Global Arena Holding, Inc. - Quarter Report: 2008 May (Form 10-Q)

csof10q051908.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[ X ]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008 OR

[ ]	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: 0-49819

_______________

_CHINA STATIONERY AND OFFICE SUPPLY INC.

(Exact Name of Small Business Issuer As Specified In Its Charter)

DELAWARE	33-0931599
(STATE OR OTHER JURISDICTION OF INCORPORATED OR ORGANIZATION)	(I.R.S. EMPLOYER IDENTIFICATION NO.)

c/o Ningbo Binbin Stationery

Qiaotouhu Industrial Park

Ninghai, Zhejiang Province 315611 P.R. China

________________________________________________________________

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

ISSUER 'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011-86-65160858

c/o American Union Securities, Inc.

Attention: China Stationery & Office Supply

100 Wall Street, 15th Floor, New York, NY 10005

Agent Contact Information

Agents Telephone number: 212-232-0120

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

Indicate by check mark 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. (Check One)

Large accelerated filer ____ Accelerated filer ___ Non-accelerated filer ___ Small 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.

The number of shares of Common Stock of the Registrant, par value $.001 per share, outstanding at May 19, 2008 was 11,987,427.

PART I. FINANCIAL INFORMATION

CHINA STATIONERY & OFFICE SUPPLY, INC. -CSOF

FINANCIAL STATEMENTS

FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2008 AND 2007

		PAGE



FINANCIAL STATEMENTS:

	CONSOLIDATED BALANCE SHEETS	2
	CONSOLIDATED STATEMENTS OF INCOME	3
	CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS	5

NOTES TO FINANCIAL STATEMENTS		6 - 12

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CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

FOR THE THREE MONTHS PERIOD ENDED MARCH 31,




ASSETS	2008		2007

Current Assets:
Cash and Cash Equivalent	$	1,884,079	$	1,223,942
Accounts Receivable-net		3,354,917		2,763,438
Inventory		5,668,146		4,998,598
Advance to Suppliers		2,160,921		28,359
Other Receivable		6,386,336		841,986
Employee Travel Advances		-		73,139
Prepaid expense		989,113		797,526
Total Current Assets		20,443,513		10,726,988

Long-term Investment
Property, Plant & Equipment, net		8,087,341		7,681,283
Intangible Asset, net		1,348,211		1,065,133
Other Assets		14,357		42,938

Total Assets	$	29,893,423	$	19,516,342

LIABILITIES AND STOCKHOLDERS' EQUITY

	2008		2007
Current Liabilities:
Accounts Payable	$	3,946,248	$	2,089,894
Notes payable		1,768,240		-
Short-term Bank Loans		16,399,000		11,007,500
Advanced from Customers		3,775,748		681,170
Total Current Liabilities		25,889,236		13,778,564

Long-Term Liabilities:		-		-
Total Liabilities		25,889,236		13,778,564

Stockholders' Equity:
Preferred Stock- $.001 par value, 2,000,000 shares authorized and
500,000 shares issued and outstanding		-		500
Common Stock, stated value $.0001, 50,000,000 authorized
11,987,427 shares issued and outstanding		11,987		11,987
Additional Paid in Capital		1,654,324		1,653,824
Retained Earnings		338,819		2,914,042
Statutory Reserve		592,231		551,849
Accumulated Other Comprehensive Income		1,406,826		605,576
Total Stockholders' Equity		4,004,187		5,737,778

Total Liabilities and Stockholders' Equity	$	29,893,423	$	19,516,342

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CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS PERIOD ENDED MARCH 31,

		2008			2007

Net Sales		$	3,190,241		$	11,587,875

Cost of Goods Sold			3,024,964			10,264,390

Gross Profit			165,276			1,323,485

Operating Expenses:
	Sales Expenses		156,714			602,042
	General and Administrative Expenses		278,185			270,809
	Total Operating Expenses		434,900			872,851

Income (loss) from Operations			(269,624	)		450,634

Other Income /(Expenses):
	Interest Expense		(265,134	)		(276,627	)
	Government Subsidy Income
	Non-operation (Income)Expense		(2,310	)		(24,043	)
	Total Other (Income)/Expenses		(267,444	)		(300,670	)

