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

cyip10q033109.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 March 31, 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 Huaren Organic Products, 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

American Union Securities, Inc.

Attention: China Stationery & Office Supply

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

Agent Contact Information

Agents Telephone number: 212-232-0120

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

Indicate by check mark whether the registrant 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 May 19, 2009 was 11,987,427.

TABLE OF CONTENTS	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008	3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 (Unaudited)	4

Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (Unaudited)	5

Notes to Condensed Consolidated Financial Statements	6-16

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation	17

Item 3. Quantitative and Qualitative Disclosures About Market Risks	20

Item 4. Controls and Procedures	20

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3. Defaults Upon Senior Securities	20

Item 4. Submission of Matters to a Vote of Security Holders	20

Item 5. Other Information	20

Item 6. Exhibits	20

Signatures 21

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA STATIONERY & OFFICE SUPPLY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	March 31		December 31
Assets	2009		2008
Current Assets:
Cash and Cash Equivalent	$	1,363,310	$	1,816,510
Accounts Receivable-net		2,573,144		4,139,081
Inventory		5,016,123		4,419,776
Advance to Suppliers		2,075,654		1,974,793
Other Receivable		780,089		751,450
Prepaid expense		736,590		820,161
Total Current Assets		12,544,911		13,921,770

Long-term Investment
Property, Plant & Equipment, net		7,764,501		7,904,126
Intangible Asset, net		1,344,868		1,352,441
Other Assets		1,166		10,056

Total Assets	$	21,655,445	$	23,188,394

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		3,175,993		$	3,765,774
Notes payable		526,644			629,954
Short-term Bank Loans		15,214,160			15,968,609
Advanced from Customers		996,843			596,567
Total Current Liabilities		19,913,640			20,960,904

Long-Term Liabilities:		-			-
Total Liabilities		19,913,640			20,960,904

Minority Interest in Consolidated Subsidiary		230,561			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		(1,731,080	)		(1,268,730	)
Statutory Reserve		590,380			590,380
Accumulated Other Comprehensive Income		1,441,944			1,406,546
Total Stockholders' Equity		1,511,244			1,938,196

Total Liabilities and Stockholders' Equity	$	21,655,445		$	23,188,394
The accompanying notes are an integral part of financial statements

CHINA STATIONERY & OFFICE SUPPLY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
			2009	2008
			(Unaudited)	(As Restated)
Net Sales			$ 1,874,293	$ 3,190,241
Cost of Goods Sold			1,791,636	3,024,964
Gross Profit			82,657	165,276

Operating Expenses:
	Sales Expenses		89,406	156,714
	General and Administrative Expenses		250,186	327,999
		Total Operating Expenses	339,592	484,713

Income from Operations			(256,935)	(319,437)

Other( Income) /Expenses:
	Interest Expense		(276,420)	(265,134)
	Government Subsidy Income		10,058
	Non-operation (Income)Expense		2,213	(2,310)
		Total Other (Income)/Expenses	(264,148)	(267,444)

Income (Loss) from Continuing Operations			(521,083)	(586,881)
Minority Interest			(58,733)	33,514
Provision For State Income Taxes				-

Net Loss			(462,350)	(553,367)
Other Comprehensive Item:
Unrealized Gain on Foreign Currency Translation			35,398	142,973

Net Comprehensive Income			$ (426,952)	$ (410,394)

Earnings per Common Share-basic and Diluted			(0.04)	(0.05)
Weighted Average Common shares-Basic and Diluted			11,987,427	11,987,427

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

Net income (Loss)	$	(462,350	)	$	(503,554	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		(58,733	)		33,514
Depreciation and amortization		129,573			142,448
Loss on disposal of fixed assets					-
Changes in assets and liabilities:
Accounts receivable, net		1,565,938			(663,792	)
Inventories		(596,347	)		(657,395	)
Advances to vendors		(100,861	)		13,963
Employee travel advances					27,257
Other receivables, net		(28,639	)		(3,947,834	)
Prepaid expenses		83,571			9,236
Accounts payable		(589,781	)		(1,133,040	)
Advances from customers		400,276			(2,623,072	)
Accrued expenses, taxes and sundry current liabilities		47,855			1,368,454
Net Cash (Used in) Provided by Operating Activities		390,500			(7,933,815	)

Cash Flows From Investing Activities
Acquisition of property and equipment		(21,339	)		(93,070	)

