Global Arena Holding, Inc. - Quarter Report: 2009 September (Form 10-Q)

csof10q093009.htm

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

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

For the transition period from _____ to _____

Commission File No. 0-49819

China Stationery and Office Supply, Inc.

(Name of Registrant in its Charter)

DELAWARE		33-0931599
(State of Other Jurisdiction of incorporation or organization)		(I.R.S. Employer I.D. 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

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 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 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 Smaller reporting company X

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

The number of shares of Common Stock of the Registrant, par value $.0001 per share, outstanding at November 11, 2009 was 11,987,427.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	September 30		December 31
Assets	2009		2008
Current Assets:
Cash and Cash Equivalent	$	712,405	$	1,816,510
Accounts Receivable-net		2,443,232		4,139,081
Inventory		5,433,020		4,419,776
Advance to Suppliers		2,031,382		1,974,793
Other Receivable		717,218		751,450
Prepaid expense		591,201		820,161
Total Current Assets		11,928,459		13,921,770

Long-term Investment
Property, Plant & Equipment, net		7,515,132		7,904,126
Intangible Asset, net		1,335,541		1,352,441
Other Assets		9,770		10,056

Total Assets	$	20,788,902	$	23,188,394

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	3,441,735		$	3,765,774
Notes payable		307,650			629,954
Short-term Bank Loans		15,236,104			15,968,609
Advanced from Customers		573,972			596,567
Total Current Liabilities		19,559,462			20,960,904

Long-Term Liabilities:		-			-
Total Liabilities		19,835,972			20,960,904

Minority Interest in Consolidated Subsidiary		173,182			289,294

Stockholders' Equity:
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		(2,187,907	)		(1,268,730	)
Statutory Reserve		590,380			590,380
Accumulated Other Comprehensive Income		1,443,785			1,406,546
Total Stockholders' Equity		1,056,258			1,938,196

Total Liabilities and Stockholders' Equity	$	20,788,902		$	23,188,394
The accompanying notes are an integral part of financial statements

CHINA STATIONERY & OFFICE SUPPLY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009

	For Three Months Ended						For Nine Months Ended
	Sept. 30						Sept. 30
	2009			2008			2009			2008
Net Sales	$	2,750,002		$	4,983,388		$	8,017,188		$	13,943,144

Cost of Goods Sold		2,462,845			4,649,209			7,353,520			13,077,787

Gross Profit		287,157			334,179			663,668			865,358

Operating Expenses:
Selling,General and Administrative Expenses		330,854			424,270			1,042,710			1,331,244

Total Operating Expenses		330,854			424,270			1,042,710			1,331,244

Income (loss) from Operations		(43,697	)		(90,091	)		(379,042	)		(465,886	)

Other Income /(Expenses):
Interest Expense		(215,821	)		(216,069	)		(713,971	)		(818,012	)
Government Subsidy Income		1,756			24,157			56,202			38,858
Non-operation Income (Expense)		1,752			16,431			1,521			200,859
Total Other Income (Expenses)		(212,313	)		(175,481	)		(656,248	)		(578,295	)

Income (Loss) from Continuing Operations		(256,010	)		(265,572	)		(1,035,289	)		(1,044,181	)
Minority Interest		(28,764	)					(116,112	)
Provision For State Income Taxes		-			-			-			-

Net Income		(227,246	)		(265,572	)		(919,177	)		(1,044,181	)
Other Comprehensive Item:
Gain on Foreign Currency Translation		225			197,127			37,239			368,005

Net Comprehensive Income	$	(227,021	)	$	(68,444	)	$	(881,938	)	$	(676,176	)

Earnings per Common Share-basic and Diluted		(0.02	)		(0.01	)		(0.07	)		(0.06	)
Weighted Average Common shares-Basic and Diluted		11,987,427			11,987,427			11,987,427			11,987,427
The accompanying notes are an integral party of financial statements

CHINA STATIONERY & SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
	Nine Months ended Sept. 30,
Cash Flows From Operating Activities:	2009			2008

