Changda International (CIHD) 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20-549

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

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________

Commission file number: 0-53566

CHANGDA INTERNATIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	98-0521484  (I.R.S. Em ployer Identification No.)
10 th Floor Chenhong Building No. 301 East Dong Feng Street Weifang, Shandong, People’s Republic of China  (Address of principal executive offices)	261041 (Zip Code)

86-536 8513228

 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes   x       No o

Indicate by check mark 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).    Yes     x    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” ion Rule 12b-2 of the Exchange Act.

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

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

As of August 12, 2012, there are presently 20,509,123 shares of common stock, par value $0.001 issued and outstanding.

1

FORM 10-Q

CHANGDA INTERNATIONAL HOLDINGS, INC.

INDEX

		Page
	PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4	Controls and Procedures	26
	PART II	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
SIGNATURES		28

2

Changda International Holdings, Inc.

Condensed Consolidated Balance Sheets

			As of June 30, 2012		As of December 31, 2011
	Note		US$’000		US$’000
			(unaudited)
ASSETS
Current assets
Cash and cash equivalents				11,987		12,803
Restricted cash				6,657		5,970
Trade and other receivables, net				25,710		18,976
Inventories				6,405		5,203
Prepaid lease payments, net				66		65
Total current assets				50,825		43,017
Intangible assets				5		5
Property, plant and equipment, net				25,215		23,662
Prepaid lease payments, net				2,947		2,953
Total assets				78,992		69,637
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade and other payables				7,321		5,707
Notes payable				12,522		8,798
Shareholders’ loans		6(c)		1,132		1,146
Short-term interest-bearing borrowings				15,296		11,862
Income tax payables				510		357
Total current liabilities				36,781		27,870
Deferred government grants				814		816
Total liabilities				37,595		28,686
Commitments and contingencies		7
Stockholders’ equity
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 20,509,123   shares issued and outstanding as of June 30, 2012 and December 31, 2011		4		21		21
Additional paid-in capital				7,240		7,240
Statutory reserves				2,543		2,543
Accumulated other comprehensive income				4,341		3,966
Accumulated profits				27,252		27,181
Total stockholders’ equity				41,397		40,951
Total liabilities and stockholders’ equity				78,992		69,637

 The financial statements should be read in conjunction with the accompanying notes.

3

Changda International Holdings, Inc.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

			Six months ended  June 30,						Three months ended  June 30,
	Note		2012			2011			2012			2011
			US$’000			US$’000			US$’000			US$’000
			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating revenues				43,233			56,965			22,274			30,689
Cost of sales				(38,894	)		(47,539	)		(20,055	)		(25,668	)
Gross profit				4,339			9,426			2,219			5,021
Operating expenses
Impairment of property, plant and equipment		9		(435	)		-			-			-
Depreciation of property, plant and equipment				(285	)		(200	)		(142	)		(74	)
Amortization of intangible assets				(1	)		-			-			-
Amortization of prepaid lease expenses				(33	)		(32	)		(17	)		(16	)
Selling, general and administrative expenses				(2,470	)		(2,905	)		(1,119	)		(1,482	)
Operating income				1,115			6,289			941			3,449
Other income				38			20			4			16
Interest income				38			32			24			25
Interest expenses				(516	)		(414	)		(265	)		(228	)
Other finance cost				-			(142	)		-			(142	)
Income before income taxes				675			5,785			704			3,120
Income taxes		5		(604	)		(1,300	)		(152	)		(694	)
Net income				71			4,485			552			2,426
Other comprehensive income
Foreign currency translation adjustment				375			817			106			583
Total comprehensive income				446			5,302			658			3,009
Earnings per common share($)		3
Basic				0.003			0.22			0.03			0.12
Diluted				0.003			0.22			0.03			0.12
Weighted average number of common shares outstanding		3
Basic				20,509,123			20,259,428			20,509,123			20,509,123
Diluted				20,509,123			20,288,973			20,509,123			20,512,689

  The financial statements should be read in conjunction with the accompanying notes.

4

Changda International Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

	Six months ended June 30, 2012			Six months ended June 30, 2011
	US$’000			US$’000
	(unaudited)			(unaudited)
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
Net income		71			4,485
Adjustment to reconcile net income to net cash provided by operating activities
Impairment of property, plant and equipment		435			-
Depreciation of property, plant and equipment		1,329			1,009
Amortization of prepaid lease payments		33			32
Amortization of intangibles assets		1			-
Exchange differences		(4	)		98
Government grants recognized		(9	)		(9	)
Cost of warrants issued		-			142
Loss on disposal of property, plant and equipment		-			11
Changes in operating assets and liabilities:
Inventories		(1,156	)		(3,880	)
Trade and other receivable, net		(6,568	)		1,611
Trade and other payables		1,579			1,040
Income tax payables		150			(8	)
Net cash (used in) provided by operating activities		(4,139	)		4,531
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from disposal of property, plant and equipment		-			16
Purchase of property, plant and equipment		(3,107	)		(4,341	)
New restricted cash		(634	)		(3,868	)
Net cash used in investing activities		(3,741	)		(8,193	)
CASH FLOWS FROM FINANCING ACTIVITIES
New bank and other loans raised		14,425			15,587
Repayment of bank and other loans		(7,474	)		(5,724	)
Net cash provided by financing activities		6,951			9,863
Net (decrease) increase in cash and cash equivalents		(929	)		6,201
Cash and cash equivalents at beginning of period		12,803			9,364
Effect on exchange rate changes		113			181
Cash and cash equivalents at end of period		11,987			15,746
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the period, cash was paid for the following:
Income taxes		453			1,307
Interest		516			414
		969			1,721

The financial statements should be read in conjunction with the accompanying notes.

5

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

The accompanying unaudited condensed consolidated financial statements present the consolidated financial position of Changda International Holdings, Inc. (“CIHI”) and its subsidiaries (together “the Company”) as of June 30, 2012 and December 31, 2011, and its results of operations for the three months and six months ended June 30, 2012 and 2011 and cash flows for the six months ended June 30, 2012 and 2011.

CIHI was incorporated on January 24, 2007 under the laws of the State of Nevada. On January 15, 2009, Memorandum of Understanding (“Agreement”) was entered by and among CIHI and Changda International Limited (“Changda International”), a company organized under the laws of Marshall Islands. Changda International, being the legal acquiree (accounting acquirer), delivered to CIHI, being the legal acquirer (accounting acquiree), stock certificates representing 100% of the shares in Changda International (the “Share Exchange Transaction”).

	The principal subsidiaries of CIHI after the Share Exchange Transaction and as of June 30, 2012 are Weifang Changda Chemical Co., Ltd. (“Changda Chemical”) and Weifang Changda Fertilizer Co., Ltd. (“Changda Fertilizer”). Changda Chemical is a limited liability company incorporated in the People’s Republic of China (the “PRC”).  Changda Chemical’s registered office is located at Weifang Ocean Chemical Industry Developing Zone Industry Area, Shandong, PRC.  The principal activity of Changda Chemical is manufacturing of snow melting agent, drugs intermediate and flame retardants.   Changda Fertilizer is limited liability company incorporated in the PRC. The registered office of Changda Fertilizer is located at Weifang Binhai Development Zone, Shandong, PRC.  The principal activity of Changda Fertilizer is manufacturing and trading of fertilizers. In October 2011, a subsidiary of CIHI, Fengtai Changda Fertilizer Co., Ltd. (“Fengtai Changda”), was deregistered.
	Reverse Stock Split
	On September 30, 2009, it was approved by the Board of Directors and ratified by the majority shareholders to effect one-for-three reverse split of the issued and outstanding shares without changing its par value of $0.001.   The actions contemplated herein became effective on October 14, 2009 according to the Company Information Statement while the reverse split completed at the close of business on November 6, 2009.  As a result of this reverse stock split, every three shares of the Company's common stock were combined into one share of common stock.  All the relevant information relating to number of stock and per stock information contained in these consolidated financial statements has been retrospectively adjusted to reflect the reverse stock split for all periods presented.
2.	PRINCIPAL ACCOUNTING POLICIES
	Basis of presentations The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K filed on April 16, 2012 for the year ended December 31, 2011. The results of operations for the six months ended June 30, 2012 are not necessarily indicative of the operating results to be expected for the full year. The balance sheet as of December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited condensed consolidated financial statements and accompanying notes are presented in United States dollars and prepared in conformity with USGAAP which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

