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EX-32.2 - EXHIBIT 32.2 - China Printing & Packaging, Inc.ex322.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended: March 31, 2012

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

For the transition period from ____________ to _____________

Commission File No. 001-34386

 
CHINA PRINTING & PACKAGING, INC.
(Exact name of small business issuer as specified in its charter)

         
 
Nevada
 
35-2298521
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
Xiangdong Road, Shangsong Village
Baoji City, Fufeng County
 Shaanxi Province, The People’s Republic of China 722205
(Address of Principal Executive Offices)                           (Zip Code)
 
011 – 86 – 090-7547-1054
(Registrant’s Telephone Number, Including Area Code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 x     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
   
Large accelerated filer. o
Accelerated filer.   o
Non-accelerated filer.   o (Do not check if a smaller reporting company)
 
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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  □  Yes   □ No  
 
APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of each of the issuer’s classes of common stock as of May 18, 2012 was 51,002,502.

 
1

 

TABLE OF CONTENTS

     
Page
 
PART I
   
Item 1.
Financial Statements.
   
   
Consolidated Balance Sheets (unaudited and audited)
 
F-3
   
Consolidated Statements of Income and Comprehensive Income (unaudited)
 
F-4
   
Consolidated Statements of Cash Flows (unaudited)
 
F-5
   
Consolidated Statements of Stockholders’ Equity (unaudited)
 
F-6
   
Notes to Consolidated Financial Statements (unaudited)
 
F-7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
  3
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
  8
Item 4.
Controls and Procedures.
  8
 
PART II
   
Item 1.
Legal Proceedings.
  9
Item 1A.
Risk Factors.
  9
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
  9
Item 3.
Defaults Upon Senior Securities.
  9
Item 4.
Mine Safety Disclosures.
  9
Item 5.
Other Information.
  9
Item 6.
Exhibits.
  9
SIGNATURES
  10

 
 
2

 

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements.

 
CHINA PRINTING & PACKAGING, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012


 
 
 
 
F-1

 
 
TABLE OF CONTENTS
 
   
Consolidated Balance Sheets
F-3
   
Consolidated Statements of Income and Comprehensive Income
F-4
   
Consolidated Statements of Cash Flows
F-5
   
Consolidated Statements of Stockholders’  Equity
F-6
   
Notes to Consolidated Financial Statements
F-7
 
 
 
F-2

 

 
 CHINA PRINTING & PACKAGING, INC.
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 2012 AND DECEMBER 31, 2011
   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
   
(Audited)
 
             
ASSETS
           
             
Current Assets
           
Cash and cash equivalents
  $ 4,856,715     $ 1,535,705  
Accounts receivable (note 3)
    1,667,941       2,829,455  
Other receivable
    3,165       3,145  
Advances to suppliers (note 4)
    300,704       448,219  
Prepaid expenses and deposit paid
    4,875       6,661  
Inventories (note 4)
    238,869       183,626  
Total Current Assets
    7,072,269       5,006,811  
                 
Property and equipment, net (note 5)
    1,327,614       1,356,708  
Intangible assets, net (note 6)
    1,879,481       1,877,235  
                 
Total Assets
  $ 10,279,364     $ 8,240,754  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current Liabilities
               
Accounts payable (note 4)
  $ 349,399     $ 112,673  
Accrued expenses and other payables
    435,365       411,288  
Income tax payable
    124,197       160,426  
Due to related parties (note 7)
    73,383       77,020  
Due to shareholder (note 7)
    1,130,100       -  
Total Current Liabilities
    2,112,444       761,407  
                 
Total Liabilities
  $ 2,112,444     $ 761,407  
                 
Stockholders' Equity
               
Common stock, $0.001 per value, 75,000,000 share authorized, 51,002,502 shares issued and outstanding at March 31, 2012 and December 31, 2011 (note 9)
  $ 51,003     $ 51,003  
Additional paid in capital
    799,542       799,542  
Statutory reserve (note 10)
    1,666,390       1,666,390  
Accumulated other comprehensive income
    507,888       461,129  
Accumulated retained earnings
    5,142,097       4,501,283  
Total Stockholder's Equity
  $ 8,166,920     $ 7,479,347  
                 
Total Liabilities and Stockholder's Equity
  $ 10,279,364     $ 8,240,754  
                 

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-3

 


CHINA PRINTING & PACKAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
   
Three months ended March 31,
 
   
2012
   
2011
 
             
Sales
  $ 2,111,432     $ 2,213,046  
Cost of sales
    1,325,646       1,338,877  
Gross profit
    785,786       874,169  
                 
Selling, general and administrative expense
    19,990       114,421  
Income from operations
    765,796       759,748  
                 
Interest income (expense)
    10       (18,321 )
Other income (expense)
    (604 )     (288 )
Total Other (Expense)
    (594 )     (18,609 )
                 
Income before income taxes
    765,202       741,139  
                 
Provision for income taxes (note 8)
    (124,388 )     (180,574 )
                 
Net income
  $ 640,814       560,565  
                 
Foreign currency translation adjustment
    46,759       32,993  
                 
Comprehensive income
  $ 687,573     $ 593,558  
                 
                 
Net income per common share
               
Earnings per share - basic and diluted
  $ 0.01     $ 0.01  
Weighted average common shares outstanding
    51,002,502       51,002,502  
                 

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4

 

CHINA PRINTING & PACKAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


   
Three months ended March 31,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
  $ 640,814     $ 560,565  
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation
    37,741       35,702  
Provision for doubtful accounts (written back)
    (129,780 )     8,028  
Amortization of intangible assets
    9,653       9,242  
(Increase) decrease in current assets
               
Accounts receivables
    1,311,020       (73,896 )
Advances to suppliers
    150,583       7,450  
Prepaid expenses and other receivables
    1,831       3,650  
Inventories
    (54,164 )     (228,496 )
Increase (decrease) in current liabilities
               