Net Cash Used In Investing Activities		(21,339	)		(93,070	)


Cash Flows From Financing Activities
Proceeds from and (repayments) to bank loans, net		(754,449	)		4,360,512
Proceeds (repayment) of notes payable		(103,310	)		-
Net Cash Provided by (Used) in Financing Activities		(857,759	)		4,360,512
Effect of foreign currency translation gain (loss)		35,398			24,079

Net Increase in Cash And Cash Equivalents		(453,200	)		(3,642,293	)
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	$	1,363,310		$	1,884,079

Supplemental Disclosures of Cash Flow Information:

Cash Paid During The Years for:
Interest Paid		276,420			265,134
Income Taxes Paid		-			-

CHINA STATIONERY AND OFFICE SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009 AND 2008

(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 SFAS 141, “Business Combinations, as amended”. For transfers of assets under common control, the Company follows the provisions of Appendix D of SFAS No. 141. In accordance with Appendix D of SFAS 141, 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

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

Intangible assets

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

Revenue recognition

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

Reportable segments

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

Accounting for income taxes

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

Foreign currency translation

The functional currency of China Stationery and Office Supply, Inc and Subsidiaries is the Chinese Renminbi (“RMB”). For financial reporting purposes, RMB has been translated into United States Dollars (“USD”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing for the period. Capital accounts are translated at their historical exchange rates when the capital translation occurred. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in accumulated other comprehensive income.

Statement of cash flows

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

New accounting pronouncements

In 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 Generally Accepted Accounting Principles, has been criticized because (1) it is directed to the auditor rather than the entity, (2) it is complex, and (3) it ranks FASB Statements of Financial Accounting Concepts. The FASB believes that the GAAP hierarchy should be directed to entities

New accounting pronouncements

because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, the FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and is issuing this Statement to achieve that result. This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.

In December 2007, the Financial Accounting Standards Board (“FASB”) simultaneously issued SFAS No. 141R, “Business Combinations (2007 Amendment),” and SFAS 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51.” Both standards update United States guidance on accounting for “non-controlling interests,” sometimes referred to as minority interests, which interests represent a portion of a subsidiary not attributable, directly or indirectly, to a parent. FASB and the International Accounting Standards Board (“IASB”) have been working together to promote international convergence of accounting standards. Prior to promulgation of these new standards there were specific areas in accounting for business acquisitions in which conversion was not achieved. The objective of both standards is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in “business combinations” and consolidated financial statements by establishing accounting and reporting standards. In business combinations it is accomplished by establishing principles and requirements concerning how an “acquirer” recognizes and measures identifiable assets acquired, liabilities assumed, and non-controlling interest in the acquiree, as well as goodwill acquired in the combination or gain from a bargain purchase; and determines information to be disclosed to enable users to evaluate the nature and effects of business combinations. In consolidated financial statements the standards require: identification of ownership interests held in subsidiaries by parties other than the parent be clearly identified, labeled and presented in consolidated financial position within equity (rather than “mezzanine” between liabilities and equity) separately from amounts attributed to the parent, with net income attributable to the parent and to the minority interest clearly identified and presented on the face of consolidated statements of income. The standards also provide guidance in situations where the parent’s ownership interest in a subsidiary changes while the parent retains its controlling financial interest. The standard also provides guidance on recording a gain or loss based on fair value in situations involving deconsolidation of a subsidiary. Entities must provide sufficient disclosures that distinguish between interests of the parent and that of the non-controlling interest.

Both standards are effective for fiscal years and interims beginning on or after December 15, 2008 (that is January 1, 2009) for entities with calendar years. Earlier adoption is prohibited. The standards shall be applied prospectively as of the beginning of the fiscal year in which initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. The Company does not anticipate that the adoption of SFAS No. 141R and No. 160 will have an impact on the Company's overall results of operations or financial position, unless the Company makes a business acquisition in which there is a non-controlling interest.

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 March 31, 2009 and 2008 are as follows:

	2009		2008
Raw Materials	$	1,120,555	$	1,221,782
Work in Process		2,065,553		1,125,944
Packaging Supplies		95,923		151,882
Finished Goods		1,734,092		3,168,538
TOTAL	$	5,016,123	$	5,668,146

NOTE 5- ADVANCES TO SUPPLIES

As a normal practice of doing business in China, the Company is frequently required to make advance payments to suppliers for raw materials. Such advance payments are interest free. The balances of advances to suppliers were $2,075,654 and $4,991,294 as of March 31, 2009 and 2008 respectively.