6

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

2.	PRINCIPAL ACCOUNTING POLICIES
	Basis of consolidation The unaudited condensed consolidated financial statements include the financial information of CIHI and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated upon consolidation. Impairment of long-lived assets Long-lived assets are reviewed at least annually for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and recorded as a reduction of original costs. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recent Accounting Pronouncements As of the date this quarterly report is filed, there are no recently issued accounting pronouncements which adoption would have a material impact on the Company’s financial statements.
3.	EARNINGS PER COMMON SHARE
	Earnings per common shares was computed as follows:

Six months ended June 30, 2012

Three months ended June 30, 2012

Income

Weighted average number of common shares outstanding

Per common share amount

Income

Weighted average number of common shares outstanding

Per common share amount

US$’000

US$

US$’000

US$

Basic earnings per common stock

Net income attributable to common stockholders

71

20,509,123

0.003

552

20,509,123

0.03

For the three months and six months ended June 30, 2012, all potentially dilutive instruments have an anti-dilutive effect. Accordingly, the basic and diluted earnings per common stock are the same.

7

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

3. EARNINGS PER COMMON SHARE (CONTINUED)

Six months ended June 30, 2011

Three months ended June 30, 2011

Income

Weighted average number of common shares outstanding

Per common share amount

Income

Weighted average number of common shares outstanding

Per common share amount

US$’000

US$

US$’000

US$

Basic earnings per common share

Net income attributable to common stockholders

4,485

20,259,428

0.22

2,426

20,509,123

0.12

Diluted earnings per common share
Net income attributable to common stockholders	4,485	20,259,428	0.22	2,426	20,509,123	0.12
Effect of potentially dilutive securities warrants	-	29,545	-	-	3,566	-
	4,485	20,288,973	0.22	2,426	20,512,689	0.12

For the three months and six months ended June 30, 2011, common stock equivalents which potentially could dilute basic earnings per common stock in the future, and which were excluded from the computation of diluted earnings per common stock, as the effect would be anti-dilutive, totaled approximately 1,711,725 shares for three months ended June 30, 2011 and 1,685,746 shares for six months ended June 30, 2011.

4. STOCKHOLDERS’ EQUITY

Common stock

As of June 30, 2012, the Company has 100,000,000 shares of common stock with a par value of $0.001 per share authorized and 20,509,123 shares issued and outstanding.

There was no movement of common stock during the six months ended June 30, 2012.

8

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

5.	INCOME TAXES
	The Company’s principal subsidiaries in the PRC are subject to the PRC enterprise income tax (“EIT”) at a standard rate of 25% on an entity basis on their taxable net profits.
	Fengtai Changda, before its deregistration in October 2011, was subject to EIT at a rate of 25%. However, a special tax exemption has been granted by the local government and Fengtai Changda was entitled to full exemption of EIT payable for its two years of operation starting from 2008 and followed by a 50% exemption of EIT payable for the following three years.
	Dividends payable by a foreign invested enterprise in the PRC to its foreign investors are subject to a 10% withholding tax, unless any foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement. Since the Company intends to reinvest its earnings to further expand its businesses in the PRC, its foreign invested enterprises in the PRC do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any withholding tax on the retained earnings as of June 30, 2012 of its foreign invested enterprises in the PRC.

9

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

5.	INCOME TAXES (CONTINUED)
	The Company has adopted the FASB Accounting Standards Codification Topic 740, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“ASC Topic 740”) issued by the FASB which clarifies the accounting and disclosure for uncertainty in tax positions, as defined, and prescribes the measurement process and a minimum recognition threshold for a tax position, taken or expected to be taken in a tax return, that is required to be met before being recognized in the financial statements. Under ASC Topic 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.
	Subject to the provision of ASC Topic 740, the Company has analyzed its filing positions in all of the domestic and foreign jurisdictions where it is required to file income tax returns. As of June 30, 2012, the Company has identified the jurisdictions at PRC as “major” tax jurisdictions, as defined, in which it is required to file income tax returns. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements.
	As of June 30, 2012, the Company had no unrecognized tax benefits or accruals for the potential payment or interest and penalties. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as a component of the provision for income tax expense. For the six months ended June 30, 2012 and 2011, no interest or penalties were recorded.
	As of June 30, 2012, Changda Chemical had deductible temporary differences of approximately $435,000 and net operating loss carry forwards of approximately $321,000 available to offset future taxable income in the PRC. The net operating loss carry forwards will expire, if unused, in the year ending December 31, 2017. The deferred tax assets of Changda Chemical at June 30, 2012 consists of net operating loss carry forwards and deductible temporary differences and for which a full valuation allowance has been provided, as the management believes it is more likely than not that these deferred tax assets will not be realized in the future.

10

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

6.	RELATED PARTY TRANSACTIONS
	In addition to the transactions / information disclosed elsewhere in these unaudited condensed consolidated financial statements, during the period and at balance sheet date, the Company had the following transactions and balances with related parties.

(a)     Relationship of related parties

Party	Existing relationship with the Company
Mr. Zhu Qing Ran	Chairman and Chief Executive Officer (“CEO”)
Mr. Zhu Xiao Ran	Stockholder of the Company
Geo Genesis Group Inc.	Stockholder of the Company
Allhomely International Limited	Stockholder of the Company
Mr. Zhu Hua Ran	Director of the Company
Mr. Charles Brock	Director of the Company
Mr. Carsten Aschoff	Ex-director of the Company
Mr. Craig Marshak	Ex-director of the Company
Mr. Jan Panneman	Key management of the Company
Mr. David Cohen	Director of the Company

(b) Summary of related party transactions

	Six months ended June 30,				Three months ended June 30,
	2012		2011		2012		2011
	US$’000		US$’000		US$’000		US$’000
Key management personnel, including directors:
Short-term employee benefits		227		247		123		125

(c) Summary of related party balances

	As of June 30, 2012		As of December 31,2011
	US$’000		US$’000
	(unaudited)
Loans from Mr. Zhu Hua Ran		1,132		1,146

11

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

6. RELATED PARTY TRANSACTIONS (CONTINUED)

(c) Summary of related party balances (Continued)

	As of  June 30, 2012		As of December 31, 2011
	US$’000		US$’000
Due from (included in other receivables)	(unaudited)
Mr. Zhu Xiao Ran		1		1
Mr. Craig Marshak		1		-
		2		1
Due to (included in other payables)
Allhomely International Limited		1		1
Geo Genesis Group Inc.		17		17
Mr. Zhu Qing Ran		339		296
Mr. Zhu Hua Ran		350		300
Mr. Charles Brock		7		7
Mr. Carsten Aschoff		2		26
Mr. Craig Marshak		-		20
Mr. Jan Panneman		8		70
Mr. David Cohen		3		20
		727		757

All the amounts due from/to related parties and directors are unsecured, interest-free and have no fixed repayment term.

(d) Guarantees

Included in short-term interest bearing borrowings, there are bank loans of US$4,914,000 which are guaranteed by the Chairman and CEO of the Company, and a bank loan of US$3,170,000 which is guaranteed by the Chairman and CEO of the Company and his spouse.

12

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

7. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As of June 30, 2012 and December 31, 2011, the Company had capital commitments for construction projects and purchase of machineries amounting to US$5,352,000 and US$5,120,000 respectively.

