Global Arena Holding, Inc. - Annual Report: 2009 (Form 10-K)

csof10k123109.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2009

| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission file number: 0-49819

CHINA STATIONERY AND OFFICE SUPPLY, INC.

(Exact name of registrant as specified in its charter)

Delaware____ 33-0931599

(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

Qiaotouhu Industrial Park, Ninghai, Zhejiang Province, P.R. China	315611
(Address of principal executive offices)	(Zip Code)

Issuer's telephone number: 86-651-60858

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act. Yes __ No √_

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No √_

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 √_ No __

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

Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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 __ No √_

As of June 30, 2009 (the last business day of the most recently completed second fiscal quarter) the aggregate market value of the common stock held by non-affiliates was approximately $311,550.

The number of shares outstanding of the issuer’s common stock, as of April 12, 2010 was 11,987,427.

DOCUMENTS INCORPORATED BY REFERENCE: None

CHINA STATIONERY AND OFFICE SUPPLY, INC.

TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2009

ITEM		Page

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	9
Item 2.	Description of Properties	9
Item 3.	Legal Proceedings	9

PART II
Item 4.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 5.	Selected Financial Data	11
Item 6.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 6A.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 7.	Financial Statements and Supplementary Data	14
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	29
Item 8A.	Controls and Procedures	29
Item 8B.	Other Information	30

PART III
Item 9.	Directors, Executive Officers and Corporate Governance	31
Item 10.	Executive Compensation	32
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 12.	Certain Relationships and Related Transactions, and Director Independence	34
Item 13.	Principal Accountant Fees and Services	35
PART IV
Item 14.	Exhibits and Financial Statement Schedules	35

	Signatures	36

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains certain forward-looking statements regarding China Stationery, its business and its financial prospects. These statements represent Management’s present intentions and its present belief regarding the Company’s future. Nevertheless, there are numerous risks and uncertainties that could cause our actual results to differ from the results suggested in this Report. A number of those risks are set forth in the section of this report titled “Risk Factors.”

Because these and other risks may cause China Stationery’s actual results to differ from those anticipated by Management, the reader should not place undue reliance on any forward-looking statements that appear in this Report. Readers should also take note that China Stationery will not necessarily make any public announcement of changes affecting these forward-looking statements, which should be considered accurate on this date only.

ITEM 1. BUSINESS

China Stationery and Office Supply, Inc. (“China Stationery”) is a holding company with only one asset: shares in Ningbo Binbin Stationery Co., Ltd. (“Binbin”) that represent 90% of the registered capital of that company. The remaining 10% of Binbin is owned by our Chairman, Wei Chenghui, and his family.

Ningbo Binbin Stationery Co., Ltd. is a private company located in Ninghai City, Zhejiang Province, China. Founded in 1998, Binbin primarily engages in the manufacture and distribution of office supplies and related products. In 2001, with the approval from the Ministry of Foreign Trade and Economic Cooperation, Binbin established the first privately owned import/export company in Ninghai City. In 2004 Binbin terminated the operations of that subsidiary, and brought the entire international sales effort under the control of its in-house marketing department. Binbin now exports 80% of its products to over 30 countries and regions.

Binbin is located in Ninghai City, Zhejiang Province, China. Ninghai city is known as China’s “Stationery Production Base,” with annual office product production exceeding 2.56 billion yuan ($320 million). This accounts for 15% of the total industry output of the city. Binbin, therefore, is able to draw from an experienced labor pool and has ready access to raw materials and components for office supply manufacturing.

Binbin implemented its quality control certification systems in 1999. Binbin passed the ISO 9002 certification in March 2001, and changed to the ISO9001:2000 quality management system in 2003. It also passed the ISO 14001 environmental quality management certification in 2004.

Products

Binbin produces 50 series and over 1500 lines of products. Binbin’s products are arranged in four categories:

Traditional office stationery and supplies - including manual staplers, staple removers, pencil sharpeners, hole punchers, rubber stamps, correctional tape, pens, and paper stationery sets;

Electric office supplies – including electric staples, electric hole punchers, electric paper shredders, electric pencil sharpeners, and vacuum cleaners;

Office peripheral devices and furniture – including desktop organizers, drawer organizers, bookends, desktop computer accessories, and partition accessories; and

Teaching aids – including protractors, triangles of assorted degrees including 45-degree, 60-degree, and 90-degree, compass sets and additional drafting supplies.

