UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
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 September
  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 o

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

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: 14,579,425 shares of common stock, $.001 par
value, were outstanding as of November 6, 2009.

---



TABLE
OF CONTENTS

|           |                                                                                        |    |     
|---------- | -------------------------------------------------------------------------------------- | -- | ----
|           |                                                                                        |    | Page
|           |                                                                                        |    |     
|           | PART I                                                                                 |    |     
|Item 1.    | Financial
  Statements                                                                 |    | F-1 
|Item 2.    | Managements
  Discussion and Analysis of Financial Condition and Results of Operation |    | 3   
|Item 3.    | Quantitative
  and Qualitative Disclosures About Market Risk                           |    | 13  
|Item 4T.   | Controls and
  Procedures                                                              |    | 13  
|           | PART II                                                                                |    |     
|Item 1.    | Legal
  Proceedings                                                                    |    | 14  
|Item 1A.   | Risk Factors                                                                           |    | 14  
|Item 2.    | Unregistered
  Sales of Equity Securities and Use of Proceeds                          |    | 14  
|Item 3.    | Defaults
  Upon Senior Securities                                                      |    | 14  
|Item 4.    | Submission
  of Matters to a Vote of Security Holders                                  |    | 14  
|Item 5.    | Other
  Information                                                                    |    | 14  
|Item 6.    | Exhibits                                                                               |    | 15  
|SIGNATURES |                                                                                        | 16

2

---



PART I  FINANCIAL INFORMATION

|                             | 
|---------------------------- | 
|Item 1. Financial Statements

ORIENT PAPER, INC.
INDEX TO FINANCIAL STATEMENTS 
SEPTEMBER 30, 2009, AND 2008 
(Unaudited)

|                                                                                                                              |    
|----------------------------------------------------------------------------------------------------------------------------- | ---
|Financial Statements-                                                                                                         |    
|                                                                                                                              |    
|Balance Sheets as of September 30, 2009,
  and December 31, 2008                                                              | F-2
|                                                                                                                              |    
|Statements of Operations and Comprehensive
  Income for the Three Months and Nine Months Ended September 30, 2009, and
  2008 | F-3
|                                                                                                                              |    
|Statements of Cash Flows for the Nine
  Months Ended September 30, 2009, and 2008                                             | F-4
|                                                                                                                              |    
|Notes to Financial Statements September 30,
  2009, and 2008                                                                  | F-6

F-1

---



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

|                                                                                                                                                                           |  |               |             |              |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ------------ | - | ----------- | -
|ASSETS                                                                                                                                                                     |  |               |             |              |   |             |  
|                                                                                                                                                                           |  | As of         |             | As of        |  
|                                                                                                                                                                           |  | September 30, |             | December 31, |  
|                                                                                                                                                                           |  | 2009          |             | 2008         |  
|                                                                                                                                                                           |  |               |             |              |  
|Current Assets:                                                                                                                                                            |  |               |             |              |   |             |  
|Cash and cash equivalents                                                                                                                                                  |  | $             | 11,542,958  |              | $ | 3,234,419   |  
|Restricted cash                                                                                                                                                            |  |               | 260,158     |              |   |            |  
|Accounts receivable -Trade (net of allowance for
doubtful accounts of
  $56,764 and $0 in 2009 and 2008, respectively)                                                     |  |               | 2,781,415   |              |   | 1,425,899   |  
|Other                                                                                                                                                                      |  |               | 150         |              |   |            |  
|Inventories                                                                                                                                                                |  |               | 7,069,798   |              |   | 2,821,063   |  
|Prepaid consulting fees and other                                                                                                                                          |  |               | 59,018      |              |   |            |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total current assets                                                                                                                                                       |  |               | 21,713,497  |              |   | 7,481,381   |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Property, Plant, and Equipment:                                                                                                                                            |  |               |             |              |   |             |  
|Building and improvements                                                                                                                                                  |  |               | 9,846,424   |              |   | 9,876,637   |  
|Machinery and equipment                                                                                                                                                    |  |               | 47,202,267  |              |   | 47,347,109  |  
|Vehicles                                                                                                                                                                   |  |               | 543,004     |              |   | 544,670     |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|                                                                                                                                                                           |  |               | 57,591,695  |              |   | 57,768,416  |  
|Less - Accumulated depreciation and
amortization                                                                                                                           |  |               | (15,023,408 | )            |   | (12,427,735 | )
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Net property, plant, and equipment                                                                                                                                         |  |               | 42,568,287  |              |   | 45,340,681  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total Assets                                                                                                                                                               |  | $             | 64,281,784  |              | $ | 52,822,062  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|LIABILITIES
  AND STOCKHOLDERS EQUITY                                                                                                                                     |  |               |             |              |   |             |  
|Current Liabilities:                                                                                                                                                       |  |               |             |              |   |             |  
|Short-term loans                                                                                                                                                           |  | $             | 5,195,229   |              | $ | 6,858,652   |  
|Accounts payable - Trade and accrued
liabilities                                                                                                                           |  |               | 3,810,761   |              |   | 740,846     |  
|Income taxes payable                                                                                                                                                       |  |               | 1,547,007   |              |   | 1,047,678   |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total current liabilities                                                                                                                                                  |  |               | 10,552,997  |              |   | 8,647,176   |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Long-Term Debt, less current portion:                                                                                                                                      |  |               |             |              |   |             |  
|Loan from credit union                                                                                                                                                     |  |               | 1,942,202   |              |   | 1,948,176   |  
|Related party notes                                                                                                                                                        |  |               | 4,110,494   |              |   | 8,137,554   |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total long-term debt                                                                                                                                                       |  |               | 6,052,696   |              |   | 10,085,730  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total liabilities                                                                                                                                                          |  |               | 16,605,693  |              |   | 18,732,906  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Commitments and Contingencies                                                                                                                                              |  |               |             |              |   |             |  
|Stockholders Equity:                                                                                                                                                      |  |               |             |              |   |             |  
|Common stock, 500,000,000 shares authorized; par
value $0.001 per
  share; 12,496,088 shares and 11,275,497 shares issued and outstanding in 2009
  and 2008, respectively |  |               | 12,496      |              |   | 11,275      |  
|Additional paid-in capital                                                                                                                                                 |  |               | 13,695,913  |              |   | 9,598,944   |  
|Statutory earnings reserve                                                                                                                                                 |  |               | 3,079,063   |              |   | 3,079,063   |  
|Accumulated other comprehensive income                                                                                                                                     |  |               | 3,494,728   |              |   | 3,592,839   |  
|Retained earnings                                                                                                                                                          |  |               | 27,393,891  |              |   | 17,807,035  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total stockholders equity                                                                                                                                                 |  |               | 47,676,091  |              |   | 34,089,156  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                                 |  | $             | 64,281,784  |              | $ | 52,822,062  |  
|                                                                                                                                                                           |  |               |             |              |   |             |  

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

F-2

---



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

|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|-------------------------------------------- |  | ------------------ | ---------- | ----------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                             |  | Three Months Ended |            | Nine Months Ended |  
|                                             |  | September 30,      |            | September 30,     |  
|                                             |  |                    |            |                   |  
|                                             |  | 2009               |            | 2008              |   | 2009       |   | 2008 |           
|                                             |  |                    |            |                   |   |            |   |      |           
|Revenues:                                    |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Sales, net                                   |  | $                  | 30,548,611 |                   | $ | 18,256,309 |   |      | 70,786,472 |   | $ | 49,337,596 |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Cost of Sales:                               |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Cost of sales                                |  |                    | 23,369,005 |                   |   | 14,731,043 |   |      | 56,223,156 |   |   | 40,044,007 |  
|Business tax and surcharges                  |  |                    | 53,915     |                   |   | 89,673     |   |      | 132,204    |   |   | 204,322    |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total cost of sales                          |  |                    | 23,422,920 |                   |   | 14,820,716 |   |      | 56,355,360 |   |   | 40,248,329 |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Gross Profit                                 |  |                    | 7,125,691  |                   |   | 3,435,593  |   |      | 14,431,112 |   |   | 9,089,267  |  
|Selling, General and Administrative Expenses |  |                    | 491,676    |                   |   | 231,116    |   |      | 966,238    |   |   | 654,889    |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Income from Operations                       |  |                    | 6,634,015  |                   |   | 3,204,477  |   |      | 13,464,874 |   |   | 8,434,378  |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Other Income (Expense):                      |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Interest income                              |  |                    | 35,522     |                   |   | 34,621     |   |      | 67,464     |   |   | 37,920     |  
|Interest (expense)                           |  |                    | (208,471   | )                 |   | (139,799   | ) |      | (624,551   | ) |   | (373,232   | )
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total other (expense)                        |  |                    | (172,949   | )                 |   | (105,178   | ) |      | (557,087   | ) |   | (335,312   | )
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Income before Income Taxes                   |  |                    | 6,461,067  |                   |   | 3,099,299  |   |      | 12,907,788 |   |   | 8,099,066  |  
|Provision for Income Taxes                   |  |                    | (1,647,468 | )                 |   | (774,825   | ) |      | (3,320,931 | ) |   | (2,024,767 | )
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Net Income                                   |  |                    | 4,813,598  |                   |   | 2,324,474  |   |      | 9,586,856  |   |   | 6,074,299  |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Comprehensive Income:                        |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Foreign currency translation adjustment      |  |                    | 48,155     |                   |   | 223,619    |   |      | (98,111    | ) |   | 1,963,066  |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Total Comprehensive Income                   |  | $                  | 4,861,753  |                   | $ | 2,548,093  |   |      | 9,488,745  |   | $ | 8,037,365  |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Earnings Per Share:                          |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Basic                                        |  | $                  | 0.41       |                   | $ | 0.21       |   | $    | 0.84       |   | $ | 0.57       |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Diluted                                      |  | $                  | 0.41       |                   | $ | 0.21       |   | $    | 0.84       |   | $ | 0.57       |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Weighted Average Number of Shares            |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Outstanding During the Periods:              |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Basic (Post reverse split)                   |  |                    | 11,697,557 |                   |   | 11,275,497 |   |      | 11,418,338 |   |   | 10,600,132 |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  
|Diluted (Post reverse split)                 |  |                    | 11,716,579 |                   |   | 11,275,497 |   |      | 11,424,749 |   |   | 10,600,132 |  
|                                             |  |                    |            |                   |   |            |   |      |            |   |   |            |  

