Global Arena Holding, Inc. - Quarter Report: 2010 September (Form 10-Q)

csof10q11172010.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, 2010

[ ]	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, 2010 was 11,987,427.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA STATIONERY & OFFICE SUPPLY, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 2010, AND 2009
	(Unaudited)		(Audited)
	September 30		December 31
ASSETS	2010		2009

Current Assets:
Cash and cash equivalent	$	1,858,669	$	428,155
Accounts receivable-net		2,920,210		3,290,359
Inventory		4,466,981		4,096,368
Advance to suppliers		3,335,066		2,066,610
Other receivable		172,543		663,546
Prepaid expense		58,175		44,536
Total Current Assets		12,811,644		10,589,574

Long-term investment
Property, plant & equipment, net		7,651,720		7,397,815
Intangible asset, net		1,294,426		1,282,779
Other assets		478,951		653,957

Total Assets	$	22,236,741	$	19,924,124

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	2,092,488		$	3,081,508
Accrued and other payable		1,154,235			829,585
Notes payable		1,726,303			307,440
Short-term bank loans		16,916,100			14,420,400
Advanced from customers		910,255			1,288,052
Total Current Liabilities		22,799,382			19,926,985

Long-Term Liabilities:		-			-
Total Liabilities		22,799,382			19,926,985

Minority interest in consolidated subsidiary		(60,405	)		5,180

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		(3,737,802	)		(3,213,843	)
Statutory reserve		590,380			590,380
Accumulated other comprehensive income		1,435,186			1,405,423
Total Stockholders' Equity		(502,236	)		(8,040	)

Total Liabilities and Stockholders' Equity	$	22,236,741		$	19,924,124

The accompanying notes are an integral part of these finanical statements

CHINA STATIONERY & OFFICE SUPPLY, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 2010, AND 2009

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2010			2009			2010			2009

Net Sales		$	2,585,483		$	2,750,002		$	8,843,882		$	8,017,188
Cost of Goods Sold			2,268,491			2,462,845			7,912,630			7,353,520
Gross Profit			316,992			287,157			931,252			663,668

Operating Expenses:
	Sales Expenses		70,503			80,828			288,267			356,086
	General and Administrative Expenses		234,071			250,026			677,812			686,625
	Total Operating Expenses		304,574			330,854			966,079			1,042,710

Income from operations			12,418			(43,697	)		(34,827	)		(379,042	)

Other( income) /expenses:
	Interest expense		(229,227	)		(215,821	)		(533,642	)		(713,971	)
	Government subsidy income		7,368			1,756			10,178			56,202
	Non-operation (income)expense		(1,479	)		1,752			(31,253	)		1,521
	Total other (income)/expenses		(223,338	)		(212,313	)		(554,717	)		(656,248	)

Income (loss) from continuing operations			(210,920	)		(256,010	)		(589,544	)		(1,035,289	)
Minority interest			(23,351	)		(28,764	)		(65,585	)		(116,112	)
Net loss			(187,569	)		(227,246	)		(523,959	)		(919,177	)
Other comprehensive item:
Unrealized gain on foreign currency translation			(21,663	)		225			29,763			37,239

Net comprehensive income		$	(209,232	)	$	(227,021	)	$	(494,196	)	$	(881,938	)

Earnings per common share-basic and diluted			(0.02	)		(0.02	)		(0.04	)		(0.07	)
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 part of these finanical statements

CHINA STATIONERY & OFFICE SUPPLY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 2010, AND 2009

	Nine Months Ended			Nine Months Ended
Cash Flows From Operating Activities:	Sept. 30,2010			Sept. 30,2009

Net income (loss)	$	(523,959	)	$	(919,177	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		(65,585	)		(116,112	)
Depreciation and amortization		607,368			421,659
Loss on disposal of fixed assets
Changes in assets and liabilities:
Accounts receivable, net		370,149			1,695,850
Inventories		(370,613	)		(1,013,244	)
Advances to vendors		(1,268,456	)		(56,589	)
Other receivables, net		491,003			34,231
Prepaid expenses		(13,639	)		228,959
Accounts payable		(989,019	)		(324,039	)
Advances from customers		(377,796	)		(22,595	)
Accrued expenses, taxes and sundry current liabilities		(131,078	)		12,913
Net Cash (Used in) Provided by Operating Activities		(2,271,626	)		(58,144	)

Cash Flows From Investing Activites
Long-term Investment
Acquisition of property and equipment		(566,836	)		(28,393	)

Net Cash Used In Investing Activities		(566,836	)		(28,393	)

