UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,
D.C. 20549

FORM 10-Q

|                                                    |   |                                                                                     
|--------------------------------------------------- | - | ------------------------------------------------------------------------------------
|(Mark One)                                         
|                                                    | x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934 
|                                                    |   |                                                                                     
|For the quarterly period ended June 30,
  2009     
|                                                    |   |                                                                                     
|                                                    | o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934
|                                                    |   |                                                                                     
|For the transition period from _______ to
  _______

Commission file number: 000-52639

|                                                                   
|-------------------------------------------------------------------
|ORIENT PAPER, INC.                                                 
|                                                                   
|(Exact name of small business issuer as
  specified in its charter)

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Nevada                                                         |  | 20-4158835                       
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer identification No.)

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|Nansan Gongli, Nanhuan Rd, Xushui County,
  Baoding City
  Hebei Province, The Peoples Republic of China 072550
|                                                                                                                
|(Address of principal executive offices)                                                                        

|                                                    
|----------------------------------------------------
|011 - (86) 312-8605508                              
|                                                    
|(Registrants telephone number, including area code)

Indicate by
check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 o  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:

Check whether
the registrant filed all documents and reports required to be filed by Section
l2, 13 or 15(d) of the Exchange Act after the distribution of securities under
a plan confirmed by a court. Yes o  No
o

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APPLICABLE ONLY TO CORPORATE ISSUERS:

State the
number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: 45,166,987 shares of common stock, $.001 par
value, were outstanding as of August 13, 2009.

2

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|           |                                                                                        |     
|---------- | -------------------------------------------------------------------------------------- | ----
|           | TABLE OF CONTENTS                                                                      |     
|           |                                                                                        |     
|           |                                                                                        | Page
|           |                                                                                        |     
|           | PART I                                                                                 | 4   
|Item 1.    | Financial Statements                                                                   | 4   
|Item 2.    | Managements Discussion and Analysis of Financial Condition and
  Results of Operation | 22  
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                             | 31  
|Item 4T.   | Controls and Procedures                                                                | 31  
|           | PART II                                                                                | 31  
|Item 1.    | Legal Proceedings                                                                      | 31  
|Item 1A.   | Risk Factors                                                                           | 31  
|Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                            | 32  
|Item 3.    | Defaults Upon Senior Securities                                                        | 32  
|Item 4.    | Submission of Matters to a Vote of Security Holders                                    | 32  
|Item 5.    | Other Information                                                                      | 32  
|Item 6.    | Exhibits                                                                               | 32  
|SIGNATURES | 33                                                                                    

3

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PART I 
FINANCIAL INFORMATION

Item 1. Financial Statements



ORIENT PAPER, INC. BALANCE SHEETS AS OF JUNE 30,
2009 AND DECEMBER 31, 2008 (Unaudited)




ASSETS


|                                                                                                                                                                                         |  |  |  | As of June 30, 2009 |             | As of December 31, 2008
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ------------------- | ----------- | -----------------------
|Current
Assets:                                                                                                                                                                          |  |  |  |                     |             |                        
|Cash and cash
equivalents                                                                                                                                                                |  |  |  | $                   | 6,664,238   |                        
|Restricted
cash                                                                                                                                                                          |  |  |  |                     | 430,000     |                        
|Accounts
receivable                                                                                                                                                                     |  |  |  |                     |             |                        
|Trade (net of
allowance for doubtful accounts of $55,872 and nil as of June 30, 2009 and 2008, respectively)                                                                             |  |  |  |                     | 2,737,705   |                        
|Other                                                                                                                                                                                    |  |  |  |                     | 4,787       |                        
|Inventories                                                                                                                                                                              |  |  |  |                     | 5,676,123   |                        
|Total current
assets                                                                                                                                                                     |  |  |  |                     | 15,512,853  |                        
|Property,
Plant, and Equipment:                                                                                                                                                          |  |  |  |                     |             |                        
|Building and
improvements                                                                                                                                                                |  |  |  |                     | 9,835,993   |                        
|Machinery and
equipment                                                                                                                                                                  |  |  |  |                     | 47,152,268  |                        
|Vehicles                                                                                                                                                                                 |  |  |  |                     | 542,429     |                        
|                                                                                                                                                                                         |  |  |  |                     | 57,530,690  |                        
|Less 
Accumulated depreciation and amortization                                                                                                                                         |  |  |  |                     | (14,130,596 | )                      
|Net property,
plant, and equipment                                                                                                                                                       |  |  |  |                     | 43,400,094  |                        
|Total
Assets                                                                                                                                                                             |  |  |  | $                   | 58,912,947  |                        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                    
|Current
Liabilities:                                                                                                                                                                     |  |  |  |                     |             |                        
|Short-term
loans                                                                                                                                                                         |  |  |  | $                   | 5,592,807   |                        
|Accounts
payable  Trade                                                                                                                                                                 |  |  |  |                     | 2,779,164   |                        
|Other
payables and accrued liabilities                                                                                                                                                   |  |  |  |                     | 1,116,541   |                        
|Income taxes
payable                                                                                                                                                                     |  |  |  |                     | 636,759     |                        
|Total current
liabilities                                                                                                                                                                |  |  |  |                     | 10,125,271  |                        
|Long-Term
Debt, less current portion:                                                                                                                                                    |  |  |  |                     |             |                        
|Loan from
credit union                                                                                                                                                                   |  |  |  |                     | 1,940,159   |                        
|Related party
notes                                                                                                                                                                      |  |  |  |                     | 8,104,067   |                        
|Total
long-term debt                                                                                                                                                                     |  |  |  |                     | 10,044,226  |                        
|Total
liabilities                                                                                                                                                                        |  |  |  |                     | 20,169,497  |                        
|Commitments and Contingencies                                                                                                                                                            |  |  |  |                     |             |                        
|Stockholders Equity:                                                                                                                                                                    |  |  |  |                     |             |                        
|Common stock,
500,000,000 shares authorized, $0.001 par value per share, 45,166,987 and 45,101,987 shares issued and outstanding as of June 30, 2009 and December 31,
2008, respectively |  |  |  |                     | 45,167      |                        
|Additional
paid-in capital                                                                                                                                                               |  |  |  |                     | 9,592,352   |                        
|Statutory
earnings reserve                                                                                                                                                               |  |  |  |                     | 3,079,063   |                        
|Accumulated
other comprehensive income                                                                                                                                                   |  |  |  |                     | 3,446,573   |                        
|Retained
earnings                                                                                                                                                                        |  |  |  |                     | 22,580,295  |                        
|Total
stockholders equity                                                                                                                                                               |  |  |  |                     | 38,743,450  |                        
|Total
Liabilities and Stockholders Equity                                                                                                                                               |  |  |  | $                   | 58,912,947  |                        

The accompanying notes to financial statements are an integral part of these balance sheets.

4

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ORIENT PAPER, INC. STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Unaudited)


|                                                                  |  |  |  | Three Months Ended June 30, |            | Six Months Ended June 30, | 
|----------------------------------------------------------------- |  |  |  | --------------------------- | ---------- | ------------------------- | 
|
|Revenues:                                                         |  |  |  |                             |            |                           | 
|Sales,
net                                                        |  |  |  | $                           | 22,400,383 |                           | 
|Cost of
Sales:                                                    |  |  |  |                             |            |                           | 
|Cost of
sales                                                     |  |  |  |                             | 18,409,027 |                           | 
|Business tax
and surcharges                                       |  |  |  |                             | 22,373     |                           | 
|Total cost of
sales                                               |  |  |  |                             | 18,431,400 |                           | 
|Gross
Profit                                                      |  |  |  |                             | 3,968,983  |                           | 
|Selling,
General and Administrative Expenses                      |  |  |  |                             | 275,808    |                           | 
|Income
from Operations                                            |  |  |  |                             | 3,693,175  |                           | 
|Other
Income (Expense):                                           |  |  |  |                             |            |                           | 
|Interest
income                                                   |  |  |  |                             | 6,964      |                           | 
|Interest
(expense)                                                |  |  |  |                             | (326,231   | )                         | 
|Total other
(expense)                                             |  |  |  |                             | (319,267   | )                         | 
|Income
before Income Taxes                                        |  |  |  |                             | 3,373,908  |                           | 
|Provision
for Income Taxes                                        |  |  |  |                             | (899,250   | )                         | 
|Net
Income                                                        |  |  |  |                             | 2,474,658  |                           | 
|Comprehensive Income:                                             |  |  |  |                             |            |                           | 
|Foreign
currency translation adjustment                           |  |  |  |                             | (99,632    | )                         | 
|Total
Comprehensive Income                                        |  |  |  | $                           | 2,375,026  |                           | 
|Earnings
Per Share:                                               |  |  |  |                             |            |                           | 
|Basic and
Diluted Earning per Share                               |  |  |  | $                           | 0.05       |                           | 
|Weighted
Average Number of Shares Outstanding  Basic and Diluted |  |  |  |                             | 45,109,295 |                           | 

The accompanying notes to financial statements are an integral part of these statements.

5

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ORIENT PAPER, INC. STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Unaudited)


|                                                                                  |  |  |  | Six Months Ended June 30, |           
|--------------------------------------------------------------------------------- |  |  |  | ------------------------- | ----------
|
|Cash Flows
from Operating Activities:                                             |  |  |  |                           |           
|Net
income                                                                        |  |  |  | $                         | 4,773,260 
|Adjustments
to reconcile net income to net cash provided by operating activities: |  |  |  |                           |           
|Depreciation
and amortization                                                     |  |  |  |                           | 1,702,861 
|Non-cash
issuance of stock for services                                           |  |  |  |                           | 27,300    
|Changes in
net assets and liabilities:                                            |  |  |  |                           |           
|Accounts
receivable                                                               |  |  |  |                           | (1,316,593
|Inventories                                                                       |  |  |  |                           | (2,855,060
|Accounts
payable  Trade                                                          |  |  |  |                           | 2,779,164 
|Other
payables and accrued liabilities                                            |  |  |  |                           | 375,695   
|Income taxes
payable                                                              |  |  |  |                           | (410,919  
|Net Cash
Provided by Operating Activities                                         |  |  |  |                           | 5,075,708 
|Cash Flows
from Investing Activities:                                             |  |  |  |                           |           
|Purchases of
and adjustments to property, plant, and equipment                    |  |  |  |                           | 237,726   
|Net Cash
Provided by (Used in) Investing Activities                               |  |  |  |                           | 237,726   
|Cash Flows
from Financing Activities:                                             |  |  |  |                           |           
|Proceed from
and adjustment to related party loans                                |  |  |  |                           | (8,017    
|Payments on
short term loans                                                      |  |  |  |                           | (1,265,845
|Proceeds from
borrowing on and adjustment to credit facility                      |  |  |  |                           | (33,487   
|Net Cash
Provided by (Used in) Financing Activities                               |  |  |  |                           | (1,307,349
|Effect of
Exchange Rate Changes on Cash                                           |  |  |  |                           |           
|and Cash
Equivalents                                                              |  |  |  |                           | (146,266  
|Net
Increase in Cash and Cash Equivalents                                         |  |  |  |                           | 3,859,819 
|Cash and
Cash Equivalents  Beginning of Period                                   |  |  |  |                           | 3,234,419 
|Cash and
Cash Equivalents  End of Period                                         |  |  |  | $                         | 7,094,238 
|Cash and
Cash Equivalens  End of Period Consisting of:                           |  |  |  |                           |           
|Cash in bank
and cash on hand                                                     |  |  |  | $                         | 6,664,238 
|Restricted
cash                                                                   |  |  |  |                           | 430,000   
|                                                                                  |  |  |  | $                         | 7,094,238 
|Supplemental Disclosure of Cash Flow Information:                                 |  |  |  |                           |           
|Cash paid for
interest                                                            |  |  |  | $                         | 330,918   
|Cash paid for
income taxes                                                        |  |  |  | $                         | 949,509   

The accompanying notes to financial statements are an integral part of these statements.