Income (Loss) from Continuing Operations			(537,067	)		149,964
Minority Interest			33,514			-
Provision For State Income Taxes			-			-

Net Loss			(503,554	)		149,964
Other Comprehensive Item:
Gain on Foreign Currency Translation			142,973			56,694

Net Comprehensive Income		$	(360,580	)	$	206,658

Earnings per Common Share-basic and Diluted			(0.04	)		0.03
Weighted Average Common shares-Basic and Diluted			11,987,427			11,987,427

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CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2008


	Contributed									Common Stock Stated Value $.0001				Additional							Accumulated Other		Total
				Prefered Stock										Paid in		Statutory		Retained			Comprehensive		Stockholders'
	Capital			Shares			Amount			Shares		Amount		Capital		Reserve		Earnings			Income		Equity
Balance December 3 1, 2005	$	1,210,000					$	-			-	$	-	$	-	$	551,849	$	3,127,144		$	60,525	$	4,949,518

Exchange for Common Stock		(1,210,000	)												1,653,824									443,824
Insurance for Preferred Stocks					500,000			500											-					500
Insurance of Common Stocks											11,987,427		11,987											11,987
Effect of Merger and Recapitalization																			(765,545	)		-		(765,545	)
Net Income																			403,820					403,820
Allocation of Statutory Reserve																	40,382		(40,382	)				-
Other Comprehensive Income																						488,357		488,357

Balance December 31, 2006		-			500,000			500			11,987,427		11,987		1,653,824		592,231		2,725,037			548,882	$	5,532,461

Conversion of Preferred Stock to
Common Stocks					(500,000	)		(500	)						500									-
Net Income
Allocation of Statutory Reserve																			(1,849,151	)				(1,849,151	)
Other Comprehensive Income																						714,971		714,971
																						-		-
Balance- December 31, 2007					-			-			11,987,427		11,987		1,654,324		592,231		875,886		$	1,263,853	$	4,398,281

Net Income
Allocation of Statutory Reserve																			(537,067	)				(537,067	)
Other Comprehensive Income																						142,973		142,973
																						-		-
Balance- March 31, 2008					-			-			11,987,427	$	11,987	$	1,654,324	$	592,231	$	338,819		$	1,406,826	$	4,004,187

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CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS PERIOD ENDED MARCH 31,


Cash Flows From Operating Activities:	2008			2007

Net income (Loss)	$	(503,554	)	$	149,964
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		33,514			-
Depreciation and amortization		142,448			157,093
Bad debt expense		-			5,403
Loss on disposal of fixed assets
Changes in assets and liabilities:
Accounts receivable, net		(663,792	)		2,423,152
Inventories		(657,395	)		1,224,140
Advances to vendors		13,963			3,610,418
Employee travel advances		27,257			115,111
Other receivables, net		(3,947,834	)		(560,932	)
Prepaid expenses		9,236			-
Accounts payable		(1,133,040	)		(3,750,315	)
Advances from customers		(2,623,072	)		(999,239	)
Accrued expenses, taxes and sundry current liabilities		1,368,454			(243,466	)
Total Adjustments		(7,430,261	)		1,981,365
Net Cash (Used in) Provided by Operating Activities		(7,933,815	)		2,131,329

Cash Flows From Investing Activites
Long-term Investment
Acquisition of property and equipment		(93,070	)		(337,783	)
Loans to other company		-			29,165
Net Cash Used In Investing Activities		(93,070	)		(308,618	)

Cash Flows From Financng Activites
Proceeds from and (repayments) to bank loans, net		4,360,512			(2,288,637	)
Net Cash Provided by (Used) in Financing Activities		4,360,512			(2,288,637	)

Effect of foreign currency translation gain (loss)		24,079			15,227

Net Increase in Cash And Cash Equivalents		4,384,591			15,227

Cash and cash equivalents at the Beginning of the Years	$	5,526,373			1,674,641

Cash and cash equivalents at the End of the Years	$	-		$	-

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CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

NOTE 1-ORGANIZATION AND DESCRIPTION OF BUSINESS

China Stationery and Office Supply, Inc. and Subsidiaries (the “Company”) was incorporated in the state of Delaware on September 19, 2005. The Company’s primary business, through its operating subsidiaries based in China, is to develop, manufacture and market office supplies including stationery, hold punchers, staplers, pens and pencils, rubber stamps, felt markers and numerous other items, which are sold through a worldwide network of distributors in China.

