~~Item 1A. Risk Factors~~

Item 1A.

Risk Factors.

Risks Relating to our Business

In order to comply with PRC regulatory requirements, we operate our businesses through companies with which we have contractual relationships but in which we do not have controlling ownership. If the PRC government determines that our agreements with these companies are not in compliance with applicable regulations, our business in the PRC could be materially adversely affected.

We do not have direct or indirect equity ownership of HBOP which operates all our ~~main~~ business in China. At the same time, however, we have entered into contractual arrangements with HBOP and its individual owners pursuant to which we received an economic interest in, and exert a controlling influence over HBOP, in a manner substantially similar to a controlling equity interest.

Although we believe the restructuring transaction and our current business operations are in compliance with the current laws in China, we cannot be sure that the PRC government would view our operating arrangements to be in compliance with PRC regulations that may be adopted in the future. If we are determined not to be in compliance, the PRC government could levy fines, revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our business, corporate structure or operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business. As a result, our business in the PRC could be materially adversely affected.

We rely on contractual arrangements with HBOP for our operations, which may not be as effective in providing control over these entities as direct ownership.

Our operations and financial results are dependent on HBOP in which we have no equity ownership interest and must rely on contractual arrangements to control and operate the businesses of HBOP. These contractual arrangements are not as effective in providing control over HBOP as direct ownership. For example, HBOP may be unwilling or unable to perform their contractual obligations under our commercial agreements, including payment of consulting fees under the Exclusive Technical Service and Business Consulting Agreement as they become due. Consequently, we will not be able to conduct our operations in the manner currently planned. In addition, HBOP may seek to renew their agreements on terms that are disadvantageous to us. Although we have entered into a series of agreements that provide us with substantial ability to control HBOP, we may not succeed in enforcing our rights under them insofar as our contractual rights and legal remedies under Chinese law are inadequate. In addition, if we are unable to renew these agreements on favorable terms when these agreements expire, or to enter into similar agreements with other parties, our business may not be able to operate or expand, and our operating expenses may significantly increase.

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The shareholders of HBOP may have potential conflicts of interests with us, which may adversely affect our business.

We operate our businesses in China though HBOP. Our chairman, CEO and ~~27.89%~~34.4% shareholder, Zhenyong Liu owns 93.26% of the equity interest in HBOP. Conflicts of interests between his duties to us and to HBOP may arise. We cannot assure you that when conflicts of interest arise, he will act in the best interests of our company or that any conflict of interest will be resolved in our favor. These conflicts may result in management decisions that could negatively affect our operations and potentially result in the loss of opportunities.

Our arrangements with HBOP and its shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have an adverse effect on our income and expenses.

We could face material and adverse tax consequences if the PRC tax authorities determine that our contracts with HBOP and its shareholders were not entered into based on arm’s length negotiations. Although our contractual arrangements are similar to other companies conducting similar operations in China, if the PRC tax authorities determine that these contracts were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.

The exercise of our option to purchase part or all of the equity interests in HBOP under the Call Option Agreement might be subject to approval by the PRC government. Our failure to obtain this approval may impair our ability to substantially control HBOP and could result in actions by HBOP that conflict with our interests.

Our Call Option Agreement with HBOP and its shareholders gives our Chinese subsidiary, Baoding Shengde or its designated entity or natural person, the option to purchase all or part of the equity interests in HBOP. The option may not be exercised by Baoding Shengde if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of HBOP, to be cancelled or invalidated. Under the laws of China, if a foreign entity, through a foreign investment company that it invests in, acquires a domestic related company, China’s regulations regarding mergers and acquisitions may technically apply to the transaction. If these regulations apply, an examination and approval of the transaction by China’s Ministry of Commerce (“MOFCOM”), or its local counterparts would be required. In addition, an appraisal of the equity interest or the assets to be acquired would also be mandatory. Since the scope of business activities (making of digital photo paper and other cultural paper products) as defined in the business license of Baoding Shengde does not involve the the MOFCOM approval and monitoring, we do not believe at this time that an approval or an appraisal is required for Baoding Shengde to exercise its option to acquire HBOP. In light of the different views on this issue, however, it is possible that the central MOFCOM office in Beijing will issue a standardized opinion imposing the approval and appraisal requirement. If we are not able to purchase the equity of HBOP, then we will lose a substantial portion of our ability to control HBOP and our ability to ensure that HBOP will act in our interests.

