred


Comprehensive


NoncontrollingTotal


Income


Shares


Amount


Capital


Deficit


Compensation


Income (loss)


InterestBalance December 31, 2009

$
44,382






67,307,366


$
67,307


$
3,067,959


$
(3,067,189
)

$
(50,000
)

$
(15,605
)

$
41,910Amortization of deferred compensation


50,000






















50,000Comprehensive loss:Net loss


(91,185
)


(91,185
)














(77,533
)










(13,652
)Other comprehensive loss, net of tax:Foreign currency translation gain (loss)


390



390























238



152Comprehensive loss


(90,795.00
)

$
(90,795
)Balance June 30, 2010

$
3,587







67,307,366


$
67,307


$
3,067,959


$
(3,144,722
)

$
-


$
(15,367
)

$
28,410
 
 See Notes to Financial Statements
  F-4
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six Months Ended

June 30,


For the Period from November 26, 2004 (inception) to June 30,2010


2009


2010Operating Activities:Net loss

$
(91,185
)

$
(212,354
)

$
(3,586,456
)Adjustments to reconcile net loss to net cash used by operationsDepreciation (cost and expense)


17,294



17,276



192,650Provision for obsolete inventories


-



-



68,887Impairment loss on intangible assets


-



-



241,639Impairment loss on fixed assets


-



-



345,962Gain on disposal of fixed assets


-



-



(7,730
)Stock compensation


50,000



167,500



2,400,000Changes in operating assets and liabilities:(Increase)/decrease in account receivable


-



-



-(Increase)/decrease in prepaid and other receivables


(50,139
)


-



(50,432
)(Increase)/decrease in inventory


-



-



(107,192
)Increase/(decrease) in accounts payable


-



-



695Increase/(decrease) in accrued expenses


(15,428
)


(65
)


16,097Decrease in deferred income-government grants


31,491



-



102,517Net cash used in operating activities


(57,967
)


(27,643
)


(383,363
)Investing ActivitiesPurchase of fixed assets


-



-



(710,118
)Loan to shareholders


-



-



(24,659
)Repay of loan from shareholders


-



-



24,659Net cash used in investing activities


-



-



(710,118
)Financing ActivitiesDistribution to shareholders


-



-



(24,994
)Capital contribution


-



-



274,103Proceeds from shareholder loans


108,178



80,262



964,594Repay of loan to shareholders


-



-



(70,844
)Net cash provided by financing activities


108,178



80,262



1,142,859Effect of exchange rate changes on cash


86



247



28,803Increase (decrease) in cash


50,297



52,866



78,181Cash at beginning of period


27,884



3,798



-Cash at end of period

$
78,181


$
56,664


$
78,181Supplemental Cash Flow Information:Interest received (paid) during the year

$
-


$
-


$
260Non-cash financing activities:Contribution of patent for equity

$
-


$
-


$
241,639Contribution of fixed assets for equity

$
-


$
-


$
125,497Stock issued in exchange for consulting services

$
-


$
-


$
2,400,000Conversion of shareholder's loan to paid in capital

$
-


$
-


$
589,100
  See Notes to Financial Statements
  F-5
 
 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.
 
 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 $3,144,722 at June 30, 2010 that includes losses of $91,185 for the six months ended June 30, 2010. 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, 2010, 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.
 
 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, 2009 and notes thereto contained in the Annual Report on Form 10-K/A of the Company filed with the United States Securities and Exchange Commission (the “SEC”) on April 23, 2010. 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.
 
 F-6
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 ●Subsequent Events
 
 The Company has evaluated subsequent events through the date that these consolidated financial statements were issued, which was August 16, 2010, the date of the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2010.
 
 ●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.
 
 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 improvements 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.
  F-7
 
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 ●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 7.
 
 ●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 collectibility 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.
  F-8
  CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 ●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.
 
 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, 2010 and December 31, 2009, the cumulative translation adjustments of ($15,367) and ($15,605), 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, 2010 and 2009, other comprehensive income (loss) was $390 and ($298), 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, 2010 and December 31, 2009, the Company used the period-end rates of exchange for assets and liabilities of $1 to RMB6.7814 and $1 to RMB6.827, respectively. For the six months ended June 30, 2010 and 2009, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1 to RMB6.8257 and $1 to RMB6.8331, respectively. The Company used historical rates for equity.
 