Binbin manufactures the majority of the products it sells. Its pen products and paper products, which represent approximately 20% of its sales, are manufactured for Binbin on a private label basis by a number of vendors. There are no such vendors who are essential to Binbin’s success.

The primary raw materials used by Binbin are plastics (representing 26% of annual expenses), steel (25%) and packing boxes (15%). None of the raw materials used by Binbin are specialty items, and Binbin has a ready supply of all raw materials.

Research and Development

The products of Bibin have won international market share with their design, superior quality, and competitive prices.

In the late 1990’s, Binbin introduced a type of environmentally friendly correction tape. In 1999 the correction tape became a leading product in the domestic market and generated substantial international sales as well. That product helped to establish Binbin’s reputation for innovation in office supplies.

Marketing

Binbin sells its products both domestically and internationally. In the late 1990s, however, Binbin 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 Binbin employs a team of over 100 people dedicated to the development of international business, and export sales account for nearly 90% of total sales. Binbin has registered trademarks in more than 30 countries.

One key to Binbin’s success in export sales has been its ability to establish brand loyalty. Binbin’s strategy of introducing 100 new products each year succeeds only because a well-established customer base is drawn to Binbin products as a class, whether the product is a staple or an innovation. Binbin maintains that loyalty through a program of brand promotion to targeted international markets. Binbin invests 3-5 million RMB each year on various trade shows at home and abroad to promote Binbin products, meet old and new customers, and collect information on new products and the latest market trends.

Besides utilizing its own sales network and channels, Binbin has established partnerships with dealers and agents at home and abroad. Domestically, Binbin currently has over 20 dealers and agents in Zhejiang, Shanghai, Jiangshu, Guangdong, Shandong, and other coastal provinces and the Hong Kong Special Administration Region. Internationally, Binbin has dealers and agents in over 30 countries and regions such as Ukraine, Russia, Iran, Nigeria, Indonesia, Venezuela, Korea, and Mexico. This combination of direct sales and agency sales permits Binbin to market aggressively on five continents.

The Chinese Office Supply Market

The Chinese office supply market exceeds $12 billion annually and has been growing at double digit rates in recent years. Since 2000, office product exports from China have exceeded $2.6 billion per year.

The Chinese office product manufacturing market is extremely fragmented, with over 3000 small manufacturers competing on low end, low price products. Binbin is currently exploring opportunities to participate in an industry consolidation. The main focus of this approach would be to leverage Binbin’s distribution system and extensive customer base to obtain opportunities to acquire companies that produce higher margin office products.

Employees

Binbin has 682 employees, all of whom are employed on a full-time basis.

ITEM 1A. RISK FACTORS

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.

I. Risks attendant to our business

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 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.

Our bank deposits are not insured.

There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC. If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.

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.

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.

ITEM 1B UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. DESCRIPTION OF PROPERTY

Binbin’s facility, which is owned by Binbin, is located in Ninghai City Haishu Industrial Zone, which is about 45 miles away from the port of Beilun and Ningbo Leshe Airport. Binbin’s campus covers an area of 52,000 square meters, with a facility area of 28,000 square meters.

ITEM 3. LEGAL PROCEEDINGS

None.

PART II

ITEM 4.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information.

Our common stock is listed for quotation on the OTC Bulletin Board under the trading symbol “CSOF.” The following table sets forth the bid prices quoted for our common stock during each quarter in the past two fiscal years.

	Bid
Period:	High		Low

Jan. 1, 2008 - Mar. 31, 2008	$	.30	$	.06
Apr. 1, 2008 - June 30, 2008	$	.10	$	.04
July 1, 2008 – Sep. 30, 2008	$	.13	$	.07
Oct. 1, 2008 – Dec. 31, 2007	$	.13	$	.02

Jan. 1, 2009 - Mar. 31, 2009	$	.04	$	.02
Apr. 1, 2009 - June 30, 2009	$	.08	$	.02
July 1, 2009 – Sep. 30, 2009	$	.08	$	.04
Oct. 1, 2009 – Dec. 31, 2009	$	.05	$	.01

(b) Holders. Our shareholders list contains the names of 685 registered stockholders of record of the Company’s Common Stock.

(c) Dividend Policy. We have not declared or paid cash dividends or made distributions in the past, and we do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain and reinvest future earnings, if any, to finance our operations.

(d) Securities Authorized for Issuance Under Equity Compensation Plans. The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of December 31, 2009.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders.......	0	--	0
Equity compensation plans not approved by security holders......	0	--	0
Total	0	--	0

(d) Recent Sales of Unregistered Securities.