On January 8, 2006 the Company acquired 90% of the stock of Ningbo Binbin Stationery Co., Ltd. (“Binbin”). Binbin was organized on January 29, 1998 under the laws of the People’s Republic of China. (“PRC”). On July 27, 2001, Binbin and its majority shareholder formed Ningbo Binbin Style Commodity Co., Ltd (“NBSC”) under the laws of the PRC. The primary business of NBSC is to manufacture and sell special office supplies and promotion products in the PRC. It is 90% owned by the Binbin. As a result of majority ownership by the Company, the operating results of Binbin and NBSC are included in the consolidated results of the Company.

On May 26, 2006, the Company completed a share exchange in which Dickie Walker Marine, Inc acquired 100% of the outstanding common stock of the Company. The transaction was treated as a reverse merger. Accordingly, China Stationery and Office Supply, Inc. and Subsidiaries is treated as the continuing entity for accounting purposes and the historical financial information prior to the merger is that of China Stationery and Office Supply, Inc. and Subsidiaries.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly and majority owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

The Company maintains cash and cash equivalents with financial institutions in the PRC. The Company performs periodic evaluation of the relative credit standing of financial institutions that are considered in the Company’s investment strategy.

Bad debt reserves

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of account receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves are recorded primarily on a specific identification basis.

Inventories

Inventories are stated at lower of cast, as determined on a weighted average basis, or market.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation and amortization are provided using the straight-line method for financial reporting purposes, whereas accelerated methods are used for tax purposes.

Long-lived assets

The Company accounts for long-lived assets in accordance with SFAS No, 144 “Accounting for he impairment of Disposal of Long-Live Assets”, which became effective January 1, 2002. Under SFAS No. 144, the Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets may not be recoverable. The Company has not incurred any losses in connection with the adoption of this statement.

Intangible assets

Intangible assets consist of “Rights to use land and build a plant”. According to the law of China, the government owns all the land in China. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Land use rights are being amortized using the straight-line method over the lease term of 50 years. The method to amortize intangible assets is a 50-year straight-line method. The Company also evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows form these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

Revenue recognition

The Company recognizes revenue at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured.

Reportable segments

Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. All of the Company’s assets are located in the PRC. The Company has two reportable segments based on their product lines.

Accounting for income taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No.109 (“SFAS 109”) which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statements carrying amounts of existing assets and liabilities and their respective tax basis, In addition, SFAS 109 requires recognition of future tax benefits, such as carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

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NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currency translation

The functional currency of China Stationery and Office Supply, Inc and Subsidiaries is the Chinese Renminbi (“RMB”). For financial reporting purposes, RMB has been translated into United States Dollars (“USD”) as the reporting currency. Assets and Liabilities are translated at the exchange rate in effect at the balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing for the period. Capital accounts are translated at their historical exchange rates when the capital

translation occurred. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in accumulated other comprehensive income.

Statement of cash flows

In accordance with Statement of Financial Accounting Standards No.95, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

New accounting pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 155, Accounting for Certain Hybrid Financial Instruments. FAS No. 155 replaces FAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and FAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. FAS No. 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” This statement will be effective for all financial instruments acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006. The new standard has not had any impact on the Company’s financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“FAS 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods with those fiscal years. The adoption of FAS 157 has not had material impact on the Company’s financial position, results of operations or cash flows.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Quantifying Misstatements.” SAB 108 provides interpretative guidance on how public companies quantify financial statement misstatements. There have been two common approaches used to quantify such errors. Under an income statement approach, the “roll-over” method, the error is quantified as the amount by which the current year income statement is misstated. Alternatively, under a balance sheet approach, the “iron curtain” method, the error is quantified as the cumulative amount by which the current year balance sheet is misstated. In SAB 108, the SEC established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. SAB 108 is effective for the first fiscal year ending after November 15, 2006. The adoption of SAB 108 did not have a material impact on the Company’s financial position and results of operations.