Our operating history may not serve as an adequate basis to judge our future prospects and results of operations.

HBOP commenced its current line of business operations in 1996 and received its initial Pollution Discharge Permit in September 1996, which must be renewed every year for HBOP to stay in business. Although we have never had problem renewing the Pollution Discharge Permit, we cannot guarantee automatic renewal every year. Our operating history may not provide a meaningful basis on which to evaluate its business. We cannot assure you that HBOP will maintain its profitability or that we will not incur net losses in the future. We expect that HBOP’s operating expenses will increase as it expands. Any significant failure to realize anticipated revenue growth could result in significant operating losses. We will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including our potential failure to:

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raise adequate capital for expansion and operations;

implement our business model and strategy and adapt and modify them as needed;

increase awareness of our brand name, protect our reputation and develop customer loyalty;

manage our expanding operations and service offerings, including the integration of any future acquisitions;

maintain adequate control of our expenses; or

anticipate and adapt to changing conditions in paper markets in which we operate as well as the impact of any changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

If we are not successful in addressing any or all of these risks, our business may be materially and adversely affected.

HBOP’s failure to compete effectively may adversely affect our ability to generate revenue.

Through HBOP, we compete in a highly developed market with companies that have significantly greater experience and history in our industry. If we do not compete effectively, we could lose market share and experience falling prices, adversely affecting our financial results. Our competitors will expand in the key markets and implement new technologies making them more competitive. There is also the possibility that competitors will be able to offer additional products, services, lower prices, or other incentives that we cannot or will not offer or that will make our products less profitable. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.

Baoding Shengde does not have any operating history and has never competed in the digital photo paper market.

We ~~conduct~~will be conducting the digital photo paper business through our wholly-owned subsidiary Baoding Shengde, which has never had any experience competing in the Chinese digital photo paper market. Although we reasonably believe that we are able to compete effectively with our high quality digital photo paper products, Baoding Shengde has no industry experience in the ~~past.~~past and our digital photo paper business may fail.

If HBOP fails to comply with covenants in its loan agreements, its lenders may allege a breach of a covenant and seek to accelerate the loan or exercise other remedies, which could strain our cash flow and harm our business, liquidity and financial condition.

HBOP received loans from commercial banks to fund its operations. Typically, these loans are made pursuant to customary loan agreements which contain representations and warranties about its business, financial covenants to which HBOP must adhere and other negative covenants in respect of its operations. Under some of these agreements, HBOP may be required to obtain the consent of its lenders prior to entering into its contractual arrangement with us but HBOP did not receive such prior consent. To date, our lenders have not given us any notice of default or otherwise objected to our contractual arrangements with HBOP. We intend to secure a waiver from our lenders in this regard, but cannot assure you that we will successfully do so. If we cannot obtain such a wavier and HBOP’s lenders declare it to be in default under the loan agreements, they may accelerate HBOP’s indebtedness to them which would negatively affect our cash flows and business operations.

We may not be able to effectively control and manage the growth of HBOP.

If HBOP’s business and markets grow and develop, it will be necessary for us to finance and manage expansion in an orderly fashion. An expansion would increase demands on existing management, workforce and facilities. Failure to satisfy such increased demands could interrupt or adversely affect our operations and cause delay in production and delivery of our paper products, as well as administrative inefficiencies.

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We, through our subsidiaries, may engage in future acquisitions that could dilute the ownership interests of our stockholders and cause us to incur debt and assume contingent liabilities.