(b) Operating lease commitments

The following table summarizes the approximate future minimum rental payments under non-cancelable operating leases in effect of June 30, 2012:

	As of  June 30, 2012
	US$’000
For the year ending December 31:
2012		7
2013		12
2014		5
2015		5
2016		5
Thereafter		181
Total		215

8.	PLEDGE OF ASSETS
	The Company has pledged prepaid lease payments with a net book value of approximately US$1,769,000 and buildings under property, plant and equipment with a net book value of approximately US$3,746,000, restricted cash of US$6,657,000, inventories of US$4,885,000 and trade receivable of US$3,635,000 to secure general banking facilities granted to Changda Chemical and Changda Fertilizer.

9.	IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
	For the six months period ended June 30, 2012, the Company recorded an impairment charge of $435,000 for equipment designated for the production of thiophene. The impairment charges were primarily the result of decrease in market demand of the products.
	The estimated aggregate fair value of the equipment impaired during the six months ended June 30, 2012 was approximately $873,000. The fair value estimate was derived from the market value of similar equipment and fall within Level 2 of the fair value hierarchy.

10.	COUNTER-GUARANTEE
	In conjunction with a guarantee provided by a third party for a bank loan of US$2,536,000 granted to Changda Fertilizer, Changda Fertilizer provided to this third party a counter-guarantee of banking facilities granted to this third party to the extent of US$3,170,140. The Company has not recognized a value for the counter-guarantee provided as its fair value has been assessed as insignificant.

13

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

11.

SEGMENT REPORTING

In accordance with ASC Topic 280, Segment Reporting (“ASC 280”) and based on the nature of revenue, the Company is organized into two business segments, consisting of (i) Fertilizer, and (ii) Chemical, which includes mainly snow melting agent, thiophene, flame retardant, calcium chloride and magnesium chloride. The following table summarizes financial information for each of the business segments for the six months ended June 30, 2012 and 2011.

	Six months ended June 30, 2012 (unaudited)												Six months ended June 30, 2011 (unaudited)
	Fertilizer			Chemical			All other			Consolidated			Fertilizer			Chemical			All other			Consolidated
	US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Operating revenue		36,892			6,341			-			43,233			47,375			9,590			-			56,965
Cost of sales		(32,605	)		(6,289	)		-			(38,894	)		(40,114	)		(7,425	)		-			(47,539	)
Depreciation of property, plant and equipment		(174	)		(111	)		-			(285	)		(60	)		(140	)		-			(200	)
Amortization of intangible assets		(1	)		-			-			(1	)		-			-			-			-
Amortization of prepaid lease expenses		(25	)		(8	)		-			(33	)		(24	)		(8	)		-			(32	)
Impairment on property, plant and equipment		-			(435	)					(435	)		-			-			-			-
Interest income		25			13			-			38			30			2			-			32
Interest expense		(408	)		(108	)					(516	)		(246	)		(144	)		(24	)		(414	)
Other segment income		24			14			-			38			9			11			-			20
Other segment expenses		(1,615	)		(566	)		(289	)		(2,470	)		(1,835	)		(621	)		(449	)		(2,905	)
Other finance cost		-			-			-			-			-			-			(142	)		(142	)
Income taxes		(604	)		-			-			(604	)		(1,088	)		(212	)		-			(1,300	)
Segment profit (loss)		1,509			(1,149	)		(289	)		71			4,047			1,053			(615	)		4,485
Segment assets		61,218			17,760			14			78,992			49,233			21,270			573			71,076

14

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2011 and 2010

11.	SEGMENT REPORTING (CONTINUED)
	The following table summarizes financial information for each of the business segments for the three months ended June 30, 2012 and 2011.

	Three months ended June 30, 2012 (unaudited)													Three months ended June 30, 2011 (unaudited)
	Fertilizer			Chemical			All other				Consolidated			Fertilizer			Chemical			All other			Consolidated
	US$’000			US$’000			US$’000				US$’000			US$’000			US$’000			US$’000			US$’000
Operating revenue		17,830			4,444			-				22,274			26,029			4,660			-			30,689
Cost of sales		(16,282	)		(3,773	)		-				(20,055	)		(22,014	)		(3,654	)		-			(25,668	)
Depreciation of property, plant and equipment		(87	)		(55	)		-				(142	)		(30	)		(44	)		-			(74	)
Amortization of intangible assets		-			-			-				-			-			-			-			-
Amortization of prepaid lease expenses		(13)			(4	)		-				(17	)		(12	)		(4	)		-			(16	)
Interest income		11			13			-				24			23			2			-			25
Interest expense		(213	)		(52	)		-				(265	)		(147	)		(81	)		-			(228	)
Other segment income		4			-			-		��		4			6			10			-			16
Other segment expenses		(814	)		(165	)		(140	)			(1,119	)		(961	)		(287	)		(234	)		(1,482	)
Other finance cost		-			-			-				-			-			-			(142	)		(142	)
Income taxes		(152	)		-			-				(152	)		(591	)		(103	)		-			(694	)
Segment profit (loss)		284			408			(140	)			552			2,303			499			(376	)		2,426
Segment assets		61,218			17,760			14				78,992			49,233			21,270			573			71,076

15

Changda International Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the six months ended June 30, 2012 and 2011

12.

PROMISSORY NOTES

On February 3, 2010, the Company entered into a Securities Purchase Agreement with six purchasers pursuant to which the purchasers purchased promissory notes in the aggregate amount of US$900,000 (“February 2010 Notes”). The February 2010 Notes were due and payable on August 3, 2010 (the “Maturity Date”) together with accrued interest at the rate of 20% per annum. In conjunction with the February 2010 Notes, the Company issued warrants to purchasers of the February 2010 Notes to purchase an aggregate of 495,000 shares of CIHI’s common stock (“PN Warrants”). The exercise price per share is US$2.25, subject to customary adjustments as set forth in the PN Warrants for stock splits, stock dividends, etc. The PN Warrants expire three years from and fully vested at the date of issuance. The fair value of the PN Warrants was estimated as US $0.90 per warrant at the date of issuance using the Black-Scholes model. The Company has repaid all principal and interest due and payable under the February 2010 Notes.  All remaining amounts owed with respect to the February 2010 Notes were settled in April 2011, including all amounts  for attorneys fees incurred in connection with the prior collection efforts by certain noteholders. On June 13, 2011, the date of modification, the Company reduced the exercise price of all PN Warrants to US$0.70 per warrant and increased the total number of PN Warrants from 495,000 to 1,355,357. The fair value of the modified PN Warrants was estimated as US$0.11 per warrant and the weighted average fair value of the original PN Warrants was estimated as US$0.02 per warrant at the date of modification using the Black-Scholes model. During the six months ended June 30, 2012, no PN Warrant has been exercised. There are 1,355,357 PN Warrants with weighted average exercise price of US$0.70 and remaining life of 0.75 year outstanding and exercisable as of June 30, 2012. While as of December 31, 2011, there were 1,355,357 PN Warrants with weighted average exercise price of US$0.70 and remaining life of 1.25 year outstanding.

13. STOCK BASED COMPENSATION

	Number of warrants			Weighted- average exercise price		Weighted- average remaining life
Warrants outstanding and exercisable as of January 1, 2012		359,934		$	US3.60	8 days
Expired during the period		(350,267	)	$	US3.60
Warrants outstanding and exercisable as of June 30, 2012		9,667		$	US4.70	93 days

The aggregate intrinsic value, which represents the difference between the price of the Company's common stock at June 30, 2012 and the related exercise price of the underlying warrants, was US$0 for outstanding and exercisable warrants as of June 30, 2012.

16

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

The following is a discussion and analysis of the results of operations of Changda International Holdings Inc. and its subsidiaries (collectively,”we.” “us,” “our,” or the "Company") and should be read in conjunction with our financial statements and related notes contained in this Form 10-Q. This Form 10-Q contains forward looking statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operation or financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are unable to accurately predict or control. Those events as well as any cautionary language in this Form 10-Q provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in this Form 10-Q could have a material adverse effect on our business, operating results and financial condition. Actual results may differ materially from current expectations and the Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”) and the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. Additional information relating to the Company can be found on the SEC’s website at www.sec.gov/edgar.shtml.