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

F-3

---



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

|                                                                                    |  |                   |            |      |   |             |  
|----------------------------------------------------------------------------------- |  | ----------------- | ---------- | ---- | - | ----------- | -
|                                                                                    |  | Nine Months Ended |           
|                                                                                    |  | September 30,     |           
|                                                                                    |  |                   |           
|                                                                                    |  | 2009              |            | 2008 |  
|                                                                                    |  |                   |            |      |  
|Cash Flows from Operating Activities:                                               |  |                   |            |      |   |             |  
|Net income                                                                          |  | $                 | 9,586,856  |      | $ | 6,074,299   |  
|Adjustments to reconcile net income to net cash
provided by operating
  activities: |  |                   |            |      |   |             |  
|Depreciation and amortization                                                       |  |                   | 2,595,673  |      |   | 2,956,454   |  
|Warrant issued for consulting services                                              |  |                   | 17,723     |      |   |            |  
|Common stock issued for services                                                    |  |                   | 27,300     |      |   | 500,000     |  
|Changes in net assets and liabilities:                                              |  |                   |            |      |   |             |  
|Accounts receivable                                                                 |  |                   | (1,355,665 | )    |   | (750,313    | )
|Inventories                                                                         |  |                   | (4,248,735 | )    |   | (499,031    | )
|Prepaid expenses                                                                    |  |                   | (5,851     | )    |   | (130,000    | )
|Accounts payable - Trade and accrued
liabilities                                    |  |                   | 3,069,915  |      |   | 2,065,846   |  
|Income taxes payable                                                                |  |                   | 499,328    |      |   | 499,918     |  
|                                                                                    |  |                   |            |      |   |             |  
|Net Cash Provided by Operating Activities                                           |  |                   | 10,186,544 |      |   | 10,717,173  |  
|                                                                                    |  |                   |            |      |   |             |  
|Cash Flows from Investing Activities:                                               |  |                   |            |      |   |             |  
|Purchases and adjujstments to property, pland, and
equipment                        |  |                   | 176,721    |      |   | (12,554,348 | )
|                                                                                    |  |                   |            |      |   |             |  
|Net Cash Provided by (Used in) Investing Activities                                 |  |                   | 176,721    |      |   | (12,554,348 | )
|                                                                                    |  |                   |            |      |   |             |  
|Cash Flows from Financing Activities:                                               |  |                   |            |      |   |             |  
|Proceeds from related party loans                                                   |  |                   |           |      |   | 4,304,045   |  
|Payments on related party loans                                                     |  |                   | (27,060    | )    |   |            |  
|Payments on short term loans                                                        |  |                   | (1,663,423 | )    |   |            |  
|Payments on loan from credit union                                                  |  |                   | (5,974     | )    |   |            |  
|Proceeds from borrowings on credit
facility                                         |  |                   |           |      |   | 1,124,413   |  
|                                                                                    |  |                   |            |      |   |             |  
|Net Cash Provided by (Used in) Financing Activities                                 |  |                   | (1,696,457 | )    |   | 5,428,458   |  
|                                                                                    |  |                   |            |      |   |             |  
|Effect of Exchange Rate Changes on Cash and Cash
  Equivalents                      |  |                   | (98,111    | )    |   | 1,963,066   |  
|                                                                                    |  |                   |            |      |   |             |  
|Net Increase in Cash and Cash Equivalents                                           |  |                   | 8,568,697  |      |   | 5,554,349   |  
|Cash and Cash Equivalents - Beginning of Period                                     |  |                   | 3,234,419  |      |   | 622,661     |  
|Less: Restricted Cash                                                               |  |                   | (260,158   | )    |   |            |  
|                                                                                    |  |                   |            |      |   |             |  
|Cash and Cash Equivalents - End of Period                                           |  | $                 | 11,542,958 |      | $ | 6,177,010   |  
|                                                                                    |  |                   |            |      |   |             |  
|Supplemental Disclosure of Cash Flow Information:                                   |  |                   |            |      |   |             |  
|Cash paid for interest                                                              |  | $                 | 503,093    |      | $ | 373,232     |  
|                                                                                    |  |                   |            |      |   |             |  
|Cash paid for income taxes                                                          |  | $                 | 275,497    |      | $ | 1,729,172   |  
|                                                                                    |  |                   |            |      |   |             |  

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

F-4

---



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

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 7,450,497 (post reverse split) 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 1,250,000 (post reverse split) 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 1,250 (post reverse split) shares of common stock to
its CFO as compensation with a fair value of $900. No cash was received as a
result of the issuance of common stock.

On June 24,
2009, the Company issued 15,000 (post reverse split) shares of common stock for
legal fees with a fair value of $26,400. No cash was received as a result of
the issuance of common stock.

On July 23,
2009, the Company issued a two-year warrant to purchase 25,000 (post reverse
split) shares of the Companys common stock at $4.00 (post reverse split) per
share as an incentive for certain consulting services. The value of the warrant
was determined to be $70,890, and has an amortization period of 12 months. No
cash was received from the issuance of the warrant.

On August 31,
2009, Mr. Zhenyong Liu, Chairman and CEO of the Company, converted $4,000,000
of his loan to the Company into 1,204,341 (post reverse split) shares of common
stock. No cash was paid for the conversion of the $4,000,000 loan.

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

F-5

---



ORIENT PAPER, INC.
NOTES TO FINANCIAL STATEMENTS 
SEPTEMBER 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 Peoples Republic of China (PRC). HBOP engages mainly in the production
and distribution of products such as corrugating medium paper, offset paper,
writing paper, and blueprint paper. The Company also has the 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) a
wholly owned subsidiary of Orient Paper, 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
7,450,497 (post reverse split) 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
with certain PRC regulations related to the Companys control over the
ownership and operations of HBOP, 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 wholly owned subsidiaries Shengde Holdings,
Inc. (Shengde Holdings, a Nevada corporation) and Baoding Shengde Paper Co.,
Ltd.

F-6

---



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

(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) an 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) a 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 shareholder agreeing to
contribute all of its proceeds from the loan to the registered capital of HBOP;
(iii) a 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) a 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) a 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.

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 September 30, 2009,
and December 31, 2008, and the operations for the three months and nine months
ended September 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 and related notes 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 September 30, 2009, and December 31, 2008, and the results of
its operations and cash flows for the three months and nine months ended
September 30, 2009, and 2008. The results of operations for the nine months
ended September 30, 2009, are not necessarily indicative of the results to be
expected for future quarters or the year ending December 31, 2009.

F-7

---



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

Foreign Currency Translation

Orient Paper accounts for
foreign currency translation pursuant to Topic 830, Foreign Currency Matters, of the Accounting Standards
Codification (the ASC) of the Financial Accounting Standards Board (the
FASB). Orient Papers functional currency is the Chinese Yuan Renminbi
(RMB). Under ASC 830-30, 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).

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 September 30,
2009, and December 31, 2008, and revenues and expenses for the three months and
nine months ended September 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 conditions 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 upon 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

F-8

---



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

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 September 30, 2009, and December 31, 2008, the balance
of the allowance for doubtful accounts was $56,764 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 (e.g., used paper and pulp paper) 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  

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 nine months ended September 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 September 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

F-9

---



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

the discretion of the Board
of Directors, to the statutory reserves. 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 September 30, 2009, such registered capital is in the
amount of RMB 75,030,000 Yuan, or USD $10,973,148.

The transfer to this reserve
must be made before distribution of any dividends to shareholders. For the
three months and nine months ended September 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
issuance 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 nine months
ended September 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 dividends to shareholders.

Revenue Recognition Policy

Orient Paper recognizes
revenues 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
advertising and promotion costs as incurred. The Company incurred $219 and $ 0
in advertising and promotion costs for the three months ended September 30,
2009, and 2008, respectively. The Company incurred $438 and $0 in advertising
and promotion costs for the nine months ended September 30, 2009, and 2008,
respectively.

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.

F-10

---



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

Income Taxes

Orient Paper accounts for
income taxes pursuant to ASC 740,Income
Taxes. Under ASC 740-10-25, 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 ASC 25, Comprehensive Income. ASC 25 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 nine months ended September 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 ASC 718, Compensation-Stock Compensation,
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 ASC 505-50, Equity Based
Payments to Non-Employees, 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 ASC 505-50.