China Stationery did not sell any unregistered securities during the 4th quarter of 2009.

(e) Repurchase of Equity Securities. The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter of 2009.

ITEM 5. SELECTED FINANCIAL DATA

Not applicable.

ITEM 6.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

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.

In 2009, this double impact of the falling value of the Dollar combined with the effect of a worldwide business recession to cause poor results in our business. The reduced competitive position of our products and the reduction in worldwide demand caused us to realize only $11,916,453 in net sales revenue, a 38% reduction from revenues in 2008. And even on those reduced sales, we realized only $1,040,042 in gross profit during 2009, compared to $1,142,430 during 2008. That level of gross profit was far less than we required in order to cover our operating expenses.

Cost of goods sold, which consists of labor, overhead and product cost, was $10,876,412 for the year ended December 31, 2009, representing an decrease of $7,296,780 or 40% as compared to $18,173,192 for the year ended December 31, 2008. The reduction in cost of goods sold was generally in proportion with the decrease in our sales volume. In addition, the price of several of our key raw materials increased. 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 had a gross profit of $1,040,042 and a gross margin of 8% for the year ended December 31, 2009, as compared to gross profit of $1,142,430 and gross margin of 6% for the same period of 2008. As noted, our gross margin basically remains largely unchanged, given the fact that our sales during the corresponding period of 2009 fell by $7,399,169 as compared to the same period of the year earlier. Our gross margin level reflects the effect of the falling value of the Dollar over the past period.

We do not expect either of the two negative pressures of the falling value of the Dollar or the reduction in demand for business products - to be reversed in the near future. For all of these reasons, we incurred a loss of $2,229,228 during 2009. However, because we own only 90% of each of our two subsidiaries, a portion of our loss, $284,114 was allocated to the minority interest. Our net loss during 2009, therefore, was only $1,945,113.

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 “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.

Liquidity and Capital Resources

As of December 31, 2009 we had a working capital deficit of $9,337,411, which was $2,298,277 worse that at December 31, 2008. The primary reason for the increase in our deficit was our net loss, which was $353,164 less than the decline in our working capital. The remainder of the reduction is attributable to our use of cash to acquire $653,957 in “other assets,” which are being held for long-term investment.

Our liquidity is affected by certain financing 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 “advances to suppliers” totaling $2,066,610 representing funds that we deposit with our suppliers in order to assure ourselves of on-time supplies of raw materials.

As of December 31, 2009, Ninbo Binbin Stationery Co., Ltd (“Binbin”) is contingently liable as a guarantor with respect to approximately $ 1,317,600 of indebtedness of non-related entities. The term of the guarantees is through March 23, 2010. At any time through that day, should any one of the entities default on its 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 was $1,317,600 and $3,457,424 as of December 31, 2009 and 2008 respectively.

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.

Critical Accounting Policies and Estimates

We have made no material changes to our critical accounting policies in connection with the preparation of financial statements for 2009.

ITEM 6A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm	Page 15
Consolidated Balance Sheets as of December 31, 2009 and 2008	Page 16
Consolidated Statements of Income for the Years Ended December 31, 2009 and 2008	Page 17
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2009 and 2008	Page 18
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008	Page 19
Notes to Consolidated Financial Statements	Page 20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of China Stationery Office Supply, Inc and subsidiaries:

We have audited the accompanying balance sheets of China Stationery Office Supply, Inc and subsidiaries as of December 31, 2009 and 2008, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years ended. China Stationery Office Supply, Inc and subsidiaries’ management are responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Stationery Office Supply, Inc and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the year in the two-year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

/s/P.C.LIU, CPA, P.C.

P.C.LIU, CPA, P.C.

Flushing, NY

April, 2010

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(Expressed in US dollars)
	2009		2008

Current Assets:
Cash and Cash Equivalent	$	428,155	$	1,816,510
Accounts Receivable-net		3,290,359		4,139,081
Inventory		4,096,368		4,419,776
Advance to Suppliers		2,066,610		1,974,793
Other Receivable		663,546		751,450
Prepaid expense		44,536		820,161
Total Current Assets		10,589,574		13,921,770

Long-term Investment
Property, Plant & Equipment, net		7,397,815		7,904,126
Intangible Asset, net		1,282,779		1,352,441
Other Assets		653,957		10,056