Historical Overview

On February 13, 2009, we completed a “reverse acquisition” transaction pursuant to which the stockholders of Changda International Ltd. (“Changda International”) transferred all of the issued and outstanding shares of common stock of Changda International to us in exchange for 15,909,988 newly issued shares and 1,956,667 shares transferred from our stockholders.  Upon closing of the reverse acquisition, Changda International became our wholly owned subsidiary, with Changda International’s former stockholders acquiring a majority of the outstanding shares of our common stock. The acquisition of Changda International was accounted for as a “reverse acquisition”, since the stockholders of Changda International acquired a majority of the outstanding shares of our common stock immediately following the closing of the transaction.  Changda International was deemed to be the accounting acquirer upon such closing of the transaction and, accordingly, the assets and liabilities and the historical operations that is reflected in the financial statements are those of Changda International.

Overview of the Business

We are engaged in developing, manufacturing and the selling of (i) microbial organic and inorganic compound fertilizers and (ii) chemical products, primarily consisting of flame retardant and snow melting products. We have more than 10 fertilizer product lines which are sold under the “CHANGDA” and “FENGTAI WOSIDA” brands.  Our proprietary product lines are marketed and sold to distributors which in turn sell our products to farmers. For the quarter ended June 30, 2012, 80% of our revenues (approximately $17,830,000) were derived from our fertilizer products and 20% of our revenues (approximately $4,444,000) were derived from our chemical products.

In accordance with ASC Topic 280, Segment Reporting and based on the nature of revenue, we are organized into two business segments, consisting of (i) fertilizer products and (ii) chemical products, which includes mainly snow melting agent, thiophene, flame retardant, calcium chloride and magnesium chloride.

Product Pricing

Our products that account for a substantial amount of our sales are fertilizers and the flame retardant chemical product.  The establishment of the sales price of these products are influenced primarily by the cost of the raw materials, economic conditions which affect the price and demand for agricultural products, China’s export tariffs which impact the price of products domestically, and weather conditions.

17

From the end of 2009 through the first quarter of 2010, prices of fertilizer raw materials dropped at a rate lower than what occurred from 2008 to 2009.   While prices of raw materials continued to drop during the first quarter of 2010, based upon presentation made at the 78th Fertilizer Industry Association Annual Conference on Fertilizer Outlook 2010 - 2014 made in Paris, France in June 2010, as management believed, the trend stopped and prices began to increase in 2010 as the demand for fertilizer products increased. Average sales prices of fertilizers increased during the first half of 2012 compared to the same period for 2011.

Seasonality of Sales

We experience seasonal variations in our revenues and our operating costs due to the farming season. The peak selling seasons for our fertilizer products are the first, second and fourth quarters of the year. These periods are the planting and crop-growing months, which boost fertilizer sales. The third quarter of the year is harvest season, hence the low demand for our fertilizer products. The peak selling seasons for our snow melting product have been typically the first and fourth quarters of the year, which are the winter season in China when there is strong demand for deicing salt, calcium chloride and salt.  The second and third quarter of the year is typically the peak season for flame retardant, during which there is strong demand for construction projects.  

Fertilizer Products

Our organic and inorganic fertilizer products are classified into the following categories:

● Complex Fertilizers. These fertilizers contain two or three of the primary nutrients of nitrogen, phosphorus and potassium and are made by a process involving only chemical reactions between raw materials and intermediates.

● Compound Fertilizers. Such fertilizers are produced by initiating chemical reactions between the three primary nutrients of nitrogen, phosphorous and potassium during the production process. We have expanded our product offerings to include a microbial organic-inorganic compound fertilizer which (i) helps plants secure nitrogen from the air, (ii) facilitates plants’ absorption of useful minerals such as phosphorus and potassium from the soil and (iii) enhances stress resistance by the plants. The combination of the organic and inorganic elements enhances soil fertility and crop yield respectively.

● Slow-Release Compound Fertilizer. This group of fertilizers allows fertilizer nutrients to be released over a period of time, enabling plants to absorb most of the nutrients and enhance yield rate. We have also developed controlled-release fertilizers.

Our products sold through our distributor, China Post under the “FENGTAI WOSIDA” brand.  We have entered into a distribution agreement with China Post whereby China Post has the exclusive right to sell our products under the “FENGTAI WOSIDA” brand in the Shandong Province.  In order to distribute our products throughout the Shandong Province, we have to enter into a sales agency agreement with a local branch of China Post that covers a particular region within the Shandong province.  Currently we have entered into sales agency agreements with 10 local branches of China Post, all of which are substantially on the same terms and expire on December 31, 2012.  While we are not dependent on any one local branch of China Post for the distribution of our products, any inability to renew any sales agency agreement or if such agreements are renewed on terms less favorable to us with any local branch of China Post, will limit our ability to distribute our product within the Shandong Province and could have an adverse effect on our financial condition.  We sell our products throughout China, including the Shandong Province, under two different brand names, including the “CHANGDA” brand, to maximize the sale of our fertilizer products in the same market through a variety of different distribution channels.

18

For the quarter ended June 30, 2012, our top ten selling fertilizers were as follows: 

Ranking		Products	Type of Fertilizer	Revenues (US$)		Percent in total Revenues of our Fertilizer Products
	1	Specialty fertilizer	S-Compound		3,535,543		20%
	2	Silicon calcium and magnesium soil conditioner 8-6-10-5-15	Soil Conditioner		3,071,418		17%
	3	Chlorine 24-8-8	Slow Compound		2,262,113		13%
	4	Silicon calcium and magnesium soil conditioner 10-5-20	Soil Conditioner		1,717,128		10%
	5	New fertilizer (slow release) 18-9-18	Slow Compound		1,626,180		9%
	6	Organic and inorganic fertilizer (bio) 12-5-8	M-O Compound		1,593,645		9%
	7	New fertilizer (slow release) 16-8-16	Slow Compound		1,576,838		9%
	8	Organic and inorganic fertilizer (bio) 15-7-8	M-O Compound		1,543,518		9%
	9	Water flush fertilizer	Compound		764,605		4%
	10	S 15-15-15	S-Compound		29,234		1%

Our fertilizers sold under the “FENGTAI WOSIDA” and “CHANGDA” brands had sales volumes for the quarter ended June 30, 2012 of approximately $12,050,000 and $5,780,000, respectively or 68% and 32% of our revenues of fertilizers.

Chemical Products

Our principal chemical products are snow melting agents, flame retardant, and various other industrial chemicals.  Snow melting agents are de-icing salts, other salts and calcium chloride. The snow melting agents are a white, odorless and soluble solid compound and are used primarily to de-ice airports, roads and golf courses in the winter seasons, spread by winter service vehicles.

Our industrial chemical products range includes flame retardant, thiophene, calcium chloride and magnesium chloride. Thiophene is a colorless and transparent liquid which is primarily used in the pharmaceutical raw materials industry as a medicine chemical auxiliary, and for the synthesis of anti-bacterial fungus. Calcium chloride and magnesium chloride are used for dust control on roads and also as essential product inputs for a wide range of industrial usage such as in cement production.

Our chemical products, which had the highest sales volumes for the quarter ended June 30, 2012, are listed below:

Ranking		Product Names	Revenues (US$)		Percent in total Revenues of our Chemical Products
	1	Flame Retardant		4,121,376		93	%
	2	Deicing Salt		237,040		5	%
	3	Thiopene		74,115		2	%

19

Results of Operations

Three and six months ended June 30, 2012 as compared to the three and six months  ended June 30, 2011

The following tables set forth our summary statement of operations data for the three and six months ended June 30, 2012 and 2011, and our summary balance sheet as of June 30, 2012 and 2011.

The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States, or US GAAP.