6

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ORIENT PAPER, INC. 
STATEMENTS OF CASH FLOWS 
FOR THE SIX MONTHS ENDED
JUNE 30, 2009 AND 2008

Supplemental Disclosure of Cash Flow Information:

On October 29,
2007, the Company entered into an Agreement and Plan of Merger between Orient
Paper; CARZ Merger Sub, Inc., a Nevada corporation, and wholly owned subsidiary
of the Company; DZH Limited; and the stockholders of DZH Limited. Under the
terms of the Agreement and Plan of Merger, the Company issued to the
stockholders of DZH Limited 29,801,987 shares of the Companys common stock,
par value $.001, in exchange for all of the issued and outstanding shares of
stock of DZH Limited (50,000 shares).

In May 2008,
the Company issued 5,000,000 shares of common stock to three consultants for
services rendered during the year ending December 31, 2008, valued at $500,000.

On May 10,
2009 the Company issued 5,000 shares of common stock to its CFO as compensation
with a fair value of $900. No cash is received as a result of the issuance of
stock.

On June 24, 2009 the Company
issued 60,000 shares of common stock to Sichenzia Ross Friedman Ference LLP as
part payment for legal fees and with a fair value of $26,400. No cash is
received for the issuance of stock.

The accompanying notes to financial statements are an integral part of these statements.

7

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ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

(1) Summary of Significant Accounting
Policies

Basis of Presentation and Organization

Orient Paper,
Inc. (Orient Paper or the Company) was incorporated under the laws of the
State of Nevada on December 9, 2005, under the name of Carlateral, Inc. Carlateral,
Inc. started its business by providing financing services specializing in
subprime title loans, secured primarily using automobiles (and also boats,
recreational vehicles, machinery, and other equipment) as collateral.

Hebei Baoding
Orient Paper Milling Company Limited (HBOP) was organized on March 3, 1996,
under the laws of the PRC. HBOP engages mainly in the production and
distribution of products such as corrugated paper, offset paper, writing paper,
and blueprint paper. The Company also has capability to produce other paper and
packaging-related products, such as plastic paper and craft paper. HBOP uses
recycled paper as its primary raw material.

Dongfang Zhiye
Holding Limited (DZH Limited) was formed on November 13, 2006, under the laws
of the British Virgin Islands, and is a holding company. As such, DZH Limited
does not generate any financial or operating transactions. On July 16, 2007,
DZH Limited acquired all of the issued and outstanding stock and ownership of
HBOP and placed such shares in trust with Zhenyong Liu, Xiaodong Liu, and
Shuangxi Zhao, pursuant to a trust agreement executed as of the same date.
Under the terms of the trust agreement, Mr. Liu, Mr. Liu and Mr. Zhao (the
original shareholders of HBOP) would exercise control over the disposition of
DZH Limiteds shares in HBOP on DZH Limiteds behalf until DZH Limited
successfully completed the change in registration of HBOPs capital with the
relevant PRC Administration of Industry and Commerce as the 100 percent owner of
HBOPs shares.

On October 29,
2007, Orient Paper entered into an Agreement and Plan of Merger (see Note 7)
with (i) Orient Paper wholly owned subsidiary, CARZ Merger Sub, Inc., (ii) DZH
Limited, and (iii) each of DZH Limited shareholders (Zhenyong Liu, Xiaodong
Liu, Chen Li, Ning Liu, Jie Liu, Shenzhen Huayin Guaranty & Investment
Company Limited, Top Good International Limited, Total Giant Group Limited,
Total Shine Group Limited, Victory High Investment Limited, Think Big Trading
Limited, Huge Step Enterprises Limited, and Sure Believe Enterprise Limited).

Pursuant to
the agreement and plan of merger, DZH Limited merged with CARZ Merger Sub, Inc.
via a share exchange, with DZH Limited as the surviving entity. In exchange for
their shares in DZH Limited, the DZH Limited shareholders received an aggregate
of 29,801,987 newly-issued shares of Orient Papers common stock, $.001 par
value, which were distributed pro ratably among the DZH Limited shareholders in
accordance with their respective ownership interests in DZH Limited.

As a result of
the merger transaction, DZH Limited became a wholly-owned subsidiary of Orient
Paper, which, in turn, made Orient Paper the indirect owner of DZH Limiteds
operating company subsidiary, HBOP, pursuant to the terms of the trust agreement.
HBOP, the entity through which the Company operates its business currently has
no subsidiaries, either wholly- or partially-owned.

Prior to the
completion of the reverse merger, Orient Paper only had limited operations
(since its incorporation on December 9, 2005). On December 21, 2007, the name
of the Company was changed from Carlateral, Inc. to Orient Paper, Inc. in order
to better reflect the current business plan subsequent to the reverse merger.

To ensure
proper compliance of the Companys control over the ownership and operations of
HBOP with certain PRC regulations, on June 24, 2009, the Company entered into a
series of contractual agreements (the Contractual Agreements) with HBOP and
the original shareholders of HBOP via our wholly owned subsidiaries Shengde
Holdings, Inc. (Shengde Holdings, a Nevada corporation) and Baoding Shengde
Paper Co., Ltd. (Baoding Shengde, a wholly foreign-owned enterprise in the
PRC with a registered capital of $10,000,000. Baoding Shengde is 100 percent owned by
Shengde Holdings.) The Contractual Agreements include (i) Exclusive Technical
Service and Business Consulting Agreement, which generally provides that
Baoding Shengde shall provide exclusive technical, business and management
consulting services to HBOP, in exchange for service fees including a fee
equivalent to 80 percent of HBOPs total annual net profits; (ii) Loan Agreement,
which provides that Baoding Shengde will make a loan in the aggregate principal
amount of $10,000,000 to the original shareholders of HBOP in exchange for each
such shareholder agreeing to contribute all of its proceeds from the loan to
the registered capital of HBOP; (iii) Call Option Agreement, which generally
provides, among other things, that the original shareholders of HBOP
irrevocably grant to Baoding Shengde an option to purchase all or part of each
shareholders equity interest in HBOP. The exercise price for the
options shall be RMB1 for each of the shareholders equity interests; (iv)
Share Pledge Agreement, which provides that the original shareholders of HBOP
will pledge all of their equity interests in HBOP to Baoding Shengde as
security for their obligations under the other management agreements described
in this section. Specifically, Baoding Shengde is entitled to dispose of the
pledged equity interests in the event that the HBOP shareholders breach their
obligations under the loan agreement or HBOP fails to pay the service fees to
Baoding Shengde pursuant to the exclusive technical service and business
consulting agreement; and (v) Proxy Agreement, which provides that the HBOP
shareholders shall irrevocably entrust a designee of Baoding Shengde with such
shareholders voting rights and the right to represent such shareholder to
exercise such shareholders rights at any shareholders meeting of HBOP or with
respect to any shareholder action to be taken in accordance with the laws and
HBOPs Articles of Association. The terms of the agreement are binding on the
parties for as long as the HBOP shareholders continue to hold any equity
interest in HBOP. An HBOP shareholder will cease to be a party to the agreement
once it transfers its equity interests with the prior approval of Baoding
Shengde.

8

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ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

Given that
prior to June 25, 2009, DZH Limited was considered to have acquired Orient Paper
by a reverse merger through an Agreement and Plan of Merger (see Note 7), with
its stockholders having voting control of Orient Paper; and that after June 24,
2009, the Company through its subsidiary (Baoding Shengde) continues to
effectively control HBOP under the operations of the Contractual Agreements,
the accompanying financial statements and related disclosures in the notes to
financial statements present the financial position as of June 30, 2009, and
December 31, 2008, and the operations for the three months and six months ended June 30, 2009,
and 2008, of all of its subsidiaries and HBOP under the name of Orient Paper.
The reverse merger has been recorded as a recapitalization of Orient Paper,
with the consolidated net assets of DZH Limited, Shengde Holdings, Baoding
Shengde and its wholly owned operating subsidiary HBOP, and net assets Orient
Paper brought forward at their historical bases. The costs associated with the
reverse merger have been expensed as incurred.

Unaudited Interim Financial Statements

The interim
financial statements of Orient Paper have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information, and the instructions for
Form 10-Q under Regulation S-X of the Securities and Exchange Commission. They do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. Therefore, these financial statements should
be read in conjunction with Orient Papers audited financial statements and
notes thereto for the year ended December 31, 2008, included in Orient Papers
Annual Report on Form 10-K filed on March 27, 2009, with the SEC.

The
accompanying interim financial statements included herein are unaudited.
However, they contain all normal recurring accruals and adjustments that, in
the opinion of management, are necessary to present fairly Orient Papers
financial position as of June 30, 2009, and December 31, 2008, and the results
of its operations and cash flows for the three months and six months ended June 30, 2009, and
2008. The results of operations for the six months ended June 30, 2009, are not
necessarily indicative of the results to be expected for future quarters or the
year ending December 31, 2009.

Foreign Currency Translation

Orient Paper
accounts for foreign currency translation pursuant to SFAS No. 52, Foreign Currency Translation (SFAS No.
52). Orient Papers functional currency is the Chinese Yuan Renminbi (RMB).
Under SFAS No. 52, all assets and liabilities are translated into United States
dollars using the current exchange rate at the end of each fiscal period.
Revenues and expenses are translated using the average exchange rates
prevailing throughout the respective periods. Translation adjustments are included
in other comprehensive income (loss) for the period. Certain transactions of
Orient Paper are denominated in United States dollars. Translation gains or
losses related to such transactions are recognized for each reporting period in
the related statement of operations and comprehensive income (loss).

9

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ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

Use of Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of June 30, 2009, and December 31, 2008, and revenues and
expenses for the three months and six months ended June 30, 2009, and 2008. Actual results could
differ from those estimates made by management.

Risks and Uncertainties

Orient Paper
is subject to substantial risks from, among other things, intense competition
associated with the industry in general, other risks associated with financing,
liquidity requirements, rapidly changing customer requirements, limited
operating history, foreign currency exchange rates, and operating in the PRC
under its various laws and restrictions.

Cash and Cash Equivalents

For purposes
of reporting within the statements of cash flows, Orient Paper considers all
cash on hand, cash accounts not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity of
three months or less to be cash and cash equivalents.

Concentration of Credit Risk

Financial
instruments which potentially subject Orient Paper to concentrations of credit
risk consist principally of cash. Orient Paper places its temporary cash
investments in reputable financial institutions in the PRC. Although it is
generally understood that the PRC central government stands behind all of the
banks in China in the event of bank failure, there is no deposit insurance
system in China that is similar to the protection provided by the Federal
Deposit Insurance Corporation (FDIC) of the United States.

Accounts Receivable

Trade accounts
receivable are recorded on shipment of products to customers, and generally are
due under the terms of net 30 days. The trade receivables are not
collateralized and interest is not accrued on past due accounts. Periodically,
management reviews the adequacy of its provision for doubtful accounts based on
historical bad debt expense results and current economic conditions using factors
based on the aging of its accounts receivable. Additionally, Orient Paper may
identify additional allowance requirements based on indications that a specific
customer may be experiencing financial difficulties. Actual bad debt results
could differ materially from these estimates. As of June 30, 2009, and December
31, 2008, the balance of allowance for doubtful accounts was $55,872 and $0,
respectively. While management uses the best information available upon which
to base estimates, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used for the
purposes of analysis.

Inventories

Inventories consist principally of raw materials (used paper and
  pulps) and finished goods, and are stated at the lower of cost (average
  cost method) or market. Cost includes labor, raw materials, and allocated overhead.

Property, Plant, and Equipment

Property,
plant, and equipment are stated at cost. Major renewals, betterments, and
improvements are capitalized to the asset accounts while replacements, maintenance,
and repairs, which do not improve or extend the lives of the respective assets,
are expensed to operations. At the time property, plant, and equipment are
retired or otherwise disposed of, the asset and related accumulated
depreciation or amortization accounts are relieved of the applicable amounts.
Gains or losses from retirements or sales are credited or charged to operations.