(2) Inventories

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

F-11

---



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

|                           |  |                 |           |                |   |           | 
|-------------------------- |  | --------------- | --------- | -------------- | - | --------- | 
|                           |  | September
  30, |           | December
  31, |  
|                           |  | 2009            |           | 2008           |  
|                           |  |                 |           |                |  
|Raw Materials-             |  |                 |           |                |   |           | 
|Recycled paperboard        |  | $               | 4,875,573 |                | $ | 797,806   | 
|Pulp                       |  |                 | 12,744    |                |   | 914,061   | 
|Recycled printed paper     |  |                 | 41,342    |                |   | 277,739   | 
|Recycled whilte edge paper |  |                 | 1,069,419 |                |   | 389,151   | 
|Coal                       |  |                 | 305,733   |                |   |          | 
|                           |  |                 |           |                |   |           | 
|Total raw materials        |  |                 | 6,304,811 |                |   | 2,378,757 | 
|Finished Goods             |  |                 | 764,987   |                |   | 442,306   | 
|                           |  |                 |           |                |   |           | 
|Total Inventories          |  | $               | 7,069,708 |                | $ | 2,821,063 | 
|                           |  |                 |           |                |   |           | 
|                           |  |                 |           |                |   |           | 

(3) Loans Payable

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |           |                |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | -------------- | - | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | September
  30, |           | December
  31, |  
|Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | 2009            |           | 2008           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |           |                |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |           |                |   |           | 
|Working capital loan
  provided by Industrial & Commercial Bank of China, secured by certain
  manufacturing equipment of the Company. Interest is payable monthly at the
  fixed rate of 6.372 percent per annum. The entire principal amount is due at
  maturity on January 20, 2010. Renewable upon maturity.                                                                                                                                                                                                                                                                                                                                                                                                   |  | $               | 1,901,252 |                | $ | 1,907,100 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |           |                |   |           | 
|Loan payable to Huaxia
  Bank, guaranteed by a third party guaranty company with a guaranty fee of 2.4
  percent of the outstanding balance payable to the guaranty company. Interest
  is payable monthly at 9.828 percent per annum. 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 Huaxia 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 percent per month. The Company paid off
  the bridge loan on April 30, 2009. |  |                 |          |                |   | 1,246,950 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                 |           |                |   |           | 
|Working capital loan
  provided by Industrial & Commercial Bank of China, secured by certain
  manufacturing equipment of the Company. Interest is payable monthly at the fixed
  rate of 6.372 percent per annum. The entire principal amount is due at
  maturity on January 20, 2010. The note is renewable upon maturity.                                                                                                                                                                                                                                                                                                                                                                                       |  |                 | 877,501   |                |   | 880,200   | 

F-12

---



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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | - | - | ---------- | -
|Short-term credit facility
  provided by the United Commercial Bank (China) Limited (UCB china),
  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 equipment, and is personally
  guaranteed by the Companys Chief Executive Officer and Director. Interest is
  paid monthly with a floating rate indexed to 5 percent plus the three-month
  LIBOR rate, adjusted every three months, and was 5.298 percent per annum on
  September 30, 2009. The original due date of the loan was January 23, 2009,
  and was extended to June 30, 2009, via a Short-Term Credit Facility Extension
  Agreement. On August 20, 2009, the Company and UCB China entered into a
  Short-Term Loan Deferred Payment Agreement (the Deferred Payment
  Agreement). Under the Deferred Payment Agreement, the Company agreed to
  repay the principal amount according to a payment schedule during the period
  from August 31, 2009, through June 30, 2010. See additional details below
  related to the payment schedule. |  |   | 2,416,476  |   |   | 2,824,402  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|Loan payable to Rural
  Credit Cooperative of Xushui County, guaranteed by an unrelated party
  company. The entire amount is due and payable at maturity on September 16,
  2011. Interest is paid monthly at the rate of 0.774 percent per month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 1,942,202  |   |   | 1,948,176  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|Total loans payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 7,137,431  |   |   | 8,806,828  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|Less - Current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   | (5,195,229 | ) |   | (6,858,652 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  
|Total loans payable -
  Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $ | 1,942,202  |   | $ | 1,948,176  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |            |   |   |            |  

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 explained above, on
August 20, 2009, the Company and UCB China entered into a Deferred Payment
Agreement. Under the Deferred Payment Agreement, the Company agreed to repay
the principal amount of the loan according to the following payment schedule:

| |   |                                                                       
| | - | ----------------------------------------------------------------------
| | - | $400,000 on August 31,
  2009                                         
| | - | All the accrued interest
  as of August 31, 2009 on September 15, 2009
| | - | $400,000 on September 30,
  2009                                      
| | - | $200,000 on October 31,
  2009                                        
| | - | $300,000 on November 30,
  2009                                       
| | - | $300,000 on December 31,
  2009                                       
| | - | $200,000 on January 31,
  2010                                        
| | - | $200,000 on February 28,
  2010                                       
| | - | $200,000 on March 31, 2010                                            
| | - | $200,000 on April 30, 2010                                            
| | - | $200,000 on May 31, 2010                                              
| | - | $216,476.39 on June 30, 2010                                          

F-13

---



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

As of September 30, 2009,
Orient Papers United Commercial Bank (China) Limited credit facility had a
maximum borrowing level of $2,416,476, which left zero in borrowing capacity.
The average short-term borrowing rates for the nine months ended September 30,
2009, and 2008, were approximately 6.27 percent and 7.46 percent, respectively.
The credit facility agreement includes certain covenants that require the
Company to maintain (1) the debt to equity (including contingent liabilities)
ratio at no less than 50 percent, and (2) its current ratio at not less than
100 percent. The Company was in compliance with these covenants as of September
30, 2009.

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

|                |  |        |           | 
|--------------- |  | ------ | --------- | 
|September
  30, |  | Amount |          
|                |  |        |           | 
|2010            |  | $      | 5,195,229 | 
|2011            |  |        |          | 
|2012            |  |        | 1,942,202 | 
|Thereafter      |  |        |          | 
|                |  |        |           | 
|Total           |  | $      | 7,137,431 | 
|                |  |        |           | 

(4) Concentrations and Major Suppliers

For the three months ended
September 30, 2009, Orient Paper had three major suppliers, which primarily
accounted for 44 percent, 32 percent, and 11percent of total purchases. For the
nine months ended September 30, 2009, the same major supplies accounted for 36
percent, 33 percent, and 10 percent of total purchases. The Company does not
believe that it is subject to any material risk related to customer
concentrations. For the three months and nine months ended September 30, 2009,
the largest customer accounted for only 7.44 percent and 5.03 percent
respectively, of the total sales during the periods.

(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 $17,537. This operating
lease is renewable at the end of the 30-year term.

Future minimum lease
payments are as follows:

|                                 |  |        |         | 
|-------------------------------- |  | ------ | ------- | 
|September
  30,                  |  | Amount |        
|                                 |  |        |        
|2010                             |  | $      | 17,537  | 
|2011                             |  |        | 17,537  | 
|2012                             |  |        | 17,537  | 
|2013                             |  |        | 17,537  | 
|2014                             |  |        | 17,537  | 
|Thereafter                       |  |        | 302,522 | 
|                                 |  |        |         | 
|Total
  operating lease payments |  | $      | 390,207 | 
|                                 |  |        |         | 

F-14

---



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

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 believes that any such costs that should be accrued were not
material as of September 30, 2009, and December 31, 2008.

The 2008 Consulting Agreements

On January 1, 2008, Orient
Paper entered into three separate written Consulting Agreements (the 2008
Consulting Agreements) with third party individuals to provide consulting
services during the year of 2008. The 2008 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 the Company 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 2008
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 1,250,000 (post reverse split) shares of common stock of the
Company.

Commitments to Barron Partners, LP

On June 25, 2009, (the
Closing) the Company entered into a Purchase and Sale Agreement and an Escrow
Agreement with 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
500,000 (post reverse split) shares of the Companys common stock from Xushui
Dongfang pursuant to the Purchase and Sale Agreement. As an inducement for
Barron Partners purchase and to facilitate the Companys effort to establish
an expense fund in the United States 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 may comply 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 its common stock on the AMEX Stock Exchange within
  three (3) months of the Closing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|v.   | issue or cause to be
  issued to SRFF 15,000 (post reverse split) 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

F-15

---



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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 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 September 30, 2009, the escrowed fund was presented as restricted
cash on the balance sheet with the remaining balance in the amount of $260,158.

See Note (7) for details of the
issuance of 15,000 (post reverse split) 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 HBOP for working
capital purposes, which amounted to RMB 41,970,716 Yuan as of June 30, 2009. 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 31, 2009, the Company,
HBOP, and our Chief Executive Officer entered into a tri-party Debt Assignment
and Assumption Agreement, under which the Company agreed to assume $4,000,000,
or RMB 27,364,800 Yuan, of HBOPs debt owed to our Chief Executive Officer.
Concurrently with the assumption, the Company and our Chief Executive Officer
agreed to convert the $4,000,000 into equity of the Company at $3.32132 (post
reverse split) per share. Accordingly, the Company issued 1,204,341 (post
reverse split) shares of restricted common stock to our Chief Executive Officer
on August 31, 2009. As of September 30, 2009, HBOPs remaining loan balance
payable to our Chief Executive Officer was $2,136,117.

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 $877,501 and $880,200 as of September 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 $1,096,876 and $1,100,250 as of
September 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 1,750,000 (post reverse split) shares of its common stock for
proceeds of $7,000.

F-16

---



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

On December 24, 2006, Orient
Paper issued 825,000 (post reverse split) shares of its common stock for
proceeds of $16,500.

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 7,450,497 (post reverse split) 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.

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 1,250,000 (post
reverse split) shares of its common stock, at a proposed maximum offering price
of $3 (post reverse split) per share.

On May 15, 2008, the Company
issued to three consultants 1,250,000 (post reverse split) 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 5,000 (post reverse split) shares of common stock to Mr. Yen
within the initial one-year term of employment, with 1,250 (post reverse split)
shares vesting quarterly starting May 10, 2009. The Company issued the first
1,250 (post reverse split) 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 issued 15,000 (post reverse split)
shares of common stock to SRFF as part payment for certain past legal services.

On July 23, 2009, the
Companys Board of Directors resolved to approve the issuance of a two-year
warrant to purchase 25,000 (post reverse split) shares of the Companys common
stock at the price of $4.00 (post reverse split) per share as an incentive payment
to CCG Investor Relations Partners LLC as part compensation for their investor
relations services over a period of 12 months. The warrant has a cashless
exercise provision and a piggyback registration right. The fair value of the
warrant was determined to be approximately $70,890 using the Black-Scholes
option pricing model and is amortized over the period of 12 months.

See Note (11), Subsequent
Events, for details of the reverse stock split and issuance of shares in the
October 7, 2009, private placement transaction.