Accounts payable
    236,383       177  
Accrued expenses and other payables
    21,532       (5,853 )
Customer deposits
    -       -  
Income tax liabilities
    (37,302 )     9,137  
Due to related parties
    (4,000 )     -  
Net cash provided by operating activities
    2,184,311       325,706  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisition of property, plant and equipment
    -       (945 )
Net cash (used in) investing activities
    -       (945 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Repayment of bank loan
    -       (103,196 )
Proceed from bank loan
    -       103,196  
Advance from a shareholder
    1,130,100       -  
Net cash provided by financing activities
    1,130,100       -  
                 
Effect of exchange rate changes on cash and cash equivalents
    6,599       3,056  
                 
Net change in cash and cash equivalents
    3,321,010       327,817  
Cash and cash equivalents, beginning balance
    1,535,705       335,493  
Cash and cash equivalents, ending balance
  $ 4,856,715     $ 663,310  
                 
SUPPLEMENTAL DISCLOSURES:
               
Cash paid during the three months for:
               
Income tax payments
  $ 161,190     $ 171,437  
Interest payments
  $ -     $ 19,003  
                 

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-5

 

CHINA PRINTING & PACKAGING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

Description
 
Common Share
   
Amount
   
Additional Paid-in Capital
   
Other Compre-hensive Income
   
Statutory Reserves
   
Retained Earnings
   
Total Stock-holders' Equity
 
                                           
Balance, December 31, 2010
    51,002,502     $ 51,003     $ 799,542     $ 225,788     $ 1,592,363     $ 2,263,597     $ 4,932,293  
Foreign currency translation adjustments
    -       -       -       235,341       -       -       235,341  
Transfer to statutory reserves
    -       -       -       -       74,027       (74,027 )     -  
Income for the year
    -       -       -       -       -       2,311,713       2,311,713  
Balance, December 31, 2011
    51,002,502       51,003       799,542       461,129       1,666,390       4,501,283       7,479,347  
Foreign currency translation adjustments
    -       -       -       46,759       -       -       46,759  
Income for the three months
    -       -       -       -       -       640,814       640,814  
Balance, March 31, 2012
    51,002,502     $ 51,003     $ 799,542     $ 507,888     $ 1,666,390     $ 5,142,097     $ 8,166,920  
                                                         

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-6

 

CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)
 
 
Note 1 - ORGANIZATION

China Printing & Packaging, Inc. (“CHPI” or the “Company”)

China Printing & Packaging, Inc., formerly known as USA Therapy, Inc., was incorporated on May 3, 2007 in the State of Nevada.  Prior to the acquisition of Asia Packaging & Printing, Inc. (“APPI”) on August 6, 2010, the Company was a non-operating public shell.  Subsequent to the acquisition of APPI, the Company, through Fufeng Jinqiu Printing & Packaging Co., Ltd., a 100% controlled variable interest entity (“VIE”) is engaged in the business of manufacturing and marketing of paper products for the Chinese marketplace.  The Company changed its name to China Printing & Packaging Inc. on November 22, 2010.

Pursuant to a Share Exchange Agreement dated August 6, 2010, the Company acquired 100% of the issued and outstanding capital stock and ownership interest of APPI, in exchange for 50,000,000 (note 9) newly-issued shares of the Company’s common stock, and the original controlling shareholders of the Company cancelled an aggregate of 50,000,000 old shares of the company’s common stock.

Pursuant to Securities and Exchange Commission (“SEC”) rules, the merger or acquisition of a private operating company into a non-operating public shell with nominal net assets is considered as capital transaction, rather than a business combination.  Accordingly, for accounting purposes, the transaction was treated as a reverse acquisition and recapitalization, and pro-forma information is not presented.

Asia Packaging & Printing, Inc. (“APPI”)

Asia Packaging & Printing, Inc., incorporated in the State of Maryland on August 19, 2009 is a wholly owned subsidiary of the Company.  APPI, through a series of contractual agreements, exercises 100% control of Fufeng, our operating entity in the People’s Republic of China (“PRC”).

Baoji Jinqiu Printing & Packaging Co., Ltd. (“Baoji”)

Baoji Jinqiu Printing & Packaging Co., Ltd. was originally formed as a joint venture company in the PRC on April 22, 2010, whereas APPI and Fufeng held 32% and 68% of equity interest respectively.  On July 11, 2011, Baoji was transformed into a wholly owned foreign enterprise under the laws of the PRC, when APPI acquired Fufeng’s 68% equity interest in Baoji.  Since then, Baoji became a wholly owned subsidiary of the Company.

Fufeng Jinqiu Printing & Packaging Co., Ltd. (“Fufeng”)

Fufeng Jinqiu Printing & Packaging Co., Ltd. is a corporation formed under the laws of the PRC on August 19, 2003.  In April, 2010, APPI, Baoji, Fufeng and the shareholders of Fufeng entered into a series of contractual agreements (the “Agreements”) including Agreements on Entrustment for Operation and Management, Exclusive Option Agreements, Shareholders’ Voting Proxy Agreement and Shares Pledge Agreement., whereby providing APPI with 100% controlling interest in Fufeng.  Fufeng is a 100% controlled VIE of the Company.

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, and are expressed in United States Dollars.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries and VIE for which the Company is the primary beneficiary.  All inter-company accounts and transactions have been eliminated in consolidation.

 
 
F-7

 
 
CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)
 
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currencies Translation

The Company’s reporting currency is the U.S. dollar.  The Company’s operation in China, and uses Chinese Yuan Renminbi (“CNY”) as its functional currency.  The financial statements of the subsidiaries and controlled VIE are translated into U.S. Dollars (“USD”) in accordance with ASC 830, “Foreign Currency Matters”.  All assets and liabilities were translated at the current exchange rate, stockholders’ equity was translated at the historical rates and income statement items were translated at the average exchange rate for the period.  The resulting translation adjustments are reported under other comprehensive income in accordance ASC 220, “Comprehensive Income”.  Foreign exchange transaction gains and losses are reflected in the income statement.