Cash Flows From Financng Activites
Proceeds from and (repayments) to bank loans, net		2,495,700		(732,505	)
Proceeds (repayment) of notes payable		1,418,863		(322,302	)
Net Cash Provided by (Used) in Financing Activities		3,914,563		(1,054,807	)
Effect of foreign currency translation gain (loss)		29,763		37,239

Net Increase in Cash And Cash Equivalents		1,105,864		(1,104,105	)

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

Cash and cash equivalents at the End of the Years	$	1,858,669	$	712,405

Supplemental Disclosures of Cash Flow Information:

Cash Paid During The Years for:
Interest Paid	$	533,642	$	713,971
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

SEPTEMBER 30, 2010

(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 common 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

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

Cash and cash equivalents at September 30, 2010 consist of cash on hand and demand deposit account with banks. 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 as the reporting currency. Assets and liabilities are translated at the period-end exchange rate $0.14970 in effect at the balance sheet date. Income statement accounts are translated into United States dollars at weighted average exchange rate for the periods exchange rate $0.14837. Capital accounts are translated into United States dollars 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 is 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 is 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, 2010 and December 31, 2009, the net balance of the accounts receivable is $2,920,210 and $3,290,359, respectively.

NOTE 4- INVENTORIES

A summary of the components of inventories at September 30, 2010 and December 31, 2009 is as follows:

	30-Sep-10		31-Dec-09
Raw materials	$	988,091	$	558,815
Work in process		2,111,669		2,106,764
Finished goods		1,317,564		1,299,931
Packaging supplies		49,656		130,858
Total	$	4,466,981	$	4,096,368

NOTE 5- ADVANCES TO SUPPLIERS

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 $3,335,066 and $2,066,610 as of September 30, 2010 and December 31, 2009 respectively.

NOTE 6- OTHER RECEIVABLE

Other receivable, $172,543 and $663,546 as of September 30, 2010 and December 31, 2009, respectively, consisted of the following items:

	September 30,	December 31,
	2010	2009
Loan to employees	$17,153	$336,381
Exported tax refund	136,827	40,682
Refundable security deposit	150	117,120
Other miscellaneous	18,413	169,362
	$172,543	$663,545

NOTE 7- PREPAID EXPENSE

Prepaid expense consists of prepaid insurance and prepaid purchasing production equipment as of September 30, 2010 and December 31, 2009 for the amount of $58, 175 and $44,536, respectively.

NOTE 8- PROPERTY AND EQUIPMENT

A summary of property and equipment at September 30, 2010 and December 31, 2009 is as follows:

	September 30, 2010			December 31, 2009
Building	$	6,657,547		$	6,457,495
Manufacturing equipment		3,434,550			3,146,638
Office equipment and furniture		625,765			611,971
Vehicles		917,499			975,735
Total Fixed Assets		11,635,362			11,191,839
Less: Accumulated Depreciation		(3,983,642	)		(3,794,024	)
Total Fixed Assets-net	$	7,651,720		$	7,397,815

Depreciation expense for nine and three months period ended September 30, 2010 was $581,358 and $193,786, 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 September 30, 2010 and December 31, 2009 is as follows:

	September 30,			June 30, 2010
	2010
Intangible	$	1,734,056		$	1,695,830
Less: Accumulated		(439,630	)		(413,051	)
Net, intangible	$	1,294,426		$	1,282,779

Amortization expense for the nine and three months period ended September 30, 2010 was $26,010 and $8,670, respectively.

NOTE 10- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses were comprised of the following items as of September 30, 2010 and December 31, 2009.

	September 30, 2010			December 31, 2009
Accounts payable	$	2,092,488		$	2,861,628
Accrued payroll and related liabilities		422,674			397,818
Accrued VAT payable		(26,034	)		(41,375	)
Miscellaneous accrued expense		757,596			693,022
	$	3,246,723		$	3,911,093

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 5.31% to 7.49% in 2010 and 2009. As of September 30, 2010 and December 31, 2009 the balance of short term loan was $16,916,100 and $14,420,400, respectively.

NOTE 12- ADVANCES FROM CUSTOMERS

Advances from customers are non-interest bearing and unsecured. As of September 30, 2010 and December 31, 2009 the balances were $ 910,255 and $1,288,052, respectively.