F-17

---



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

(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 provisions for income taxes for the nine months
ended September 30, 2009, and 2008, were as follows (25% effective tax rate):

|                              |  |      |           |      |   |           | 
|----------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                              |  | 2009 |           | 2008 |  
|                              |  |      |           |      |  
|Current Tax Provision:        |  |      |           |      |   |           | 
|National and local-           |  | $    | 3,320,931 |      | $ | 2,024,767 | 
|                              |  |      |           |      |   |           | 
|Total current tax
  provision |  | $    | 3,320,931 |      | $ | 2,024,767 | 
|                              |  |      |           |      |   |           | 

(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 a new standard to establish new accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this standard 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. The standard
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 standard 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. It also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The standard 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 a new standard to enhance required disclosures regarding how: (a) an
entity uses derivative instruments; (b) derivative instruments and related hedged
items are accounted for, and (c) derivative instruments and related hedged
items affect an entitys financial position, financial performance, and cash
flows. Specifically, this new standard requires:

F-18

---



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

| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.             

This standard 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.

On May 28, 2009, the FASB
issued a new standard and 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 standard
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 a new standard to eliminate the concept of a qualifying special-purpose
entity and clarifies existing GAAP as it relates to determining whether a
transferor has surrendered control over transferred financial assets. It also
requires 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. This standard 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 a new standard to improve financial reporting by companies involved with
Variable Interest Entities (VIEs) and to provide additional disclosures about
the involvement with VIEs and any significant changes in risk exposure due to
that involvement. A reporting entity will be required to disclose how its
involvement with a VIE affects the reporting entitys financial statements. This
standard 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.

In June 2009, the FASB
issued the FASB Accounting Standards Codification (the Codification) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretative releases of the SEC are also
sources of authoritative GAAP for SEC registrants. As a result of the
Codification, all changes to GAAP originating from the FASB will now be issued
in Accounting Standards Updates. These changes and the Codification do not
change GAAP. The Company adopted the changes resulting from the Codification,
effective September 30, 2009. Other than the manner in which new accounting
guidance is referenced, the adoption of these changes had no impact on the
Companys results of operations, financial position or notes to financial
statements.

(11) Subsequent Events

Reverse Stock Split

F-19

---



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

On September 21, 2009, the
Board of Directors and majority shareholders of the Company approved an
amendment to the Articles of Incorporation of the Company to effect a
one-for-four (1:4) reverse split of the issued and outstanding shares of the
Companys common stock without changing the par value of the stock (Reverse
Split). At the time of the Reverse Split, holders of outstanding shares of
common stock receive one share of post-Reverse Split common stock for each four
shares of pre-Reverse Split common stock held as of the close of business on
the date the Amendment is filed. No fractional shares of common stock will be
issued in connection with the Reverse Split. All fractional share amounts
resulting from the Reverse Split will be rounded up to the next whole new
share. The Reverse Split became effective on November 5, 2009. The accompanying
financial statements and related notes thereto have been adjusted to reflect
the impact of this reverse stock split.

Consulting Agreement with Chinamerica Holdings Ltd.

On August 15, 2009, The
Company entered into a Consulting Agreement with Chinamerica Holdings, Ltd.
(CA) to appoint CA as an exclusive consultant to the Company for providing
various advisory services relating to capitalization strategy, upgrading the
Companys stock listing and financial communication and assisting the Company
in a $5,000,000 private placement transaction that was closed on October 7,
2009 (see October 2009 Private Placement
below for details of the private placement). In consideration of the services
and upon completion of the private placement, the Company agreed to issue
282,294 (post reverse split) shares of common stock to CA. The Companys Board
of Directors passed a resolution on November 11, 2009 to issue these shares, of
which 225,835 (post reverse split) shares are allocated to cots of issuing
stock with respect to the private placement and 56,459 (post reverse split)
shares are allocable to other consulting services, which fair value is expensed
and amortized over the period from August 15, 2009 to December 31, 2009. As of
September 30, 2009, the Company has accrued consulting expense in the amount of
$125,929 pursuant to the above allocation.

October 2009 Private Placement

On October 7, 2009, the
Company entered into a Securities Purchase Agreement with Access America Fund,
LP, Renaissance US Growth Investment Trust Plc, RENN Global Entrepreneurs
Funds, Inc., Premier RENN Entrepreneurial Fund Limited, Pope Investments II,
LLC and Steve Mazur (collectively, the Buyers) to sell to the Buyers
2,083,333 (post reverse split) shares of the Companys common stock for an
aggregate purchase price of $5,000,000 (the Private Placement). The Private
Placement was closed on October 7, 2009.

In connection to the Private
Placement, the Company agreed to deposit $300,000 of the proceeds in escrow to
pay the expenses of a public relations and investor relations campaign of a
design and type satisfactory to a representative of the Buyers. The Company
also agreed to deposit $2,000,000 of the proceeds in escrow on account of the
Company appointing a Board of Director comprising a majority of independent
Board of Directors acceptable to the Buyers. In addition, the Company agreed to
reimburse Access America Investments, Inc. $100,000 in transactional expenses
from the proceeds of the Private Placement. As of November 9, 2009, the escrow
agent has released the $300,000 and $2,000,000 holdback to the Company
according to related provisions of the escrow agreement.

Make Good Securities Escrow Agreement

In connection with the
Private Placement and on October 7, 2009, the Company entered into a Make Good
Securities Escrow Agreement with the Buyers and Mr. Zhenyong Liu, the Companys
Chief Executive Officer and a major shareholder. As an inducement for the
Buyers to enter and consummate the Private Placement, Mr. Liu agreed to place
750,000 (post reverse split) shares of common stock (the Escrow Shares) into
escrow for the benefit of the Buyers in the event the Company fails to achieve
the following financial performance thresholds for the 12-month periods ended
December 31, 2009 (2009) and December 31, 2010 (2010):

F-20

---



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

(a)
If Net Income for 2009 shall be at least ten per cent (10%) less than the 2009
Performance Threshold, then (x) the 2009 Escrow Shares (defined below) shall be
distributed on a pro rata basis to the Buyers based on the number of shares of
common stock purchased by each Buyer pursuant to the Securities Purchase
Agreement, and (y) within five (5) business days after March 31, 2010, the
Company shall order the escrow agent to issue and deliver the 2009 Escrow
Shares to each Buyer on a pro rata basis. 2009 Escrow Shares shall be number
of Escrow Shares equivalent to the percentage by which the Company missed the
2009 Performance Threshold. For example, if the Company were to miss the 2009
Performance Threshold by 15%, the 2009 Escrow Shares shall comprise 112,500
(post reverse split) shares of common stock.

(b)
If Net Income for 2010 shall be at least ten per cent (10%) less than the 2010
Performance Threshold, then (x) the 2010 Escrow Shares (defined below) shall be
distributed on a pro rata basis to the Buyers based on the number of shares of
common stock purchased by each Buyer pursuant to the Securities Purchase
Agreement, and (y) within five (5) business days after March 31, 2011, the
Company shall order the escrow agent to issue and deliver the 2010 Escrow
Shares to each Buyer on a pro rata basis. 2010 Escrow Shares shall be the
number of Escrow Shares equivalent to the percentage by which the Company
missed the 2010 Performance Threshold. For example, if the Company were to miss
the 2010 Performance Threshold by 25%, the 2010 Escrow Shares shall comprise
187,500 (post reverse split) shares of Common Stock. The 2009 Performance
Threshold shall equal or exceed the Companys 2009 Net Income (as defined in
accordance with the United States GAAP and subject to carve-outs of certain
loss or expense) of $10,000,000 and the 2010 Performance Threshold shall equal
or exceed the Companys 2010 Net Income (as defined in accordance with the
United States GAAP and subject to carve-outs of certain loss or expense) of $18,000,000.

Registration Rights Agreement

In connection with the
Private Placement and on October 7, 2009, the Company entered into a
Registration Rights Agreement with the Buyers. Pursuant to the Registration
Rights Agreement, the Company agreed to file with the SEC a registration
statement on Form S-1 covering the resale of all of the 2,083,333 (post reverse
split) shares of common stock sold to the Buyers within 90 days of the closing
of the Financing.

The Company shall use its
commercially reasonable efforts to have the registration statement declared
effective by the SEC as soon as practicable, but in no event later than the
earlier of (i) 180 days after the closing (ii) 5 business days after the
Company learns that no review of the registration statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on the
registration statement provided that in the event that the Company is unable to
register for resale under Rule 415 all of the Buyers shares of common stock
due to limits imposed by the SECs interpretation of Rule 415, then the Company
shall be obligated to include in such registration statement only such limited
portion of shares as the SEC shall permit. The Company is obligated to file one
or more subsequent registration statements to register the rest of the shares
until all the Buyers shares of common stock are registered, pursuant to the
provisions of the Registration Rights Agreement; provided that the Companys
obligation to file subsequent registration statements shall cease on the first
anniversary of the closing date of the Financing. Each Buyers shares shall be
registered in the subsequent registrations on a pro rata basis.

If a
registration statement is (A) not filed with the SEC on or before the
respective filing deadline (a Filing Failure) or (B) not declared effective
by the SEC as aforesaid, (an Effectiveness Failure) or (ii) on any day after
the respective dates of effectiveness sales of all the shares included on such
registration statement cannot be made because of a failure to keep such
registration statement effective, to disclose such information as is necessary
for sales to be made pursuant to such registration statement, to register a
sufficient number of shares of common stock or to maintain the listing of the
common stock (a Maintenance Failure) then, as partial relief for the damages
to any holder by reason of any such delay in or reduction of its ability to
sell the underlying shares of common stock (A) the Company shall pay to each
holder of shares relating to such registration statement an amount in cash
equal to two percent (2.0%) of the aggregate Purchase Price (as such term is
defined in the Securities Purchase Agreement) of such Buyers shares included
in such Registration Statement on each of the following dates: (i) the day of a
Filing

F-21

---



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

Failure; (ii) the day of an
Effectiveness Failure; and (iii) the initial day of a Maintenance Failure; and
(B) the Company shall pay to each holder of shares relating to such
Registration Statement an amount in cash equal to one percent (1.0%) of the
aggregate Purchase Price of such Buyers shares included in such Registration
Statement on each of the following dates: (i) on the thirtieth day after the
date of a Filing Failure and every thirtieth day thereafter (pro rated for
periods totaling less than thirty days) until such Filing Failure is cured;
(ii) on the thirtieth day after the date of an Effectiveness Failure and every
thirtieth day thereafter (pro rated for periods totaling less than thirty days)
until such Effectiveness Failure is cured; and (iii) on the thirtieth day after
the date of a Maintenance Failure and every thirtieth day thereafter (pro rated
for periods totaling less than thirty days) until such Maintenance Failure is
cured. Defaults in the said payments shall bear interest at the rate of one and
one-half percent (1.5%) per month (prorated for partial months) until paid in
full.