In accordance ASC 230, cash flows from the Company’s operations are 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.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of March 31, 2012 and December 31, 2011, cash and cash equivalents were mainly denominated in CNY and were placed with banks in the PRC.  These cash and cash equivalents may not be freely convertible into foreign currencies and the remittance of these funds out of the PRC may be subjected to exchange control restrictions imposed by the PRC government.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable.   Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Reserves are recorded based on the Company’s historical collection trend.   Allowances for doubtful accounts as of March 31, 2012 and December 31, 2011 were $nil and $127,835 respectively.

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. The Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower.

Property, Plant & Equipment
 
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property, plant and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property, plant and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

 
F-8

 
 
CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)

 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 

Buildings
  30 years
Machinery
  10 years
Vehicles
    8 years
Office equipment
    5 years
Others
    5 years

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit.  Management evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  At March 31, 2012 and December 31, 2011, the Company has intangible assets in the nature of land use right. No impairments of intangible assets have been identified during the current period presented.  Land use right is subject to amortization with estimated lives as follows:

Land use right                                50 years (expiring in 2060)

Land in PRC China is not freely transferable.  However the right to use land could be transferred by the local Government to users.  The Company acquired the land use right for its factory premises from the former owner of the same land use right at the end of 2010.

Long-Lived Assets

The Company accounts for long-lived assets in accordance with ASC 360, “Property, Plant, and Equipment”.  The Company periodically evaluates the carrying value of long-lived assets to be held and used, impairment losses are to be recorded on long-lived assets used in operations, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.  In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.  Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of March 31, 2012 and December 31, 2011, there were no significant impairments of its long-lived assets.

Value Added Tax Payable

The Company is subject to a value added tax (“VAT”) rate of 17% on product sales by the PRC.  VAT payable is computed net of VAT paid on purchases for all sales in the PRC.  The amount of sales and cost of sales reported in these consolidated financial statements do not include VAT.

Fair Value of Financial Instruments

The Financial Instrument Topic of the Codification requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the consolidated balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.


 
F-9

 
 
CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)
 
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Deferred Income Taxes

The Company adopted ASC 740 which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company also adopted the provisions codified in ASC 740 to account for uncertainties in income taxes. When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

It is the Company’s intention to permanently reinvest earnings from activity with China. And thereby indefinitely postpone repatriation of these funds to the US. Accordingly, no domestic deferred income tax provision has been made for US income tax which could result from paying dividend to the Company.

There were no deferred tax differences at March 31, 2012 and December 31, 2011.
 
Revenue Recognition

The Company’s revenue recognition policies are in compliance with FASB ASC Topic 605. Sales revenue is recognized at the completion of delivery to customers when a formal arrangement exists, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured at the date of completion of delivery. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising and are included in Selling, general and administrative expense. The Company expenses all advertising costs as incurred.  The Company did not incur any advertising expense for the three months ended March 31, 2012 and 2011.

Shipping and handling costs

Shipping and handling costs consist primarily of transportation charges for delivery of goods to customers and are included in selling, general and administrative expenses.  The Company expenses all shipping costs when they are incurred.  For the three months ended March 31, 2012 and 2011, the Company incurred transportation charges of $13,164 and $14,889 respectively.

Comprehensive Income

The Company has adopted FASB ASC 220, “Comprehensive Income”, which establishes standards for reporting and display of comprehensive income (loss), its components and accumulated balances. Components of comprehensive income included net income and foreign currency translation adjustments.

 
F-10

 

CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)

 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and Diluted Earnings per Share

Earnings per share are calculated in accordance with FASB ASC Topic 260, “Earnings per Share”.  Basic earnings per share are based upon the weighted average number of common shares outstanding.  Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised.  Dilution is computed by applying the treasury stock method.  Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.  There were no contingencies as of March 31, 2012 and December 31, 2011.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and advances to suppliers arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has been developing a diversified customer base located in China even though at present, there is a high concentration on a few customers as more fully explained in note 12 hereof. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Segment Reporting

ASC 280, “Segment Reporting”, requires use of the management approach model for segment reporting.  The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

For the three months ended March 31, 2012 and 2011, the Company operates in only one reportable segment.

Reclassification

Certain items have been reclassified in the accompanying consolidated financial statements and notes for prior periods to be comparable with the classification as at, and for the three months ended March 31, 2012. The reclassifications had no effect on previously reported net income.

 
 
F-11

 

CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)
 
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which amends the current fair value measurement and disclosure guidance of ASC Topic 820, Fair Value Measurement, to include increased transparency around valuation inputs and investment categorization. The guidance provided in ASU No. 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011. The adoption of these provisions does not have a material impact on the Company’s consolidated statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, ASU 2011-05 requires entities to report all non-owner changes in stockholders’ equity in either a single continuous statement of comprehensive income, or in two separate, but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income, or when an item must be reclassified to net income.  In December 2011, the FASB issued Accounting Standards Update No. 2011-12 (“ASU 2011-12”) which defers certain requirements within ASU 2011-05. These amendments are being made to allow the FASB time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income in all periods presented. This new guidance is to be applied retrospectively. The Company has already adopted these provisions and there is no material impact on the Company’s consolidated statements.

In September 2011, the FASB has issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of these provisions does not have a material impact on the Company’s consolidated statements.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”). ASU 2011-11 enhances disclosures regarding financial instruments and derivative instruments. Entities are required to provide both net information and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. This new guidance is to be applied retrospectively. The adoption of these provisions does not have a material impact on the Company’s consolidated statements.

As of March 31, 2012, there is no other recently issued accounting standards not yet adopted that would have a material effect on the Company’s consolidated financial statements.