Selected Balance Sheet Data	As of June 30,
	2012		2011
Balance Sheet Information:	US$'000
Working capital	$	14,044	$	18,167
Total assets		78,992		71,076
Total liabilities		37,595		30,088
Additional Paid-In Capital		7,240		7,249
Accumulated Profit		27,252		27,477
Stockholders’ equity		41,397		40,988

	Six Months Ended								Three Months Ended
Selected Statement of Operations Data:	June 30,								June 30,
	2012				2011						2012			2011
	US$'000								US$'000
INCOME
Operating revenues
Chemical			6,341				9,590				4,444			4,660
Fertilizer			36,892				47,375				17,830			26,029
Total		$	43,233			$	56,965			$	22,274		$	30,689
COST OF SALES
Chemical			6,289				7,425				3,773			3,654
Fertilizer			32,605				40,114				16,282			22,014
Total		$	38,894			$	47,539			$	20,055		$	25,668
GROSS PROFIT
Chemical			52				2,165				671			1,006
Fertilizer			4,287				7,261				1,548			4,015
Total		$	4,339			$	9,426			$	2,219		$	5,021
OPERATING EXPENSES
Impairment of property, plant and equipment			435				-				-			-
Administrative expenses			2,789				3,137				1,278			1,572
Finance expense			516				556				265			370
Other income			(76	)			(52	)			(28	)		(41	)
Total Operating Expenses		$	3,664			$	3,641			$	1,515		$	1,901
TAX			604				1,300				152			694
NET INCOME		$	71			$	4,485			$	552		$	2,426

20

Operating Revenues

Revenues for the quarter ended June 30, 2012 of approximately $22,274,000 decreased approximately $8,415,000 or 27% from approximately $30,689,000 for the quarter ended June 30, 2011.  Chemical sales volume for the quarter ended June 30, 2012 of approximately 1,686 tonnes  represent an overall decrease of approximately 3,829 tonnes or 69% from sales volume of approximately 5,515 tonnes for the quarter ended June 30, 2011. The decrease is accounted for mainly by the decrease in the sales of calcium chloride, magnesium chloride and thiophene. Sales of chemical products decreased slightly by approximately $216,000 or 5% despite the decrease in the overall volume mainly due to the increase in the average selling prices of the flame retardant product.  The average sales price of flame retardant increased approximately 17% due to increasing demand for the product, resulting from the implementation of the "Fire Prevention Law of The People's Republic of China" and the government standards set by “Requirements and Mark on Burning Behavior of Fire Retarding Products and Subassemblies in Public Place” by various industries as well as our increased marketing efforts to promote the product.  Fertilizer sales volume for the quarter ended June 30, 2012 of approximately 46,705 tonnes represents a decrease of approximately 20,964 tonnes or 31% from sales volume of approximately 67,669 tonnes for the quarter ended June 30, 2011.  Sales of fertilizer products decreased by approximately $8,199,000 or 31% due primarily to the decrease in sales volume resulting from the reduction in total production capacity due to the closing of the old plant.

Revenues for the six months ended June 30, 2012 of approximately $43,233,000 decreased approximately $13,732,000 or 24% from approximately $56,965,000 for the six months ended June 30, 2011.  Chemical sales volume for the six months ended June 30, 2012 of approximately 21,534 tonnes represent an decrease of approximately 13,707 tonnes or 39% from the sales volume of approximately 35,241 tonnes for the six months ended June 30, 2011.  Sales of chemical products decreased by approximately $3,249,000 or 34% mainly due to the decrease in the volume of sales, partially offset by the increase in the average selling prices of the flame retardant product.   The average sales price of flame retardant increased approximately 13%, due to increasing demand for the product, resulting from the implementation of the "Fire Prevention Law of The People's Republic of China" and the government standards set by “Requirements and Mark on Burning Behavior of Fire Retarding Products and Subassemblies in Public Place” by various industries as well as our increased marketing efforts to promote the product. Fertilizer sales volume for the six months ended June 30, 2012 of approximately 94,235 tonnes represents a decrease of approximately 29,811 tonnes or 24% from sales volume of approximately 124,046 tonnes for the six months ended June 30, 2011.  Sales of fertilizer products decreased by approximately $10,483,000 or 22% due primarily to the decrease in sales volume resulting from the reduction in total production capacity due to the closing of the old plant.

Cost of Sales

Total cost of sales for the quarter ended June 30, 2012 was approximately $20,055,000 or 90% of operating revenues compared to approximately $25,668,000 or 84% of operating revenues for the quarter ended June 30, 2011.  Chemical products cost of sales for the quarter ended June 30, 2012 was approximately $3,773,000 or 85% of chemical operating revenues.  Chemical products cost of sales for the quarter ended June 30, 2011 was approximately $3,654,000 or 78% of chemical operating revenues. The increase in the cost of sales of chemical products of approximately $119,000 resulted mainly from  the increase in the cost of production related to the Company's new flame retardant product and offset by the decrease in the sales volume of calcium chloride, magnesium chloride and thiophene. Fertilizer products cost of sales for the quarter ended June 30, 2012 was approximately $16,282,000 or 91% of fertilizer operating revenues. Fertilizer products cost of sales for the quarter ended June 30, 2011 was approximately $22,014,000 or 85% of fertilizer operating revenues. The decrease in cost of sales for fertilizer products of approximately $5,732,000 resulted mainly from the decrease in sales volume.

Total cost of sales for the six months ended June 30, 2012 was approximately $38,894,000 or 90% of operating revenues compared to approximately $47,539,000 or 83% of operating revenues for the six months ended June 30, 2011.  Cost of sales for our chemical products for the six months ended June 30, 2012 was approximately $6,289,000 or 99% of chemical operating revenues.  Cost of sales for our chemical products for the six months ended June 30, 2011 was approximately $7,425,000 or 77% of chemical operating revenues. The decrease in the cost of sales of chemical products of approximately $1,136,000 resulted mainly from the decrease in sales volume. Cost of sales for our fertilizer products for the six months ended June 30, 2012 was approximately $32,605,000 or 88% of fertilizer operating revenues. Cost of sales for our fertilizer products for the six months ended June 30, 2011 was approximately $40,114,000 or 85% of fertilizer operating revenues. The decrease in the cost of sales of fertilizer products of approximately $7,509,000 between the corresponding periods resulted mainly from the decrease in sales volume.

Gross Profit

Total gross profit for the quarter ended June 30, 2012 was approximately $2,219,000 or 10% of operating revenues compared to approximately $5,021,000 or 16% of operating revenues for the quarter ended June 30, 2011. Chemical products gross profit for the quarter ended June 30, 2012 was approximately $671,000 or 15% of chemical operating revenues.  Chemical products gross profit for the quarter ended June 30, 2011 was approximately $1,006,000 or 22% of chemical operating revenues.  The decrease in the gross profit from the sales of chemical products of approximately $335,000 resulted from the decrease in sales volume, coupled with the increase in the cost of sales related to the new flame retardant product, and offset by the increase in the sales price of the major chemical products of the Company.  Fertilizer products gross profit for the quarter ended June 30, 2012 was approximately $1,548,000 or 9% of fertilizer operating revenue.  Fertilizer products gross profit for the quarter ended June 30, 2011 was approximately $4,015,000 or 15% of fertilizer operating revenue.  The decrease in the gross profit of fertilizer products of approximately $2,467,000 resulted mainly from the decrease sales volume and decrease in average selling price.