NOTE 6- PROPERTY AND EQUIPMENT

A summary of property and equipment at March 31, 2009 and 2008 is as follows:

	2009		2008
Building	$	6,429,635	$	6,203,810
Manufacturing equipment		3,137,518		3,027,522
Office equipment and furniture		988,013		586,915
Vehicles		610,450		963,092
Construction in Progress		17,555		89,832
Subtotal		11,183,172		10,871,171

Less: Accumulated depreciation		-3,418,671		-2,783,830

Total	$	7,764,501	$	8,087,341

Depreciation expense for three months period ended March 31, 2009 was $123,005.

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 March 31, 2009 and 2008 are as follows:

	2009		2008
Land Use Right	$	1,662,339	$	1,589,108

Less: Accumulated Amortization		-317,471		-240,897

Net Land Use Right	$	1,344,868	$	1,348,211

Amortization expenses for the three months period ended March 31, 2009 and 2008 were $6,568 and $6,290 respectively.

NOTE 8- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

	2009			2008
Accounts payable	$	2,453,336		$	3,263,486
Accrued payroll and related liabilities		369,077			419,465
Accrued VAT payable		(1,824	)		2,208
Miscellaneous accrued expense		355,403			261,088
	$	3,175,993		$	3,946,247

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 March 31, 2009 and 2008 is $15,214,160 and $16,39,9000, respectively.

NOTE 10- ADVANCES FROM CUSTOMERS

Advances from customers are non-interest bearing and unsecured. As of March 31, 2009 and 2008 the balances were $996,843 and $ 3,775,748 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 have been adjusted to reflect this reverse stock split.

NOTE 12- SEGMENT REPORTING

Under SFAS 131, the Company has two reportable segments: Ningbo Binbin Stationery Co., Ltd (“Stationery”) and Ningbo Binbin Style Commodity Co., Ltd (“Style”). Following is a summary of segment information for the year ended March 31, 2009 and 2008:

Three months period ended March 31, 2009

	Stationery			Style			Total
Revenue		1,874,293			0			1,874,293
Operating income (loss)		(183,386	)		(73,548	)		(256,935	)
Net Income (Loss)		(447,479	)		(73,604	)		(521,083	)
Total Assets		22,912,583			3,191,718			26,104,301
Capital Expenditure		21,339			0			21,339
Depreciation and amortization		101,183			28,390			129,573
Interest expense		276,420			0			276,420

Three months period ended March 31, 2008

	Stationery			Style			Total
Revenue		3,012,103			178,137			3,190,241
Operating income (loss)		(242,084	)		(77,353	)		(319,437	)
Net Income (Loss)		(543,028	)		(43,853	)		(586,881	)
Total Assets		30,567,272			3,551,924			34,119,196
Capital Expenditure		93,070			0			93,070
Depreciation and amortization		113,568			28,880			142,448
Interest expense		265,134			0			265,134

NOTE 13- STATUTORY COMMON WELFARE FUND

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

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

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

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

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

The Company incurred a loss in the three months period ended March 31, 2009. Therefore, Company was not required to allocate the “statutory surplus reserve”

NOTE 14- INCOME TAXES

Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognizes for the unexpected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect in the China for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets and liabilities, respectively, will be realized. Therefore, there are no deferred tax assets or liabilities for the year ended March 31, 2009.

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 three months period ended March 31, 2009.

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 March 31, 2009.

NOTE 16- CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

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

The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results

may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. As of March 31, 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 two vendors who accounted for more than 5% of the Company’s total raw material purchases during the three months period ended March 31, 2009.

The Company had five major customers who accounted for 39% of the total sales for the three months period ended March 31, 2009. Accounts receivable from these customers was $ 394,173 that amount represented 15% of the total account receivable as of March 31, 2009.

The Company’s sales are heavily dependent on exports sales to South America, America and Asia for the three months period ended March 31, 2009.

NOTE 17- CONTINGENCIES

As of March 31, 2009, Ninbo Binbin Stationery Co., Ltd (“Binbin”) is contingently liable as a guarantor with respect to approximately $ 1,696,964 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 $1,696,964 as of March 31, 2009.