Total Assets	$	19,924,124	$	23,188,394

Current Liabilities:
Accounts Payable	$	3,911,093		$	3,765,774
Notes payable		307,440			629,954
Short-term Bank Loans		14,420,400			15,968,609
Advanced from Customers		1,288,052			596,567
Total Current Liabilities		19,926,985			20,960,904

Long-Term Liabilities:		-			-
Total Liabilities		19,926,985			20,960,903.83

Minority Interest in Consolidated Subsidiary		5,180			289,294

Stockholders' Equity:
Preferred Stock- $.001 par value, 2,000,000 shares authorized and
500,000 shares issued and outstanding		-			-
Common Stock, stated value $.0001, 50,000,000 authorized
11,987,427 shares issued and outstanding		11,987			11,987
Additional Paid in Capital		1,198,013			1,198,013
Retained Earnings		(3,213,843	)		(1,268,730	)
Statutory Reserve		590,380			590,380
Accumulated Other Comprehensive Income		1,405,423			1,406,546
Total Stockholders' Equity		(8,040	)		1,938,196

Total Liabilities and Stockholders' Equity	$	19,924,124		$	23,188,394

The accompanying notes are an integral part of these finanical statements

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 2009 AND 2008
(Expressed in US dollars)
			2009	2008

Net Sales			$ ,916,453	$ 19,315,622
Cost of Goods Sold			10,876,412	18,173,192
Gross Profit			1,040,042	1,142,430
			9%	6%
Operating Expenses:
	Sales Expenses		528,293	774,794
	General and Administrative Expenses		1,808,464	1,737,088
		Total Operating Expenses	2,336,757	2,511,882

Income from Operations			(1,296,716)	(1,369,451)

Other( Income) /Expenses:
	Interest Expense		1,036,363	1,253,471
	Government Subsidy Income		(62,057)	(46,875)
	Non-operation (Income)Expense		(41,794)	(262,564)
		Total Other (Income)/Expenses	932,512	944,033

Income (Loss) from Continuing Operations			(2,229,228)	(2,313,484)
Minority Interest			284,114	162,529
Provision For State Income Taxes			-	-

Net Loss			(1,945,113)	(2,150,955)
Other Comprehensive Item:
Unrealized Gain on Foreign Currency Translation			(1,123)	142,693

Net Comprehensive Income			$ (1,946,236)	$ (2,008,262)

Earnings Per Common Share-Basic and Diluted			(0.19)	(0.19)
Weighted Average Common Shares-Basic and Diluted			11,987,427	11,987,427

The accompanying notes are an integral part of these finanical statements

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 2009 AND 2008
(Expressed in US dollars)
							Common Stock Stated Value $.001				Additional							Accumulated Other			Total
	Contributed		Prefered Stock								Paid in		Statutory		Retained			Comprehensive			Stockholders'
	Capital		Shares		Amount		Shares		Amount		Capital		Reserve		Earnings			Income			Equity
Balance- December 31, 2007	$	-		-	$	-		11,987,427	$	11,987	$	1,198,013	$	590,380	$	882,225		$	1,263,853		$	3,946,458

Net Loss		-		-		-		-		-		-		-		(2,150,955	)		-			(2,150,955	)
Allocation of Statutory Reserve																						-
Other Comprehensive Income		-		-		-		-		-		-		-		-			142,693			142,693
																			-			-
Balance- December 31, 2008	$	-		-	$	-		11,987,427	$	11,987	$	1,198,013	$	590,380	$	(1,268,730	)	$	1,406,546		$	1,938,196

Net Loss		-		-		-		-		-		-		-		(1,945,113	)		-			(1,945,113	)
Allocation of Statutory Reserve																						-
Other Comprehensive Income		-		-		-		-		-		-		-		-			(1,123	)		(1,123	)
																			-			-
Balance- December 31, 2009	$	-		-	$	-		-	$	-	$	1,198,013	$	590,380	$	(3,213,843	)	$	1,405,423		$	(8,040	)

The accompanying notes are an integral part of these finanical statements

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2008 AND 2007
(Expressed in US dollars)
	2009			2008

Net income (loss)	$	(1,945,113	)	$	(2,150,955	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		284,114			162,529
Depreciation and amortization		602,255			612,465
Changes in assets and liabilities:
Accounts receivable, net		848,722			(1,447,956	)
Inventories		323,408			590,975
Advances to vendors		(91,817	)		200,092
Employee travel advances					27,257
Other receivables, net		87,904			1,687,052
Prepaid expenses		131,724			178,188
Accounts payable		145,319			(819,533	)
Advances from customers		691,485			(1,547,295	)
Accrued expenses, taxes and sundry current liabilities		(551,669	)		(146,447	)