Note 3 – ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

On March 31, 2012 and December 31, 2011, accounts receivables were as follows:

   
3/31/2012
   
12/31/2011
 
Accounts receivables
  $ 1,667,941       2,957,290  
Allowance for doubtful accounts
    -       (127,835 )
Accounts receivables, net of allowance for doubtful accounts
  $ 1,667,941     $ 2,829,455  

For the three months ended March 31, 2012, provisions for doubtful accounts written-back was $129,780 while for the three months ended March 31, 2011, provision for doubtful accounts was $8,028.

 
F-12

 

CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)

 
Note 4 - INVENTORIES

As of March 31, 2012 and December 31, 2011, inventories consist of the following:

   
3/31/2012
   
12/31/2011
 
             
Raw materials
  $ 229,438     $ 113,591  
Work-in-progress
    -       1,325  
Finished goods
    9,431       68,710  
 Total
  $ 238,869     $ 183,626  
                 
 
 Since the year 2010, the Company has changed its raw materials procurement policy.  Instead of stock high volume inventory of raw materials at the Company’s warehouse, the Company orders raw materials on a just in time production basis by placing advances to suppliers.  This policy has been in place with no change up to now.  As a result, at March 31, 2012, advances to suppliers, inventories and accounts payable were respectively stated at $300,704 (12/31/2011: $448,219), $238,869 (12/31//2011: $183,626) and $349,399 (12/31/2011: 112,673).

Note 5 – PROPERTY, PLANT & EQUIPMENT

As of March 31, 2012 and December 31, 2011, property, plant & equipment consist of the following:

   
3/31/2012
   
12/31/2011
 
Buildings
  $ 798,565     $ 793,542  
Machinery
    1,148,956       1,141,728  
Vehicles
    108,573       107,890  
Office equipment
    18,918       18,799  
Others
    1,964       1,951  
 Total
    2,076,976       2,063,910  
Accumulated depreciation
    (749,362 )     (702,202 )
Total
  $ 1,327,614     $ 1,361,708  
                 

Depreciation expense for the 3 months ended March 31, 2012 and 2011 was $37,741 and $35,702, respectively.

Note 6 – INTANGIBLE ASSETS

The components of finite-lived intangible assets are as follows:

   
3/31/2012
   
12/31/2011
 
Land use right
  $ 1,927,673     $ 1,915,546  
Accumulated amortization
    (48,192 )     (38,311 )
Land use right, net
  $ 1,879,481     $ 1,877,235  
                 

Amortization expense for the three months ended March 31, 2012 and  2011 was $9,653 and $9,242, respectively.


 
F-13

 
 
CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)

 
Note 6 – INTANGIBLE ASSETS (CONTINUED)

The estimated future annual amortization expenses related to land use right as of March 31, 2012 are as follows:

2012
  $ 28,959  
2013
    38,612  
2014
    38,612  
2015
    38,612  
2016
    38,612  
Thereafter
    1,696,074  
 
Note 7 - RELATED PARTY TRANSACTIONS
 
As at March 31, 2012 and December 31, 2011, the Company has payables due to directors of the Company in the amount of $63,383 and $63,020, respectively for expenses incurred on behalf of the Company in the course of normal operations.

For the three months ended March 31, 2012 and 2011, the Company paid and accrued fees to a director of the Company totaling $6,000.  As at March 31, 2012 and December 31, 2011, the Company has outstanding director fees payable of $ 10,000 and $14,000.

On February 16, 2012, the Company obtained a loan in the amount of $1,130,100 from a corporation controlled by a shareholder who owns more than 10% of the Company’s outstanding stock.  The loan is non-interest bearing and is due on June 15, 2012.
 
Note 8 - INCOME TAXES

The Company’s income before income taxes comprised of the following:

 
Three months ended March 31,
 
Income (Loss) before income taxes:
2012
 
2011
 
USA
  $ (6,104 )   $ (6,057 )
PRC
    771,306       747,196  
Total income before income taxes from all tax jurisdiction
  $ 765,202     $ 741,139  


The Company operates mainly in PRC and virtually no activities in USA. The Company has determined that it has no assessable income (loss) in the USA.  Provision for income taxes for the three months ended March 31, 2012 and 2011 consists entirely of current taxes for the operations in PRC and is reconciled as follows:
 
 
F-14

 

CHINA PRINTING & PACKAGING, INC.
NOTES TO CONSOLIDATED STATEMENTS
MARCH 31, 2012
(UNAUDITED)
 
 
 
Note 8 - INCOME TAXES (CONTINUED)

   
Three months ended March 31,
 
   
2012
   
2011
 
Income (loss) before taxes from PRC operations
  $ 771,306     $ 747,196  
Statutory tax rate
    25 %     25 %
Income tax at statutory tax rate
    192,827       186,799  
Permanent tax differences
    (68,439 )     (6,225 )
Income tax expense at effective rate
  $ 124,388     $ 180,574  

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) from January 1, 2008 onwards, EIT is at a statutory rate of 25%.  The Company has determined that there were no deferred tax assets (liabilities) for the periods stated.

Deferred USA income taxes have not been provided on the undistributed income of the Company’s foreign subsidiaries and controlled VIE, because the Company does not plan to initiate any action that would require the payment of USA income taxes.

Uncertain Tax Positions

FASB ASC 740-10-25 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.  Under the new Corporate Income Tax Law in the PRC (“CIT”), effective on January 1, 2008, the Company may be deemed to be a resident enterprise by the PRC tax authorities.  If the Company was deemed to be resident enterprise, the Company may be subject to the CIT at 25% on the worldwide taxable income and dividends paid from PRC subsidiaries to their overseas holding companies may be exempted from 10% PRC withholding tax. Except for certain immaterial interest income from bank deposits placed with financial institutions outside the PRC, all of the Company’s income is generated from the PRC operation.  Given the immaterial amount of income generated from outside the PRC and the PRC subsidiaries do not intend to pay dividend in the foreseeable future, management has determined the impact arising from resident enterprise rules on the Company’s financial position is not significant.  Management evaluated the Company’s overall tax positions and has determined that no provision for uncertain income tax positions is necessary as of March 31, 2012 and 2011.