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

Proviso Regarding Forward-Looking Statements

This “Management’s Discussion and Analysis” includes certain forward-looking statements. These forward-looking statements represent management’s present expectations regarding the future. There are many risks and uncertainties that, if realized, could cause management’s expectations to be an inaccurate prediction of the future. Some of those risks are described in our Annual Report on Form 10-K for the year ended December 31, 2008 under the heading “Item 1A. Risk Factors.”

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

Overview

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

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

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

Results of Operations

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

This double impact of the falling value of the Dollar is the primary explanation for our poor results in the first three months of 2009. The reduced competitive position of our products caused us to realize only $1,874,293 in net sales revenue, a 41% reduction from the level of sales that we realized in the first three months of 2008. And even on those reduced sales, we realized only $82,657 in gross profit for the first quarter of 2009, compared to $165,276 for the first quarter of 2008. That level of gross profit was far less than we required in order to cover our operating expenses.

As noted, our gross margin on the sales fell slightly from 5.2% in the first three months of 2009 to 4.4% in the first three months of 2009. Our gross margin in the first quarter of 2008 was already low, reflecting the effect of the falling value of the Dollar over the past several years. While the Dollar has improved in recent months, the continuing decrease in gross margin in the first quarter of 2009 reflected the fact that the prices of several of our key raw materials have been increasing. In particular, the world markets for non-ferrous metals, such as zinc, copper and nickel, have become substantially inflated. This has increased the manufacturing cost of many of our products.

Although the current worldwide recession has alleviated some of the stress on our margins – the Dollar is gaining value and commodities prices are falling – 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.

The dramatic decline in our sales revenue did have the effect of reducing our selling, general and administrative expenses for the three month period by 30%, from $484,713 in the three months ended March 31, 2008 to $339,592 in the three months ended March 31, 2009. The primary reason for the reduction is the fact that the ratio of our sales expenses to our net sales remained relatively static reflecting our efforts to increase the efficiency of our marketing operations.

Over the past twelve months, we reduced slightly our bank loans from $16,399,000 at March 31, 2008 to $15,214,160 at March 31, 2009. At the same time, our effective interest rate fell slightly, so that our interest expense for the first quarter of 2009 was $276,420, compared to $265,134 for the first quarter of 2008. We expect that our borrowing and the related interest expense will remain high until our revenues return to prior levels and provide us positive cash flow from operations.

For all the above reasons, we incurred a net loss of $462,350 for the three months ended March 31, 2009, a decrease by $91,017 or 16.4% from the net loss of $553,367 for the first three months 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 “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During in the first three months of 2009 the unrealized gain on foreign currency translations added $35,398 to our accumulated other comprehensive income.

Liquidity and Capital Resources

On March 31, 2009 we had a working capital deficit of $7,368,729, having added $329,525 to our deficit since December 31, 2008. One of the reasons for the increase in our deficit is the reduction of our accounts receivable by 37.8% to $2,573,144, as a result of the decline of our sales, compared to $4,139,081 as of December 31, 2008. At the same time, advances from our customers increased during the first quarter of 2009 by $400,276, or 67%, to $996,843 compared to $596,567 as of December 31, 2008. This indicates a more positive beginning to the second quarter of 2009 than we had on entering the first quarter.

The primary reason for the magnitude of our working capital deficit is the customary Chinese banking practice of funding business clients through short-term debt. Because of that policy, our entire bank debt ($15.2 million at March 31, 2009) is categorized as a short-term liability. Our expectation is that we will be permitted by the bank to roll over as much of the debt as we require. So this arrangement provides us with considerable flexibility in molding our debt structure to our immediate need.

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 $2,075,654 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. At March 31, 2009 Binbin was the guarantor of a total of $1,696,964 in bank debt owed by other entities. We made these guarantees for the same reason as supported our loans to suppliers. The debts we are guaranteeing are one-year loans without amortization, and our guarantees apply to principal payments only. China’s banks encourage this kind of cross-guarantee arrangement as a means of expanding the lending base of its customers. The situation does, however, increase the risk to our assets, as we face the possibility of being called upon to satisfy the debts we have guaranteed. We believe, however, that the debts we have guaranteed are likely to be paid, and that the arrangements provide us more benefit than risk.

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

Off-Balance Sheet Arrangements

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

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: May 20, 2009.

By: /s/ Wei Chenghui

Wei Chenghui

Chief Executive Officer and Chief Financial Officer