Net Cash (Used in) Provided by Operating Activities		526,333			(2,653,627	)

Cash Flows From Investing Activites
Long-term Investment		-			68,400
Acquisition of property and equipment		(42,842	)		(182,622	)

Net Cash Used In Investing Activities		(42,842	)		(114,222	)

Cash Flow From Financial Activities
Proceeds from and (repayments) to bank loans, net		(1,548,209	)		2,676,650
Proceeds (repayment) of notes payable		(322,514	)		(3,761,358	)

Net Cash Provided by (Used) in Financing Activities		(1,870,723	)		(1,084,708	)
Effect of foreign currency translation gain (loss)		(1,123	)		142,693

Net Increase in Cash And Cash Equivalents		(1,388,354	)		(3,709,863	)
Cash and cash equivalents at the Beginning of the Years		1,816,510			5,526,373

Cash and cash equivalents at the End of the Years	$	428,155		$	1,816,510

Supplemental Disclosures of Cash Flow Information:

Cash Paid During The Years for:
Interest Paid		1,036,363			1,253,471
Income Taxes Paid		-			-
The accompanying notes are an integral part of these finanical statements

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS

China Stationery and Office Supply, Inc. (the “Company”) was incorporated in the state of Delaware in February 2002. The Company’s primary business, through its operating subsidiaries based in China, is to develop, manufacture and market office supplies including stationery, hole punchers, staplers, pens and pencils, rubber stamps, felt markers and numerous other items, which are sold through a worldwide network of distributors in China.

The Company’s business operations are carried on by its subsidiary, 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. NBSC is 90% owned by Binbin.

On January 8, 2006, a Delaware corporation named “China Stationery and Office Supply, Inc. (the “Intermediate Subsidiary”) acquired 90% of the registered capital of Binbin. At the date of the acquisition of Binbin, by the Intermediate Subsidiary, both Binbin and the Intermediate Subsidiary were under control. For that reason the transfer of 90% of the stock of Binbin to the Intermediate Subsidiary did not meet the definition of a business combination defined by ASC 805, “Business Combinations, as amended”. For transfers of assets under common control, the Company follows the provisions of Appendix D of ASC 805. In accordance with Appendix D of ASC 805, the receiving entity for transfers of net assets and exchanges of shares between entities under common control should report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interest has occurred at the beginning of the period.

On May 26, 2006, the Company completed a share exchange in which it acquired 100% of the outstanding common stock of the Intermediate Subsidary. The transaction was treated as a reverse merger. Accordingly, Intermediate Subsidary is treated as the continuing entity for accounting purposes and the historical financial information prior to the merger is that of the Intermediate 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 carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company's best estimate of the amounts that may not be collected. This estimate is based on reviews of all balances in excess payment terms, typically 90-120 days; however, the Company extends credit terms up to 12 month for certain customers. Based on this review which includes customer credit worthiness and history, general economic conditions and changes in customer payment patterns, the Company estimates the portion, if any, of the balance that will not be collected. Management reviews its valuation allowance on a monthly basis.

Inventories

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

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 ASC 360 “Accounting for the impairment of Disposal of Long-Lived Assets”, which became effective January 1, 2002. Under ASC 360, 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 under the provisions of ASC 740 “ Accounting for Income Taxes”, 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, ASC 740 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.

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 Accounting Standards Codification ASC 230, “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 May 2008, The FASB issued SFAS No, 162 “ The Hierarchy of Generally Accepted Accounting Principles,” The current GAAP hierarchy, as set forth in the American Institute of Certified Public Accountants ( AICPA) Statement on Auditing Standards No.69, The meaning of Present Fairly in Conformity With General Accepted Accounting Principles, has been criticized

in ASC 810 Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification TM (“Codification”) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date ASC 105 will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. ASC 105, “General Accepted Accounting Principles”, is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of ASC 105 is not expected to have a material impact on the Company’s results of operations or financial position.

In June 2009, the FASB issued ASC 810 improves financial reporting by enterprises involved with variable interest entities. ASC 810 addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities , as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166 and (2) concerns about the application of certain key provisions of FIN 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. ASC 810 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Adoption of ASC 810 is not expected to have a material impact on the Company’s results of operations or financial position.