Net income (Loss)	$	(919,177	)	$	(1,044,181	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		(116,112	)		-
Depreciation and amortization		421,659			434,466
Loss on disposal of fixed assets					-
Changes in assets and liabilities:
Accounts receivable, net		1,695,850			(2,212,925	)
Inventories		(1,013,244	)		(368,055	)
Advances to vendors		(56,589	)		58,965
Employee travel advances		-			(56,966	)
Other receivables, net		34,231			1,651,397
Prepaid expenses		228,959			114,474
Accounts payable		(324,039	)		(1,412,467	)
Advances from customers		(22,595	)		(1,506,056	)
Accrued expenses, taxes and sundry current liabilities		12,913			(765,726	)
Total Adjustments		861,033			(4,062,924	)
Net Cash (Used in) Provided by Operating Activities		(58,144	)		(5,107,105	)

Cash Flows From Investing Activities
Long-term Investment
Acquisition of property and equipment		(28,393	)		(529,924	)
(Loans to) borrow from other company		-			68,400
Net Cash Used In Investing Activities		(28,393	)		(461,524	)


Cash Flows From Financing Activities
Proceeds from and (repayments) to bank loans, net		(732,505	)		4,605,512
Proceeds (repayment) of notes payable		(322,302	)		(3,668,612	)
Net Cash Provided by (Used) in Financing Activities		(1,054,807	)		936,900
Effect of foreign currency translation gain (loss)		37,239			368,005

Net Increase in Cash And Cash Equivalents		(1,104,105	)		(4,263,724	)
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	$	712,405		$	1,262,649

Supplemental Disclosures of Cash Flow Information:

Cash Paid During The Years for:
Interest Paid		713,971			818,012
Income Taxes Paid		-			-
The accompanying notes are an integral part of financial statements

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(UNAUDITED)

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 Subsidiary. The transaction was treated as a reverse merger. Accordingly, Intermediate Subsidiary 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

Unaudited Interim Financial Information

The consolidated interim financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

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 380 “Property, Plant and Equipment”, which became effective January 1, 2002. Under ASC 380, 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 Accounting Standards Codification 740 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 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 June 2009, the FASB issued ASC 105, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles ?C 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 of SFAS 168, the Codification 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 805 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of ASC 805 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, Amendments to FASB Interpretation No. 46(R) , which 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 ASC 860 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.

New accounting pronouncements

date but before financial statements are issued or are available to be issued. An entity should apply the requirements of ASC 855 to interim or annual financial periods ending after June 15, 2009. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial position.

In April 2009, the FASB issued ASC 270, “Interim Disclosures about Fair Value of Financial Instruments,” which requires quarterly disclosures of the fair value of all financial instruments that are not reflected at fair value in the financial statements, as well as additional disclosures about the method(s) and significant assumptions used to estimate the fair value. Prior to the issuance of this FSP, such disclosures, including quantitative and qualitative information about fair value estimates, were only required on an annual basis. ASC 270 is effective for interim reporting periods ending after June 15, 2009. The adoption of ASC 270 did not have a material effect on the Company’s disclosures.

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. As of September 30, 2009 and December 31, 2008, the balance of the net account receivable is $2,443,232 and $4,139,081, respectively.

NOTE 4- INVENTORIES

As of September 30, 2009 and December 31, 2008, inventories comprised as follows:

	30-Sep-09		31-Dec-08
Raw materials	$	1,143,759	$	867,710
Work in process		2,460,933		1,985,532
Finished goods		1,723,701		1,462,192
Packaging supplies		104,627		104,342

Total	$	5,433,020	$	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 is $2,031,382 and $1,974,793 as of September 30, 2009 and December 31, 2008, respectively.

NOTE 6- PROPERTY AND EQUIPMENT

A summary of property and equipment at September 30, 2009 and December 31, 2008 was comprised of the following items:

	30-Sep-09			31-Dec-08
Building	$	6,461,950		$	6,438,908
Manufacturing equipment		3,143,546			3,139,790
Office equipment and furniture		611,331			609,795
Vehicles		989,438			989,438
Total Fixed Assets		11,206,266			11,177,931
Less :Accumulated depreciation		(3,691,134	)		(3,273,805	)
Total Net Fixed Assets	$	7,515,132		$	7,904,126

Depreciation expense for nine months period ended September 30, 2009 was $404,415.