Lock-Up Agreement

In connection with the
Private Placement and on October 7, 2009, Mr. Zhenyong Liu and the Company
entered into a Lock Up Agreement. Under the Lock-Up Agreement, Mr. Liu agreed
that he would not offer, sell, contract to sell, assign, transfer, hypothecate,
pledge or grant a security interest in, or otherwise dispose of, or enter into
any transaction which is designed to, or might reasonably be expected to,
result in the disposition of (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise, directly or indirectly) (each,
a transfer), any of the shares of the Companys common stock that he
presently owns or may acquire after the date of the agreement (Lock-Up
Shares) and shall not transfer such shares until a date that is twelve (12)
months following the closing date under the Securities Purchase Agreement (the
Period), unless (i) the Buyers, who are holders of at least 75% of the shares
of common stock purchased under the Securities Purchase Agreement at the time
of the purported transfer within the Period, consent to the same, such consent
not to be unreasonably withheld, or (ii) all or any part of such Lock-Up Shares
are transferred pursuant to that Make Good Securities Escrow Agreement.

Employee Stock Option Plan

The Company agreed to enact
an employee stock option plan for its directors and employees and certain key
members of management covering options to purchase 375,000 (post reverse split)
shares of common stock of the Company at an exercise price of $2.40 (post
reverse split) per share. The options to purchase such shares shall vest in
three equal installments on each of the first, second and third anniversary of
the grant.

F-22

---



|                                                                  | 
|----------------------------------------------------------------- | 
|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, ORPN, 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

Three Months Ended
September 30, 2009, Versus September 30, 2008

Revenue

Revenue for
the three months ended September 30, 2009 was $30,548,611, an increase of
$12,292,302 or 67.33 % from $18,256,309 for the comparable period in 2008.
Revenue from corrugating medium paper amounted to $10,296,397 (or 33.70% of
total revenue) for the three months ended September 30, 2009, representing a
$2,082,815 (or 25.36%) increase over the corrugating medium paper revenue of
$8,213,582 for the comparable period in 2008.

3

---



Revenue from
medium-grade offset printing paper amounted to $14,142,834 (or 46.30% of total
revenue) for the three months ended September 30, 2009, representing a
$11,560,464 (or 447.67%) increase over the medium-grade offset printing paper
revenue of $2,582,370 for the comparable period in 2008. On the other hand,
revenue from high-grade offset printing paper for the three months period ended
September 30, 2009 dropped $569,253 to $2,257,679, which represents only 7.39%
of the total revenue for the third quarter of 2009. Similarly, revenue from
writing paper amounted to $2,009,085 (or 6.58% of total revenue) for the three
months ended September 30, 2009, representing a decrease of $2,624,340 (or
56.64%) over the writing paper revenue of $4,633,425 for the comparable period
in 2008. We also produced 2,269 tons of white card paper (ivory paper) for
$1,842,616 (or 6.03% of total revenue) in July 2009 at the special order of a
customer. A summary of these changes is as follows:

|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|---------------------------------- |  | -------------------- | ------ | -------------------- | - | ----------- |  | ---------------------- | ------ | --------- | - | ---------- |  | --------- | ------ | ------ | - | ---------- | - |  | ------ | -- |  | ------ | --
|                                   |  | Three
  Months Ended |        | Three
  Months Ended |   |             |  |                        |       
|                                   |  | September
  30, 2009 |        | September
  30, 2008 |   | Change
  in |  | Percentage
  Change in |       
|Revenue                            |  | Qty.(Ton)            |        | Amount               |   | Qty.(Ton)   |  | Amount                 |        | Qty.(Ton) |   | Amount     |  | Qty.(Ton) |        | Amount |  
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |  
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |  
|Corrugating medium Paper           |  |                      | 37,948 |                      | $ | 10,296,397  |  |                        | 19,099 |           | $ | 8,213,582  |  |           | 18,849 |        | $ | 2,082,815  |   |  | 98.69  | %  |  | 25.36  | % 
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|Medium-Grade Offset Printing Paper |  |                      | 21,043 |                      | $ | 14,142,834  |  |                        | 3,088  |           | $ | 2,582,370  |  |           | 17,955 |        | $ | 11,560,464 |   |  | 581.44 | %  |  | 447.67 | % 
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|High-Grade Offset Printing Paper   |  |                      | 2,409  |                      | $ | 2,257,679   |  |                        | 2,530  |           | $ | 2,826,932  |  |           | (121   | )      | $ | (569,253   | ) |  | (4.78  | )% |  | (20.14 | )%
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|Writing Paper                      |  |                      | 3,828  |                      | $ | 2,009,085   |  |                        | 6,291  |           | $ | 4,633,425  |  |           | (2,463 | )      | $ | (2,624,340 | ) |  | (39.15 | )% |  | (56.64 | )%
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|White Card Paper                   |  |                      | 2,269  |                      | $ | 1,842,616   |  |                        |       |           | $ |           |  |           | 2,269  |        | $ | 1,842,616  |   |  | 100.00 | %  |  | 100.00 | % 
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   
|Total Revenue                      |  |                      | 67,497 |                      | $ | 30,548,611  |  |                        | 31,008 |           | $ | 18,256,309 |  |           | 36,498 |        | $ | 12,292,302 |   |  | 117.68 | %  |  | 67.33  | % 
|                                   |  |                      |        |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |    |  |        |   

During the
three months ended September 30, 2009, we sold 37,948 tons of corrugating
medium paper and 21,043 tons of medium-grade offset printing paper, which in
aggregate accounted for 87.40% of our total product quantities sold for the
quarter. Total quantities sold for the quarter ended September 30, 2009,
amounted to 67,497 tons, representing a 117.71% increase over the comparative
period in year 2008. While sales of corrugating medium paper still remain
strong due to a healthy level of manufacturing activities around the region of
Northern China, the demand for our medium-grade offset printing paper, which
primary use is for monochrome printing materials, including school textbooks,
grew even faster. A large portion of our writing paper production capacity was
converted to make more medium-grade offset printing paper.

Generally,
unit sales prices for our paper products during the third quarter of 2009
remained stable as compared to the first two quarters of the year, and were
even slightly lower as compared to the same period ended September 30, 2008,
when commodities prices rose sharply, including the costs of our raw materials.
Nevertheless, we have seen unit sales prices for the corrugating medium and
offset printing paper products going upward starting in September 2009, and
believe the trend may continue through the next few months. During the three
months ended September 30, 2009, we obtained 12 new customers, which accounted
for 6.28% of the quarterly revenue, with the largest new customer (a paper
distributor in Shanghai, China) contributing 4.78% of quarterly revenue.

Gross Profit

Gross profit
for the three months ended September 30, 2009 was $7,125,691, an increase of
$3,690,098, or 107.41% from $3,435,593 for the comparable period in 2008. The
increase was primarily attributable to increased production and sales activities.
The gross profit margin for the three months ended September 30, 2009 increased
by 4.51% from 18.82% to 23.33%. This increase is a result of:

| |     |                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | a windfall
  benefit of a temporary drop in our purchase cost of recycled paper board, a
  major raw material for corrugating medium. Our average cost per ton for
  recycled paper board dropped from about $168 per ton in the second quarter of
  2009 to about $132 per ton in the third quarter of 2009, representing a 27.3%

4

---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | decrease
  from the base period of the quarter ended June 30, 2009. The unit purchase
  cost of recycled paper board in the first week of November 2009 has
  nevertheless come back to the level comparable to the cost of the second
  quarter of the year.                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (2) | an increased
  portion of total quarterly sales represented by the spiked revenue from medium-grade
  offset printing paper for the three months ended September 30, 2009.
  Generally, our white paper products as a group generate 20%-24% gross profit
  margin, while the corrugating medium generate gross profit margin between 13%
  and 17%. As the percentage of white paper products revenue to total revenue
  grew to account for 66.3% for the quarter ended September 30, 2009, the gross
  profit for this quarter reflected the slightly higher gross profit realized
  from the sales of more medium-grade offset printing paper.

Income from operations

Operating
income for the three months ended September 30, 2009 was $6,634,015, an
increase of $3,429,538, or 107.02% from $3,204,477 for the comparable period in
2008. The increase was primarily attributable to increased revenue and gross
profit in the quarter ended September 30, 2009.

Cost of Sales

Cost of sales
for the three months ended September 30, 2009 was $23,422,920 (or 76.67% of
total revenue), an increase of $8,602,204 or 58.04% (compared to a 67.33%
increase in revenue) from $14,820,716 for the comparable period in 2008. The
increase in cost of sales is largely due to and in direct proportion to the
increased revenue.

Selling, General and Administrative Expenses

Selling,
general and administrative expenses for the three months ended September 30,
2009, were $491,676, an increase of $260,560 or 112.74% from $231,116 for the
comparable period in 2008. The increase was primarily attributable to more payments
for various professional service fees, investor relations, and specific
presentations related to our status as a public company. The total selling,
general and administrative expenses as a percentage of revenue increased from
1.27% for the third quarter of 2008 to 1.61% for the comparable period in 2009.