We, through our subsidiaries, may review acquisition and strategic investment prospects that we believe would complement the current product offerings of HBOP, augment its market coverage or enhance its technical capabilities, or otherwise offer growth opportunities. From time to time we review investments in new businesses and we, through our subsidiaries, expect to make investments in, and to acquire, businesses, products, or technologies in the future. We expect that when we raise funds from investors for any of these purposes we will be either the issuer or the primary obligor while the proceeds will be forwarded to HBOP. In the event of any future acquisitions, we could:

issue equity securities which would dilute current stockholders’ percentage ownership;

incur substantial debt;

assume contingent liabilities; or

expend significant cash.

These actions could have a material adverse effect on our operating results or the price of our common stock. Moreover, even if through our subsidiaries, we do obtain benefits in the form of increased sales and earnings, there may be a lag between the time when the expenses associated with an acquisition are incurred and the time when we recognize such benefits. Acquisitions and investment activities also entail numerous risks, including:

difficulties in the assimilation of acquired operations, technologies and/or products;

unanticipated costs associated with the acquisition or investment transaction;

the diversion of management’s attention from other business concerns;

adverse effects on existing business relationships with suppliers and customers;

risks associated with entering markets in which HBOP has no or limited prior experience;

the potential loss of key employees of acquired organizations; and

substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items.

We cannot ensure that we will be able to successfully integrate any businesses, products, technology, or personnel that we might acquire in the future and our failure to do so could have a material adverse effect on our and/or HBOP’s business, operating results and financial condition.

We are responsible for the indemnification of our officers and directors.

Our Articles of Incorporation provides for the indemnification and/or exculpation of our directors, officers, employees, agents and other entities which deal with us to the maximum extent provided, and under the terms provided, by the laws and decisions of the courts of the state of Nevada. ~~Although~~Since we do ~~maintain professional error and omission insurance for the officers and directors, due to limitations of the insurance coverage~~not hold any indemnificationinsurance, these indemnification provisions could ~~still~~ result in substantial expenditures, which we may be unable to recoup, ~~through the insurance and~~which could adversely affect our business and financial conditions. Zhenyong Liu, our Chairman of the Board and Chief Executive Officer, Winston C. Yen, our Chief Financial Officer, Dahong Zhou, our Secretary, and Drew Bernstein, Wenbing Christopher Wang, Zhaofang Wang, and Fuzeng Liu, our directors, are key personnel with rights to indemnification under our Articles of Incorporation.

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We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and paper factory operational expertise of key personnel. Zhenyong Liu, our Chief Executive Officer and Chairman of the Board, Winston C. Yen, our Chief Financial Officer, Dahong Zhou, our Secretary, and ~~Zhongmin Ma,~~Li Han, HBOP’s General Engineer, Gengqi Yang, HBOP’s ~~Vice President of~~General Sales Manager, Li Wang, HBOP’s Quality Control Manager and ~~Marketing, Fulai Huang, HBOP’s Vice President of Environmental Protection and Xiaodong Liu,~~Manhua Zhang, Baoding Shengde’s ~~General Manager,~~Chief Engineer perform key functions in the operation of our business. There can be no assurance that Orient Paper or HBOP ~~or Baoding Shengde~~ will be able to retain these officers after the term of their employment contracts expire. The loss of these officers could have a material adverse effect upon our business, financial condition, and results of operations. We do not carry key man life insurance for any of our key personnel or personnel nor do we foresee purchasing such insurance to protect against a loss of key personnel and the key personnel.

We are dependent upon the services of Mr. ~~Zhenyong~~ Liu for the continued growth and operation of our company because of his experience in the industry and his personal and business contacts in the PRC. Although Mr. Liu has entered into an employment agreement with Baoding Shengde Paper Co., Ltd., our wholly owned subsidiary and a PRC company, and that we have no reason to believe that Mr. Liu will discontinue his services with us or HBOP, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operations.

We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.

We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and senior personnel in the PRC is intense, the pool of qualified candidates in the PRC is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.

If we fail to increase our brand recognition, we may face difficulty in obtaining new customers and business partners.