Orient Paper
depreciates and amortizes property, plant, and equipment using the
straight-line method as follows:

| |                             |           
| | --------------------------- | ----------
| | Building and
  improvements | 30 years  
| | Machinery
  and equipment   | 5-15 years
| | Vehicles                    | 15 years  

10

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unauditied)

Long-Lived Assets

Orient Paper
evaluates the recoverability of long-lived assets and the related estimated
remaining useful lives when events or circumstances lead management to believe
that the carrying value of an asset may not be recoverable and the undiscounted
cash flows estimated to be generated by those assets are less than the assets
carrying amount. In such circumstances, those assets are written down to
estimated fair value. For the three months and six months ended June 30, 2009, and 2008, no
events or circumstances occurred for which an evaluation of the recoverability
of long-lived assets was required.

Fair Value of Financial Instruments

Orient Paper
estimates the fair value of financial instruments using the available market
information and valuation methods. Considerable judgment is required in
estimating fair value. Accordingly, the estimates of fair value may not be indicative
of the amounts Orient Paper could realize in a current market exchange. As of
June 30, 2009, and December 31, 2008, Orient Papers financial instruments
approximated fair value to do the nature and maturity of such instruments.

Statutory Reserves

The laws and
regulations of the PRC require that before an enterprise distributes profits to
its shareholders, it must first satisfy all tax liabilities, provide for losses
in previous years, and make allocations, in proportions determined at the
discretion of the Board of Directors, after the statutory reserve. The
statutory reserves include a surplus reserve fund and a common welfare fund.
These statutory reserves represent restricted retained earnings.

Surplus Reserve Fund

Orient Paper
is required to transfer 10 percent of the current year net income of HBOP, as
determined in accordance with the PRC accounting rules and regulations, to a
statutory surplus reserve fund until such reserve balance
reaches 50 percent of HBOPs registered capital. As of June 30, 2009, such
registered capital is in the amount of RMB 75,030,000 yuan, or USD $10,961,606.

The transfer
to this reserve must be made before distribution of any dividend to
shareholders. For the three months and six months ended June 30, 2009, and 2008, Orient Paper
did not make a transfer to this reserve. The surplus reserve fund is
non-distributable other than during liquidation and can be used to fund
previous years losses, if any, and may be utilized for business expansion or
converted into share capital by issuing new shares to existing shareholders in
proportion to their shareholdings or by increasing the par value of the shares
currently held by them, provided that the remaining reserve balance after such
issue is not less than 25 percent of the registered capital.

Common Welfare Fund

Orient Paper
is required to transfer 5 percent to 10 percent of the net income of HBOP, as
determined in accordance with the PRC accounting rules and regulations, to the
statutory common welfare fund on an annual basis. For the three months and six months ended June
30, 2009, and 2008, Orient Paper did not make a transfer to this fund. This
fund can only be utilized on capital items for the collective benefit of Orient
Papers employees, such as construction of dormitories, cafeteria facilities,
and other staff welfare facilities. This fund is non-distributable other than
upon liquidation. The transfer to this fund must be made before distribution of
any dividend to shareholders.

Revenue Recognition Policy

Orient Paper
recognizes revenue when goods are shipped, when a formal arrangement exists,
the price is fixed or determinable, the delivery is completed, no other
significant obligations of Orient Paper exist, and collectability is reasonably
assured. Orient Paper is required to collect a three percent value-added-tax
(VAT) on each sale. Gross revenues do not include this VAT which is remitted
to the government quarterly.

Advertising

Orient Paper
expenses all advertising and promotion costs as incurred. The Company also incurred
$219 and $0 of advertising and promotion costs for the six months ended June
30, 2009, and 2008, respectively. The Company incurred $219 and $ 0 of advertising and promotion costs for the three months ended June 30, 2009, and 2008, respectively.

11

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

Lease Obligations

All
noncancellable leases with an initial term greater than one year are
categorized as either capital or operating leases. Assets recorded under
capital leases are amortized according to the same depreciation methods
employed for property and equipment or over the term of the related lease, if
shorter.

Income Taxes

Orient Paper
accounts for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes (SFAS No. 109). Under
SFAS
No. 109, deferred tax assets and liabilities are determined based on temporary
differences between the bases of certain assets and liabilities for income tax
and financial reporting purposes. The deferred tax assets and liabilities are
classified according to the financial statement classification of the assets
and liabilities generating the differences.

Orient Paper
maintains a valuation allowance with respect to deferred tax assets. Orient
Paper establishes a valuation allowance based upon the potential likelihood of
realizing the deferred tax asset and taking into consideration Orient Papers
financial position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of sufficient
taxable income within the carryforward period under the Federal tax laws.

Foreign
operations of Orient Paper are governed by the Income Tax Laws of the PRC.
Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT) is
imposed at a statutory rate of 25 percent.

Comprehensive Income (Loss)

Orient Paper
presents comprehensive income (loss) in accordance with Statement of Financial
Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130). SFAS No. 130 states that all
items that are required to be recognized under accounting standards as
components of comprehensive income (loss) be reported in the financial
statements. For the three months and six months ended June 30, 2009, and 2008, the only
components of comprehensive income were the net income for the periods, and the
foreign currency translation adjustments.

Earnings Per Common Share

Basic earnings
per share is computed by dividing the net income attributable to the common
stockholders by the weighted average number of shares of common stock
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.

Share-Based Compensation

The Company
uses the fair value recognition provision of Financial Accounting Standards No.
123R, Share Based payment (FASB No. 123R), which requires the Company to
expense the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of such instruments. The
Company uses the Black-Scholes option pricing model to calculate the fair value
of any equity instruments on the grant date.

The Company
also uses the provisions of EITF 96-18,  Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
Or in Conjunction with selling, Goods or Services  (EITF 96-18),
to account for stock-based compensation awards issued to non-employees for
services. Such awards for services are recorded at either the fair value of the
services rendered or the instruments issued in exchange for such services, whichever
is more readily determinable, using the measurement date guidelines enumerated
in EITF 96-18.

12

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

(2) Inventories

Raw material
inventory includes mainly recycled paper and pulp. Finished goods include
mainly products of offset paper and corrugated paper. Inventories consisted of
the following as of June 30, 2009, and December 31, 2008:

|                          |  |                 |           |                     |   |           | 
|------------------------- |  | --------------- | --------- | ------------------- | - | --------- | 
|                          |  | June 30,
  2009 |           | December
  31, 2008 |  
|                          |  |                 |           |                     |  
|Raw
  Materials          |  |                 |           |                     |   |           | 
|Recycled paper board      |  | $               | 2,867,865 |                     | $ | 797,806   | 
|Pulp                      |  |                 | 1,445,742 |                     |   | 914,061   | 
|Recycled printed paper    |  |                 | 485,979   |                     |   | 277,739   | 
|Recycled white edge paper |  |                 | 13,369    |                     |   | 389,151   | 
|                          |  |                 |           |                     |   |           | 
|                          |  |                 | 4,812,955 |                     |   | 2,378,757 | 
|Finished
  Goods          |  |                 | 863,168   |                     |   | 442,306   | 
|                          |  |                 |           |                     |   |           | 
|Totals                    |  | $               | 5,676,123 |                     | $ | 2,821,063 | 
|                          |  |                 |           |                     |   |           | 

13

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

(3) Loans Payable

Orient Paper
had the following loans payable as of June 30, 2009, and December 31, 2008:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---------- | ------------------- | - | ---------- | -
|Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | June 30,
  2009 |            | December 31,
  2008 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Working
  capital loan provided by Industrial & Commercial Bank of China, secured
  by certain manufacturing equipments of the Company. Interest is payable
  monthly at the fixed rate of 6.372% per annum. The entire principal is due
  and payable at maturity on January 20, 2010. The note is renewable upon
  maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $               | 1,899,252  |                     | $ | 1,907,100  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Loan payable
  to Huaxia Bank, guaranteed by a third party guaranty company with a guaranty
  fee of 2.4% of the outstanding balance payable to the guaranty company.
  Interest is payable monthly at 9.828% per annum. The entire principal was due
  and payable at maturity on March 5, 2009, when the bank granted the Company a
  one-month grace period for negotiating interest rates and terms for renewing
  the loan. The Company subsequently decided not to renew the Huanxia Bank loan
  and arranged for the guaranty company to provide the Company with a one-month
  bridge loan to pay off the bank loan in April 2009. The guaranty company
  bridge loan carried interest at 0.933% per month. The Company paid off the
  bridge loan on April 30, 2009.                                                                                                       |  |                 |           |                     |   | 1,246,950  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Working
  capital loan provided by the Industrial & Commercial Bank of China.
  Interest is payable monthly at 8.217% per annum. The entire principal was due
  and payable at maturity on June 4, 2009. The Company was granted a grace
  period of one month by the bank. The loan was renewed on July 1, 2009.
  See Note (11) for details of the renewal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                 | 876,578    |                     |   | 880,200    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Short-term
  credit facility provide by the United Commercial Bank (China) Limited,
  including a revolving credit facility of $2,000,000 and a non-revolving
  import loan facility of $816,976. The credit facility is secured by the
  Companys building, land use rights. and is personally guaranteed by the
  Chief Executive Officer and the Director. Interest is paid monthly with a
  floating rate indexed to 5% plus the three-month LIBOR, adjusted every three
  months, and was 5.6207% per annum on June 30, 2009. The note is renewable upon
  maturity, which was extended to June 30, 2009, according to a Short-Term
  Credit Facility Extension Agreement entered into by the Company and the Bank on
  January 23, 2009. As of date June 30, 2009, the
  Company was negotiating with United Commercial Bank (China) Limited to
  renew the credit facility. |  |                 | 2,816,977  |                     |   | 2,824,402  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Loan payable
  to Rural Credit Cooperative of Xushui, guaranteed by an unrelated third party
  company. The entire principal is due and payable at maturity on September 16,
  2011. Interest is paid monthly at the rate of 0.774% per month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                 | 1,940,159  |                     |   | 1,948,176  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Total loans payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                 | 7,532,966  |                     |   | 8,806,828  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Less - Current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                 | (5,592,807 | )                   |   | (6,858,652 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  
|Total loans payable - long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $               | 1,940,159  |                     | $ | 1,948,176  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |            |                     |   |            |  

14

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

On April 30,
2009, the Company made a payment in the amount of $1,266,557, including $21,307
of interest, to Hebei Small-Medium Enterprise Credit Guarantee Service Center,
a quasi-governmental agency, to pay off the principal and accrued interest of a
one-month bridge loan that Hebei Small-Medium Enterprise Credit Guarantee
Service Center made to the Company during the grace period following the March
5, 2009, maturity date of the $1,245,250 loan from Huaxia Bank.

As of June 30,
2009, Orient Papers United Commercial Bank (China) Limited credit facility had
a maximum borrowing level of $2,816,977, which left zero in borrowing capacity.
The average short-term borrowing rates for the six months ended June 30, 2009,
and 2008, were approximately 7.45 percent and 6.82 percent, respectively. The
credit facility agreement includes certain covenants that require the Company
to maintain (1) the equity to debt (including contingent liabilities) ratio at
no less than 50 percent, and (2) its current ratio at no less than 100 percent. The Company
was in compliance with these covenants as of June 30, 2009.

Future
maturities of loans payable, excluding lease obligations, were as follows as of
June 30, 2009:

|        |  |        |           | 
|------- |  | ------ | --------- | 
|June 30 |  | Amount |          
|        |  |        |          
|2010    |  | $      | 5,592,807 | 
|2011    |  |        |          | 
|2012    |  |        | 1,940,159 | 
|        |  |        |           | 
|Total   |  | $      | 7,532,966 | 
|        |  |        |           | 

(4) Concentration and Major Suppliers

For the six
months ended June 30, 2009, Orient Paper had three major suppliers which
primarily accounted for 34%, 30% and 15% of total purchases. The Company does
not believe that it is subject to any material risk of customer concentration.
For the six months and three months ended June 30, 2009, the largest customer accounted for only
4.63% and 5.31%, respectively, of the total sales during the periods. For the three months ended June 30, 2009, major suppliers accounted for 33%, 30% and 16% of total purchases.