Net Income

Net income was
$4,813,598 for the three months ended September 30, 2009, an increase of
$2,489,124 or 107.08% from $2,324,474 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 trade increased by $43,710 (or 1.60%) to $2,781,415 as of September
30, 2009, compared with $2,737,705 as of June 30, 2009. The increase in
accounts receivable was primarily attributable to increased sales volume
(compared to increased sales revenue of 36.38%). There was no change in our
credit policies toward sales on account.

Inventories

Inventories
consist of raw materials and finished goods. As of September 30, 2009, the
recorded value of our inventories increased by 24.55 % to $7,069,798 from
$5,676,123 as of June 30, 2009. The increase is mainly due to the followings:

(1)
an increase in the stock of recycled paper board, a major raw material in the
production of corrugating medium paper, in the amount of $2,007,708 as compared
to the recycled paper board inventory balance as of June 30, 2009 as a result
of the continuing strong demand for corrugating medium paper. In addition, we
are keeping more paper boards on hand as of September 30, 2009, because our
average purchase price of recycled paper boards increased for roughly 15%, from
RMB 855 yuan/ton to RMB 983 yuan/ton in the month of September 2009 (compared to
that of August 2009). We believe the trend may continue into the fourth quarter
of the year.

5

---



(2)
a decrease in the stock of pulp, a major raw material used to produce high-grade
offset printing paper and white card paper (ivory paper), in the amount of
$1,432,997 (or 99.12%) over the balance as of June 30, 2009. We made white card
papers and high-grade offset printing papers during the month of July 2009 and
did not make any paper product that uses pulp as major raw material during the
last two months of the quarter.

(3)
a decrease in the stock of recycled paper, which is a major raw material in the
production of writing paper, in the amount of $444,637 (or 91.49%) over the
balance as of June 30, 2009. Similar to the production of high-grade offset
printing paper, we did not produce any writing paper in the last two months of
the quarter.

(4)
an increase in the stock of recycled white scrap paper, which is a major raw
material in the production of medium-grade offset printing paper. The increase
in white scrap paper corresponds to the increase in medium-grade offset
printing paper sales in the third quarter of 2009.

(5)
in preparation for the winter season, when coal usually is in tight supply, we
started to keep additional coal, which is used as a fuel, on hand.

A
summary of the balance of inventories as of September 30, 2009, and June 30,
2009, and analysis of their changes are as follows:

|                           |  |                    |           |                  |   |           |  |          |            |   |  |          |   
|-------------------------- |  | ------------------ | --------- | ---------------- | - | --------- |  | -------- | ---------- | - |  | -------- | --
|Inventories                |  | September 30, 2009 |           | June 30, 
  2009 |   | $ Change  |  | % Change |           
|                           |  |                    |           |                  |   |           |  |          |           
|Raw Materials              |  |                    |           |                  |   |           |  |          |            |   |  |          |   
|Recycled paper board       |  | $                  | 4,875,573 |                  | $ | 2,867,865 |  | $        | 2,007,708  |   |  | 70.01    | % 
|Pulp                       |  |                    | 12,744    |                  |   | 1,445,742 |  |          | (1,432,998 | ) |  | (99.12   | )%
|Recycled paper             |  |                    | 41,342    |                  |   | 485,979   |  |          | (444,637   | ) |  | (91.49   | )%
|Recycled white scrap paper |  |                    | 1,069,419 |                  |   | 13,369    |  |          | 1,056,050  |   |  | 7,899.24 | % 
|Coal                       |  |                    | 305,733   |                  |   |          |  |          | 305,733    |   |  | (100.00  | )%
|                           |  |                    |           |                  |   |           |  |          |            |   |  |          |   
|Total Raw Materials        |  |                    | 6,304,811 |                  |   | 4,812,955 |  |          | 1,491,856  |   |  | 31.00    | % 
|                           |  |                    |           |                  |   |           |  |          |            |   |  |          |   
|Finished Goods             |  |                    | 764,987   |                  |   | 863,168   |  |          | (98,181    | ) |  | (11.37   | )%
|                           |  |                    |           |                  |   |           |  |          |            |   |  |          |   
|Totals                     |  | $                  | 7,069,798 |                  | $ | 5,676,123 |  |          | 1,393,675  |   |  | 24.55    | % 
|                           |  |                    |           |                  |   |           |  |          |            |   |  |          |   

Accounts Payable

Accounts
payable was $2,418,342 as of September 30, 2009, an increase of $360,822, or
12.981% from $2,779,165 as of June 30, 2009. The increase was primarily related
to the inventory purchase toward the end of the month of September 2009.

Nine Months Ended
September 30, 2009, Versus September 30, 2008

Revenue

Revenue for
the nine months ended September 30, 2009 were $70,786,472, an increase of
$21,448,876, or 43.47% from $49,337,596 for the comparable period in 2008. The
increase was attributable to (1) the increase in demand in corrugating medium
paper and medium-grade offset printing paper, and (2) ramped up production
capacity from the new white paper production line, and improved efficiency.
Revenue from corrugating medium paper amounted to $29,981,968 (or 42.36% of
total revenue) for the nine months ended September 30, 2009, representing a
$9,016,071 (or 43.00%) increase over the corrugating medium paper revenue of
$20,965,897 for the comparable period in 2008. Revenue from medium-grade offset
printing paper amounted to $17,225,629 (or 24.33% of total revenue) for the
nine month period ended September 30, 2009, which represents a $8,286,314 (or
92.70%) increase over the medium-grade offset printing paper revenue of
$8,939,315 for the comparable period in 2008. Revenue from high-grade offset printing
paper amounted to $10,541,543 (or 14.89% of total revenue) for the nine months
ended September 30, 2009, representing a $2,376,489 (or 29.11%) increase over
the high-grade offset printing paper revenue of $8,165,054 for the comparable
period in 2008. On the other hand, revenue from writing paper for the nine
month period ended September 30, 2009 dropped slightly by $72,614 to
$11,194,716, which represents 15.81% of the total revenue for the first three
quarters of 2009. A summary of these changes is as follows:

6

---



|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|---------------------------------- |  | -------------------- | ------- | -------------------- | - | ----------- |  | ---------------------- | ------ | --------- | - | ---------- |  | --------- | ------ | ------ | - | ---------- | - |  | ------ | - |  | ------ | -
|                                   |  | Nine
  Months Ended  |         | Nine
  Months Ended  |   |             |  |                        |       
|                                   |  | September
  30, 2009 |         | September
  30, 2008 |   | Change
  in |  | Percentage
  Change in |       
|Revenue                            |  | Qty.(Ton)            |         | Amount               |   | Qty.(Ton)   |  | Amount                 |        | Qty.(Ton) |   | Amount     |  | Qty.(Ton) |        | Amount |  
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |  
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |  
|Corrugating medium Paper           |  |                      | 107,767 |                      | $ | 29,981,968  |  |                        | 56,937 |           | $ | 20,965,897 |  |           | 50,830 |        | $ | 9,016,071  |   |  | 89.27  | % |  | 43.00  | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|Medium-Grade Offset Printing Paper |  |                      | 25,951  |                      | $ | 17,225,629  |  |                        | 11,531 |           | $ | 8,939,315  |  |           | 14,420 |        | $ | 8,286,314  |   |  | 125.05 | % |  | 92.70  | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|High-Grade Offset Printing Paper   |  |                      | 11,276  |                      | $ | 10,541,543  |  |                        | 10,792 |           | $ | 8,165,054  |  |           | 484    |        | $ | 2,376,489  |   |  | 4.49   | % |  | 29.11  | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|Writing Paper                      |  |                      | 21,221  |                      | $ | 11,194,716  |  |                        | 16,663 |           | $ | 11,267,330 |  |           | 4,558  |        | $ | (72,614    | ) |  | 27.36  | % |  | -0.64  | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|White Card Paper                   |  |                      | 2,269   |                      | $ | 1,842,616   |  |                        |       |           | $ |           |  |           | 2,269  |        | $ | 1,842,616  |   |  | 100.00 | % |  | 100.00 | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  
|Total Revenue                      |  |                      | 168,484 |                      | $ | 70,786,472  |  |                        | 95,923 |           | $ | 49,337,596 |  |           | 72,561 |        | $ | 21,448,876 |   |  | 75.65  | % |  | 43.47  | %
|                                   |  |                      |         |                      |   |             |  |                        |        |           |   |            |  |           |        |        |   |            |   |  |        |   |  |        |  

Gross Profit

Gross profit
for the nine months ended September 30, 2009 was $ 14,431,112, an increase of
$5,341,845, or 58.77% from $ 9,089,267 for the comparable period in 2008. The
increase was primarily attributable to the continued growth in revenue from
corrugating medium paper and medium-grade offset printing paper. The gross
profit margin for the nine months ended September 30, 2009 increased slightly
by 1.97% from 18.42% to 20.39%.

Income from operations

Operating
income for the nine months ended September 30, 2009 was $ 13,464,874, an
increase of $ 5,030,496, or 59.64% from $ 8,434,378 for the comparable period
in 2008. The increase was primarily attributable to increased revenue and gross
profit of our corrugating medium and high-grade offset printing paper products.

Cost of Sales

Total cost of
sales for the nine months ended September 30, 2009 was $ 56,355,360, an
increase of $ 16,107,031, or 40.02% from $ 40,248,329 for the comparable period
in 2008. The increase in cost of sales is largely in line with the increase
proportionately, with our gross profit percentage for the first three quarters
of the year at roughly 20.39%, just slightly higher than that of the comparable
period last year.

Selling, General and Administrative Expenses

Selling,
general and administrative expenses for the nine months ended September 30,
2009 were $966,238, an increase of $311,349 or 47.54% from $ 654,889 for the
comparable period in 2008. The increase was primarily attributable to payments
of various professional service fees, investor relations, and specific
presentations related to our status as a public company.

Net Income

Net income was
$9,586,856 for the nine months ended September 30, 2009, an increase of
$3,512,557 or 57.83% from $6,074,299 for the comparable period in 2008. The
increase was primarily attributable to increased sales revenue and gross profit
during the nine months ended September 30, 2009.