Currently the Company has not received any notice of examination by the tax authority in PRC wherein the Company’s operations are carried out, but the tax authority in PRC has the right to examine the Company’s tax position in all past years.

Note 9 - SHARE CAPITAL

The total authorized capital is 75,000,000 common shares with a par value of $0.001 per common share.  On June 15, 2011, the Company issued a stock dividend with a ratio of 2.5-for-1, whereby each issued and outstanding shares of common stock was divided into 2.5 shares of common stock (the “Stock Dividend”).  The number of shares, and references to per share information presented elsewhere in these consolidated financial statements have been adjusted to reflect the result of the Stock Dividend.

Note 10 - STATUTORY RESERVES

In accordance with the laws and regulations of the PRC, Fufeng, the VIE’s annual income, after the payment of the PRC income taxes, shall be partly allocated to the Statutory Reserve Funds. The allocation is 10 percent of income after tax and the cumulative allocations are not to exceed 50 percent of registered capital. However voluntary allocations to Statutory Reserve Funds are not prohibited. These reserve funds are not transferable by the Company in the form of cash dividends, loans or advances. These reserve funds are therefore not available for distribution except in liquidation. As of March 31, 2012 and December 31, 2011, the Company had allocated $1,666,390 (inclusive of voluntary transfers to reserves of $1,207,175) to these non-distributable reserve funds.

Note 11 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

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

Note 12 - MAJOR CUSTOMERS AND CREDIT RISK
 
One customer accounted for 12% of accounts receivable at March 31, 2012.  At December 31, 2011, three customers each accounted for more than 10% of accounts receivable, totaling 34%.  Five vendors each accounted for more than 10% of accounts payable, totaling 83% at March 31, 2012.  At December 31, 2011, two vendors each accounted for more than 10% of accounts payable, totaling 21%.

There was no customer that accounted for more than 10% of sales amount for the three months ended March 31, 2012.  Two customers each accounted for more than 10% of sales amount for the three months ended March 31, 2011, totaling 23%.  One vendor accounted for 23% of purchases amount for the three months ended March 31, 2012.  Four vendors each accounted for more than 10% of purchases amount for the three months ended March 31, 2011, totaling 53% of purchases.

Note 13 - SUBSEQUENT EVENTS

In April 2012, the company entered into an agreement with Xian Qinling Biotechnologies, Ltd. (“Qinling”), whereby Qinling will research and develop new products for the Company.  Total consideration of this agreement is $1,266,123.

No other significant events occurred subsequent to March 31, 2012, to the date of these financial statements are filed on EDGAR, would have a material impact on the Company’s consolidated financial statements.


 
F-15

 

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

Disclaimer Regarding Forward Looking Statements

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

China Printing & Packaging, Inc. (the “Company”) was incorporated on May 3, 2007 in the State of Nevada under the name USA Therapy, Inc. The Company, through its wholly owned subsidiary and its 100% controlled variable interest entities (“VIEs”), is primarily engaged in the research, development, manufacture, marketing, and distribution of containerboard products in northwestern China. All of its operations are conducted in the People’s Republic of China (“China” or “PRC”) where its manufacturing facility is located.

Prior to August 6, 2010, the Company was a development stage company with no revenue or profits.  The Company’s initial business plan was to serve as a provider of short to long-term, screened, qualified and licensed therapists (including, but not limited to, physical, occupational and speech therapists) for hospitals, nursing homes, board and care facilities and other similar community resources.  The Company also owned USA Estate Plans, LLC, a wholly owned subsidiary of the Company, which was dissolved pursuant to a unanimous written consent of the members of USA Estate Plans, LLC on March 5, 2011. 
 
On August 6, 2010, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with APPI, a Maryland corporation, and as a result, the Company adopted the business of Jinqiu.

In light of the our acquisition of Jinqiu, which is engaged in the business of manufacturing, marketing and sales of containerboard boxes and cartons, we decided to change the name of the Company from “USA Therapy, Inc.” to “China Printing & Packaging, Inc.” (the “Name Change”).  On September 20, 2010 the board of directors unanimously authorized the Name Change, and the majority shareholders of the Company’s common stock ratified the board of directors’ written consent and further authorized the Name Change by written consent of the majority shareholders.  The name change became effective on September 20, 2010.

Background of Jinqiu.

Jinqiu was incorporated in the PRC on August 19, 2003, and is our operating company.  Jinqiu is in the business of manufacturing, marketing and sales of containerboard boxes and cartons in PRC.

APPI was incorporated in Maryland on August 21, 2009.  Baoji (JV), an entity that is controlled by APPI, is a “joint venture” enterprise incorporated in the PRC on April 1, 2010. 

Under the laws of the PRC, certain restrictions are placed on round trip investments, which are defined under PRC law as an acquisition of a PRC entity by an offshore special purpose vehicle owned by one or more PRC residents.

To comply with these restrictions, APPI acquired control of Baoji (JV) by establishing Baoji (JV) as a joint venture, whereby APPI directly owns a minority equity interest, or 32%, in Baoji (JV), and Jinqiu, our operating entity, owns the remaining 68%.  APPI subsequently entered into a series of agreements with Jinqiu which we believe give us effective control over the business of Baoji (JV) despite our current minority ownership in Baoji (JV). These agreements are described in more detail below.