NOTE 13- 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 three months ended September 30, 2010 and 2009:

Nine months ended September 30, 2010

	Stationery			Style			Total
Revenue		8,752,278			91,604			8,843,882
Operating income (loss)		37,284			(72,111	)		(34,827	)
Net Income (Loss)		(457,758	)		(66,201	)		(523,959	)
Total Assets		25,558,455			2,618,142			28,176,597
Capital Expenditure		566,836			0			566,836
Depreciation and amortization		519,810			87,558			607,368
Interest expense		(533,642	)		0			(533,642	)

Nine months 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			0			28,393
Depreciation and amortization		336,444			85,215			421,659
Interest expense		713,979			(8	)		713,971

NOTE 14- 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 the six months ended September 30, 2010 and year ended December 31, 2009. Therefore, Company was not required to allocate the “statutory surplus reserve”

NOTE 15- 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 six months ended September 30, 2010 and year ended December 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 six months ended September 30, 2010 and for the year ended December 31, 2009.

NOTE 16- EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are 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, 2010 and 2009.

NOTE 17- 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 June 30, 2010 and December 31, 2009, substantially all of the Company’s cash and cash equivalents were held by major banks located in the PRC 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 vendors who accounted for more than 5% of the Company’s total raw material purchases during the nine months period ended September 30, 2010.

The Company had four major customers who accounted for more than 5% of the total sales for the nine months period ended September 30, 2010. Accounts receivable from these customers at September 30, 2010 and 2009 were $742,859 and $183,590, respectively.

The Company’s sales are heavily dependent on exports sales to USA and Asia for the nine months period ended September 30, 2010.

NOTE 18- CONTINGENCIES

As of September 30, 2010, Ninbo Binbin Stationery Co., Ltd (“Binbin”) is contingently liable as a guarantor with respect to approximately $ 1,347,300 of indebtedness of non-related entities. The term of the guarantees is through August 29, 2011. 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 $1,347,300 as of September 30, 2010.

NOTE 19 – SUBSEQUENT EVENTS

On October 13, 2010, the controlling shareholders of CSOF and several non-affiliated shareholders of CSOF entered into a non-binding letter of intent with certain purchasers to sell controlling interest of CSOF.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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.

During the past few years, the 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 very modest net sales revenue in the past few years.

Although sales have improved in the first half of 2010, the improvement has been less than is necessary to return our company to profitability. Net sales for the nine months ended September 30, 2010 was $8,843,882, an increase of 10% from the nine months ended September 30, 2010. The net sales revenue for the quarter ended September 30, 2010 was $2,585,483, which represents a decrease of $164,519 or 6% from the third quarter of 2009.

Our gross profit for the nine months ended September 30, 2010 increased by $267,584 from the first nine months of 2009, and represented a gross margin of 11%. The improvement occurred primarily because the price of several of our key raw materials decreased in the past year, as demand for non-ferrous metals, such as zinc, copper and nickel, subsided from the sharply higher levels experienced immediately before the recession. This reduction decreased the manufacturing cost of many of our products. We had a gross profit of $316,992 and a gross margin of 12% for the quarter ended September 30, 2010, as compared to gross profit of $287,157 and gross margin of 10% for the same period of 2009. As the world pulls out of recession, however, we anticipate the the demand for raw materials will push prices higher again in the future.

Our current level of operations remains inadequate to support our corporate overhead. As a result, we incurred a loss from operations of $523,959 during the nine months ended September 30, 2010, and we also incurred $187,569 of net loss from operations during the third quarter of 2010. Both of these results were improvements from the prior year period. At the same time, however, we carry over $15 million in bank debt. So even a small profit from operations is not sufficient to cover our interest expenses. We do not expect either of the two negative pressures on our business - the falling value of the Dollar or the reduction in demand for business products - to be reversed in the near future. Therefore we cannot predict if or when we may return to profitability.

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 September 30, 2010, we had a working capital deficit of $9,987,738, which was $650,327 worse that our deficit at December 31, 2009. Our operations used $2,271,626 in cash during the first nine months of 2010. We increased our accounts payable by $989,019, and our advances to vendor by $1,268,456, for the nine months ended September 30, 2010.

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 ($16.9 million on September 30, 2010) 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 $3,335,066 representing funds that we deposit with our suppliers in order to assure ourselves of on-time supplies of raw materials.

In addition, as of September 30, 2010, the Company is contingently liable as a guarantor with respect to approximately $1,347,300 of indebtedness of non-related entities. Should any one of the entities default on its debt payments, the Company will be obligated to perform under that guarantee by making the required payments. The maximum potential amount of future payments that the Company is required to make under the guarantee was $1,347,300 as of September 30, 2010.

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, 2009, 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.

Reserved

Item 5.

Other Information

None.

Item 6. Exhibits

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

31.2 – Certification of 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 19, 2010	/s/ John Matthews
	John Matthews
	Chief Executive Officer and Chief Financial Officer

Date: November 19, 2010	/s/ Josh Winkler
	Josh Winkler
	Chief Executive Officer and Chief Financial Officer