Accounts Receivable

7

---



Accounts
receivable - trade increased 95.06% to $ 2,781,415 as of September 30, 2009,
compared with $1,860,919 at September 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 usually collected
essentially all of the accounts receivable within 30 days of sales on account.

Inventories

Inventories
consist of raw materials (accounting for 89.18% of total value of ending
inventories as of September 30, 2009) and finished goods. As of September 30,
2009, the recorded value of our inventories increased 685.78% to $7,069,798
from $ 899,720 as of September 30, 2008. A summary of changes in inventories is
as follows:

|                           |  |                    |           |                    |   |          |  |          |           |   |  |          |   
|-------------------------- |  | ------------------ | --------- | ------------------ | - | -------- |  | -------- | --------- | - |  | -------- | --
|                           |  | September 30, 2009 |           | September 30, 2008 |   | $ Change |  | % Change |          
|                           |  |                    |           |                    |   |          |  |          |          
|Raw
  Materials            |  |                    |           |                    |   |          |  |          |           |   |  |          |   
|Recycled paper board       |  | $                  | 4,875,573 |                    | $ | 191,476  |  | $        | 4,684,097 |   |  | 2,446.30 | % 
|Pulp                       |  |                    | 12,744    |                    |   | 345,257  |  |          | (332,513  | ) |  | (96.31   | )%
|Recycled paper             |  |                    | 41,342    |                    |   | 2,313    |  |          | 39,029    |   |  | 1,687.62 | % 
|Recycled white scrap paper |  |                    | 1,069,419 |                    |   | 121,610  |  |          | 947,809   |   |  | 779.38   | % 
|Coal                       |  |                    | 305,733   |                    |   |         |  |          | 305,733   |   |  | 100.00   | % 
|                           |  |                    |           |                    |   |          |  |          |           |   |  |          |   
|Total Raw
  Materials      |  |                    | 6,304,811 |                    |   | 660,656  |  |          | 5,644,155 |   |  | 854.33   | % 
|                           |  |                    |           |                    |   |          |  |          |           |   |  |          |   
|Finished
  Goods           |  |                    | 764,987   |                    |   | 239,064  |  |          | 525,923   |   |  | 219.99   | % 
|                           |  |                    |           |                    |   |          |  |          |           |   |  |          |   
|Totals                     |  | $                  | 7,069,798 |                    | $ | 899,720  |  |          | 6,170,078 |   |  | 685.78   | % 
|                           |  |                    |           |                    |   |          |  |          |           |   |  |          |   

The increase
is mainly due to a number of reasons. Besides our explanation above for the
increased volume in recycled paper boards and recycled white scrap papers at
the end of September 2009, the significant change in inventories was also
caused by our expectations of future inventory purchase costs. At the end of
the third quarter of 2008, we decided to cut down the level of raw material
inventory on hand as we believed the raw material costs would be relatively low
amidst the economic downturn. We now, however, take the view that raw material
prices will steadily rise over the next few months and that we should maintain
our raw material inventory at certain levels to optimize future cost
fluctuations.

Accounts Payable

Accounts
payable (excluding non-inventory purchase payables and accrued expenses) was
$2,418,342 for the nine months ended September 30, 2009, an increase of
$450,764, or 22.91% from $1,967,578 from September 30, 2008. The increase was
primarily attributable to the surge in inventory levels as of September 30,
2009 as compared to the inventory stock as of the end of the previous period.

Liquidity
and Capital Resources

Overview

We had net
working capital of $11,160,500 as of September 30, 2009, an increase of
$13,243,242 over a net working capital deficit of ($2,082,742) as of September
30, 2008.

Cash and
Cash Equivalents

Our cash and
cash equivalents as at the beginning of the nine months ended September 30,
2009 were $3,234,419 and increased to $11,542,958 by the end of the period, an
increase of $8,308,539 or 256.88% over the base amount at January 1, 2009. The
net change in cash and cash equivalents in the amount of $8,568,698 for the
nine months ended September 30, 2009 represented an increase of $3,014,348 or
54.27% from $5,554,349 for the comparable period in 2008. The increase over the
comparable 2008 balance was primarily attributable to the large cash outflow
for acquisitions of additional machinery and equipments in the second quarter
of 2008, and the increased earnings realized in the interim period in year
2009. We have not had any major additions in fixed assets in year 2009.

Net cash
provided by operating activities

8

---



Net cash
provided by operating activities was $10,186,544 for the nine months ended
September 30, 2009, a decrease of $530,629 or 4.95% from $10,717,173 for the
comparable period in 2008. The net income increased $3,512,557 or 57.83% from $6,074,299
for the comparable period in 2008. The decrease in operating cash, compared to
the same period in 2008, is mainly attributable to the increased balances of
accounts receivable and, more substantially, ending inventories as of September
30, 2009. Adjustment to net operating activities cash flows attributable to the
2009 interim inventories amounted to $4,248,735.

Net cash
used in investing activities

The Company
incurred a $425 cash expenditure in investing activities during the nine months
ended September 30, 2009. Combined with translation adjustments on investing
activities, there is a reduction of cash outflow in the amount of $12,731,069
or 101.41% from $12,554,348 for the comparable period in 2008. The reduction of
cash out-flow over the comparable 2008 period was primarily attributable to the
large cash outflows associated with our acquisition of a new white paper
production line and new paper mill machine calendars in year 2008. We have not
made any major fixed asset addition this year.

Net cash
used in financing activities

Net cash used in
financing activities (including translation adjustments) was $1,696,457 during
the nine months ended September 30, 2009, as compared with $5,428,458 net cash
provided by financing activities for the comparable period in 2008. During the
nine months ended September 30, 2009, the company paid off a short-term loan
borrowed from Huaxia Bank and made a partial loan repayment to the United
Commercial Bank (China) Limited in the amount $400,000. During the comparable
period in year 2008 the Company borrowed $4,304,045 from related parties and
$1,124,413 from local banks.

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
($1,901,252 at September 30, 2009). The loan is renewable at maturity and is
subject to a 6.372% annual 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 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 ($877,501 at September 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 and adjusted the interest rate to
5.841% per annum.

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. On August
20, 2009, the Company and the Bank entered into a Short-Term Loan Deferred
Payment Agreement (the Deferred Payment Agreement.) Under the Deferred
Payment Agreement, the Company agrees to repay the principal amount of the loan
according to the following payment schedule:

| |   |                                                                       
| | - | ----------------------------------------------------------------------
| | - | $400,000 on
  August 31, 2009                                         
| | - | All the
  accrued interest as of August 31, 2009 on September 15, 2009
| | - | $400,000 on
  September 30, 2009                                      
| | - | $200,000 on
  October 31, 2009                                        
| | - | $300,000 on
  November 30, 2009                                       
| | - | $300,000 on
  December 31, 2009                                       
| | - | $200,000 on
  January 31, 2010                                        
| | - | $200,000 on
  February 28, 2010                                       
| | - | $200,000 on
  March 31, 2010                                          

9

---



| |   |                               
| | - | ------------------------------
| | - | $200,000 on
  April 30, 2010  
| | - | $200,000 on
  May 31, 2010    
| | - | $216,476.39
  on June 30, 2010

The Company
does not believe the above payment schedule will have any negative impact on
its financial position.

Long term loan

On August 12,
2008, HBOP entered into a loan agreement with the Rural Credit Union of Xushui,
Dayin Branch, for a loan in the amount of RMB 13,280,000 Yuan ($1,942,202 as of
September 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

The Chief
Executive Officer of Orient Paper loaned money (over a period of time) to HBOP
for working capital purposes, which amounted to RMB 41,970,716 Yuan as of June
30, 2009. 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 31,
2008, the Company, HBOP, and our Chief Executive Officer entered into a
tri-party Debt Assignment and Assumption Agreement, under which the Company
agreed to assume $4,000,000, or RMB 27,364,800 Yuan, of HBOPs debt owed to our
Chief Executive Officer. Concurrently with the assumption, the Company and our
Chief Executive Officer agreed to convert the $4,000,000 into equity of the
Company at $3.32132 (post reverse split) per share. Accordingly, the Company
issued 1,204,341 (post reverse split) shares of restricted common stock to our
Chief Executive Officer on August 31, 2009. As of September 30, 2009, HBOPs
remaining loan balance payable to our Chief Executive Officer was $2,136,117.

On August 1,
2008, Shuangxi Zhao, a director of HBOP, loaned money to HBOP for working
capital purposes, which amounted to $877,501 as of September 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.

On August 5,
2008, Xiaodong Liu, a member of our Board of Directors, loaned money to HBOP
for working capital purposes, which amounted to $1,096,876 as of September 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  |  | $                      | 7,137,431 |                    | $ | 5,195,229   |  | $           |       |                     | $ | 1,942,202 |  | $ |        | 
|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 
|Operating Lease Obligations |  |                        | 390,207   |                    |   | 17,537      |  |             | 35,074 |                     |   | 35,074    |  |   | 302,522 | 
|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 
|Total                       |  | $                      | 7,527,638 |                    | $ | 5,212,766   |  | $           | 35,074 |                     | $ | 1,977,276 |  | $ | 302,522 | 
|                            |  |                        |           |                    |   |             |  |             |        |                     |   |           |  |   |         | 

Make Good Securities Escrow Agreement

10

---



On October 7,
2009, the Company entered into a Securities Purchase Agreement with Access
America Fund, LP, Renaissance US Growth Investment Trust Plc, RENN Global
Entrepreneurs Funds, Inc., Premier RENN Entrepreneurial Fund Limited, Pope
Investments II, LLC and Steve Mazur (collectively, the Buyers) to sell to the
Buyers 2,083,333 (post reverse split) shares of the Companys common stock for
an aggregate purchase price of $5,000,000 (the Private Placement). The
Private Placement was closed on October 7, 2009.