Similarly, APPI indirectly controls Jinqiu, our operating entity, via a number of contractual arrangements between Baoji (JV) and Jinqiu.  These agreements are described in more detail below. Bao Dian & Partners, our PRC counsel, has advised us that in their opinion all of the Management Entrustment Agreements and Option Agreements described below are legal and enforceable under PRC law.  Through these contractual arrangements, we have the ability to substantially influence these companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring stockholder approval. As a result of these contractual arrangements, which enable us to control Jinqiu and operate our business in the PRC through Jinqiu, we are considered the primary beneficiary of Jinqiu.
 
 
3

 

Control of Baoji (JV)

On April 22, 2010, Jinqiu, Baoji (JV) and APPI entered into a Management Entrustment Agreement. Pursuant to the Agreement, Jinqiu agrees to exclusively entrust the operation and management of Baoji (JV) to APPI. Under the agreement, APPI manages the operations and assets of Baoji (JV), is entitled to 100% of earnings of Baoji (JV) as a management fee, controls all of the cash flows of Baoji (JV) through a bank account controlled by APPI, manages recruitment and professional training of the management staff of Baoji (JV), chooses distributors for the sales of the products manufactured by Jinqiu, and is obligated to pay all payables and loan payments of Baoji (JV). In addition, under the terms of the Management Entrustment Agreement, APPI has been granted certain rights which include, in part, the right to appoint members of Baoji (JV) Board of Directors, hire management and administrative personnel and control decisions relating to entering and performing customer contracts and other instruments. The agreement does not terminate unless the business of Baoji (JV) is terminated or APPI exercises its option to acquire all of the assets or equity of Baoji (JV) under the terms of the Exclusive Option Agreement as described herein.  
 
In order for Baoji (JV) to become a wholly owned subsidiary of APPI under PRC law, on April 22, 2010, APPI, Jinqiu and Baoji (JV) entered into an Exclusive Option Agreement whereby Jinqiu granted APPI an irrevocable and exclusive purchase option to acquire all or part of the assets or equity of Baoji (JV) currently owned by Jinqiu.  The option may be exercised for up to $100 and pursuant to such arrangements as may be determined by APPI, provided that the exercise will not violate any PRC laws or regulations in effect at the time.  Accordingly, we will consider exercising the Option under such circumstances that we believe will be in ours and our shareholders' best interests.  The Exclusive Option Agreement has been drafted to give us such flexibility.
 
In considering whether or not we will exercise the Option, we may consider such factors as (1) if the exercise price can be lower than the appraised value under current PRC law,  (2) the availability of funds, (3) any relevant tax considerations at the time, (4) any other relevant PRC laws that may exist at the time, (5) the value of our shares that were previously paid to shareholders of Jinqiu, and (6) whether or not the exercise of the Option will provide any other additional benefits to us or our shareholders. Upon exercise of the Option, the parties will prepare transfer documents to be submitted for governmental approval and work together to obtain all approvals and permits. The agreement may be terminated by either agreement of all parties or with 30 days’ notice.

In order to comply with restrictions placed on foreign exchange in the PRC, APPI opted not to exercise its right under the Baoji Option Agreement. On July 11, 2011, APPI and Jinqiu entered into an Equity Transfer Agreement, pursuant to which Jinqiu transferred 68% of the equity interest in Baoji (JV) to APPI for a consideration of RMB 6,240,000 and Baoji (JV) became a wholly own subsidiary of APPI.

Control of Jinqiu

To comply with the restrictions imposed by PRC laws, APPI indirectly controls Jinqiu, our operating entity, via a number of contractual arrangements between Baoji (JV) and Jinqiu.  These agreements are described in more detail below. Bao Dian & Partners, our PRC counsel, has advised us that in their opinion all of the Management Entrustment Agreements and Option Agreements described below are legal and enforceable under PRC law.  Through these contractual arrangements, we have the ability to substantially influence these companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring stockholder approval. As a result of these contractual arrangements, which enable us to control Jinqiu and operate our business in the PRC through Jinqiu, we are considered the primary beneficiary of Jinqiu.

On April 22, 2010, Baoji (JV) entered into a Management Entrustment Agreement with Jinqiu and the shareholders of Jinqiu, in which Jinqiu and its shareholders agreed to transfer control or entrust the operations and management of its business to Baoji (JV). Under the agreement, Baoji (JV) manages the operations and assets of Jinqiu, controls all of the cash flows of Jinqiu through a bank account controlled by Baoji (JV), is entitled to 100% of earnings of Jinqiu as a management fee, manages recruitment and professional training of the management staff of Jinqiu, chooses distributors for the sales of the products manufactured by Jinqiu, and is obligated to pay all payables and loan payments of Jinqiu. In addition, under the terms of the Management Entrustment Agreement, Baoji (JV) has been granted certain rights which include, in part, the right to appoint and terminate members of Jinqiu’s Board of Directors, hire management and administrative personnel and control decisions relating to entering and performing customer contracts and other instruments. The Management Entrustment Agreement does not terminate unless the business of Jinqiu is terminated or Baoji (JV) exercises its option to acquire all of the assets or equity of Jinqiu under the terms of the Exclusive Option Agreement as more fully described below.  
 
 
4

 

In order to enable Jinqiu to become an indirectly wholly owned subsidiary of Baoji (JV) when permitted under PRC law, Baoji (JV), Jinqiu and the Jinqiu shareholders entered into an Exclusive Option Agreement whereby the Jinqiu shareholders granted Baoji (JV) an irrevocable and exclusive purchase option to acquire Jinqiu equity and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The option may be exercised for up to $100 and pursuant to such arrangements as may be determined by Baoji (JV), provided that the exercise will not violate any PRC laws or regulations in effect at the time.  Accordingly, we will consider exercising the option under such circumstances we believe will be in ours and our shareholders' best interest.  The Exclusive Option Agreement has been drafted to give us such flexibility. In considering whether or not we will exercise the options, we may consider such factors as (1) if the exercise price can be lower than the appraised value under current PRC law (2) availability of funds, (3) any relevant tax considerations at the time, (4) any other relevant PRC laws that may exist at the time, (5) the value of our shares that were previously paid to shareholders of Jinqiu, and (6) whether or not the exercise of the option will provide any other additional benefits to us or our shareholders. Upon exercise of the option, the parties will prepare transfer documents to be submitted for governmental approval and work together to obtain all approvals and permits. The Exclusive Option Agreement may be terminated by either agreement of all parties or by 30 days’ notice.