We believe that establishing, maintaining and enhancing our brand in a cost-effective manner is critical to achieving widespread acceptance of our current and future products and services and is an important element in our effort to increase our customer base and obtain new business partners. We believe that the importance of brand recognition will increase as competition in our market develops. Some of our potential competitors already have well-established brands in paper industry. Successful promotion of our brand will depend largely on our ability to maintain a sizeable and active customer base, our marketing efforts and ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.

Our operating results may fluctuate as a result of factors beyond our control.

Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These factors include:

the costs of paper products and development;

the relative speed and success with which we can obtain and maintain customers, merchants and vendors for our products;

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capital expenditure for equipment;

marketing and promotional activities and other costs;

changes in our pricing policies, suppliers and competitors;

the ability of our suppliers to provide products in a timely manner to their customers;

changes in operating expenses;

increased competition in the paper markets; and

other general economic and seasonal factors.

We face risks related to product liability claims.

We presently do not maintain product liability insurance. We face the risk of loss because of adverse publicity associated with product liability lawsuits, whether or not such claims are valid. We may not be able to avoid such claims. Although product liability lawsuits in the PRC are rare, and we have not, to date, experienced significant failure of our products, there is no guarantee that we will not face such liability in the future. This liability could be substantial and the occurrence of such loss or liability may have a material adverse effect on our business, financial condition and prospects.

We face risks relating to difficulty in defending intellectual property rights from infringement.

Our success depends on protection of our current and future technology and products and our ability to defend our intellectual property rights. We have filed for trademark protection for one name and brand of our products which is “Shuangxing” sold in the PRC. However, it is possible for our competitors to develop similar competitive products even though we have taken steps to protect our intellectual property. If we fail to protect our intellectual property adequately, competitors may manufacture and market products similar to ours. We expect to file patent applications seeking to protect newly developed technology and products in various countries, including China. Some patent applications in the PRC are maintained in secrecy until the patent is issued. Because the publication of discoveries tends to follow their actual discovery by many months, we may not be the first to invent, or file patent applications on any of our discoveries. Patents may not be issued with respect to any of our patent applications and existing or future patents issued to or licensed by us may not provide competitive advantages for our products. Patents that are issued may be challenged, invalidated or circumvented by our competitors. Furthermore, our patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products.

We also rely on trade secrets, non-patented proprietary expertise and continuing technological innovation that we shall seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants. These agreements may be breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect to products arising from research, we may not be able to maintain the confidentiality of information relating to these products.

Our operating results also depend on the availability and pricing of energy and raw materials.

In addition to our dependence upon wood pulp, recycled white scrap paper and paperboard costs, our operating results depend on the availability and pricing of energy and other raw materials, including chemical agents and coal. An interruption in the supply of supplemental chemical agents could cause a material disruption at our mill in Baoding. In addition, an interruption in the supply of coal could cause a material disruption at our facilities in Baoding. At present, our raw materials ~~including coal~~ are purchased from a number of suppliers, typically pursuant to a long-term contract, of which the ~~three~~two largest suppliers account for over ~~72%~~68% of all purchases. If any of these contracts were to be terminated for any reason, or not renewed upon expiration, or if market conditions were to substantially change creating a significant increase in the price of coal, ~~and recycled paper,~~ we may not be able to find alternative, comparable suppliers or suppliers capable of providing coal to us on terms or in amounts satisfactory to us. As a result of any of these events, our business, financial condition and operating results could suffer.

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A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales, and/or negatively affect our net income.

Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:

maintenance outages;

prolonged power failures;

an equipment failure;

disruption in the supply of raw materials, such as wood fiber, energy, or chemicals;

a chemical spill or release;

closure because of environmental-related concerns;

explosion of a boiler;

the effect of a drought or reduced rainfall on our water supply;

disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, and tunnels;

fires, floods, earthquakes, hurricanes, or other catastrophes;

terrorism or threats of terrorism;

labor difficulties; or

other operational problems.