(5) Commitments and Contingencies

Operating Lease

Orient Paper
leases 32.95 acres of land at its location from a local government through a
real estate lease with a 30-year term, which expires on December 31, 2031. The
lease requires an annual rental payment of approximately $17,536 This operating
lease is renewable at the end of the 30-year term.

15

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

Future minimum
lease payments are as follows:

|                                 |   |         |         | 
|-------------------------------- | - | ------- | ------- | 
|June 30,                         |   | Amount  |        
|                                 |   |         |        
|2010                             |   | $       | 17,536  | 
|2011                             |   |         | 17,536  | 
|2012                             |   |         | 17,536  | 
|2013                             |   |         | 17,536  | 
|2014                             |   |         | 17,536  | 
|Thereafter                       |   |         | 306,873 | 
|                                 |   |         |         | 
|                                 |   |         |         | 
|Total
  operating lease payments | $ | 394,553 |        
|                                 |   |         |        

Environmental Remediation

In accordance
with the real estate lease, Orient Paper will be obligated to return the land
to its condition prior to the lease. As such, Orient Paper will accrue the cost
estimated to return the land to its prior condition over the 30-year life of
the lease. Orient Paper has not obtained an estimate for those costs, but
management is confident that any such costs that should be accrued are not
material as of June 30, 2009, and December 31, 2008.

Consulting Agreements

On January 1,
2008, Orient Paper entered into three separate written Consulting Agreements
with third-party individuals to provide consulting services during the year of
2008. These Consulting Agreements could be terminated at any time by the
parties with or without cause, effective upon a written 30-day notice. However,
termination by Orient Paper did not waive the obligation of Orient Paper to pay
the consultants. Consulting services under the agreements principally commenced
January 1, 2008, and consisted of various accounting, legal, and regulatory
matters. The consultants further agreed that compensation, which amounted to at
least $500,000 in aggregate under the Consulting Agreements, could be paid by
the Company by issuing restricted shares of common stock under the terms
mutually agreed upon by both parties at a future date. For the year ended
December 31, 2008, $500,000 of consulting expense was recorded for services
rendered by the three consultants with the issuance of 5,000,000 shares of
common stock of the Company.

Commitments to Barron Partners, LP

On June 25,
2009, (the Closing) the Company was made a party to a Purchase and Sale
Agreement and an Escrow Agreement among Xushui District Dongfang Trading
Limited Company (Xushui Dongfang), Barron Partners, LP, el at (Barron
Partners) and Sichenzia Ross Friedman Ference LLP (SRFF) as escrow agent.
Barron Partners purchased 2,000,000 shares of the Companys common stock from
Xushui Dongfang pursuant to the Purchase and Sale Agreement. As in inducement
for Barron Partners purchase and to facilitate the Companys effort to
establish a U.S. expense fund using $500,000 of Xushui Dongfangs sales
proceeds, the Company agreed to undertake the following obligations:

| |      |                                                                                                                                                                                                                                                                      
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i.   | execute the
  relevant instruments prior to Closing in order that the Company complies with
  The Interim Regulation on Merger and
  Acquisition of Domestic Enterprises by Foreign Investors,
  promulgated on August 8, 2006 and effective as of September 8, 2006;
| |      |                                                                                                                                                                                                                                                                      
| | ii.  | make payment
  of $500,000 or the Renminbi(Chinese
  currency) equivalent of the same representing the amount of sales proceeds of
  Xushui Dongfang that was escrowed by the escrow agent directly to Xushui
  Dongfang;                                            
| |      |                                                                                                                                                                                                                                                                      
| | iii. | appoint a
  Big 10 accounting firm as its independent auditor within six (6) months of
  the date of Closing;                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                      
| | iv.  | provided the
  Company is eligible, apply to list on the AMEX Stock Exchange within three (3) months
  of the Closing;                                                                                                                                               

16

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | v.   | issue or
  cause to be issued to SRFF 60,000 shares of common stock of the Company in
  part payment of its past legal fees;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | vi.  | not effect
  or enter into or be in any agreement to effect any transaction involving a
  Variable Rate Transaction or an MFN Transaction (each as defined below)
  for a period of three (3) years from Closing. The term Variable Rate Transaction
  shall mean a transaction in which the Company issues or sells (i) any debt or
  equity securities that are convertible into, exchangeable or exercisable for,
  or include the right to receive additional shares of common stock either (A)
  at a conversion, exercise or exchange rate or other price that is based upon
  and/or varies with the trading prices of or quotations for the shares of
  common stock at any time after the initial issuance of such debt or equity
  securities, or (B) with a conversion, exercise or exchange price that is
  subject to being reset at some future date after the initial issuance of such
  debt or equity security or upon the occurrence of specified or contingent
  events directly or indirectly related to the business of the Company or the
  market for the common stock. The term MFN Transaction shall mean a
  transaction in which the Company issues or sells any securities in a capital
  raising transaction or series of related transactions which grants to an
  investor the right to receive additional shares based upon future
  transactions of the Company on terms more favorable than those granted to
  such investor in such offering. Any Purchaser shall be entitled to obtain
  injunctive relief against the Company to preclude any such issuance, which remedy
  shall be in addition to any right to collect damages.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | vii. | not cause to
  be cancelled all convertible debt in the Company on or prior to Closing and
  for a period of three (3) years from the Closing, the Company will not issue
  any convertible debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Concurrently
with the Closing, the Company, along with its subsidiaries Shengde Holdings,
Inc. and Baoding Shengde Paper Co. Ltd., entered into a series of Contractual
Agreements (see Note (1) for details of the Contractual Agreements) with HBOP
and its original shareholders with respect to commitment i. above.

At Closing, $500,000 of Xushui Dongfangs sales proceeds
  was transferred to an escrow account. On June 25, 2009, the Company made a payment in
  the amount of RMB 3,416,550 (approximately $500,000) to Xushui Dongfang and
  acquired the beneficial interest of the escrowed fund of $500,000 as of the
  date of such payment. Pursuant to the Escrow Agreement, any disbursement of
  the escrowed fund is limited to the payments for the Companys legal, audit
  and investor relations fees. As of June 30, 2009, the escrowed fund is presented
  as restricted cash on the balance sheet with the remaining balance in the amount
  of $430,000.

See Note (7)
for details of the issuance of 60,000 shares of common stock to SRFF on June 24,
2009.

(6) Related Party Transactions

The Chief
Executive Officer of Orient Paper loaned money (over a period of time) to the
Company for working capital purposes, which amounted to $6,131,761 as of June
30, 2009. During the three months and six months ended June 30, 2009, and 2008, Orient Paper did
not make a payment towards this loan. On July 24, 2008, the Chief Executive
Officer of the Company agreed to change the term of the loan from payable on
demand to a period of three years, maturing on July 23, 2011, and with no stated
interest.

On August 1,
2008, a member of the Board of Directors of HBOP loaned money to the Company
for working capital purposes which amounted to $876,578 and $880,200 as of June
30, 2009, and December 31, 2008, respectively. The amount owed bears interest
at 7.56 percent per annum and is due on July 31, 2011.

On August 5,
2008, a member of the Board of Directors of Orient Paper loaned money to the
Company for working capital purposes which amounted to $1,095,722 and
$1,100,250 as of June 30, 2009, and December 31, 2008, respectively. The amount
owed bears interest at 7.56 percent per annum and is due on August 4, 2011.

(7) Common Stock

On December
16, 2006, Orient Paper issued 7,000,000 shares of its common stock for proceeds
of $7,000.

On December
24, 2006, Orient Paper issued 3,300,000 shares of its common stock for proceeds
of $16,500.

17

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008(Unaudited)

On October 29,
2007, Orient Paper entered into an Agreement and Plan of Merger (the Merger
Agreement) between Orient Paper; CARZ Merger Sub, Inc., a Nevada corporation,
and wholly owned subsidiary of Orient Paper; DZH Limited; and the stockholders
of DZH Limited. Under the terms of the Merger Agreement, Orient Paper issued to
the stockholders of DZH Limited 29,801,987 shares of Orient Papers common
stock, par value $0.001, in exchange for all of the issued and outstanding
shares of stock of DZH Limited (50,000 shares). The shares of common stock of
Orient Paper were issued without registration under the Securities Act of 1933,
and were distributed pro rata among the stockholders of DZH Limited in
accordance with their respective ownership interests in DZH Limited immediately
before completion of the merger transaction. As a result of the Merger
Agreement, DZH Limited merged with CARZ Merger Sub, Inc., with DZH Limited as
the surviving entity. As such, DZH Limited became a wholly owned subsidiary of
Orient Paper, which in turn, made Orient Paper the indirect owner of DZH
Limiteds operating subsidiary, HBOP, pursuant to the terms of a trust
agreement between DZH Limited and the original shareholders of HBOP.

For financial
reporting purposes, DZH Limited is considered to have acquired Orient Paper by
a reverse merger through the Merger Agreement, and its stockholders currently
have voting control of Orient Paper. As such, the accompanying financial
statements and related disclosures in the notes to financial statements present
the financial position as of June 30, 2008, and December 31, 2007, and the
operations for the six months ended June 30, 2008, and 2007, of DZH Limited and
its subsidiary HBOP under the name of Orient Paper. The reverse merger has been
recorded as a recapitalization of Orient Paper, with the consolidated net
assets of DZH Limited and its wholly owned operating subsidiary HBOP, and net
assets Orient Paper brought forward at their historical bases. The costs
associated with the reverse merger have been expensed as incurred.

On December
21, 2007, by a majority vote of the stockholders of Orient Paper, the amount of
authorized common stock, par value $0.001 per share, was increased from
75,000,000 shares to 500,000,000 shares. In addition, Orient Paper eliminated
preemptive rights to acquire unissued shares of its common stock.

On April 23,
2008, Orient Paper established a 2008 Equity Incentive Plan (Equity Incentive
Plan), granted to individuals who were affiliates of Orient Paper. As part of
this Equity Incentive Plan, Orient Paper registered with the SEC 5,000,000
shares of its common stock, at a proposed maximum offering price of $0.75 per
share.

On May 15,
2008, the Company issued to three consultants 5,000,000 shares of common stock
for services rendered and to be rendered during the year 2008 with a value of
$500,000.

On May 1,
2009, the Company entered into a loanout agreement under which Winston C. Yen
was appointed as the Chief Financial Officer of the Company. As part of the
compensation, the Company is to issue 20,000 shares of common stock to Mr. Yen
within the initial one-year term of employment, with 5,000 shares vesting
quarterly starting May 10, 2009. The Company issued the first 5,000 shares on
May 11, 2009.

On June 24,
2009, the Company entered into an escrow agreement (see Note (5) for details of
the escrow agreement) with Xushui District Dongfang Trading Limited Company,
Sichenzia Ross Friedman Ference LLP (“SRFF”) and Barron Partner, LP et al to
establish an escrow fund of $500,000 for the purposes of paying for its U.S.
legal, audit and IR costs. In connection with the first payment of past legal
fees out of the escrow fund, the Companys Board of Directors resolved to
issue 60,000 shares of common stock to SRFF as part payment for certain past
legal services.

(8) Income Taxes

On March 16,
2007, the National Peoples Congress in China passed the New Enterprise Income
Tax Law effective January 1, 2008. Orient Papers Enterprise Income Tax rate is
25% effective January 1, 2008. The provision for income taxes for the six
months ended June 30, 2009, and 2008, were as follows (25% effective tax rate):

|                            |  |      |           |      |   |           | 
|--------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                            |  | 2009 |           | 2008 |  
|                            |  |      |           |      |  
|                            |  |      |           |      |  
|Current Tax
  Provision:    |  |      |           |      |   |           | 
|National and local-         |  | $    | 1,673,463 |      | $ | 1,249,942 | 
|                            |  |      |           |      |   |           | 
|                            |  |      |           |      |   |           | 
|Total current tax provision |  | $    | 1,673,463 |      | $ | 1,249,942 | 
|                            |  |      |           |      |   |           | 

18

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008

(9) Change in the Board of Directors and
Management

Effective
November 16, 2007, each of the following individuals was appointed by the Board
of Directors of Orient Paper to serve until his or her successor is chosen or
upon his or her earlier resignation or removal as an officer of Orient Paper in
accordance with the Bylaws of Orient Paper: Zhenyong Liu, Chief Executive
Officer; Jing Hao, Chief Financial Officer; and, Dahong Zhou, Secretary.