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.

A summary of intangible assets at September 30, 2009 and December 31, 2008 comprised of the following:

	30-Sep-09			31-Dec-08
Land Use Right	$	1,658,284		$	1,716,358

Less: Accumulated Amortization		(322,743	)		(363,917	)
Net Land Use Right	$	1,335,541		$	1,352,441

Amortization expenses for the nine months period ended September 30, 2009 was $17,244.

NOTE 8- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of September 30, 2009 and December 31, 2008. Accounts payable and accrued expenses were comprised of the following items:

	30-Sep-09			31-Dec-08
Accounts payable		2,612,150			2,988,946
Accrued payroll and related liabilities		363,439			369,163
Accrued VAT payable		(54,002	)		40,286
Miscellaneous accrued expense.		520,148			367,378
Total Amount	$	3,441,735		$	3,765,774

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 5.58% to 7.81% in 2009. The amount of the loan as of September 30, 2009 and December 31, 2008 is $15,236,104 and $15,968,609, respectively.

NOTE 10- ADVANCES FROM CUSTOMERS

Advances from customers are non-interest bearing and unsecured. As of September 30, 2009 and December 31, 2008 the balances were $573,972 and $596,567, respectively.

NOTE 11- 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 has been adjusted to reflect this reverse stock split.

NOTE 12- SEGMENT REPORTING

Under ASC 280, 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 September 30, 2009 and 2008:

Nine months period ended September 30, 2009

	Stationery			Style			Total
Revenue	$	7,968,513		$	0		$	7,968,513
Operating income (loss)		(239,261	)		(139,780	)		(379,042	)
Net Income (Loss)		(805,928	)		(113,249	)		(919,177	)
Total Assets		22,142,656			3,163,049			25,305,705
Capital Expenditure		28,393			-			28,393
Depreciation and amortization		336,444			85,215			421,659
Interest expense		713,979			(8	)		713,971

Nine months period ended September 30, 2008

	Stationery			Style			Total
Revenue	$	13,755,219		$	187,926		$	13,943,144
Operating income (loss)		(270,195	)		(195,691	)		(465,886	)
Net Income (Loss)		(882,279	)		(161,902	)		(1,044,181	)
Total Assets		21,594,453			3,584,338			25,178,791
Capital Expenditure		529,924			-			529,924
Depreciation and amortization		319,200			85,215			404,415
Interest expense		853,386			(35,374	)		818,012

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;

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; andAllocations to the discretionary surplus reserve should be approved in the shareholders’ general meeting.

The Company incurred a loss in the nine months period ended September 30, 2009 and 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 recognized 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 nine months periods ended September 30, 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 nine months periods ended September 30, 2009 and 2008.

NOTE 15- 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 September 30, 2009 and 2008.

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 September 30, 2009, 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 were no vendors who accounted for more than 5% of the Company’s total raw material purchases during the nine months period ended September 30, 2009.

The Company had five major customers who accounted for more than 5% of the total sales for the nine months period ended September 30, 2009. Accounts receivable from these customers was $468,249. That amount represented 19% of the total account receivable as of September 30, 2009.

The Company’s sales are heavily dependent on exports sales to North America and Asia for the nine months period ended September 30, 2009.

NOTE 17- CONTINGENCIES

As of September 30, 2009, Ninbo Binbin Stationery Co., Ltd (“Binbin”) is contingently liable as a guarantor with respect to approximately $1,098,758 of indebtedness of non-related entities. The term of the guarantees is through August 31, 2009. 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 $1,098,758 as of September 30, 2009.

Item 2.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain information relating to the Company that is based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

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- For the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008

Revenues

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 during the 2009 fiscal year so far. The reduced competitive position of our products caused us to realize only $8,017,188 in net sales during the nine months ended September 30, 2009, a reduction of $5,925,956 or 43% reduction from the level of sales that we realized for the same period of a year earlier. And even on those reduced sales, we realized $663,668 in gross profit for the nine months ended September 30, 2009, compared to $865,358 for the same period of 2008.