Total gross profit for the six months ended June 30, 2012 was approximately $4,339,000 or 10% of operating revenues compared to approximately $9,426,000 or 17% of operating revenues for the six months ended June 30, 2011. Gross profit for our chemical products for the six months ended June 30, 2012 was approximately $52,000 or 1% of chemical operating revenues.  Gross profit for our chemical products for the six months ended June 30, 2011 was approximately $2,165,000 or 23% of chemical operating revenues. The decrease in the gross profit of chemical products of approximately $2,113,000 or 98% between the corresponding periods resulted mainly from the decrease in sales volume of the thiophene, calcium chloride, and magnesium chloride, coupled with the increase in the cost of sales related to the new flame retardant product, and offset by the increase in the sales price of the major chemical products of the Company.  Gross profit for our fertilizer products for the six months ended June 30, 2012 was approximately $4,287,000 or 12% of fertilizer operating revenues. Gross profit for our fertilizer products for the six months ended June 30, 2011 was approximately $7,261,000 or 15% of fertilizer operating revenues. The decrease in the gross profit of fertilizer products of approximately $2,974,000 or 41% between the corresponding periods primarily to the decrease in sales volume.

Operating Expenses

Operating expenses consist primarily of transportation expenses, commission, promotion and advertising expenses, freight charges and general and administrative expenses. Operating expenses amounted to approximately $1,278,000, or 6% of operating revenues for the quarter ended June 30, 2012 as compared to approximately $1,572,000, or 5% of operating revenues for the quarter ended June 30, 2011.   The decrease in operating expenses between the two periods of approximately $294,000 is mainly due to the decrease in transport and handling expenses.

Operating expenses consist primarily of transportation expenses, commission, promotion and advertising expenses, freight charges and general and administrative expenses. Operating expenses amounted to approximately $2,789,000, or 6% of operating revenues for the six months ended June 30, 2012 as compared to approximately $3,137,000, or 6% of operating revenues for the six months ended June 30, 2011.   The decrease in operating expenses between the two periods approximately $348,000 is mainly due to the decrease in transport and handling expenses.

Income Taxes

The Company is subject to effective tax rates of 22% and 22% for the quarter ended June 30, 2012 and 2011, respectively.  The income tax expense was approximately $152,000 for the quarter ended June 30, 2012 and approximately $694,000 for the same period in 2011.

The Company is subject to effective tax rates of 89% and 22% for the six months ended June 30, 2012 and 2011, respectively.  The income tax expense was approximately $604,000 for the six months ended June 30, 2012 and approximately $1,300,000 for the same period in 2011.

21

Net Income

Our net income of approximately $552,000 for the quarter ended June 30, 2012 decreased from approximately $2,426,000 for the quarter ended June 30, 2011. The decrease in net income was largely due to the decrease in operating revenues and gross profit. For the quarter ended June 30, 2012, income taxes decreased consequent to the decrease in net income. The income after the operating expenses covered income tax and interest expense. Net income as a percentage of operating revenues approximated 2% and 8% for the quarter ended June 30, 2012 and 2011, respectively.

Our net income was approximately $71,000 for the six months ended June 30, 2012.  Our net income was approximately $4,485,000 for the six months ended June 30, 2011. The decrease in net income was largely due to the decrease in operating revenues and gross profit. For the six months ended June 30, 2012, income taxes decreased consequent to the decrease in net income.  Despite the increase in short-term borrowings for the six months ended June 30, 2012 compared to the same period in 2011, the settlement of the borrowings on the February 2010 promissory notes resulted in the decrease of total finance and interest cost by $40,000 for the six months ended June 30, 2012 compared to those for the six months ended June 30, 2011.  Net income as a percentage of total operating revenues for the six months ended June 30, 2012 approximated 0.16% and 8%  for the six months ended June 30, 2011.

Liquidity and Capital Resources

Operating Activities

Net cash used for operating activities for the six months ended June 30, 2012 amounted to approximately $4,139,000.  Net cash provided  by  operating activities for the six months ended June 30, 2011 amounted to approximately $4,531,000.  The increase in cash used of approximately $8,670,000 was primarily due to the increase in inventory purchases and trade and other receivables.

Investment Activities

Net cash used for investment activities for the six months ended June 30, 2012 and 2011 amounted to approximately $3,741,000 and $8,193,000, respectively.  This decrease of approximately $4,452,000 was mainly due to the decrease in acquisition of fixed assets and in placing cash on a restricted category in 2012.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2012 and 2011 amounted to approximately $6,951,000 and $9,863,000, respectively.  This represents a decrease of approximately $2,912,000 which was primarily due to the net decrease in new borrowings.

Future cash commitments

In order to improve our performance and competitiveness, we are constructing our Heze fertilizer plant, a fertilizer warehouse and flame retardant packaging workshop. We have already invested a total of $10,001,000 into our Heze plant and $2,176,000 into our fertilizer warehouse through June 30, 2012. However, an additional $4,120,000 is needed to complete the Heze plant construction, an additional $729,000 is needed to complete the fertilizer warehouse, and an additional $503,000 is needed to complete the flame retardant packaging workshop.  

To strengthen our financial position, we intend to seek additional funding to be used for general corporate purposes, as well as research and development activities, including advancing our current product development activities and construction of the Heze Plant. We intend to seek funding for our capital needs through the issuance of debt, preferred stock, equity, loan guarantees, or a combination of these types of instruments. We expect that we will be able to secure sufficient financing to satisfy our anticipated cash requirements for normal operations and capital expenditures through at least December 31, 2012, although current economic and market conditions will make it challenging for us to do so.

We cannot be certain that we will be able to obtain financing on terms acceptable to us or at all. If we are not able to raise additional capital, we will not have sufficient cash to fund our operations. In such case, we could be required to curtail or cease operations, liquidate or sell assets, modify our current plans for product development, and other research and development activities, or extend the time frame over which these activities will take place, or pursue other actions that would adversely affect future operations.

On February 3, 2010, the Company entered into a Securities Purchase Agreement with six purchasers pursuant to which the purchasers purchased promissory notes in the aggregate amount of US$900,000 (“February 2010 Notes”). The February 2010 Notes were due and payable on August 3, 2010 (the “Maturity Date”) together with accrued interest at the rate of 20% per annum.

In conjunction with the February 2010 Notes, the Company issued warrants to purchasers of the February 2010 Notes to purchase an aggregate of 495,000 shares of the Company’s common stock (“PN Warrants”). The exercise price per share is US$2.25, subject to customary adjustments as set forth in the PN Warrants for stock splits, stock dividends, etc. The PN Warrants expire three years from and fully vested at the date of issuance. The fair value of the PN Warrants was estimated as $0.90 per warrant at the date of issuance using Black-Scholes model.

On February 18, 2011 and February 25, 2011, the Company made payments to the holders of the February 2010 Notes totaling an aggregate of US$600,000 (the "Note Repayment"). This Note Repayment covered all remaining principal and accrued but unpaid interest due and payable under the February 2010 Notes, as a result of which the February 2010 Notes have been repaid in full.

The funds for the repayments made on February 18, 2011 and February 25, 2011 were provided to the Company by Allhomely. On February 28, 2011, the Company and Allhomely entered into a subscription agreement pursuant to which Allhomely agreed to purchase 779,221 shares of the Company's common stock for the $600,000 of funds provided, which is per share purchase price of $0.77 per share, which was the closing price of the Company's common stock as quoted on the Over-the Counter Bulletin Board on February 28, 2011. The shares were issued pursuant to an  exemption under Section 4(2) of the Securities Act of 1933, as amended.

The Company has repaid all principal and interest due and payable under the February 2010 Notes. All remaining amounts owed with respect to the February 2010 Notes were settled in April 2011, including all amounts of attorneys fees incurred in connection with the prior collection efforts by certain noteholders.

On June 13, 2011, the date of modification, the Company reduced the exercise price of all the PN Warrants to US$0.70 per warrant and increased the total number of PN Warrants from 495,000 to 1,355,357.

The fair value of the modified PN Warrants was estimated as US$0.11 per warrant and weighted average fair value of the original PN Warrant was estimated as US$0.02 per warrant at the date of modification using the Black- Scholes model.

22

During the six months ended June 30, 2012, no PN Warrant has been exercised. There are 1,355,357 PN Warrants with weighted average exercise price of US$0.70 and remaining life of 0.75 year outstanding and exercisable as of June 30, 2012. While as of December 31, 2011, there were 495,000 PN Warrants with weighted average exercise price of US$0.70 and remaining life of 1.25 year outstanding.  