Effective
November 30, 2007, Hui Ping Cheng resigned in her capacity as the sole member
of the Board of Directors of Orient Paper. Effective the same date, Zhenyong
Liu, Xiaodong Liu, Fuzeng Liu, and Chen Li were appointed to the Board of
Directors to serve until his or her successor is chosen or upon his or her
earlier death, resignation, or removal as a member of the Board of Directors in
accordance with the Bylaws of Orient Paper. Zhenyong Liu was also appointed as
Chairman of the Board of Directors of Orient Paper.

Effective May
1, 2009, Ms. Jing Hao resigned as the Chief Financial Officer. Effective May 1,
2009, Orient Paper entered into a Loanout Agreement with Winston C. Yen, CPA, A
Professional Accounting Corporation, for Mr. Winston C. Yen to serve as the
Chief Financial Officer, for an initial term of one year.

(10) Recent Accounting Pronouncements

In December
2007, the FASB issued SFAS No. 141R, Business
Combinations  Revised 2007  (SFAS No. 141R), which replaces FASB
Statement No. 141, Business Combinations
.. SFAS No. 141 restablishes principles and requirements intending to improve
the relevance, representational faithfulness, and comparability of information
that a reporting entity provides in its financial reports about a business
combination and its effects. This is accomplished through requiring the
acquirer to recognize assets acquired and liabilities assumed arising from
contractual contingencies as of the acquisition date, measured at their
acquisition-date fair values. This includes contractual contingencies only if
it is more likely than not that they meet the definition of an asset of a
liability in FASB Concepts Statement No. 6,  Elements
of Financial Statements  a
replacement of FASB Concepts Statement No. 3. This statement also
requires the acquirer to recognize goodwill as of the acquisition date,
measured as a residual. However, this statement improves the way in which an
acquirers obligations to make payments conditioned on the outcome of future
events are recognized and measured, which in turn improves the measure of
goodwill. This statement also defines a bargain purchase as a business
combination in which the total acquisition-date fair value of the consideration
transferred plus any noncontrolling interest in the acquiree, and it requires
the acquirer to recognize that excess in earnings as a gain attributable to the
acquirer. This, therefore, improves the representational faithfulness and
completeness of the information provided about both the acquirers earnings
during the period in which it makes a bargain purchase and the measures of the
assets acquired in the bargain purchase. The management of Orient Paper does
not expect the adoption of this pronouncement to have a material impact on its
financial statements.

In December
2007, the FASB issued SFAS No. 160,  Noncontrolling
Interests in Consolidated Financial Statements  amendment of ARB No. 51
 (SFAS No. 160). SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the
consolidated financial statements and separate from the parents equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
No. 160 clarifies that changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the fair value of
the noncontrolling equity investment on the deconsolidation date. SFAS No. 160
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest.

SFAS No. 160
is effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. The
management of Orient Paper does not expect the adoption of this pronouncement
to have a material impact on its financial statements.

In March 2008,
the FASB issued FASB Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB
Statement 133 (SFAS No. 161). SFAS No. 161 enhances required
disclosures regarding derivatives and hedging activities, including enhanced
disclosures regarding how: (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
No. 133,

19

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008

Accounting for Derivative Instruments and Hedging Activities
; and (c) derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. Specifically, FASB
No. 161 requires:

| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | Disclosure
  of the objectives for using derivative instruments be disclosed in terms of
  underlying risk and accounting designation;
| |   |                                                                                                                                       
| |  | Disclosure
  of the fair values of derivative instruments and their gains and losses in a
  tabular format;                           
| |   |                                                                                                                                       
| |  | Disclosure
  of information about credit-risk-related contingent features; and                                                        
| |   |                                                                                                                                       
| |  | Cross-reference
  from the derivative footnote to other footnotes in which derivative-related
  information is disclosed.             

FASB No. 161
is effective for fiscal years and interim periods beginning after November 15,
2008. Earlier application is encouraged. The management of Orient Paper does
not expect the adoption of this pronouncement to have a material impact on its
financial statements.

In May 2008,
the FASB issued FASB Statement No. 162,  The
Hierarchy of Generally Accepted Accounting Principles  (SFAS No.
162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States of America. The
sources of accounting principles that are generally accepted are categorized in
descending order as follows:

| |    |                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | FASB
  Statements of Financial Accounting Standards and Interpretations, FASB
  Statement 133 Implementation Issues, FASB Staff Positions, and American
  Institute of Certified Public Accountants (AICPA) Accounting Research
  Bulletins and Accounting Principles Board Opinions that are not superseded by
  actions of the FASB.
| |    |                                                                                                                                                                                                                                                                                                                                       
| | b) | FASB
  Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
  Accounting Guides and Statements of Position.                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                       
| | c) | AICPA
  Accounting Standards Executive Committee Practice Bulletins that have been
  cleared by the FASB, consensus positions of the FASB Emerging Issues Task
  Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts (EITF
  D-Topics).                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                       
| | d) | Implementation
  guides (Q&As) published by the FASB staff, AICPA Accounting
  Interpretations, AICPA Industry Audit and Accounting Guides and Statements of
  Position not cleared by the FASB, and practices that are widely recognized
  and prevalent either generally or in the industry.                                        

SFAS No. 162
is effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendment to its authoritative literature. It is
only effective for nongovernmental entities; therefore, the GAAP hierarchy will
remain in SAS 69 for state and local governmental entities and federal
governmental entities. The management of Orient Paper does not expect the
adoption of this pronouncement to have a material impact on its financial
statements.

On May 26,
2008, the FASB issued FASB Statement No. 163,  Accounting for Financial Guarantee Insurance Contracts 
(SFAS No. 163). SFAS No. 163 clarifies how FASB Statement No. 60,  Accounting and Reporting by Insurance
Enterprises
 (SFAS No. 60), applies to financial guarantee insurance contracts issued by
insurance enterprises, including the recognition and measurement of premium
revenue and claim liabilities. It also requires expanded disclosures about
financial guarantee insurance contracts.

The accounting
and disclosure requirements of SFAS No. 163 are intended to improve the
comparability and quality of information provided to users of financial
statements by creating consistency. Diversity exists in practice in accounting
for financial guarantee insurance contracts by insurance enterprises under SFAS
No. 60,  Accounting and Reporting by
Insurance Enterprises.  That diversity results in inconsistencies
in the recognition and measurement of claim liabilities because of differing
views about when a loss has been incurred under FASB Statement No. 5,  Accounting for Contingencies  (SFAS
No.
5). SFAS No. 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default when there is evidence that credit
deterioration has occurred in an insured

20

---



ORIENT PAPER, INC. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008 (Unaudited)

financial
obligation. It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations and (b) the insurance enterprises surveillance
or watch list.

SFAS No. 163
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years, except
for disclosures about the insurance enterprises risk-management activities.
Disclosures about the insurance enterprises risk-management activities are
effective the first period beginning after issuance of SFAS No. 163. Except for
those disclosures, earlier application is not permitted. The management of
Orient Paper does not expect the adoption of this pronouncement to have
material impact on its financial statements.

On May 28, 2009, the FASB issued FASB Statement No. 165, Subsequent
  Events (SFAS No. 165). Statement 165 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.
  This SFAS requires, among other things, the disclosure of the date through which
  an entity has evaluated subsequent events and the basis for that date. An entity
  should apply the requirements under SFAS No. 165 to interim or annual financial
  periods ending after June 15, 2009. The Company does not expect the adoption
  of this pronouncement to have material impact on its financial statements 166,167 and 168 to include.

On June 9, 2009, the FASB issued FASB Statement No. 166, “Accounting for
Transfers of Financial Assets- an amendment of FASB Statement No, 140” (“SFAS No.166”).
SFAS No.166 revises the derecognization provision of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities” and will require entities to provide more information about sales of securitized financial assets and
similar transactions, particularly if the seller retains some risk with respect to the assets.
It also eliminates the concept of a "qualifying special-purpose entity."  This statement is effective for financial asset transfers
occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. The Company does not expect the
adoption of this pronouncement to have material impact on its financial statements.

In June 2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation No. 46(R)." SFAS No.167 amends certain requirements of FASB
Interpretation No. 46(R), “Consolidation of Variable Interest Entities” to improve financial reporting by companies involved with
variable interest entities and to provide additional disclosures about the involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement
with a variable interest entity affects the reporting entity's financial statements.  This Statement shall be effective as of the
beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009.  The Company does not expect
the adoption of this pronouncement to have material impact on its financial statements.

(11) Subsequent Events

On July 1,
2009, the Company renewed the short-term working capital loan which expired on
June 4, 2009, with the Industrial and Commercial Bank of China. The principal
amount of the renewed working capital loan is in the amount of $876,578 (or RMB
6,000,000 yuan), which will expire on June 30, 2010. Interest only payments are
due monthly at a fixed rate of 5.841% per annum. The loan is secured by
manufacturing equipment of the Company.

On July 23,
2009, the Companys Board of Directors resolved to approve the issuance of a
two-year warrant to purchase 100,000 shares of the Companys common stock at
the price of $1.00 per share as an incentive payment to CCG Investor Relations
Partners LLC as part compensation for their investor relations services in the
next 12 months. The warrant has a cashless exercise provision and a piggyback
registration right.

21

---



Item 2. Managements Discussion and Analysis
or Plan of Operation

Cautionary Notice Regarding Forward-Looking
Statements

In
  this Quarterly Report, references to Orient Paper, OPAI,
  the Company, we, our, us, and
  the Companys wholly-owned subsidiary, HBOP, refer to Orient
  Paper, Inc.

We
make certain forward-looking statements in this report. Statements concerning
our future operations, prospects, strategies, financial condition, future
economic performance (including growth and earnings), demand for our services,
and other statements of our plans, beliefs, or expectations, including the
statements contained under the captions Managements Discussion and Analysis
of Financial Condition and Results of Operations, Business, as well as captions
elsewhere in this document, are forward-looking statements. In some cases these
statements are identifiable through the use of words such as anticipate,
believe, estimate, expect, intend, plan, project,
target, can,
could, may, should, will, would, and similar expressions. We intend
such forward-looking statements to be covered by the safe harbor provisions
contained in Section 27A of the Securities Act of 1933, as amended (the
Securities Act) and in Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). The forward-looking statements we make are not
guarantees of future performance and are subject to various assumptions, risks,
and other factors that could cause actual results to differ materially from
those suggested by these forward-looking statements. Because such statements
are subject to risks and uncertainties, actual results may differ materially
from those expressed or implied by the forward-looking statements. Indeed, it
is likely that some of our assumptions will prove to be incorrect. Our actual
results and financial position will vary from those projected or implied in the
forward-looking statements and the variances may be material. You are cautioned
not to place undue reliance on such forward-looking statements. These risks and
uncertainties, together with the other risks described from time to time in
reports and documents that we file with the SEC should be considered in
evaluating forward-looking statements.

The
nature of our business makes predicting the future trends of our revenue,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our
actual results may differ materially from the anticipated results indicated in
these forward-looking statements. Important factors that could cause actual
results to differ from those in the forward-looking statements include, without
limitation, the following:

| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | the effect
  of political, economic, and market conditions and geopolitical events;
| |   |                                                                                    
| |  | legislative
  and regulatory changes that affect our business;                     
| |   |                                                                                    
| |  | the
  availability of funds and working capital;                                   
| |   |                                                                                    
| |  | the actions
  and initiatives of current and potential competitors;                
| |   |                                                                                    
| |  | investor
  sentiment; and                                                          
| |   |                                                                                    
| |  | our
  reputation.                                                                  

We
do not undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by any
forward-looking statements.