In May 2009, the FASB issued ASC 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. An entity should apply the requirements ASC 855 to interim or annual financial periods ending after June 15, 2009. The adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial position or cash flows.

NOTE 3- ACCOUNTS RECEIVABLE

Accounts receivable are uncollateralized, non-interest bearing customer obligations typically due under terms requiring payment within 90-120 days from the invoice date. However, the Company does extend certain customers credit terms up to 12 months. Accounts receivable are stated at the amount billed to the customer. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the oldest unpaid invoices.

NOTE 4- INVENTORIES

A summary of the components of inventories at December 31, 2009 and 2008 are as follows:

	2009		2008
Raw Materials	$	558,815	$	867,710
Work in Process		2,106,764		1,985,532
Packaging Supplies		130,858		104,342
Finished Goods		1,299,931		1,462,192
TOTAL	$	4,096,368	$	4,419,776

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. The balances of advances to suppliers were $2,066,610 and $1,974,793 as of December 31, 2009 and 2008 respectively.

NOTE 6- OTHER RECEIVABLE

Other receivable, $663,546 and $751,450 for the years of 2009 and 2008, respectively, mainly consisted of the following items:

	2009		2008
Loan to employees	$	336,381	$	353,201
Exported tax refund		40,682		93,562
Refundable security deposit		117,120		117,201
Other miscellaneous		169,363		187,486
Total	$	663,546	$	751,450

NOTE 7- PREPAID EXPENSE

Prepaid expense consists of prepaid insurance and prepaid purchasing production equipment in the years of 2009 and 2008 for the amount of $44, 536 and $820,161, repectively.

NOTE 8- PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31, 2009 and 2008 are as follows:

	2009			2008
Building	$	6,457,495		$	6,438,908
Manufacturing Equipment		3,146,638			3,139,790
Office Furniture & Equipment		611,971			989,438
Vehicles		976,735			609,795
		-
Subtotal		11,191,839			11,177,932
Less: Accumulated Depreciation		(3,794,024	)		(3,273,805	)
Total Property & Equipment	$	7,397,815		$	7,904,126

Depreciation expense for year ended December 31, 2009 and 2008 was $533,108 and $556,797 respectively.

NOTE 9- 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.

A summary of intangible assets at December 31, 2009 and 2008 are as follows:

	2009		2008
Land Use Right		1,716,357		1,716,358

Less: Accumulated Amortization		(433,578)		(363,917)

Net Land Use Right		1,282,779		1,352,441

Amortization expense was $69,147 and $55,668 as of December 31, 2009 and 2008, respectively.

NOTE 10- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

	2009		2008
Accounts Payable	$	2,81,628	$	2,988,946
Accrued Payroll and Related Liabilities		397,818		369,163
Accrued VAT Payable		-41,375		40,286
Miscellaneous Accrued Expense.		693,022		367,379
TOTAL	$	3,765,773	$	3,765,774

Accounts payable and accrued expenses were comprised of the following items as of December 31, 2009 and 2008.

NOTE 11- 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 5.35% to 7.49% in 2009 and 7.47% to 8.591% in 2008. As of December 31, 2009 and 2008 the short term loan was $14,420,400 and $15,968,609, respectively.

NOTE 12- ADVANCES FROM CUSTOMERS

Advances from customers are non-interest bearing and unsecured. As of December 31, 2009 and 2008 the balances were $1,288,052 and $596,567 respectively.

NOTE 13- STOCKHOLDERS’ EQUITY

Upon the completion of the reverse merger on May 26, 2006, in addition to the 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 was convertible into 120 shares of common stock. All the outstanding shares of the Series A Preferred Stock were 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 became effective on July 18, 2006. All share and per share information included in these consolidated financial statements have been adjusted to reflect this reverse stock split.

NOTE 14- 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 December 31, 2009 and 2008:

Year ended December 31, 2009

	Stationery			Style			Total
Revenue	$	11,795,337		$	121,116		$	11,916,453
Operating Income (Loss)		(617,132	)		(679,584	)		(1,296,716	)
Total Assets		17,291,233			2,632,891			19,924,124
Capital Expenditure		34,635			8,207			42,842
Depreciation and Amortization		442,401			159,854			602,255
Interest Expense		(1,036,363	)		-			(1,036,363	)

Year ended December 31, 2008

	Stationery			Style			Total
Revenue	$	18,927,418		$	388,204		$	19,315,622
Operating Income (Loss)		(740,525	)		(628,926	)		(1,369,451	)
Total Assets		19,988,852			3,199,542			23,188,394
Capital Expenditure		182,622			-			182,622
Depreciation and Amortization		482,339			130,126			612,465
Interest Expense		1,289,405			(35,934	)		1,253,471

NOTE 15- 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 losses in both years ended December 31, 2009 and 2008. Therefore, Company was not required to allocate the “statutory surplus reserve”

NOTE 16- 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 years ended December 31, 2009 and 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 years ended December 31, 2009 and 2008.