On February 2, 2010, Changda Chemical entered into a loan agreement with Huaran Zhu, our director, for an unsecured interest free loan in the amount of $314,233 . The loan is not subject to any interest. The loan is payable on demand.

On March 9, 2010, Weifang Changda Fertilizer Co., Ltd. entered into a loan contract with Bank of Weifang, New Worker Village Branch, for a loan in the amount of $3,053,388. The loan was due and payable on March 8, 2011. The interest rate is 40% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted monthly, with the executed interest rate as 7.434% per annum. Interest is payable on a monthly basis. The loan is secured by land use right and factory building of Weifang Changda Fertilizer Co., Ltd., our subsidiary. On March 14, 2011, Changda Fertilizer entered into a loan contract with Bank of Weifang, New Worker Village Branch, to extend the loan in the amount of $3,142,333 until March 13, 2012. The executed interest rate is 8.484% per annum.  This loan was fully paid on March 11, 2012. On March 16, 2012, Changda Fertilizer entered into a loan contract with Bank of Weifang, New Worker Village Branch, to extend the loan in the amount of $3,170,140 until March 15, 2013. The executed interest rate is 9.184% per annum.

On March 25, 2010, Weifang Changda Chemicals Co., Ltd. entered into a loan contract with Bank of Weifang, New Worker Village Branch, for a loan in the amount of $610,678. The loan was due and payable on March 24, 2011. The interest rate should be 40% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted every month, with the executed interest rate as 7.434% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Weifang Sanyou Package Products Co., Ltd., a supplier of Changda Chemical. On March 30, 2011, we entered into an agreement with Bank of Weifang New Worker Village Branch to extend the loan in the amount of $628,466 on the same terms until March 21, 2012, while the executed interest rate is 8.484% per annum. This loan was fully paid on March 20, 2012. On March 23, 2012, we entered into an agreement with Bank of Weifang New Worker Village Branch to extend the loan in the amount of $634,028 on the same terms until March 22, 2013, while the executed interest rate is 9.184% per annum.

On September 3, 2009, Changda Fertilizer entered into a Credit Facility Agreement with the China Merchants Bank, Weifang Branch, for a credit facility in the amount of $1,517,220. The loan was due and payable on September 2, 2010. The interest rate is to be determined on application of loans under the credit facility agreement. The maximum amount under the credit facility agreement is guaranteed by Changda Chemicals and Qingran Zhu, our chief executive officer, through separate Maximum Irrevocable Guarantee Agreements, effective September 3, 2009. Pursuant to the Maximum Irrevocable Guarantee Agreements, Changda Chemicals and Qingran Zhu are jointly and severally liable for any unpaid loans, interests, or fees arising under the agreement. Pursuant to the Credit Facility Agreement, on September 3, 2009, Changda Fertilizer applied for a loan in the amount of $763,347. The loan was due and payable on the maturity date of September 2, 2010. The loan is subject to a fixed annual interest rate of 6.372% per annum. In the case of unauthorized use of the loan, the annual interest rate is 100% more than the 12-month Benchmark Lending Rate issued by China Central Bank on the date of unauthorized use. On September 2, 2010, Changda Fertilizer entered into a loan contract with China Merchants Bank, Weifang Branch, to extend the loan until March 1, 2011. The interest rate is 5.832% per annum. On March 2, 2011, Changda Fertilizer entered into a loan contract with China Merchants Bank, Weifang Branch, to extend the loan in the amount of $785,583 until March 2, 2012.  The interest rate is 30% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted every month, with an executed interest rate of 7.878% per annum. This loan was fully paid on March 1, 2012. On March 13, 2012, Changda Fertilizer entered into a loan contract with China Merchant Bank, Weifang Branch, to extend the loan in the amount of $792,535 until March 15, 2013. The interest rate is 20% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted every month, with executed interest rate of 7.57% per annum.

On October 21, 2008, Gang Zhang entered into a personal loan contract with Yingtaoyuan Rural Credit Cooperative, for a loan in the amount of $229,004. The loan was due and payable on October 20, 2010. The interest rate equals 40% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted every month, with an executed interest rate of 7.784% per annum.  Interest is payable on a monthly basis.The loan is secured by the office premises of Weifang Changda Fertilizer Co., Ltd., our subsidiary. On October 21, 2008, Gang Zhang and Changda Fertilizer entered into an entrusted loan agreement pursuant to which Gang Zhang entrusted his loan with Yingtaoyuan Rural Credit Cooperative to Changda Fertilizer. On October 28, 2010, we entered into an agreement with Weifang Weicheng district Rural Credit Cooperative (previously known as Yingtaoyuan Rural Credit Cooperative) to extend the loan the same terms until October 27, 2011.  On October 27, 2011, the loan in the amount of $237,760 was further extended until October 25, 2012.

On March 23, 2011, Weifang Changda Fertilizer Co., Ltd. entered into a loan contract with Shenzhen Development Bank, Qingdao Branch, for a loan in the amount of $1,571,166. The loan is due and payable on March 22, 2012. The interest rate is 10% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted monthly, with the executed interest rate of 6.666% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Weifang Dayeng Food Company Limited, Changda Chemical, and Qingran Zhu.  This loan was fully paid on March 21, 2012. On March 23, 2012, Changda Fertilizer entered into a loan contract with Shenzhen Development Bank, Qingdao Branch, to extend the loan in amount of $1,585,070 until March 22, 2013. The interest rate is 15% more than the Benchmark Lending Rate issued by the China Central Bank and should be adjusted monthly, with the executed interest rate of 7.26% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Weifang Dayeng Food Company Limited, Changda Chemical, Qingran Zhu, our chairman and chief executive officer and secured by the inventory of Changda Fertilizer which is worth not more than $4,953,343.

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On July 26, 2011, Changda Fertilizer entered into a loan contract with Zheshang Bank of China, Jinan Branch, for a loan in the amount of $1,743,577. The interest rate is 6.31% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Shandong Shouguang ShenRunfa Ocean Chemical Industry Co., Ltd. The Chairman and CEO of Changda Fertilizer also signed a personal guarantee for this loan. The loan was due and payable on July 25, 2012.  This loan was fully paid on July 24, 2012.

On September 26, 2011, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with Shenzhen Development Bank, Qingdao Branch, for the note payable in the amount of $3,927,915. The note payable was due and payable on March 27, 2012. The note payable is secured by the bank deposit placed in Shenzhen Development Bank, Qingdao Branch, with an amount of $ 1,571,166. This loan was fully paid on March 25, 2012. On March 27, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with Shenzhen Development Bank, Qingdao Branch, to extend the note payable in the amount of $4,755,210. The note payable is due and payable on September 27, 2012. The note payable is secured by the bank deposit placed in Shenzhen Development Bank, Qingdao Branch, with an amount of $2,377,605.

On October 9, 2011, Changda Chemicals entered into a loan contract with Industrial and Commercial Bank of China Limited, Weifang Dongguan Branch, for a loan in the amount of $1,585,070.  The loan is guaranteed by the land use right and factory building of Changda Chemical.  The loan is due and payable on October 9, 2012. The interest rate is 6.94 % per annum. Interest is payable on a monthly basis.

On October 20, 2011, Changda Fertilizer entered into a loan contract with Bank of Weifang, New Worker Village Branch, for a loan in the amount $792,535.  The loan is secured by the land use right and factory building of Changda Fertilizer.  The loan is due and payable on October 19, 2012.  The interest rate is 9.184 % per annum.  Interest is payable on a monthly basis.

On October 24, 2011, Weifang Changda Chemical Co., Ltd. entered into a Bank’s acceptance bill contract with Bank of Weifang, New Worker Village Branch, for the note payable in the amount of $790,551.  The note payable is secured by the $790,551 cash deposited with Bank of Weifang, New Worker Village Branch.  This loan was due and payable on April 24, 2012.  This loan was fully paid on April 23, 2012.