Stock Dividend

On June 15, 2011, we issued a stock dividend with a ratio of 2.5-for-1, whereby each issued and outstanding shares of common stock was divided into 2.5 shares of common stock (the “Stock Dividend”).

Throughout this Quarterly Report on Form 10-Q, each instance which refers to a number of shares of our common stock, refers to the number of shares of common stock after giving effect to the Stock Dividend, unless otherwise indicated.
 
Critical Accounting Policies

Management believes that the critical accounting policies and estimates discussed below involve the most complex management judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. In consultation with our Board of Directors, we have identified the following critical accounting policies that require management’s most difficult subjective judgment:

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable.   Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Reserves are recorded based on the Company’s historical collection trend.   Allowances for doubtful accounts as of March 31, 2012 and December 31, 2011 were $nil and $127,835 respectively.
 
 
5

 
 
Long-Lived Assets

The Company accounts for long-lived assets in accordance with ASC 360, “Property, Plant, and Equipment”.  The Company periodically evaluates the carrying value of long-lived assets to be held and used, impairment losses are to be recorded on long-lived assets used in operations, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.  In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.  Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of March 31, 2012 and December 31, 2011, there were no significant impairments of its long-lived assets.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with FASB ASC Topic 605. Sales revenue is recognized at the completion of delivery to customers when a formal arrangement exists, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured at the date of completion of delivery. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Results of Operation for the Three Months Ended March 31, 2012 and 2011

Revenue

During the three months ended March 31, 2012, we had revenue of $2,111,432, a decrease of approximately 5% as compared with $2,213,046 for the three months ended March 31, 2011.  The decrease is due to a general decrease in consumer demand during the first quarter in 2012.
  
Cost of sales

Cost of sales decreased to $1,325,646 for the three months ended March 31, 2012, representing a decrease of $13,231, as compared with $1,338,877 for the same period in 2011.  Taking into account an increase due to a 4% appreciation of RMB, the actual decrease in production volume and the cost of raw material is consistent with the decrease in sales.
 
Gross profit

Our gross profit margin decreased to 37% for the three months ended March 31, 2012, as compared to 39% for the same period in 2011. Gross profit decreased by approximately 10% to $785,786 in the three months ended March 31, 2012, as compared to $874,169 for the three months ended March 31, 2011.  The decrease is due to the decrease in sales, and increase in the unit cost of raw materials.
 
Selling, General and Administrative Expenses

Selling, general and administrative expenses amounted to 0.9% and 5.2% of our revenue during the three months ended March 31, 2012 and 2011, respectively.  There was a decrease of $94,431 to $19,990 for the three months ended March 31, 2012, as compared to $114,421 for the same period in 2011.  This decrease was due to a write back (recovery) of $129,780 for the provision for doubtful accounts, as compared to bad debt expense of $8,028 for the quarter ended March 31, 2011.

Other expenses

During the three months ended March 31, 2012 and 2011, total other expenses were $594 and $18,609.  The decrease is due to a decrease in interest paid during the three months ended March 31, 2012.

 
6

 

Income tax expense

We operate mainly in the PRC, thus income tax expense consisted entirely of current taxes for our operations in the PRC and is subjected to a statutory tax rate of 25%.  Income tax expenses for the three months ended March 31, 2012 and 2011 were $124,388 and $180,574 respectively.  The effective tax rates were 16% and 24% respectively for the three months ended March 31, 2012 and 2011.  The difference was due to timing difference as a result of the recovery of bad debt expense.

Net income

Net income was $640,814 for the three months ended March 31, 2012, an increase of approximately 14% from $560,565 for the three months ended March 31, 2011. This increase is primarily attributable to a decrease in selling, general and administrative expense and income tax expense as a result of the recovery of bad debt expense. Net income accounted for 30% and 25% of total revenue for the three months ended March 31, 2012 and 2011.
 
Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalent were $4,856,715 as at March 31, 2012, representing an increase of $3,321,010 from $1,535,705 on December 31, 2011.  We believe our existing cash and cash equivalents will be sufficient to maintain our operations at the present level for at least the next twelve months.

Net cash provided by operating activities

Net cash provided by operating activities was $2,184,311 and $325,706 for the three months ended March 31, 2012 and 2011.  The difference is due to the decrease in accounts receivable as we were more aggressive in collecting our accounts receivables.
 
Net cash provided by financing activities

Net cash used in financing activities was $1,130,100 for the three months ended March 31, 2012.  We received a loan of $1,130,000 from a corporation that is controlled by a shareholder with more than 5% of outstanding shares of common stock of the company.  The loan is non-interest bearing and repayable on June 15, 2012.
 
Subsequent Events

In April 2012, we entered into an agreement with Xian Qinling Biotechnologies, Ltd. (“Qinling”), whereby Qinling will research and develop new products for us.  Total consideration of this agreement is $1,266,123.
 
Contractual Obligations

We do not have any contractual obligations as of March 31, 2012.
 
 Off-Balance Sheet Commitments and Arrangements

We do not have any financial undertaking or any other guarantee responsible for third party obligations and commitments.  We have not entered into any derivative products contracts linking the Company’s equity that have not been reflected in the consolidated Pro Forma financial statements.  Furthermore, in passing our assets to those Bodies providing credits, clearing, or market risk support services, we have not reserved any rights or undefined rights on the passing of assets.  The Company does not have any benefits from Bodies providing finance, clearing, market risk or credit support services or with Bodies engaged by us for leasing, hedging or research and development services.


