PREPAID EXPENSES

3 Months Ended

Mar. 31, 2012

NOTE 5 - PREPAID EXPENSES

Prepaid expenses

Prepaid expenses as at March 31, 2012 and December 31, 2011 represent the following components:

Advance payments to OEM manufacturers for goods purchased: the Company is normally required by its vendors to pay 40% of the consigned processing contract in advance and these payments are recorded as "prepaid expenses" accordingly. They are reclassified to "Inventory-finished goods" when purchases are completed, and then charged to COGS as revenue is recognized.

Advance payments to suppliers for raw materials and packing materials: the Company is normally required to pay 30% down payment in accordance with the terms of the purchasing agreements in advance, and these payments are recorded as "prepaid expenses". They are reclassified to "Inventory-raw materials" when the procurement of materials are completed and then included in the "production cost" when these raw materials are utilized to produce finished goods, which will finally be charged to COGS at the time when revenue is recognized.

Advance payments to advertising companies for promotion: the Company’s advertising contracts are normally for up to twelve months. Payment terms require the Company to make two to four payments during the first several months of contractual period. These payments are recorded as "prepaid expense" when made and charged against "Selling and Distribution expenses" when advertisement first takes place.

	Payee	Nature	3/31/2012		12/31/2011
Advance advertising payments	Advertising companies (c)	Advance payments to advertising companies for promotion	$	2,255,282	$	2,746,605
Advance payment to suppliers	Suppliers (a), (b)	Advance payments to OEM manufactures for goods purchased & suppliers for raw Materials and packing materials		1,145,067		1,650,231
Total			$	3,400,349	$	4,396,836

CHINA PEDIATRIC PHARMACEUTICALS, INC. 10-Q