In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows companies to measure many financial assets and liabilities at fair value. It also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 159 is not expected to have a material impact on our financial position, results of operations or cash flows.

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No.51” (‘SFAS No.160”). SFAS No.160 requires that non-controlling (or minority) interest in subsidiaries be reported in the equity section of the company’s balance sheet, rather than in mezzanine section of the balance sheet between liabilities and equity. SFAS No. 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement, SFAS No. 160 also changes the manner in which the net income of the Subsidiary is ownership percentages and for deconsolidation. SFAS No.160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years.

NOTE 3-ACCOUNTS RECEIVABLE

The Company extends to certain customers credit terms up to 12 months. Management performs periodic reviews of the ages of accounts receivables and customer payment patterns. Reserves are made when accounts are deemed uncollectible and recorded primarily on a specific identification basis. The allowance for doubtful accounts amounted to $1,206,712 at March 31, 2008.

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NOTE 4-INVENTORIES

A summary of the components of inventories at March 31, 2008 is as follows:

Raw materials	$	1,221,782

Work in process		1,125,944

Packaging supplies		151,882

Finished goods		3,168,538


Total		5,668,146

NOTE 5-ADVANCES TO SUPPLIES

As a normal practice of doing business in China, the Company is frequently required to make advance payments to suppliers for raw materials. Such advance payments are interest free. At March 31, 2008, the balance of advances to suppliers was $2,160,921.

NOTE 6- PROPERTY AND EQUIPMENT

A summary of property and equipment at March 31, 2008 is as follows:

Building	$	6,203,810

Manufacturing Equipment		3,027,522

Office Furniture & Equipment		586,915

Vehicles		963,092

Construction in Progress		89,832

Subtotal	$	10,871,171

Less: Accumulated Depreciation		-2,783,830

Total Property & Equipment	$	8,087,341

Depreciation expenses for three months period ended March 31, 2008 was $ 135,882.

NOTE 7- INTANGIBLE ASSETS

The company’s office and manufacturing site is located in Qiaotouhu Street Scene, Ninghai Zhejiang China. The Company leases the land from the local government of PRC with the term from November 2001 to November 2051. The fair value amount of acquisition of the right to use land was recorded as an intangible asset and is being amortized over the lease term 50 years.

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NOTE 8- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses were comprised of the following items as of March 31, 2008 and 2007.

	2008		2007
Accounts payable	$	3,263,486	$	1,740,267
Accrued payroll and related liabilities		419,465		-
Accrued VAT payable		2,208		-
Miscellaneous accrued expense		261,088		349,627
	$	3,946,248	$	2,089,894

NOTE 9- SHORT-TERM BANK LOANS

The company borrowed funds from several financial institutions for its working capital. These borrowings are short term in nature and are secured by the Company’s real estate and bear interest ranging from 5.850% to 7.470% in 2007.

NOTE 10- ADVANCES FROM CUSTOMERS

Advances from customers are non-interest bearing and unsecured. As of March 31, 2008 and 2007 the balances were $3,775,748 and $681,170 respectively.

NOTE 11- STOCKHOLDERS’ EQUITY

Upon the completion of reverse merger as of May 26, 2006, in addition to outstanding 6,585,126 shares of common stock, Dickie Walker issued 10,142,889 shares of common stock and 500,000 shares of Series A Preferred Stock to the shareholders of China Stationery and Office Supply, Inc., Each share of the Series A Preferred Stock can be converted into 120 shares of common stock. All the outstanding of the Series A Preferred Stock was subsequently converted into common stock.

On June 26, 2006, the Board of Directors approved a 5-to-32 reverse stock split of the Company’s outstanding shares of common stock. The reverse stock split becomes effective on July 18, 2006. All share and per share information included in these consolidated financial statements has been adjusted to reflect this reverse stock split.