 
7

 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

None.

Item 4.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The company’s management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including Yongming Feng, the Company’s Chief Executive Officer (“CEO”), and Jinrong Shi, the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the three months ended March 31, 2012. Based upon that evaluation, the Company’s CEO and CFO concluded that, as of the date of evaluation, there was a material weakness and therefore the Company’s internal control over financial reporting was not effective. The material weakness was related to a lack of technical accounting expertise due to the lack of a sufficient number of personnel with an appropriate level of knowledge of and experience in generally accepted accounting principles in the United States of America (U.S. GAAP) that are appropriate to the Company's financial reporting requirements. As a result of such evaluation, the Company's CEO concluded that, as of the date of evaluation, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, or that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
The Company plans to take the following steps to remediate the deficiencies in disclosure controls and procedures that are identified above:

1. Hire additional accounting and operations personnel, as needed, to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions.

2.  Interview prospective new Directors for our Board, including a member who is appropriately credentialed as a financial expert as well as sufficient independent Directors.

We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

Changes in internal controls
 
The Company’s management, with the participation of the Company’s CEO and CFO, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the quarter ended March 31, 2012.  Based on that evaluation, our CEO and CFO concluded that, other than as disclosed above, no change occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.  
 
 
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PART II – OTHER INFORMATION

Item 1.
Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or liquidity.

Item 1A.
Risk Factors.
 
Not Applicable.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
           None.

Item 3.
Defaults Upon Senior Securities.
  
None.

Item 4.
Mine Safety Disclosures.

Not Applicable.

Item 5.
Other Information.
 
Not applicable.

Item 6.
Exhibits.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
 
Exhibit Number
 
Description
2.1
 
Share Exchange Agreement dated August 6, 2010, by and among USA Therapy, Inc. Kathy Kestler, Todd Bauman, APPI, the shareholders of APPI, and Baoji (JV), Jinqiu. (1)
3.1
 
Articles of Incorporation of USA Therapy, Inc., a Nevada corporation. (2)
3.2
 
Bylaws of USA Therapy, Inc. (2)
3.3
 
Amended and Restated Articles of Incorporation of China Printing & Packaging, Inc. (4)
10.1
 
Property Lease Agreement, dated May 3, 1993, by and between the third group of Shangquan Village and Jinqiu. (1)
10.2
 
Property Lease Agreement, dated May 3, 1993, by and between the third group of Shangquan Village and Jinqiu. (1)
10.3
 
Loan Agreement, dated March 13, 2008, by and between Fufeng County Credit Union Shangsong branch and Jinqiu. (1)
10.4
 
Loan Agreement, dated June 23, 2009, by and between Fufeng County Credit Union Shangsong branch and Jinqiu. (1)
10.5
 
Loan Agreement, dated May 29, 2006, by and between Fufeng County Credit Union Shangsong branch and Jinqiu. (1)
10.6
 
Agreement on Entrustment for Operation and Management, dated April 22, 2010, by and between Jinqiu and APPI. (1)
10.7
 
Exclusive Option Agreement, dated April 22, 2010, by and among APPI, Jinqiu and Baoji (JV). (1)
10.8
 
Agreement on Entrustment for Operation and Management, dated April 22, 2010, by and between Jinqiu and Baoji (JV). (1)
10.9
 
Exclusive Option Agreement, dated April 22, 2010, by and among Baoji (JV), Jinqiu and the shareholders of Jinqiu. (1)
10.10
 
Form of Customer Agreement. (1)
10.11
 
Supply Agreement, dated Dec. 29, 2008, by and between Xi’an Brother Paper Industries Co., Ltd. and Jinqiu. (1)
10.12
 
Supply Agreement, dated Dec. 19, 2008, by and between Shaanxi Three Friends Paper Industries Co., Ltd. and Jinqiu. (1)
10.13
 
Supply Agreement, dated Dec. 19, 2008, by and between Xi’an Hengfeng Paper Industries Co., Ltd. and Jinqiu. (1)
10.14
 
Supply Agreement, dated Dec. 9, 2008, by and between Shaanxi Fanmensi Paper Industries Co., Ltd. and Jinqiu. (1)
10.15
 
Return to Treasury Agreement, dated August 6, 2010, by and among USA Therapy, Inc.  Kathy Kestler and Todd Bauman. (1)
10.16
 
Equity Transfer Agreement, dated July 11, 2011, between Asia Printing & Packaging, Inc. and Fufeng Jinqiu Printing & Packaging Co., Ltd.
14.1
 
Code of Ethics (4)
16.1
 
Letter from M&K CPAs, LLC, to the SEC, dated August 13, 2010(3)
31.1
 
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101.INS
 
XBRL INSTANCE DOCUMENT
EX-101.SCH
 
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL
 
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF
 
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB
 
XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE
 
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
        
 (1)
Incorporated by reference to the exhibit to our Current Report on Form 8-K filed with the SEC on August 12, 2010.
 (2)  
Incorporated by reference to the exhibit to our Registration Statement on Form SB-2 filed with the SEC on May 3, 2007.
 (3)
Incorporated by reference to the exhibit to our Current Report on Form 8-K filed with the SEC on September 9,  2010
 (4)
Incorporated by reference to the exhibit on our Annual Report on Form 10-K filed with the SEC on March 31, 2011.

** Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text.  The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CHINA PRINTING & PACKAGING, INC.
 
       
Date: May 21, 2012
  /s/ Yongming Feng  
   
Yongming Feng
 
   
Chairman, Chief Executive Officer
 
   
(Principal Executive Officer)
 
       
       
Date: May 21, 2012
  /s/ Jinrong Shi  
   
Jinrong Shi
 
   
Chief Financial Officer
 
   
(Principal Financial Officer)
 
 
 
 
 
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