NOTE 17- EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing income 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 December 31, 2009 and 2008.

NOTE NOTE 18- 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 December 31, 2009 and 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 no single vendor who accounted for more than 5% of the Company’s total raw material purchases during the year ended December 31, 2009.

The Company had three major customers who accounted for 9.3%, 6.7% and 5% of the total sales for the year ended December 31, 2009. Accounts receivable from these customers at December 31, 2009 were $56,306, $238,948 and $0, respectively. The Company had two major customers who accounted for 5.6% and 5.3% of the total sales for the year ended December 31, 2008. Accounts receivable from these customer at December 31, 2008 were $259,116 and $ 202,500, respectively.

The Company’s sales are heavily dependent on exports sales to USA and Asia for the year ended December 31, 2009.

NOTE 19- CONTINGENCIES

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 8A. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures.

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the Evaluation Date, such controls and procedures were effective.

(b) Changes in internal controls.

The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of December 31, 2009, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified two material weaknesses in our internal control over financial reporting. These material weaknesses consisted of:

Inadequate staffing and supervision within the accounting operations of our company. The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

Lack of expertise in U.S accounting principles among the personnel in our Chinese headquarters. Our books are maintained and our financial statements are prepared by the personnel employed at our executive offices in the City of Ninghai. Few of our employees have experience or familiarity with U.S accounting principles. The lack of personnel in our Ninghai office who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP.

Lack of independent control over policy implementation. Wei Chenghui is the sole director of China Stationery, as well as its Chief Executive Officer and Chief Financial Officer. As a result, Mr. Wei is responsible for both the development of financial policies and for their implementation. The absence of other directors to review the implementation of the Board’s policies and the performance by management is a weakness because it could lead to a failure to note and remedy improper financial accounting.

Management is currently reviewing its staffing and their training in order to remedy the weaknesses identified in this assessment. However, we have to weigh the cost of improvement against the benefit of strengthened controls, particularly in light of our current financial condition. However, because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of December 31, 2009.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

ITEM 8B. OTHER INFORMATION.

None.

PART III

ITEM 9.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following individuals are the members of China Stationery’s Board of Directors and its executive officers.

Name	Age	Position with the Company	Director Since
Wei Chenghui	48	Chairman, Chief Executive Officer, Chief Financial Officer	2006
Hu Jufen	46	Vice President	--
Wei Chengzhao	42	Vice President	--

Directors hold office until the annual meeting of the Company’s stockholders and the election and qualification of their successors. Officers hold office, subject to removal at any time by the Board, until the meeting of directors immediately following the annual meeting of stockholders and until their successors are appointed and qualified.

Wei Chenghui. Mr. Wei founded Ningbo Binbin in 1989, and has served as its President and Chief Executive Officer since then. Under Mr. Wei’s leadership, Ningbo Binbin has grown into a major participant in the Chinese office supply industry. In 2003 China’s Ministry of Commerce included Ningbo Binbin in its list of “Top 100 Private Companies in Export Sales.” Mr. Wei attended the Zhejiang Industrial University, with a concentration in business administration.

Hu Jufen. Ms. Hu has been employed by Binbin since 1989, when she helped to found the company. She currently serves as Vice President in charge of Operations. Ms. Hu attended Ninghai City Community College, from which she graduated with a degree in management. Ms. Hu is the wife of our Chairman, Wei Chenghui.

Wei Chengzhao. Mr. Wei has been employed by Binbin since 1989, when he helped to found the company. He currently serves as Vice President in charge of Production. Mr. Wei attended Ninghai City Community College with a concentration in business administration. Mr. Wei is the brother of our Chairman, Wei Chenghui.

Audit Committee; Compensation Committee; Nominating Committee

The Board of Directors has not yet appointed an Audit Committee or a Compensation Committee or a Nominating Committee, due to the small size of the Board. The Board of Directors does not have an “audit committee financial expert,” due to the small size of the Board.