Cost of Goods Sold

Cost of goods sold, which consists of labor, overhead and product cost, was $7,353,520 for the nine months ended September 30, 2009, representing an decrease of $5,724,267 or 44% as compared to $13,077,787 for the nine months ended September 30, 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.

Gross Profit

We had a gross profit of $663,668 and a gross margin of 8% for the nine months ended September 30, 2009, as compared to gross profit of $865,358 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 $5,925,956 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.

Selling, General and Administrative Expenses

The dramatic decline in our sales revenue did have the effect of reducing our selling, general and administrative expenses for the nine months ended September 30, 2009 by 22%, as compared to that of the same period of 2008. Our overall SG&A expenses for the nine months ended September 30, 2009 were $1,042,710, representing a decline of $288,534 for the same period of last year. The primary reason for the reduction is the fact that the ratio of our sales expenses to our net sales remained relatively static.

Net Income

Although the current worldwide recession has alleviated some of the stress on our margins, the decline over the past several years has been so severe that we do not expect it to be reversed in the near future. 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.For all the above reasons, we incurred a net loss of $919,177 for the nine months ended September 30, 2009, an decrease of $125,004 or 12% from the net loss of $1,044,181 for the same period of 2008,

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. During the nine months ended September 30, 2009 the gain on foreign currency translations added $37,239 to our net comprehensive income.

Results of Operations- For the three months ended September 30, 2009 compared to the three months ended September 30, 2008

Revenues

During the three months ended September 30, 2009, we generated net sales of $2,750,002, as compared to net sales of $4,983,388 during the three months ended September 30, 2008, representing a decrease of $2,233,386 or 45%. For the reason described above, the impact of the falling value of the Dollar is the primary explanation for our poor results in the quarter ended September 30, 2009.

Cost of Goods Sold

Cost of goods sold, which consists of labor, overhead and product cost, was $2,462,845 for the quarter ended September 30, 2009, representing a decrease of $2,186,364 or 47% as compared to that for the quarter ended September 30, 2008. This decrease in cost of goods sold was primarily in proportion with the change in our sales volume.

Gross Profit

Given the fact that our third quarter sales fell about $2.2 million as compared to the same period of the year earlier, our gross margin, 10% for the third quarter of the 2009 fiscal year was slightly higher than the gross margin of 6% for the same period of a year earlier, reflecting the falling price of raw material during the third quarter of 2009. However, the prices of several of our key raw materials have been volatile over the past year. in particular, the world markets for non-ferrous metals, such as zinc, copper and nickel, have become substantially inflated. This has affected the manufacturing cost of many of our products.

Selling, General and Administrative Expenses

The dramatic decline in our sales revenue did have the effect of reducing our selling, general and administrative expenses by 22%, from $424,270 for the three months ended September 30, 2008 to $330,854 for the three months ended September 30, 2009. The primary reason for the reduction is the fact that the ratio of our sales expenses to our net sales remained relatively static.

Net Income

For all the above reasons, we incurred a net loss of $227,246 for the three months ended September 30, 2009, a decrease by $38,326 or 14% from the net loss of $265,572 for the third quarter of the 2008 fiscal year.

Liquidity and Capital Resources

As of September 30, 2009 we had a working capital deficit of $7,631,003. The primary reason for the increase in our deficit is the decline in our cash and cash equivalent account and accounts receviable. During the nine months ended September 30, 2009, our cash was reduced by $1,104,105 from $1,816,510 as of December 31, 2008. The primary reson for the reduction was our net loss. In addition, reducing the short term bank loans by $732,505 contributed to the reduction in our cash level as of September 30, 2009.

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 $2,031,382 representing funds that we deposit with our suppliers in order to assure ourselves of on-time supplies of raw materials.

The second financing arrangement related to our business operations involves a series of guarantees, some mutual, some in exchange for business advantages. The Company renews its guarantees every year. As of September 30, the term was renewed and extended to August 31, 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 $1,098,758 as of September 30, 2009.

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.

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.

PART II

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

There has been no material change in the Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2008 until Item 1A “Risk Factors” in Part I of that Report.

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

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: November 13, 2009

/s/ Wei Chenghui

Wei Chenghui

Chief Executive Officer and Chief Financial Officer