We have purchased property base insurance from Du-Bang Property & Casualty Insurance ~~and Casualty Company Limited,~~Co., Ltd., valid from ~~March 2011~~July 9, 2009 through ~~March 2012.~~July 9, 2010. However, if any of the abovementioned events were to occur, we may be unable to meet customer demand, which may adversely affect our sales and net income.

Our certificates, permits, and licenses related to our papermaking operations are subject to governmental control and renewal and failure to obtain renewal will cause all or part of our operations to be terminated.

Due to the nature of the business, we are subject to environmental, health, and safety laws and regulations, including those related to the disposal of hazardous waste from our manufacturing processes. Compliance with existing and future environmental, health and safety laws could subject us to future costs or liabilities; impact our production capabilities; constrict our ability to sell, expand or acquire facilities; and generally impact our financial performance. Under the original factory land lease dated January 2, 2002, HBOP was obligated to return the land to the government to its original condition prior to the expiration of the lease. As such, Orient Paper would have to accrue the cost estimated to return the land to its prior condition over the 30-year life of the lease. However, on March 15, 2010, an amendment to the original January 2, 2002 lease was signed and removed the obligation of HBOP to return the land to its condition prior to the expiration of the lease. The management of the Company thus believes that no liabilities under the lease should be accrued as of December 31, ~~2010.~~2009. Nevertheless, because of the uncertainties associated with environmental assessment and remediation activities, future expense to remediate any sites, which could be identified in the future for cleanup, could be higher than expected.

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In 1988, the National Environmental Protection Bureau issued Interim Measures on the Administration of Water Pollutants Discharge Permits, requiring all companies discharging pollution into the water as a direct or indirect byproduct of production to adhere to certain caps on pollution discharge. Additionally, such companies were required to obtain and annually renew a Pollution Discharge Permit in order to conduct their operations. The PRC government has the authority to shut down a company’s operations for failure to maintain a valid permit. We have renewed our Pollution Discharge Permit on March 12, 2010. Our ~~latest~~new permit is effective from March 12, 2010 through ~~March 11, 2011. An application to renew has been filed with the local environment protection agency and the new license is expected to be issued shortly after~~ March 11, 2011.

If we are unable to make necessary capital investments or respond to pricing pressures, our business may be harmed.

In order to remain competitive, we need to invest in research and development, manufacturing, customer service and support, and marketing. From time to time we also have to adjust the prices of our products to remain competitive. We may not have available sufficient financial or other resources to continue to make investments necessary to maintain our competitive position.

If we fail to introduce enhancements to our existing products or to develop new products, our business and results of operations could be adversely affected.

We believe our future success depends in part on our ability to enhance our existing products and develop new products in order to continue to meet customer demands. Our failure to introduce new or enhanced products on a timely and cost-competitive basis, or the development of processes that make our existing products obsolete, could harm our business and results of operations.

Risks Related To Doing Business in ~~the~~The PRC

Changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.

Our business operations may be adversely affected by the current and future political environment in the PRC. The PRC has operated as a socialist state since the middle of the 20th century and is controlled by the Communist Party of China. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. The PRC has only permitted provincial and local economic autonomy and private economic activities since 1978. The government of the PRC has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy, including the paper industry, through regulation and state ownership. Our ability to operate in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under its current leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

The PRC’s economy is in a transition from a planned economy to a market oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions of the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, there can be no assurance that this will be the case.

A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social life.

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The PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Any changes in such PRC laws and regulations may harm our business.

The PRC laws and regulations governing our current business operations are sometimes vague and uncertain. The PRC’s legal system is a civil law system based on written statutes, in which system decided legal cases have little value as precedents unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, the enforcement and performance of our contractual arrangements with our affiliated Chinese entity, HBOP, and its shareholders, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Our ~~major~~ operating entity, HBOP, conducts its operations in China, and as a result, we are required to comply with PRC laws and regulations. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business. If the relevant authorities find that we are in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:

levying fines;

revoking HBOP’s business and other licenses;

requiring that we restructure our ownership or operations; and

requiring that we discontinue any portion or all of our business.