 ●Earnings 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, 2010, 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 June 2009, the Financial Accounting Standards Board (“FASB”) issued a new standard regarding the accounting for transfers of financial assets amending the existing guidance on transfers of financial assets to, among other things, eliminate the qualifying special-purpose entity concept, include a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarify and change the derecognition criteria for a transfer to be accounted for as a sale, and require significant additional disclosure. For the Company, this standard is effective for new transfers of financial assets beginning January 1, 2010. Because the Company historically does not have significant transfers of financial assets, the adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
 
 In June 2009, the FASB issued a new standard that revises the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for determining who should consolidate a variable-interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity. For the Company, this standard was effective January 1, 2010. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
 F-9
 CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force”, that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing 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 objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding the application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. For the Company, ASU No. 2009-13 is effective beginning January 1, 2011. The Company may elect to adopt the provisions prospectively to new or materially modified arrangements beginning on the effective date or retrospectively for all periods presented. The Company is currently evaluating the impact of this standard on its Company’s consolidated results of operations and financial condition.
 
 In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force”, that reduces the types of transactions that fall within the current scope of software revenue recognition guidance. Existing software revenue recognition guidance requires that its provisions be applied to an entire arrangement when the sale of any products or services containing or utilizing software is considered more than incidental to the product or service. As a result of the amendments included in ASU No. 2009-14, many tangible products and services that rely on software will be accounted for under the multiple-element arrangements revenue recognition guidance rather than under the software revenue recognition guidance. Under the ASU, the following components would be excluded from the scope of software revenue recognition guidance:  the tangible element of the product, software products bundled with tangible products where the software components and non-software components function together to deliver the product’s essential functionality, and undelivered components that relate to software that is essential to the tangible product’s functionality. The ASU also provides guidance on how to allocate transaction consideration when an arrangement contains both deliverables within the scope of software revenue guidance (software deliverables) and deliverables not within the scope of that guidance (non-software deliverables). For the Company, ASU No. 2009-14 is effective beginning January 1, 2011. The Company is currently evaluating the impact of this standard on its consolidated results of operations and financial condition.
 
 In January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair Value Measurements”, that amends existing disclosure requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchases, sales, issuances, and settlements relative to Level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For the Company, this ASU is effective for the first quarter of 2010, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of 2011. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s consolidated results of operations or financial condition.
 
 In April 2010, the FASB issued ASU No. 2010-17, “Milestone Method of Revenue Recognition—a  consensus of the FASB Emerging Issues Task Force”, that recognizes the milestone method as an acceptable revenue recognition method for substantive milestones in research or development arrangements. This standard would require its provisions be met in order for an entity to recognize consideration that is contingent upon achievement of a substantive milestone as revenue in its entirety in the period in which the milestone is achieved. In addition, this ASU would require disclosure of certain information with respect to arrangements that contain milestones. For the Company, this guidance would be required prospectively beginning January 1, 2011. The Company is currently evaluating the impact of this consensus on its consolidated results of operations and financial condition.
 
 Note 4 - INVENTORIES
 
 Inventories consist of the following:
 
 June 30,2010


December 31,2009Raw Material

$
38,562


$
38,305Finished Goods


69,350



68,887$
107,912


$
107,192Less: Allowance for Obsolescence


(69,350
)


(68,887
)$
38,562



38,805
 
 The provision on allowance for obsolescence was $0 for the six months ended June 30, 2010 and 2009.
 
 F-10
  CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Note 5 - PROPERTY, PLANT AND EQUIPMENT
 
 Property, Plant and Equipment consist of the following:
 
 June 30,2010


December 31,2009Machinery and Equipment

$
337,895


$
335,640Office Equipment


7,723



7,671Vehicle


6,931



6,884Construction in Progress


137,713



136,794490,262



486,989Less: Accumulated Depreciation


(144,031
)


(125,778
)$
346,231


$
361,211
 
 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 $17,294 and $17,276, including cost and operating expense, for the six months ended June 30, 2010 and 2009, respectively.
  Note 6 - 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, 2010 or 2009. As of June 30 2010, government grants of $109,580 were recorded as deferred income.
  Note 7 - DUE TO SHAREHOLDERS
 
 Due to shareholders consists of the following:June 30,2010


December 31,2009Yukun Li

$
22,458


$
22,308Guomin Li


356,061



248,770Qingwei Zhou


1,923



1,923Bing Xiao


3,000



-$
383,442


$
273,001
 
 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.
 