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NOTE 12- SEGMENT REPORTING

Under SFAS 131, the Company has two reportable segments: Ningbo Binbin Stationery Co., Ltd (“Stationery”) and Ningbo Binbin Style Commodity Co., Ltd (“Style”). Following is a summary of segment information for the year ended March 31, 2008 and 2007:

Period ended March 31, 2008

	Stationery			Style			Total
Revenue	$	3,012,103		$	178,137		$	3,190,241
Operating income (loss)		(192,270	)		(77,353	)		(269,624	)
Total Assets		30,567,272			3,551,924			34,119,196
Capital Expenditure		93,070			0			93,070
Depreciation and amortization		113,568			28,880			142,448
Interest expense		265,134			0			265,134

Period ended March 31, 2007

	Stationery		Style			Total
Revenue	$	10,924,652	$	663,223		$	11,587,875
Operating income (loss)		463,008		(6,374	)		456,634
Total Assets		18,754,130		3,600,771			22,354,901
Capital Expenditure		334,818		2,965			337,783
Depreciation and amortization		120,879		36,214			157,093
Interest expense		273,313		3,314			276,627

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NOTE 13-STATUTORY COMMON WELFARE FUND

As stipulated by the Company Law of China, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

(1)	Making up cumulative prior years’ losses, if any;

(2)	Allocations to the “statutory surplus reserve” of at least 10% of income after tax, as determined under China’s accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

(3)	Allocation of 5-10% of income after tax, as determined under China’s accounting rules and regulations, to the Company’s “statutory common welfare fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and

(4)	Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.

The Company incurred a loss in the period ended March 31, 2008. Therefore, Company was not required to allocate the “statutory surplus reserve”

NOTE 14-INCOME TAXES

Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognizes for the unexpected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect in the China for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets and liabilities, respectively, will be realized. Therefore, there are no deferred tax assets or liabilities for the period ended March 31, 2008.

Since the Company’s Chinese subsidiaries (“Binbin” and NBSC”) are Sino-joint venture enterprises, under the Chinese tax regulation, they are exempt from corporate income tax. Accordingly, the Company has not accrued income tax for these subsidiaries for the year ended December 31, 2007.

NOTE 15- EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no common stock equivalents available in the computation of earnings (loss) per share at March 31, 2008.

According to the Chinese Company Law, the company has allocated 10% of its annual net profit to the reserve fund. As of March 31, 2008, this fund has accumulated in the amount of $592,231.

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16 NOTE 16 -CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company's operations are carried out in China. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the People Republic of China (PRC), and by the general state of the PRC economy.

The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. As of March 31, 2008, substantially all of the Company’s cash and cash equivalents were held by major banks located in the PRC of which the Company’s management believes are of high credit quality. With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition and customer payment practices to minimize collection risk on account receivable.

There was a single vendor who accounted for 10 % of the Company’s total raw material purchases during the three months period ended March 31, 2008.

The Company had one major customer who accounted for 17% of the total sales for the three months period ended March 31, 2008.

The Company’s sales are heavily dependent on exports sales to USA and Asia for the three months period ended March 31, 2008.

NOTE-17 CONTINGENCIES

As of March 31, 2008, Ningbo Binbin Stationery Co., Ltd (“Binbin”) is contingently liable as a guarantor with respect to approximately $4,596,514 of indebtedness of non-related entities. The term of the guarantees is through April 9, 2010. At any time through that day, should any one of the entities default on their debt payments, Binbin will be obligated to perform under that guarantee by making the required payments. The maximum potential amount of future payments that Binbin is required to make under the guarantee is $4,791,360.

NOTE-18 RECLASSIFICATIONS

Preferred stock was converted to common stock. $500 was reclassified to additional paid in capital to reflect the transaction.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Proviso Regarding Forward-Looking Statements

This “Management’s Discussion and Analysis” includes certain forward-looking statements. These forward-looking statements represent management’s present expectations regarding the future. There are many risks and uncertainties that, if realized, could cause management’s expectations to be an inaccurate prediction of the future. Some of those risks are described below under the heading “Risk Factors That May Affect Future Results.”