The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this Report.

Results of Operations

Comparison of the
Three Months Ended June 30, 2009 and 2008

Revenue

Revenue
  for the three months ended June 30, 2009 was $22,400,383, an increase of $4,847,129
  or 27.61 % from $17,553,254 for the comparable period in 2008. Revenue from
  corrugated paper amounted to $11,295,498 (or 50.43% of total revenue) for the
  three months ended June 30, 2009, representing a $3,859,610 (or 51.91%) increase
  over the corrugated paper revenue of $7,435,888 for the comparable period in
  2008. Revenue from high-grade offset paper amounted to $4,796,738 (or 21.41%
  of total revenue) for the three months

22

---



ended June 30, 2009, representing a $2,468,678 (or 106.04%) increase
  over the high-grade offset paper revenue of $2,328,060 for the comparable period
  in 2008. On the other hand, revenue from medium-grade offset paper for the three
  months period ended June 30, 2009 dropped $1,929,442 to $1,070,933, which represents
  only 4.78% of the total revenue for the second quarter of 2009. Revenue from
  writing paper amounted to $5,237,214 (or 23.38% of total revenue) for the three
  months ended June 30, 2009, representing an increase of $448,283 (or 9.36%)
  increase over the writing paper revenue of $4,788,931 for the comparable period
  in 2008. A summary of these changes is as follows:

|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  
|------------------------- |  | -------------------------------------------- | ---------- | -------------------------------------------- | - | ---------- |  | - | ---------- | - |  | ------- | -
|                          |  | 3 Months
        Ended June
        30, 2009 |            | 3 Months
        Ended June
        30, 2008 |   | Change     |  | % |           
|                          |  |                                              |            |                                              |   |            |  |   |           
|Corrugated Paper          |  | $                                            | 11,295,498 |                                              | $ | 7,435,888  |  | $ | 3,859,610  |   |  | 51.91   | %
|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  
|Medium-grade Offset Paper |  |                                              | 1,070,933  |                                              |   | 3,000,375  |  |   | (1,929,442 | ) |  | (64.31% | )
|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  
|High-grade Offset Paper   |  |                                              | 4,796,738  |                                              |   | 2,328,060  |  |   | 2,468,678  |   |  | 106.04  | %
|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  
|Writing Paper             |  |                                              | 5,237,214  |                                              |   | 4,788,931  |  |   | 448,283    |   |  | 9.36    | %
|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  
|Total Sales Revenue       |  | $                                            | 22,400,383 |                                              | $ | 17,553,254 |  | $ | 4,847,129  |   |  | 27.61   | %
|
|                          |  |                                              |            |                                              |   |            |  |   |            |   |  |         |  

Corrugated
papers remain a strong source of growth in our sales. In addition to optimization
of our paper machine speed to maximize output, we believe industrial and
packaging needs for corrugated paper will at least keep expanding gradually as
Chinas manufacturing activities rebound from the economic downturn.

Generally,
unit sales prices for our paper products during the second quarter of 2009
remained stable as compared to the first quarter of the year, and were even
slightly lower as compared to the same period ended June 30, 2008, when
commodities prices rose sharply, including the costs of our raw materials.
Nevertheless, the increase in our sales revenue was primarily attributable to
new customers who placed purchase orders for our high-grade offset papers and
corrugated paper products.

Among
our 5 new printing paper customer accounts added during the second quarter of
2009, we picked up a local printing house as a major new customer and a paper
distributor in Beijing that ordered large quantities of offset paper and
writing paper. We anticipate that they will continue ordering from us in the
next periods. In the corrugated paper sector, 9 new accounts were also added to
our customer list during the second quarter of 2009. Overall, sales to our new
printing/writing paper customers account for 17.82% of our second quarter 2009
total sales revenue. Sales to new corrugated paper customers account for 17.21%
of our second quarter 2009 sales revenue.

Gross Profit

Gross
profit for the three months ended June 30, 2009 was $3,968,983, an increase of
$798,838 or 25.20%, from $3,170,145 for the comparable period in 2008. The
increase was primarily attributable to increased production and sales
activities and was generally in direct proportion to the increase in sales. The
gross profit margin for the three months ended June 30, 2009, decreased slightly
by 0.34% from 18.06% to 17.72%, thanks to the growth in corrugated paper sales, which generally command a lower profit margin compared to printing and writing papers.

Income from operations

Operating
income for the three months ended June 30, 2009 was $3,693,175, an increase of
$725,846 or 24.46%, from $2,967,329 for the comparable period in 2008. The
increase was primarily attributable to increased sales and gross profit in the
quarter ended June 30, 2009.

Cost of Sales

Cost
of sales for the three months ended June 30, 2009 was $18,431,400 (or 82.28% of
total sales revenue), an increase of $4,048,291 or 28.15% (compare to 27.61%
increase in sales revenue) from $14,383,109 for the comparable period in 2008.
The increase in cost of sales is largely due to and in direct proportion to the
increased sales revenue.

23

---



Selling, General and Administrative Expenses

General
and administrative expenses for the three months ended June 30, 2009 were
$275,808, an increase of $72,992 or 35.99% from $202,816 for the comparable
period in 2008. The increase was primarily attributable to more payments for
various professional service fees related to our status as a public company.
Despite the increase, total selling, general and administrative expenses
as a percentage to sales increased only slightly, from 1.16% for the second
quarter of 2008 to 1.23% for the comparable period in 2009.

Net Income

Net
income was $2,474,658 for the three months ended June 30, 2009, an increase
of $169,093 or 7.33% from $2,305,565 for the comparable period in 2008. As
explained previously, the increase was primarily attributable to the increased
sales activities and the gross profit.

Accounts Receivable

Accounts
receivable increased $357,688 (or 15.03%) to $2,737,705 as of June 30, 2009,
compared with $2,380,017 as of March 31, 2009. The increase in accounts receivable was primarily
attributable to increased sales volume (compared to increased sales revenue of
27.61%). There was no change in our credit policies toward sales on account.

Inventory

Inventory
consists of raw materials and finished goods. As of June 30, 2009, the recorded
value of our inventory has increased 314.46 % to $5,676,123 from $1,369,524 as
of March 31, 2009. The increase is mainly due to the following:

(1)
an increase in the stock of recycled paper board, a major raw material in the
production of corrugated paper, in the amount of $2,619,728 as compared to the
recycled paper board inventory balance as of March 31, 2009 as a result of the
continuing growth in sales of corrugated paper during the first half of this
year. Sales of corrugated paper in the three months ended June 30, 2009
increased $4,562,905 (or 25.58%) over the comparable 3-month period ended March
31, 2009. We believe the growth in corrugated paper sales will continue into
the third quarter of the year.

(2)
an increase in the stock of pulp, a major raw material used to produce high-grade
offset paper and white card paper, which we are capable of making but is not a
regular major product line in the past. We received customer orders for white
card paper at the end of June 2009. We completed production and sold white card
paper for more than $1.8 million in July 2009.

(3)
an increase in the stock of recycled printed paper, which is a major raw
material in the production of writing paper, in the amount of $472,318 (or
3,457.42%) over the balance as of March 31, 2009. Sales of writing paper in the
three months ended June 30, 2009 increased by $1,289,376 (or 32.66%) over the
comparable 3-month period ended March 31, 2009.

(4)
a decrease in the stock of recycled white edge paper, which is a major raw
material in the production of medium-grade offset paper. The decrease in
recycled white edge paper corresponds to the decrease in medium-grade offset
paper sales in the second quarter of 2009. However, we believe the decrease in
medium-grade offset paper sales is temporary.

24

---



The
Company anticipates that raw material costs may remain relatively low at least
in the third quarter of 2009. A summary of inventory balances as of June 30,
2009 and March 31, 2009 and analysis of their changes are as follows:

|                                  |  |               |           |                |   |           |  |          |           |   |  |          |  
|--------------------------------- |  | ------------- | --------- | -------------- | - | --------- |  | -------- | --------- | - |  | -------- | -
|                                  |  | June 30, 2009 |           | March 31, 2009 |   | $ Change  |  | % Change |          
|                                  |  |               |           |                |   |           |  |          |          
|Raw
        Materials             |  |               |           |                |   |           |  |          |           |   |  |          |  
|Recycled
        paper board      |  | $             | 2,867,865 |                | $ | 248,137   |  | $        | 2,619,728 |   |  | 1,055.76 | %
|Pulp                              |  |               | 1,445,742 |                |   | 264,294   |  |          | 1,181,448 |   |  | 447.02   | %
|Recycled
        printed paper    |  |               | 485,979   |                |   | 13,661    |  |          | 472,318   |   |  | 3,457.42 | %
|Recycled
        white edge paper |  |               | 13,369    |                |   | 151,067   |  |          | (137,698  | ) |  | (91.15%  | )
|                                  |  |               |           |                |   |           |  |          |           |   | 
|Total
        Raw Materials       |  |               | 4,812,955 |                |   | 677,159   |  |          | 4,135,796 |   |  | 610.76   | %
|                                  |  |               |           |                |   |           |  |          |           |   |  |          |  
|Finished
        Goods            |  |               | 863,168   |                |   | 692,365   |  |          | 170,803   |   |  | 24.67    | %
|                                  |  |               |           |                |   |           |  |          |           |   |  |          |  
|Totals                            |  | $             | 5,676,123 |                | $ | 1,369,524 |  | $        | 4,306,599 |   |  | 314.46   | %
|                                  |  |               |           |                |   |           |  |          |           |   |  |          |  

Accounts Payable

Accounts
payable was $2,779,164 as of June 30, 2009, an increase of $1,288,270 or
86.41% from $1,490,894 as of March 31, 2009. The increase was primarily related
to the inventory purchase made toward the end of the month of June 2009.

Comparison of the
Six Months Ended June 30, 2009 and 2008

Revenue

Revenue
for the six months ended June 30, 2009 was $40,237,862, an increase of
$9,156,575 or 29.46% from $31,081,287 for the comparable period in 2008. The
increase was attributable to the increase in demand in corrugated paper and
high-grade offset paper. Revenue from corrugated paper amounted to $19,685,572
(or 48.92% of total revenue) for the six months ended June 30, 2009,
representing a $6,920,117 (or 54.21%) increase over the corrugated paper
revenue of $12,765,455 for the comparable period in 2008. Revenue from
high-grade offset paper amounted to $8,283,864 (or 20.59% of total revenue) for
the six months ended June 30, 2009, representing a $2,951,348 (or 55.35%)
increase over the high-grade offset paper revenue of $5,332,516 for the
comparable period in 2008. Conversely, revenue from medium-grade offset
paper for the six months ended June 30, 2009 dropped $3,253,228 to $3,082,795,
which represents only 7.66% of the total revenue for the first half of 2009.
Revenue from writing paper amounted to $9,185,631 (or 22.83% of total revenue)
for the six months ended June 30, 2009, representing an increase of $2,538,338
(or 38.19%) over the writing paper revenue of $6,647,293 for the
comparable period in 2008. A summary of these changes is as follows:

|                          |  |                                |            |                                |   |            |  |   |            |   |  |        |   
|------------------------- |  | ------------------------------ | ---------- | ------------------------------ | - | ---------- |  | - | ---------- | - |  | ------ | --
|                          |  | 6
  Months Ended June 30, 2009 |            | 6
  Months Ended June 30, 2008 |   | Change     |  | % |           
|                          |  |                                |            |                                |   |            |  |   |           
|                          |  |                                |            |                                |   |            |  |   |           
|Corrugated Paper          |  | $                              | 19,685,572 |                                | $ | 12,765,455 |  | $ | 6,920,117  |   |  | 54.21  | % 
|Medium-grade Offset Paper |  |                                | 3,082,795  |                                |   | 6,336,023  |  |   | (3,253,228 | ) |  | (51.34 | )%
|High-grade Offset Paper   |  |                                | 8,283,864  |                                |   | 5,332,516  |  |   | 2,951,348  |   |  | 55.35  | % 
|Writing Paper             |  |                                | 9,185,631  |                                |   | 6,647,293  |  |   | 2,538,338  |   |  | 38.19  | % 
|                          |  |                                |            |                                |   |            |  |   |            |   |  |        |   
|Total Sales Revenue       |  | $                              | 40,237,862 |                                | $ | 31,081,287 |  | $ | 9,156,575  |   |  | 29.46  | % 
|                          |  |                                |            |                                |   |            |  |   |            |   |  |        |   

Gross Profit

Gross Profit
for the six months ended June 30, 2009 was $7,305,422, an increase of $1,651,748
or 29.22% from $5,653,674 for the comparable period in 2008. The increase was
primarily attributable to the continued growth in corrugated paper and
high-grade offset paper. The gross profit margin for the six months ended June
30, 2009 decreased slightly by 0.03% from 18.19% to 18.16%.