Code of Ethics

The Company does not have a written code of ethics applicable to its executive officers. The Board of Directors has not adopted a written code of ethics because there are so few executive officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2009.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or paid by China Stationery and its subsidiaries to Wei Chenghui, its Chief Executive Officer. There were no executive officers whose total salary and bonus for the fiscal year ended December 31, 2009 exceeded $100,000.

	Year	Salary	Bonus	Stock Awards	Option Awards	Other Compensation
Wei Chenghui	2009	$16,807	--	--	--	--
	2008	$21,600	--	--	--	--
	2007	$20,000	--	--	--	--

Equity Awards

The following tables set forth certain information regarding the stock options acquired by the executive officer named in the table above during the year ended December 31, 2009 and those options held by her on December 31, 2009.

Option Grants in the Last Fiscal Year

	Number of securities underlying option granted	Percent of total options granted to employees in fiscal year	Exercise Price ($/share)	Expiration Date	Potential realizable value at assumed annual rates of appreciation for option term
					5% 10%
Wei Chenghui	--	--	--	--	- -

The following tables set forth certain information regarding the stock grants received by the executive officer named in the table above during the year ended December 31, 2009 and held by her unvested at December 31, 2009.

Unvested Stock Awards in the Last Fiscal Year

	Number of Shares That Have Not Vested	Market Value of Shares That Have Not Vested
Wei Chenghui	0	--

Remuneration of Directors

None of the members of the Board of Directors receives remuneration for service on the Board.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:

each shareholder known by us to own beneficially more than 5% of our common stock;

Wei Chenghui, our Chief Executive Officer

each of our directors; and

all directors and executive officers as a group.

Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percentage of Class
Wei Chenghui	6,794,919(1)	56.7%

All officers and directors (3 persons)	6,794,919	56.7%

Huaqin Zhou 136 Hospital Road, Suite 3 Jiangyang City, Sichuan Province, China	1,089,187	9.1%

_______________________________

Includes 2,697,981 shares owned by Hu Jufen, who is Mr. Wei’s spouse.

ITEM 12

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Relationships

None.

Director Independence

None of the members of the Board of Directors is independent, as “independent” is defined in the rules of the NASDAQ Stock Market.

ITEM 13 PRINCIPAL ACCOUNTANT FEES AND SERVICES

China Stationery & Office Supply, Inc. engaged the firm of P.C. Liu, CPA, P.C. to audit its 2007 financial statements on March 7, 2008. Prior to March 7, 2008 P.C. Liu, CPA, P.C. had not performed any services for the Company.

Audit Fees

P.C. Liu, CPA, P.C. billed $30,000 to the Company for professional services rendered for the audit of our fiscal 2009 financial statements. P.C. Liu, CPA, P.C. billed $45,000 to the Company for professional services rendered for the audit of our fiscal 2008 financial statements.

Audit-Related Fees

P.C. Liu, CPA, P.C. billed $0 to the Company during fiscal 2009 and fiscal 2008.

Tax Fees

P.C. Liu, CPA, P.C. billed $0 to the Company during fiscal 2009 and fiscal 2008

All Other Fees

P.C. Liu, CPA, P.C. billed $0 to the Company in fiscal 2009 and fiscal 2008

It is the policy of the Company’s Board of Directors that all services, other than audit, review or attest services, must be pre-approved by the Board of Directors, acting in lieu of an audit committee. All of the services described above were approved by the Board of Directors.

ITEM 14 EXHIBITS

3-a	Articles of Incorporation - filed as an exhibit to the Company's Registration Statement on Form SB-2 (File #333-82532), filed on February 11, 2002, and incorporated herein by reference

3-a(1)	Certificate of Amendment of Articles of Incorporation - filed as an exhibit to the Company's Current Report on Form 8-K, filed on July 20, 2006, and incorporated herein by reference

3-b	By-laws - filed as an exhibit to the Company's Registration Statement on Form SB-2 (File #333-82532), filed on February 11, 2002, and incorporated herein by reference.

31	Rule 13a -14(a) Certification

32	Rule 13a -14(b) Certification

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHINA STATIONERY AND OFFICE SUPPLY, INC.

By: /s/ Wei Chenghui

Wei Chenghui, Chief Executive Officer

In accordance with the Exchange Act, this Report has been signed below on April 15, 2009 by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Wei Chenghui

Wei Chenghui, Director,

Chief Executive Officer,

Chief Financial Officer,

Chief Accounting Officer