The forward–looking statements contained herein speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

Prior to acquiring a listing on the OTC Bulletin Board in June of 2006, the Company’s Chinese subsidiary, Ningbo Binbin Stationery Co., Ltd. (“Binbin”) had established itself through a period of 15 years as one of the top stationery manufacturers in China. It was recognized by Forbes China in 2004 and 2005 as one of the “Top 100 Growth Potential Small and Medium sized private enterprises.”

The Company’s product line consists of four categories, which include traditional office stationery and supplies, electric office supplies, office peripheral devices and furniture, and teaching aids. Traditional office supplies include manual staplers, staple removers, pencil sharpeners, hole punchers, rubber stamps, correctional tape, pens, and paper stationery sets. Electric office supplies include electric staples, electric hole punchers, electric paper shredders, electric pencil sharpeners, and vacuum cleaners. Office peripherals include desktop organizers, drawer organizers, bookends, desktop computer accessories, and partition accessories. Teaching aids include protractors, triangles of assorted degrees including 45-degree, 60-degree, and 90-degree, compass sets and additional drafting supplies.

In the late 1990s, the Company began to focus its business model on export sales. It offered the maximum number of products at highly competitive prices. The effort was successful as it established market presence in over 30 countries in five continents. In 2001, the Company became the first private company in Ningbo and among the first in China to obtain approval from the Ministry of Foreign Trade and Economic Cooperation to establish its own import/export company. Its notable foreign customers include Tesco Stores Ltd. (UK), Elmer’s Products, Inc. (US), Daiso Japan, and Romeo Maestri Figli S.p.A. (Italy). Today export sales account for nearly 90% of total sales.

Results of Operations

In recent years, because of relaxed regulation as well as international reaction to the dynamic growth of the Chinese economy, the exchange rates related to the Chinese Renminbi have become much more volatile than was the case at the start of this decade. For a company such as Binbin, whose business primarily consists of exporting high volume, low margin items, the volatility of exchange rates presents a significant obstacle to sound business planning. In the first instance, because we incur our cost of goods sold in Renminbi, but price our exports in Dollars, an increase in the exchange rate between the Renminbi and the Dollar can have the effect of eliminating our already modest profit margin on a sale. But if we adjust the sales price of our products to offset our increased manufacturing cost, the effect is to reduce demand for our products.

This double impact of the falling value of the Dollar is the primary explanation for our poor results in the first quarter of 2008. The reduced competitive position of our products caused us to realize only $3,190,241 in net sales revenue, a 72% reduction from the first quarter of 2007. And even on those reduced sales, we realized only $165,276 in gross profit (compared to $1,323,485 in the first quarter of 2007), which was far less than we required in order to cover our operating expenses.

While the negative turn in the Renminbi-to-Dollar exchange rate was the primary factor causing our negative operating results, an additional reason for the quarter-to-quarter decline was the fact that in 2006 UNICEF did not place its annual order until near to the end of the year. We were able to ship only $2.55 million of this $9 million order in 2006, and shipped the remaining $6.45 million in the first quarter of 2007. In comparison, we made no shipments to UNICEF in the first quarter of 2008. We believe that sales to UNICEF will continue to represent a large portion of our revenue in the next few years. But we cannot predict when UNICEF will place its orders, and so cannot determine the extent to which our revenues and earnings will develop a pattern of seasonality as a result of the UNICEF orders.

As noted, our gross margin on the sales fell from 11.4% in the first quarter of 2007 to 5.2% in the first quarter of 2008. In addition to the effect of the falling value of the Dollar, the decrease in gross margin reflected the fact that the prices of several of our key raw materials have been increasing. In particular, the world market for non-ferrous metals, such as zinc, copper and nickel, became substantially inflated. This increased the manufacturing cost of many of our products.

We do not expect either of these two situations – the falling value of the Dollar or the increase in commodities prices - to be reversed in the near future. In addition, as of July 1, 2007 the Government of China reduced the rebate that it will pay on certain exported goods from 13% to 8%, with some rebates falling as low as 5%. This change put further downward pressure on our margins. Therefore we do not expect to reverse the decline in our profit margins until our long-term program of replacing low margin goods with higher margin products is fully implemented.