25

---



Income
from operations

Operating
income for the six months ended June 30, 2009, was $6,830,861, an
increase of $1,600,960 or 30.61% from $5,229,901 for the comparable period in
2008. The increase was primarily
attributable to increased sales and gross profit of our corrugated paper and
high-grade offset paper products.

Cost of Sales

Total
  cost of sales for the six months ended June 30, 2009, was $32,932,440, an increase
  of $7,504,827 or 29.51% from $25,427,613 for the comparable period in 2008.
  The increase in cost of sales is largely in line with the increase proportionately,
  as our gross profit percentage for the first half of the year remains at roughly
  18.2%, almost unchanged from a year ago.

Selling, General and Administrative Expenses

General
and administrative expenses for the six months ended June 30, 2009 were
$474,561, an increase of $50,788 or 11.98% from $423,773 for the comparable
period in 2008. The increase was primarily attributable to payments of various
professional service fees related to our status as a public company.

Net Income

Net
income was $4,773,260 for the six months ended June 30, 2009, an increase of $1,023,435 or 27.29%
from $3,749,825 for the comparable period in 2008. The increase was primarily
attributable to increased sales revenue and gross profit during the six months
ended June 30, 2009.

Accounts Receivable

Accounts
receivable increased 190.46% to $2,737,705 as of June 30, 2009, compared with
$942,525 at June 30, 2008. The increase in accounts receivable was in relation to the increased sales volume in
the year of 2009, particularly in the last month of the second quarter. We
typically collect essentially all of the accounts receivable within 30 days of
sales on account. Sales revenue for the month of June was $7,586,245 and
$6,176,498 for the years of 2009 and 2008, respectively. The monthly increase
of sales in the amount of $1,409,747 from the month of June 2008 to June 2009
provides a major source for the increased balance of $942,525 in accounts
receivable as of June 30, 2009.

Inventory

Inventory
consists of raw materials and finished goods. As of the six months ended June 30, 2009, the recorded
value of our inventory has increased 107.42% to $5,676,123 from $2,736,524 as
of June 30, 2008. A summary of changes in major inventory items is as follows:

|                          |  |                 |           |                 |   |            |  |            |           |   |  |        |   
|------------------------- |  | --------------- | --------- | --------------- | - | ---------- |  | ---------- | --------- | - |  | ------ | --
|                          |  | June
  30, 2009 |           | June
  30, 2008 |   | $
  Change |  | %
  Change |          
|                          |  |                 |           |                 |   |            |  |            |          
|Raw Materials             |  |                 |           |                 |   |            |  |            |           |   |  |        |   
|Recycled paper boards     |  | $               | 2,867,865 |                 | $ | 1,643,388  |  | $          | 1,224,477 |   |  | 74.51  | % 
|Pulp                      |  |                 | 1,445,742 |                 |   | 241,567    |  |            | 1,204,175 |   |  | 498.48 | % 
|Recycled printed paper    |  |                 | 485,979   |                 |   | 49,487     |  |            | 436,492   |   |  | 882.03 | % 
|Recycled white edge paper |  |                 | 13,369    |                 |   | 84,597     |  |            | (71,228   | ) |  | (84.20 | )%
|                          |  |                 |           |                 |   |            |  |            |           |   |  |        |   
|
|Total Raw Materials       |  |                 | 4,812,955 |                 |   | 2,019,039  |  |            | 2,793,916 |   |  | 138.38 | % 
|                          |  |                 |           |                 |   |            |  |            |           |   |  |        |   
|Finished Goods            |  |                 | 863,168   |                 |   | 717,485    |  |            | 145,683   |   |  | 20.30  | % 
|                          |  |                 |           |                 |   |            |  |            |           |   |  |        |   
|Totals                    |  | $               | 5,676,123 |                 | $ | 2,736,524  |  | $          | 2,939,599 |   |  | 107.42 | % 
|                          |  |                 |           |                 |   |            |  |            |           |   |  |        |   

The
increase is mainly due to an increase in raw material costs for recycled paper
board and pulp. As explained above, the increase in raw materials was caused by
a number of factors, including an increase in corrugated paper sales and orders
for white card paper that use pulp as main raw materials.

26

---



Accounts Payable

Accounts
payable (excluding non-inventory purchase payables and accrued expenses) was
$2,779,164 for the six months
ended June 30, 2009, a decrease of $4,325,802 or 60.88% from $7,104,966
from exactly a year ago. The decrease was primarily attributable to the surge
in inventory stock as of June 30, 2009 as compared to the inventory stock a
year ago.

Liquidity
and Capital Resources

Overview

We
had net working capital of $5,387,582 at June 30, 2009, an increase of
$6,553,377 over a net working capital deficit of ($1,165,795) at December 31,
2008.

Cash and
Cash Equivalents

Our
  cash and cash equivalents as of the beginning of the six months ended June 30,
  2009 was $3,234,418 and increased to $6,664,238 by the end of the period, an
  increase of $3,429,819 or 106.04% over the base amount at January 1, 2009. The
  net change in cash and cash equivalents represented an increase of $2,339,024
  or 96.09% from $2,434,236 for the comparable period in 2008. The increase over
  the comparable 2008 balance was primarily attributable to the large cash outflow
  for the acquisitions of additional machinery and equipments in the second quarter
  of 2008. We have not had any additions to property, plant and equipment in the year 2009.

Net cash
provided by operating activities

Net
cash provided by operating activities was $5,075,708 for the six months ended June 30, 2009, a decrease
of $6,315,624 or 55.40% from $11,391,332 for the comparable period in 2008.
However, net income increased $1,023,435 or 27.29% from $3,749,825 for the
comparable period in 2008. The decrease in cash and cash equivalents, compared to the same
period in 2008, is mainly attributable to the increased balance of accounts
receivable and inventory.

Net cash
used in investing activities

The
Company incurred $ 0 cash expenditure in investing activities during the
six months ended June 30,
2009, a decrease of $12,401,234 or 100% from $12,401,234 for the
comparable period in 2008. The decrease over the comparable 2008 period was
primarily attributable to our acquisition of a new writing paper production
line and new paper milling machine calendars. We have not made any major
additions to property, plant and equipment in 2009.

Net cash
used in financing activities

Net
cash used by financing activities was $1,307,349 during the six months ended June 30, 2009, a decrease
of $2,389,379 or (220.80%) from the $1,082,030 cash provided by financing
activities, the net cash provided by financing activities for the comparable period
in 2008. While we borrowed from our shareholders and obtained additional bank
loans during the six months ended June 30, 2008, the only financing activity in
2009 was the pay-off of a short-term loan with Huaxia Bank.

Short
term loans

On
January 31, 2008, HBOP entered into a loan agreement with the Industrial and
Commercial Bank of China, Xushui Branch, for a loan in the amount of RMB
13,000,000 yuan ($1,899,252 at June 30, 2009). The loan is renewable at
maturity and is subject to a 6.372% interest rate. The loan is secured by
certain manufacturing equipments of the Company and payable on the maturity
date of January 29, 2009. On January 21, 2009 the Company and the Bank renewed
the loan agreement for another 12 months and extended the maturity date to
January 20, 2010.

On
March 10, 2008, HBOP entered into a loan agreement with Huaxia Bank,
Shijiazhuang Branch, for a loan in the amount of RMB 8,500,000 yuan. The loan
is renewable and subject to a 9.828% per annum interest rate. The loan is
guaranteed by a third party guarantor, Hebei Small-Medium Enterprise Credit
Guarantee Service Center, a quasi-governmental agency, and is due and payable
on the maturity date of March 5, 2009. On and after March 5, 2009, the Bank
granted a grace period to the HBOP for purpose of negotiating for loan renewal.
The Company then arranged to receive a one-month bridge loan from Hebei
Small-Medium Enterprise Credit Gurantee Service Center to pay off the Huaxia
Bank loan. The bridge loan carried a monthly interest of 0.933%. We paid off
the bridge loan and accrued interest in the amount of $1,266,557 on April 30,
2009.

27

---



On
September 5, 2008, HBOP entered into a loan agreement with the Industrial and
Commercial Bank of China, Xushui Branch, for a credit facility in the amount of
RMB 6,000,000 yuan ($876,578 at June 30, 2009). The loan is renewable at
maturity and subject to an 8.217% interest rate. The loan is due and payable on
the maturity date of June 4, 2009. The Company renewed the loan with the bank
for another 12-month period on July 1, 2009.

On
January 23, 2009, HBOP entered into a short term credit facility extension
agreement with United Commercial Bank (China) Limited, for the extension of a
revolving credit facility in the amount of $2,000,000 and a non-revolving
import loan of $816,977. The original credit facility agreement was entered
into on April 14, 2006 and extended on May 8, 2007. Under the terms of the
extension agreement, The loan is collateralized by the Companys building and
land use rights and personally guaranteed by Zhenyong Liu, our Chief Executive
Officer. Interest payment is made quarterly and is indexed to a floating
interest rate, based upon 5% plus the three-month LIBOR, adjustable every three
months. The entire principal of $2,816,977 is due and payable on June 30, 2009.
As of date of this From 10-Q, we are still negotiating with the United
Commercial Bank (China) Limited to renew the credit facility. The credit
facility agreement includes certain covenants that require the Company to
maintain (1) the equity to debt (including contingent liabilities) ratio at no
less than 50%, and (2) its current ratio at no less than 100%. The Company is
in compliance with these covenants as of June 30, 2009.

Long
term loan

On
August 12, 2008, HBOP entered into a loan agreement with the Rural Credit
Cooperative of Xushui, Dayin Branch, for a loan in the amount of RMB 13,280,000
yuan ($1,940,159 as of June 30, 2009). The loan is guaranteed by an unrelated
third party, Hebei Chenyang Industry and Trade Group Co., Ltd., and carries a
0.774% interest rate per month. The loan runs for three years, starting
September 16, 2008, and is payable on the maturity date of September 16, 2011.

Shareholder
loans

On
December 31, 2006, Zhenyong Liu, our Chief Executive Officer, loaned money to
HBOP for working capital purposes, which amounted to RMB 41,970,716 yuan
($6,131,761 as of June 30, 2009). The loan is non-interest bearing and is to be
paid in installments of RMB20,000,000 per year, or as otherwise to be
negotiated, depending on the liquidity condition of HBOP. On July 24, 2008, Mr.
Liu agreed to change the loan term to three years. As such, the loan, as
amended, is non-interest bearing and is due on July 23, 2011.

On
August 1, 2008, Shuangxi Zhao, a director of HBOP, loaned money to HBOP for
working capital purposes, which amounted to $876,578 as of June 30, 2009. The
amount owed bears interest at 7.56% per annum (equivalent to the interest rate
determined by the Peoples Bank of China), and is due on July 31, 2011.

On
August 5, 2008, Xiaodong Liu, a member of our Board of Directors, loaned money
to HBOP for working capital purposes, which amounted to $1,095,722 as of June
30, 2009. The amount owed bears interest at 7.56% per annum (equivalent to the
interest rate determined by the Peoples Bank of China), and is due on August
4, 2011.