On October 25, 2011, Changda Fertilizer entered into a loan contract with Bank of Weifang, New Worker Village Branch, for a loan in the amount $792,535.  The loan is secured by the land use right and factory building of Changda Fertilizer.  The loan is due and payable on October 24, 2012.  The interest rate is 9.184 % per annum.  Interest is payable on a monthly basis.

On October 28, 2011, Changda Chemicals entered into a loan contract with Bank of Weifang, New Worker Village Branch, for a loan in the amount of $628,466.  The loan is guaranteed by sales contracts with third parties valued at approximately $1,038,000.  The loan was due and payable on January 8, 2012.  The interest rate is 9.184 % per annum.  Interest is payable on a monthly basis. On January 20, 2012, we entered into a loan contract with Bank of Weifang, New Worker Village Branch, to extend the loan in the amount of $632,441 until May 20, 2012. The interest rate is 9.184% per annum. The loan is guaranteed by sales contract with third parties valued at approximately $795,500.  This loan was fully paid on May 20, 2012.

On December 22, 2011, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with China Minsheng Banking Corp., Ltd., Weifang Branch, for the note payable in the amount of $948,662.  The note payable is secured by the $474,331 cash deposited with China Minsheng Banking Corp., Ltd., Weifang Branch.  This loan was due and payable on June 22, 2012.  This loan was fully paid on June 21, 2012.

On January 13, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with China Minsheng Banking Corp., Ltd., Weifang Branch, for the note payable in the amount of $2,219,098. The note payable is secured by the $1,109,549 cash deposited with China Minsheng Banking Corp., Ltd., Weifang Branch. This loan was due and payable on July 13, 2012.  This loan was fully paid on July 12, 2012.

On January 16, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a loan contract with Indsustrial Bank Co., Ltd., Weifang Branch, for a loan in the amount of $792,535. The loan is due and payable on January 15, 2013. The interest rate is 9.184% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Shandong Shouguang ShenRunfer Ocean Chemical Industry Co., Ltd., an unrelated third party. The Chairman and CEO of the Company also signed a personal guarantee for this loan.

On February 10, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with Bank of Weifang, New Worker Village Branch, for the note payable in the amount of $317,014. The note payable is secured by the $317,014 cash deposited with Bank of Weifang, New Worker Village Branch. This loan is due and payable on August 10, 2012. This loan was fully paid on August 9, 2012.

On March 19, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with Industrial Bank Co., Ltd., Weifang Branch, for the note payable in the amount of $4,755,210. The note payable is secured by the $2,377,605 cash deposited with Industrial Bank Co., Ltd, Weifang Branch. This loan is due and payable on September 19, 2012.

On April 14, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a loan contract with Bank of China, for a loan in the amount of $3,170,068. The loan is due and payable on October 14, 2012. The interest rate is 8.77% per annum. Interest is payable on a monthly basis. The loan is guaranteed by Changda Chemical, the Chairman and CEO of the Company and his spouse and secured by the trade receivable of Changda Fertilizer in the amount of US$3,634,565.

On June 27, 2012, Weifang Changda Fertilizer Co., Ltd. entered into a Bank’s acceptance bill contract with China Merchants Bank, Weifang Branch, for the note payable in the amount of $475,521. The note payable is secured by the $475,521 cash deposited with China Merchants Bank, Weifang Branch. This loan is due and payable on December 27, 2012.

While we have interest bearing loans and notes payable in the aggregate principal amount of $27,818,000 which are due on or before March 22, 2013, we believe that we have sufficient cash on our balance sheet and will have sufficient cash from operations to repay all indebtedness when it becomes due.  Furthermore, it is standard practice in China for financial institutions loans to rollover loans on the same terms as opposed to entering into long-term credit arrangements. In the past we have not experienced any problems in rolling over any of our short term loans. However, if the banks we currently dealing should decide not to roll over our loans and we do not have sufficient cash from operations or on our balance sheet to repay such indebtedness, we may need to seek funding for our capital needs through the issuance of debt, preferred stock, equity, loan guarantees, or a combination of these types of instruments.  While we do not anticipate the need to raise any additional capital at this time, to the extent we do need to raise capital in the future, we cannot be certain that we will be able to obtain financing on terms acceptable to us or at all.  In such case, we may be required to curtail or cease operations, liquidate or sell assets, modify our current plans for product development, and other research and development activities, or extend the time frame over which these activities will take place, or pursue other actions that would adversely affect future operations.

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Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of June 30, 2012 and the effect these obligations is expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
	Total		Less than 1 year		1-3 Years		3-5 Years		5 Years +
			(in thousands)
Contractual Obligations :
Operating Lease	$	215	$	7	$	17	$	10	$	181
Loans, Notes and Other Borrowings
Notes payable	$	12,522	$	12,522	$	-	$	-	$	-
Shareholders’ loans	$	1,132	$	1,132	$	-	$	-	$	-
Short-term interest-bearing borrowings	$	15,296	$	15,296	$	-	$	-	$	-
Total Loans, Notes and Other Borrowings	$	28,950	$	28,950	$	-	$	-	$	-
Total Contractual Obligations:	$	29,165	$	28,957	$	17	$	10	$	181

  Off-balance Sheet Arrangements

    Other than those disclosed, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

    Foreign Currency Exchange Rate Risk

We produce and sell almost all of our products in China. Thus, most of our revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars.  

Critical Accounting Policies and Estimates

     Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. Our financial statements reflect the selection application of accounting policies which require management to make significant estimates and judgments.

     We have disclosed in the notes to our financial statements those accounting policies that we consider to be significant in determining our results of operations and our financial position which we are incorporating by reference herein. We believe that the following reflect the more critical accounting policies that currently affect our financial condition and results of operations.

Critical accounting estimates and judgments

Estimates and judgments are currently evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.  Apart from information disclosed elsewhere in these financial statements, the following summarize the estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

  Impairment test of assets

We determine whether an asset is impaired at least on annual basis or where an indication of impairment exists.  Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. This requires an estimation of the expected future cash flows from the assets.

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  Allowance of bad and doubtful debts.

The provisioning policy for bad and doubtful debts of the Company is based on the evaluation of collectability and aging analysis of the accounts receivables.  A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current creditworthiness and the past collection history of each debtor.  If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance will be required.

Allowance for inventories.

Management reviews an aging analysis of inventories at each balance sheet date, and make allowance for obsolete and slow-moving inventory items identified that are no longer recoverable or suitable for use in production. The management estimates the net realizable value for finished goods and work-in-progress based primarily on the latest invoice prices and current market conditions. The Company carries out an inventory review on a product-by-product basis at each balance sheet date and makes allowances for obsolete items.

RECENT ACCOUNTING PRONOUNCEMENTS

As of the date this quarterly report is filed, there are no recently issued accounting pronouncements which adoption would have a material impact on the Company’s financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item.

Item 4.  Controls and Procedures.

Evaluation of disclosure controls and procedures. We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, 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. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of June 30, 2012, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.  There were no changes in our internal control over financial reporting for the quarterly period ended June 30, 2012 identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Management does not expect that the Company's disclosure controls and procedures or the Company's internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or  that all control issues and instances of fraud, if any, within the Company have been detected.  The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. 

We are not currently a party to any material legal proceedings.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

 Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit No.	Description
31.1	Certification of Principal Executive Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2.	Certification of Principal Financial Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHANGDA INTERNATIONAL HOLDINGS, INC.
Date: August 15, 2012	By:	/s/ Qingran Zhu
		Qingran Zhu
		Chief Executive Officer (Principal Executive Officer)

Date: August 15, 2012	By:	/s/ Leodegario Quinto Camacho
		Leodegario Quinto Camacho
		Chief Financial Officer (Principal Financial and Accounting Officer)

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