Despite the dramatic decline in our sales revenue, the ratio of our sales expenses to our net sales remained relatively static, declining from 5.2% in the first quarter of 2007 to 4.9% in the first quarter of 2008. Our ability to sustain that ratio reflected our efforts to increase the efficiency of our marketing operations. However, selling, general and administrative expenses increased from $270,809 or 2.3% of sales in the first quarter of 2007 to $278,185 or 8.7% of sales in the first quarter of 2008. The principal reasons for the overall increase in expenses were:

·	an increase in salaries to our staff necessitated by the overall rise in wages in China in recent years; and

·	an increase in depreciation, due to the expansion of our manufacturing facilities since last year.

The operations of our subsidiary, Binbin Style, produced a net loss of $335,140 during 2007. However, because we own only 90% of Binbin Style, we reduced the loss by a “minority interest” of $33,514 on our Statement of Operations. If, in the future, Binbin Style returns to profitable operations, the profits will likewise be reduced by the “minority interest.” After that deduction and taking into account the expenses incurred by the parent corporation, our net loss for the first three months of 2008 was $503,554, compared to net income of $149,964 in the first three months of 2007.

Our business operates in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the first three months of 2008 the unrealized gain on foreign currency translations added $142,973 to our accumulated other comprehensive income.

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Liquidity and Capital Resources

On March 31, 2008 we had a working capital deficit of $5,445,723, having added $660,015 to our deficit since December 31, 2007. The primary reason for the deficit is the customary Chinese banking practice of funding business clients through short-term debt. Because of that policy, our entire bank debt ($16.4 million at March 31, 2008) is categorized as a short-term liability. Our expectation is that we will be permitted by the bank to roll over as much of the debt as we require. (Indeed the banks permitted us to increase our bank debt by $5.4 million during the first quarter of 2008, despite our poor financial results, an indication of the strong long-term relationship that we have with our banks.) So this arrangement provides us with considerable flexibility in molding our debt structure to our immediate need.

Our liquidity is affected by certain lending arrangements that we have made, involving certain suppliers of our raw materials and other companies with which we have mutual assistance relationships. These relationships manifest themselves in two ways, both of which are common practice in the Chinese business environment. First, we have on our balance sheet “other receivables” of $6,386,336.” These represent moneys that we have loaned to suppliers to secure good selling terms from them. The loans are understood to be due on demand. However, as per the accepted practice in China, we will afford the supplier this credit as the supplier requires it, in order to maintain the goodwill of the relationship.

The second financing arrangement related to our business operations involves a series of guarantees, some mutual, some in exchange for business advantages. At March 31, 2008 Binbin was the guarantor of a total of 33.6 million RMB in debt (approximately $4,791, 360). 11,600,000 RMB of the debt that we were guaranteeing was owed to banks by four of our suppliers. We made these guarantees for the same reason as supported our loans to suppliers. 22,000,000 RMB of the debt was guaranteed for the benefit of two Chinese businesses that are similarly guaranteeing Binbin’s bank debt. The debts we are guaranteeing are one-year loans without amortization, and our guarantees apply to principal payments only. China’s banks encourage this kind of cross-guarantee arrangement as a means of expanding the lending base of its customers. The situation does, however, increase the risk to our assets, as we face the possibility of being called upon to satisfy the debts we have guaranteed. We believe, however, that the debts we have guaranteed are likely to be paid, and that the arrangements provide us more benefit than risk.

We believe that our banking relationships provide us adequate liquidity to fund our ongoing operations and modest growth. Nevertheless we are currently exploring opportunities for increased funding in order to implement certain special projects that we hope will enhance our product offerings and the efficiency of our operations. We have not, however, entered into any new financing commitments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

Risk Factors That May Affect Future Results

You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.

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I. Risks attendant to our business

Increased interest rates in China would have a negative effect on our operations.