Contractual Obligations

We
have certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our financial position, results of operations, and cash flows.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 
|--------------------------- |  | ---------------------- | --------- | ------------------ | - | ----------- |  | ----------- | ------ | ------------------- | - | --------- |  | - | ------- | 
|                            |  | Payments Due by Period |          
|                            |  |                        |          
|Contractual
  Obligations   |  | Total                  |           | Less than
  1 year |   | 1  3 years |  | 3  5 years |        | More than
  5 years |  
|                            |  |                        |           |                    |   |             |  |             |        |                     |  
|Long-Term Debt Obligations  |  | $                      | 7,532,966 |                    | $ | 5,592,807   |  | $           |       |                     | $ | 1,940,159 |  | $ |        | 
|R&D Project Obligation      |  |                        |          |                    |   |            |  |             |       |                     |   |          |  |   |        | 
|Operating Lease Obligations |  |                        | 394,553   |                    |   | 17,536      |  |             | 35,072 |                     |   | 35,072    |  |   | 306,873 | 
|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 
|Total                       |  | $                      | 7,927,519 |                    | $ | 5,610,343   |  | $           | 35,072 |                     | $ | 1,975,231 |  | $ | 306,873 | 
|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 

28

---



Off Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The
Companys financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require us 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 periods. Management makes these estimates using the best
information available at the time the estimates are made. However, actual
results could differ materially from those estimates (See Note 2 in the Notes
to Financial Statements).

Recent Accounting Pronouncements

In
December 2007, the FASB issued SFAS No. 141R, Business Combinations  Revised 2007
(SFAS No. 141R), which replaces FASB Statement No. 141, Business Combinations. SFAS
No. 141R establishes
principles and requirements intending to improve the relevance,
representational faithfulness, and comparability of information that a
reporting entity provides in its financial reports about a business combination
and its effects. This is accomplished through requiring the acquirer to
recognize assets acquired and liabilities assumed arising from contractual
contingencies as of the acquisition date, measured at their acquisition-date
fair values. This includes contractual contingencies only if it is more likely
than not that they meet the definition of an asset of a liability in FASB
Concepts Statement No. 6, Elements of Financial Statements  a
replacement of FASB Concepts Statement No. 3.This statement also
requires the acquirer to recognize goodwill as of the acquisition date,
measured as a residual. However, this statement improves the way in which an
acquirers obligations to make payments conditioned on the outcome of future
events are recognized and measured, which in turn improves the measure of
goodwill. This statement also defines a bargain purchase as a business
combination in which the total acquisition-date fair value of the consideration
transferred plus any noncontrolling interest in the acquiree, and it requires
the acquirer to recognize that excess in earnings as a gain attributable to the
acquirer. This, therefore, improves the representational faithfulness and
completeness of the information provided about both the acquirers earnings
during the period in which it makes a bargain purchase and the measures of the
assets acquired in the bargain purchase. The management of Orient Paper does
not expect the adoption of this pronouncement to have a material impact on its
financial statements.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements  amendment of ARB No. 51 (SFAS
No. 160). SFAS No. 160 establishes new accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parents equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS No. 160
clarifies that changes in a parents ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest.

SFAS
No. 160 is effective for fiscal years and interim periods within those fiscal
years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
The management of Orient Paper does not expect the adoption of this
pronouncement to have a material impact on its financial statements.

In
March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement 133
(SFAS No. 161). SFAS No. 161 enhances required

29

---



disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding
how: (a) an entity uses derivative instruments; (b) derivative instruments and
related hedged items are accounted for under FASB No. 133, Accounting for Derivative Instruments
and Hedging Activities; and (c) derivative instruments and related
hedged items affect an entitys financial position, financial performance, and
cash flows. Specifically, FASB No. 161 requires:

| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | Disclosure of the
  objectives for using derivative instruments be disclosed in terms of
  underlying risk and accounting designation;
| |   |                                                                                                                                       
| |  | Disclosure of the fair
  values of derivative instruments and their gains and losses in a tabular
  format;                           
| |   |                                                                                                                                       
| |  | Disclosure of information
  about credit-risk-related contingent features; and                                                        
| |   |                                                                                                                                       
| |  | Cross-reference from the
  derivative footnote to other footnotes in which derivative-related
  information is disclosed.             

FASB
No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. Earlier application is encouraged. The management of Orient
Paper does not expect the adoption of this pronouncement to have a material
impact on its financial statements.

In
May 2008, the FASB issued FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted accounting principles
in the United States of America. The sources of accounting principles that are
generally accepted are categorized in descending order as follows:

| |    |                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | FASB Statements of
  Financial Accounting Standards and Interpretations, FASB Statement 133
  Implementation Issues, FASB Staff Positions, and American Institute of
  Certified Public Accountants (AICPA) Accounting Research Bulletins and
  Accounting Principles Board Opinions that are not superseded by actions of
  the FASB.
| |    |                                                                                                                                                                                                                                                                                                                                       
| | b) | FASB Technical Bulletins
  and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and
  Statements of Position.                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                       
| | c) | AICPA Accounting Standards
  Executive Committee Practice Bulletins that have been cleared by the FASB,
  consensus positions of the FASB Emerging Issues Task Force (EITF), and the
  Topics discussed in Appendix D of EITF Abstracts (EITF D-Topics).                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                       
| | d) | Implementation guides
  (Q&As) published by the FASB staff, AICPA Accounting Interpretations,
  AICPA Industry Audit and Accounting Guides and Statements of Position not
  cleared by the FASB, and practices that are widely recognized and prevalent
  either generally or in the industry.                                        

SFAS
No. 162 is effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendment to its authoritative literature. It is
only effective for nongovernmental entities; therefore, the GAAP hierarchy will
remain in SAS 69 for state and local governmental entities and federal
governmental entities. The management of Orient Paper does not expect the
adoption of this pronouncement to have a material impact on its financial
statements.

On
May 26, 2008, the FASB issued FASB Statement No. 163, Accounting for Financial Guarantee
Insurance Contracts (SFAS No. 163). SFAS No. 163 clarifies how
FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises
(SFAS No. 60), applies to financial guarantee insurance contracts issued by
insurance enterprises, including the recognition and measurement of premium
revenue and claim liabilities. It also requires expanded disclosures about
financial guarantee insurance contracts.

The
accounting and disclosure requirements of SFAS No. 163 are intended to improve
the comparability and quality of information provided to users of financial
statements by creating consistency. Diversity exists in practice in accounting
for financial guarantee insurance contracts by insurance enterprises under SFAS
No. 60, Accounting and Reporting by
Insurance Enterprises. That
diversity results in inconsistencies in the recognition and measurement of
claim liabilities because of differing views about when a loss has been
incurred under FASB Statement No. 5, Accounting
for Contingencies (SFAS
No. 5). SFAS No. 163 requires that an insurance enterprise recognize a
claim liability prior to an event of default when there is evidence that credit
deterioration has occurred in an insured financial obligation. It also requires
disclosure about (a) the risk-management activities used by an insurance

30

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enterprise to evaluate
credit deterioration in its insured financial obligations and (b) the insurance
enterprises surveillance or watch list.

SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for disclosures about
the insurance enterprises risk-management activities. Disclosures about the
insurance enterprises risk-management activities are effective the first
period beginning after issuance of SFAS No. 163. Except for those disclosures,
earlier application is not permitted.

On May 28, 2009, the FASB issued FASB Statement No. 165, Subsequent
  Events (SFAS No. 165). Statement 165 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.
  This SFAS requires, among other things, the disclosure of the date through which
  an entity has evaluated subsequent events and the basis for that date. An entity
  should apply the requirements under SFAS No. 165 to interim or annual financial
  periods ending after June 15, 2009. The Company does not expect the adoption
  of this pronouncement to have material impact on its financial statements.

On June 9, 2009, the FASB issued FASB Statement No. 166, “Accounting for
Transfers of Financial Assets- an amendment of FASB Statement No, 140” (“SFAS No.166”).
SFAS No.166 revises the derecognization provision of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities” and will require entities to provide more information about sales of securitized financial assets and
similar transactions, particularly if the seller retains some risk with respect to the assets.
It also eliminates the concept of a "qualifying special-purpose entity."  This statement is effective for financial asset transfers
occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. The Company does not expect the
adoption of this pronouncement to have material impact on its financial statements.

In June 2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation No. 46(R)." SFAS No.167 amends certain requirements of FASB
Interpretation No. 46(R), “Consolidation of Variable Interest Entities” to improve financial reporting by companies involved with
variable interest entities and to provide additional disclosures about the involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement
with a variable interest entity affects the reporting entity's financial statements.  This Statement shall be effective as of the
beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009.  The Company does not expect
the adoption of this pronouncement to have material impact on its financial statements.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk.

N/A.

Item 4.
Controls and Procedures.

Our
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 Zhenyong Liu, the
Companys Chief Executive Officer (CEO), and Winston C. Yen, 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 six months ended June 30, 2009. Based upon that evaluation, the
Companys CEO and CFO concluded that the Companys disclosure controls and
procedures are 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, and 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.

Changes in internal controls

Our
management, with the participation of our CEO and CFO, performed an evaluation
as to whether any change in our internal controls over financial reporting
occurred during the quarter ended June 30, 2009. Based on that evaluation, our
CEO and CFO concluded that no change occurred in the Companys internal
controls over financial reporting during the quarter ended June 30, 2009 that
has materially affected, or is reasonably likely to materially affect, the
Companys internal controls over financial reporting.

PART II  OTHER INFORMATION

Item 1.
Legal Proceedings.

To
our knowledge, there is no material litigation pending or threatened against
us.

Item 1A.
Risk Factors.

N/A.

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Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds.

As
reported on our Current Report on Form 8-K filed with the SEC on May 5, 2009,
we issued to Winston C. Yen, our Chief Financial Officer, 5,000 shares of the
Companys common stock as consideration for services rendered.

As
reported on our Current Report on Form 8-K filed with the SEC on June 30, 2009,
we issued to Sichenzia Ross Friedman Ference LLP 60,000 shares of the Companys
common stock in part payment of present and past-due legal fees.

In
connection with the foregoing, we relied upon the exemption from securities
registration afforded by Rule 506 of Regulation D and/or Section 4(2) of the
Securities Act, and transfers of such shares were restricted by Orient Paper in
accordance with the requirements of the Securities Act. All of the
above-referenced persons were provided with access to our Securities and
Exchange Commission filings.

Item 3.
Defaults Upon Senior Securities.

To
our knowledge, there are no material defaults upon senior securities.

Item 4.
Submission of Matters to a Vote of Securities Holders.

None.

Item 5.
Other Information.

None.

Item 6.
Exhibits.

(a)
Exhibits

|     |                                                                          
|---- | -------------------------------------------------------------------------
|31.1 | Certification Required
  Under Section 302 of Sarbanes-Oxley Act of 2002.
|     |                                                                          
|31.2 | Certification Required
  Under Section 302 of Sarbanes-Oxley Act of 2002.
|     |                                                                          
|32.1 | Certification Required
  Under Section 906 of Sarbanes-Oxley Act of 2002.
|     |                                                                          
|32.2 | Certification Required
  Under Section 302 of Sarbanes-Oxley Act of 2002.

32

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SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                       |                      |                                 
|---------------------- | -------------------- | --------------------------------
|                       | ORIENT
  PAPER, INC.
|                       |                      |                                 
|                       |                      |                                 
|Dated: August 14, 2009 | By:                  | /s/ Zhenyong Liu                
|                       |                      |                                 
|                       |                      | Name: Zhenyong Liu              
|                       |                      | Title: Chief Executive
  Officer
|                       |                      |                                 
|Dated: August 14, 2009 | By:                  | /s/ Winston C. Yen              
|                       |                      |                                 
|                       |                      | Name: Winston C. Yen            
|                       |                      | Title: Chief Financial
  Officer

33

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