 F-11
  CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Note 8 - 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 (Note 9). The Company had a total of 67,307,366 shares issued and outstanding as of June 30, 2010.
  Note 9 - STOCK BASED COMPENSATION
 
 On January 19, 2007, the Company entered into an agreement with Yaru Li for legal services in the PRC for a term of two years, pursuant to which the Company issued 900,000 shares of common stock in April 2007. The fair market value amounted to $360,000, which is being amortized over the term of the agreement.
 
 On January 31, 2007, the Company entered into an agreement with Canyon Red Group Limited, a British Virgin Islands company, for advisory services on the marketing strategy and implementation of corporate identity for a term of twelve months, pursuant to which the Company issued 700,000 shares of common stock in April 2007. The fair market value amounted to $280,000, which is being amortized over the term of the agreement.
 
 On March 30, 2007, the Company entered into an agreement with Mu, Shiwei for internal audit services for a term of three years, pursuant to which the Company issued 1,500,000 shares of common stock in April 2007. The fair market value amounted to $600,000, which is being amortized over the term of the agreement.
 
 On March 30, 2007, the Company entered into an agreement with I &V Limited, a British Virgin Islands company, for advisory services on the sales and distribution channels of certain environmentally friendly construction materials in Northern China for a term of eighteen months, pursuant to which the Company issued 1,000,000 shares of common stock in April 2007. The fair market value amounted to $400,000, which is being amortized over the term of the agreement.
 
 On March 30, 2007, the Company entered into an agreement with Billion Profit International Holdings Limited, a British Virgin Islands company, for advisory services on the sales and distribution channels of certain environmentally friendly construction materials in Hainan Province of China for a term of twelve months, pursuant to which the Company issued 700,000 shares of common stock in April 2007. The fair market value amounted to $280,000, which is being amortized over the term of the agreement.
 
 On March 30, 2007, the Company entered into an agreement with Prospect Bright Holdings Limited, a British Virgin Islands company, for advisory services on the sales and distribution channels of certain environmentally friendly construction materials in Northeast China for a term of twenty-four months, pursuant to which the Company issued 1,200,000 shares of common stock in April 2007. The fair market value amounted to $480,000, which is being amortized over the term of the agreement.
 
 For the six months ended June 30, 2010 and 2009, $50,000 and $167,500 of the above stock compensation were charged to operating expenses, respectively. $0 was recorded as deferred compensation as of June 30, 2010.
 
 Note 10 - 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.
 
 F-12
  CHANG-ON INTERNATIONAL, INC.
 (A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTE 11 - 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, 2010 and 2009.
  NOTE 12 - 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-13


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.





Business Overview





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. For the year ended December 31, 2009 it generated net sales of $1,990. Because Hongbo has not yet produced significant revenues, it is still a development stage company for financial reporting purposes.





Hongbo manufactures construction materials from waste products (“SF material”). SF material 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.





Results of Operations





Revenues





We did not generate any revenues during the three months ended June 30, 2010 or 2009. From our inception on November 26, 2004 to June 30, 2010 we generated $93,776 in revenues, all of which was in the form of net sales of our SF materials. Since we are a development stage company, our revenue streams are not established and our product sales are therefore unstable. We anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months is uncertain.





3





Expenses





During the three months ended June 30, 2010 we incurred total expenses of $18,512, including $3,517 in salaries, $3,346 in water, electricity and gas expenses, $8,649 in depreciation and $3,000 in professional fees, whereas during the three months ended June 30, 2009 we incurred total expenses of $65,601, including $3,514 in salaries, $3,310 in water, electricity and gas expenses, $8,641 in depreciation, $50,000 in stock compensation, $13 in office equipment and $123 in other expenses. The decrease in our expenses for the three months ended June 30, 2010 was primarily due to a decrease in our stock compensation.





During the six months ended June 30, 2010 we incurred total expenses of $91,185, including $7,032 in salaries, $10,676 in water, electricity and gas expenses, $17,294 in depreciation, $50,000 in stock compensation, $6,000 in professional fees and $183 in other expenses, whereas during the six months ended June 30, 2009 we incurred total expenses of $212,354, including $7,025 in salaries, $20,316 in water, electricity and gas expenses, $17,276 in depreciation, $167,500 in stock compensation, $28 in office equipment and $209 in other expenses. The decrease in our expenses for the six months ended June 30, 2010 was primarily due to a decrease in our stock compensation.