Binbin is highly leveraged. Our current liabilities substantially exceed our current assets, and consist primarily of short-term debt to Chinese banks. Currently we pay interest on our bank debt at rates that are relatively low by Chinese standards (6.85% to 7.47%). The government of China, however, is considering implementing policies aimed at controlling the growth of the Chinese economy. These policies would result in significantly higher interest rates. If that were to occur, or if other factors caused an increase in interest rate, our expenses would increase significantly, which could eliminate our profitability.

If the Renminbi is allowed to float freely against the U.S. Dollar, our profits will be reduced.

Nearly 90% of our sales are made outside of China. Our export sales are priced in Dollars. If the value of the Dollar relative to the Renminbi is reduced, our revenue will be proportionately reduced, as overseas customers will find our products to be more expensive than those provided by their local office supply providers.

Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.

Our future success depends on our ability to attract and retain highly skilled engineers, draftsmen, and technicians, as well as sales personnel experienced in international sales. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. Therefore we may not be able to successfully attract or retain the personnel we need to succeed.

We may have difficulty establishing adequate management and financial controls in China.

The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.

Our operations are international, and we are subject to significant political, economic, legal and other uncertainties (including, but not limited to, trade barriers and taxes that may have an adverse effect on our business and operations.

We manufacture all of our products in China and substantially all of the net book value of our total fixed assets is located there. However, we sell our products primarily to customers outside of China. As a result, we may experience barriers to conducting business and trade in our targeted markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, as well as substantial taxes of profits, revenues, assets or payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products. Any of these barriers and taxes could have an adverse effect on our finances and operations.

We rely principally on dividends and other distributions on equity paid by our operating subsidiary to fund our cash and financing requirements, but such dividends and other distributions are subject to restrictions under PRC law. Limitations on the ability of our operating subsidiary to pay dividends or other distributions to us could have a material adverse effect on our ability to grow, make investments or acquisitions, pay dividends to you, and otherwise fund and conduct our business.

We are a holding company and conduct substantially all of our business through our operating subsidiary, Binbin, which is a limited liability company established in China. We rely on dividends paid by Binbin for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to regulations permitting Binbin to pay dividends to us only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Binbin is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In addition, Binbin is required to allocate a portion of its after-tax profit to its enterprise expansion fund and the staff welfare and bonus fund at the discretion of its board of directors. Moreover, if Binbin incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of Binbin Q to pay dividends or other distributions to us could have a material adverse effect on our ability to grow, make investments or acquisitions, pay dividends to you, and otherwise fund or conduct our business.

Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.

The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

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II. Risks attendant to our management

Our business development would be hindered if we lost the services of our Chairman.

Wei Chenghui is the Chief Executive Officer of China Stationery and Office Supply, Inc. and of its operating subsidiary, Ningbo Binbin Stationery Co., Ltd. Mr. Wei is responsible for strategizing not only our business plan but also the means of financing it. If Mr. Wei were to leave Binbin or become unable to fulfill his responsibilities, our business would be imperiled. At the very least, there would be a delay in the development of Binbin until a suitable replacement for Mr. Wei could be retained.

We are not likely to hold annual shareholder meetings in the next few years.

Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current members of the Board of Directors were appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that the current directors will appoint them. As a result, the shareholders of the Company will have no effective means of exercising control over the operations of the Company.

Your ability to bring an action against us or against our directors, or to enforce a judgment against us or them, will be limited because we conduct all of our operations in China and because all of our management resides outside of the United States.

We conduct all of our operations in China through our wholly-owned subsidiary. All of our directors and officers reside in China and all of the assets of those Chinese residents are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the United States and of China may render you unable to enforce a judgment against our assets or the assets of our directors.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15e and 15d-15e) as of the end of the period covered by this report (the “Evaluation Date”), concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

(b) Changes in internal controls. During the fiscal quarter covered by this quarterly report, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II

Item 1.

Legal Proceedings

None.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6. Exhibits

(a) Exhibits

31.1 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

CHINA STATIONERY AND OFFICE SUPPLY, INC.

Date: May 20, 2008.

By: /s/ Wei Chenghui

Wei Chenghui

Chief Executive Officer and Chief Financial Officer

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