In connection
to the Private Placement, the Company agreed to deposit $300,000 of the
proceeds in escrow to pay the expenses of a public relations and investor relations
campaign of a design and type satisfactory to a representative of the Buyers.
The Company also agreed to deposit $2,000,000 of the proceeds in escrow on
account of the Company appointing a Board of Director comprising a majority of
independent Board of Directors acceptable to the Buyers. In addition, the
Company agreed to reimburse Access America Investments, Inc. $100,000 in
transactional expenses from the proceeds of the Private Placement. As of
November 9, 2009, the escrow agent has released the $300,000 and $2,000,000
hold-back to the Company according to related provisions of the escrow
agreement, respectively.

In connection
with the Private Placement and on October 7, 2009, the Company entered into a
Make Good Securities Escrow Agreement with the Buyers and Mr. Zhenyong Liu, the
Companys Chief Executive Officer and a major shareholder. As an inducement for
the Buyers to enter and consummate the Private Placement, Mr. Liu agreed to
place 750,000 (post reverse split) shares of common stock (the Escrow Shares)
into escrow for the benefit of the Buyers in the event the Company fails to
achieve the following financial performance thresholds for the 12-month periods
ended December 31, 2009 (2009) and December 31, 2010 (2010):

(a)
If Net Income for 2009 shall be at least ten per cent (10%) less than the 2009
Performance Threshold, then (x) the 2009 Escrow Shares (defined below) shall be
distributed on a pro rata basis to the Buyers based on the number of shares of
common stock purchased by each Buyer pursuant to the Securities Purchase
Agreement, and (y) within five (5) business days after March 31, 2010, the
Company shall order the escrow agent to issue and deliver the 2009 Escrow
Shares to each Buyer on a pro rata basis. 2009 Escrow Shares shall be number
of Escrow Shares equivalent to the percentage by which the Company missed the
2009 Performance Threshold. For example, if the Company were to miss the 2009
Performance Threshold by 15%, the 2009 Escrow Shares shall comprise 112,500 (post
reverse split) shares of common stock.

(b)
If Net Income for 2010 shall be at least ten per cent (10%) less than the 2010
Performance Threshold, then (x) the 2010 Escrow Shares (defined below) shall be
distributed on a pro rata basis to the Buyers based on the number of shares of
common stock purchased by each Buyer pursuant to the Securities Purchase
Agreement, and (y) within five (5) business days after March 31, 2011, the
Company shall order the escrow agent to issue and deliver the 2010 Escrow
Shares to each Buyer on a pro rata basis. 2010 Escrow Shares shall be the
number of Escrow Shares equivalent to the percentage by which the Company
missed the 2010 Performance Threshold. For example, if the Company were to miss
the 2010 Performance Threshold by 25%, the 2010 Escrow Shares shall comprise
187,500 (post reverse split) shares of Common Stock.

The 2009
Performance Threshold shall equal or exceed the Companys 2009 Net Income (as
defined in accordance with the United States GAAP and subject to carve-outs of
certain loss or expense) of $10,000,000 and the 2010 Performance Threshold
shall equal or exceed the Companys 2010 Net Income (as defined in accordance
with the United States GAAP and subject to carve-outs of certain loss or
expense) of $18,000,000.

Registration Rights Agreement

In connection
with the Private Placement and on October 7, 2009, the Company entered into a
Registration Rights Agreement with the Buyers. Pursuant to the Registration
Rights Agreement, the Company agreed to file with the SEC a registration
statement on Form S-1 covering the resale of all of the 2,083,333 (post reverse
split) shares of common stock sold to the Buyers within 90 days of the closing
of the Financing.

The Company
shall use its commercially reasonable efforts to have the registration
statement declared effective by the SEC as soon as practicable, but in no event
later than the earlier of (i) 180 days after the closing (ii) 5 business days
after the Company learns that no review of the registration statement will be
made by the staff of the SEC or that the staff of the SEC has no further
comments on the registration statement provided that in the event that the
Company is unable to register for resale under Rule 415 all of the Buyers
shares of common stock due to limits imposed by the SECs interpretation of
Rule 415, then the Company shall be obligated to include in such registration
statement only such limited portion of shares as the SEC shall permit. The
Company is obligated to file one or more subsequent

11

---



registration
statements to register the rest of the shares until all the Buyers shares of
common stock are registered, pursuant to the provisions of the Registration
Rights Agreement; provided that the Companys obligation to file subsequent registration
statements shall cease on the first anniversary of the closing date of the
Financing. Each Buyers shares shall be registered in the subsequent
registrations on a pro rata basis.

If a
registration statement is (A) not filed with the SEC on or before the
respective filing deadline (a Filing Failure) or (B) not declared effective
by the SEC as aforesaid, (an Effectiveness Failure) or (ii) on any day after
the respective dates of effectiveness sales of all the shares included on such
registration statement cannot be made because of a failure to keep such
registration statement effective, to disclose such information as is necessary
for sales to be made pursuant to such registration statement, to register a
sufficient number of shares of common stock or to maintain the listing of the
common stock (a Maintenance Failure) then, as partial relief for the damages
to any holder by reason of any such delay in or reduction of its ability to
sell the underlying shares of common stock (A) the Company shall pay to each
holder of shares relating to such registration statement an amount in cash
equal to two percent (2.0%) of the aggregate Purchase Price (as such term is
defined in the Securities Purchase Agreement) of such Buyers shares included
in such Registration Statement on each of the following dates: (i) the day of a
Filing Failure; (ii) the day of an Effectiveness Failure; and (iii) the initial
day of a Maintenance Failure; and (B) the Company shall pay to each holder of
shares relating to such Registration Statement an amount in cash equal to one
percent (1.0%) of the aggregate Purchase Price of such Buyers shares included
in such Registration Statement on each of the following dates: (i) on the
thirtieth day after the date of a Filing Failure and every thirtieth day
thereafter (pro rated for periods totaling less than thirty days) until such
Filing Failure is cured; (ii) on the thirtieth day after the date of an
Effectiveness Failure and every thirtieth day thereafter (pro rated for periods
totaling less than thirty days) until such Effectiveness Failure is cured; and
(iii) on the thirtieth day after the date of a Maintenance Failure and every
thirtieth day thereafter (pro rated for periods totaling less than thirty days)
until such Maintenance Failure is cured. Defaults in the said payments shall
bear interest at the rate of one and one-half percent (1.5%) per month
(prorated for partial months) until paid in full.

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 revenue 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 1 in the Notes to Financial Statements).

Recent Accounting Pronouncements

In December
2007, the FASB issued a new standard to establish new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this standard 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. The
standard 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 standard 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. It also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The standard 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 a new standard to enhance required disclosures regarding how:
(a) an entity uses derivative instruments; (b) derivative instruments and
related hedged items are accounted for, and (c) derivative instruments and
related hedged items affect an entitys financial position, financial
performance, and cash flows. Specifically, this new standard requires:

| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Disclosure
  of the objectives for using derivative instruments be disclosed in terms of

12

---



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |   | 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.

This standard
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.

On May 28,
2009, the FASB issued a new standard and 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
standard 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 a new standard to eliminate the concept of a qualifying
special-purpose entity and clarifies existing GAAP as it relates to determining
whether a transferor has surrendered control over transferred financial assets.
It also requires 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. This standard 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 a new standard to improve financial reporting by companies
involved with Variable Interest Entities (VIEs) and to provide additional
disclosures about the involvement with VIEs and any significant changes in risk
exposure due to that involvement. A reporting entity will be required to
disclose how its involvement with a VIE affects the reporting entitys
financial statements. This standard 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.

In
June 2009, the FASB issued the FASB Accounting Standards Codification (the
Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and interpretative releases
of the SEC are also sources of authoritative GAAP for SEC registrants. As a result
of the Codification, all changes to GAAP originating from the FASB will now be
issued in Accounting Standards Updates. These changes and the Codification do
not change GAAP. The Company adopted the changes resulting from the
Codification, effective September 30, 2009. Other than the manner in which
new accounting guidance is referenced, the adoption of these changes had no
impact on the Companys results of operations, financial position or notes to
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.

13

---



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 nine months ended September 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 September 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 September 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.

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 August 31,
2009, we issued to our Chief Executive Officer, Zhenyong Liu, 1,204,341 (post
reverse split) restricted shares of common stock upon the conversion of certain
debt assumed by the Company pursuant to a debt assignment and assumption
agreement consummated on August 31, 2009. Pursuant to the agreement, we agreed
to assume $4,000,000 of the total aggregate debt of RMB 41,970,716
(approximately, $6,131,761 as of June 30, 2009) (the Debt) owed by
our subsidiary, Hebei Baoding Orient Paper Milling Company Limited, to Mr. Liu.
The conversion of the Debt into equity was priced at $3.32132 per
share.

As
reported on our Current Report on Form 8-K filed with the SEC on October 8,
2009, we entered into a Securities Purchase Agreement with Access America Fund,
LP, Renaissance US Growth Investment Trust Plc, RENN Global Entrepreneurs
Funds, Inc., Premier RENN Entrepreneurial Fund Limited, Pope Investments II,
LLC and Steve Mazur (collectively, the Buyers) to sell to the Buyers
2,083,333 restricted shares of our common stock for an aggregate purchase price
of approximately $5,000,000.

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.

On
September 21, 2009, a majority of shareholders authorized a one-for-four
reverse split of the Companys common stock. The Company effected the reverse
split on November 5, 2009.

Item 5. Other
Information.

14

---



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.

15

---



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:
  November 13, 2009 | By: | /s/ Zhenyong
  Liu              
|                           |     |                                 
|                           |     | Name:
  Zhenyong Liu            
|                           |     | Title: Chief
  Executive Officer
|                           |     |                                 
|Dated:
  November 13, 2009 | By: | /s/ Zhenyong
  Liu              
|                           |     |                                 
|                           |     | Name:
  Winston C. Yen          
|                           |     | Title: Chief
  Financial Officer

16

---