From our inception on November 26, 2004 to June 30, 2010 we incurred total expenses of $3,558,257, including $129,371 in salaries, $128,797 in water, electricity and gas expenses, $183,188 in depreciation, $2,400,000 in stock compensation, $345,962 in fixed assets impairment, $241,639 in intangibles writedown, $53,378 in professional fees, $22,578 in research and development expenses and $35,431 in other expenses. Our professional fees consist of legal, accounting and auditing fees.





Net Loss





During the three months ended June 30, 2010 we did not generate any revenues and we incurred a net loss of $18,512, compared to a net loss of $65,601 during the same period in fiscal 2009. Our net loss attributable to stock compensation in these periods was $nil and $50,000 respectively.





During the six months ended June 30, 2010 we did not generate any revenues and we incurred a net loss of $91,185, compared to a net loss of $212,354 during the same period in fiscal 2009. Our net loss attributable to stock compensation in these periods was $50,000 and $167,500 respectively.





From our inception on November 26, 2004 to March 31, 2010 we incurred a net loss of $3,586,456, $2,400,000 of which was in the form of stock compensation.





Liquidity and Capital Resources





As of June 30, 2010, we had $78,181 in cash, $513,406 in total assets, $509,819 in total liabilities and a working capital deficit of $342,644. As of June 30, 2010, we had an accumulated deficit of $3,144,722.





We are dependent on funds raised through equity financing and proceeds from shareholder loans. Our net loss of $3,586,456 from our inception on November 26, 2004 to June 30, 2010 was funded primarily by such financing and loans, as well as other capital contributions.





From our inception on November 26, 2004 to June 30, 2010 we spent $383,363 on operating activities. During the six months ended June 30, 2010 we spent $57,967 on operating activities, whereas we spent $27,643 on operating activities during the same period in fiscal 2009. The increase in our expenditures on operating activities during the six months ended June 30, 2010 was primarily due to increases in our accrued expenses and prepaid and other receivables.





From our inception on November 26, 2004 to June 30, 2010 we spent $710,118 on investing activities, all of which was 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, 2010 or 2009.





From our inception on November 26, 2004 to June 30, 2010 we received $1,142,859 from financing activities, which consisted of $274,103 in capital contribution and $893,750 in net proceeds from shareholder loans, less $24,994 in distributions to shareholders. During the six months ended June 30, 2010 we received $108,718 from financing activities, all of which was in the form of proceeds from shareholder loans, whereas we received $80,262 from financing activities during the same period in fiscal 2009, all of which was also in the form of proceeds from shareholder loans.





From our inception on November 26, 2004 to June 30, 2010 we also experienced a gain of $28,803 in connection with foreign exchange translation. During the six months ended June 30, 2010 we gained $86 due to the effect of exchange rates, whereas we gained $247 due to the same effect during the same period in fiscal 2009.





During the six months ended June 30, 2010 we experienced an increase in cash of $50,297 due to a combination of our operating, investing and financing activities, and in particular, the proceeds we received from shareholder loans.





We anticipate that our expenses over the next 12 months (beginning August 2010) 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.




4





Description
Potential

Completion Date
Estimated

Expenses

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

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 $822,000 (a total of $900,000 less our approximately $78,000 in cash as of June 30, 2010) 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 months ended June 30, 2010 have been prepared on a going concern basis and contain an additional explanatory paragraph in Note 2 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 not 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.





5





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





Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 3 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.





Principles of Consolidation





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





Foreign Currency Translation





Our functional currency is Chinese Renminbi (“RMB”) and our 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.





Our consolidated financial statements 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.





Property, Plant and Equipment





Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method. Additions and improvements 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.





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 inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.





Item 3.  Quantitative and Qualitative Disclosures About Market Risk





Not applicable.





6





Item 4.  Controls and Procedures





Evaluation of Disclosure Controls and Procedures





We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our management concluded that our disclosure controls and procedures were not effective.





Changes in Internal Control





During the three months ended June 30, 2010 there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




7





PART II – OTHER INFORMATION





Item 1.  Legal Proceedings





We are not aware of any legal proceedings to which we are a party. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.





Item 2.  Unregistered Sales of Equity Securities





None.





Item 3.Defaults Upon Senior Securities





None.





Item 4.  (Removed and Reserved)





Item 5.  Other Information





None.





Item 6.  Exhibits





ExhibitNumber
ExhibitDescription31.1
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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.





Date: August 16, 2010
Chang-On International, Inc.By:
/s/ Bing XiaoBing XiaoPresident, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Director




8