Among the material laws that we are subject to are the Price Law of The People’s Republic of China, Measurement Law of The People’s Republic of China, Tax Law, Environmental Protection Law, Contract Law, Patent Law, Accounting Laws and Labor Law.

Our contractual arrangements with HBOP and its shareholders may not be as effective in providing control over HBOP as direct ownership.

Since the law of the PRC limits foreign equity ownership in companies in China, we operate our business through HBOP. We have no equity ownership interest in HBOP and rely on contractual arrangements to control and operate its business. These contractual arrangements may not be effective in providing control over HBOP as direct ownership. For example, HBOP could fail to take actions required for our business despite its contractual obligation to do so. If HBOP fails to perform under their agreements with us, we may have to incur substantial costs and resources to enforce such arrangements and may have to rely on legal remedies under the law of the PRC, which may not be effective. In addition, we cannot assure you that the HBOP’s shareholders would always act in our best interests.

Because we may rely on the consulting services agreement with HBOP for essentially all of our revenue and cash flows, any difficulty for HBOP to pay consulting fees to Baoding Shengde under the consulting agreement may have a material adverse effect on our operations.

We are a holding company and currently do not conduct any business operations other than the contractual arrangements between Baoding Shengde and HBOP. As a result, we may rely entirely for our revenues on dividend payments from Baoding Shengde for any payment from HBOP pursuant to the consulting services agreement which forms a part of the contractual arrangements between Baoding Shengde and HBOP. Since Baoding Shengde is not a legal shareholder of HBOP under PRC statutes, the arrangement for HBOP to pay a substantial portion of its net income to Baoding Shengde may be challenged by the PRC government, which could prevent us from issuing dividends to our shareholders or making required payments to some of our service providers. .

A slowdown, inflation or other adverse developments in the PRC economy may harm our customers and the demand for our services and products.

All of our operations are conducted in the PRC and all of our revenue is generated from sales in the PRC. Although the PRC economy has grown significantly in recent years, we cannot assure you that this growth will continue. A slowdown in overall economic growth, an economic downturn, a recession or other adverse economic developments in the PRC could significantly reduce the demand for our products and harm our business.

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While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth could lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may harm our profitability. In order to control inflation in the past, the PRC government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on state bank lending. Such an austere policy can lead to a slowing of economic growth. In January 2010, the People’s Bank of China, the PRC’s central bank, raised interest rates for the first time in nearly five months. Repeated rises in interest rates by the central bank would likely slow economic activity in the PRC which could, in turn, materially increase our costs and also reduce demand for our products.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We receive substantially all of our revenue in Renminbi, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.

The PRC government may also in the future restrict access to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.

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The fluctuation of the Renminbi may harm your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. According to the ~~Financial Management~~currency website ~~fms.treas.gov/intn.html,~~www.xe.com, as of ~~December 31,~~March 24, 2010, $1 = ~~6.6700~~6.82810 Yuan (RMB). As we rely entirely on revenues earned in the PRC, any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for HBOP’s operations, appreciation of the Renminbi against the U.S. dollar would diminish the value of the proceeds of the offering and this could harm our business, financial condition and results of operations because it would reduce the proceeds available to us for capital investment in proportion to the appreciation of the Renminbi. Thus if we raise 1,000,000 dollars and the Renminbi appreciates against the U.S. dollar by 15%, then the proceeds will be worth only ~~RMB5,669,500~~RMB5,803,885 as opposed to RMB ~~6,670,000~~6,828,100 prior to the appreciation. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced in proportion to the amount the U.S. dollar appreciates. In addition, the depreciation of significant RMB denominated assets could result in a charge to our income statement and a reduction in the dollar value of these assets. Thus if HBOP has RMB1,000,000 in assets and Renminbi is depreciated against the U.S. dollar by 15%, then the assets will be valued at ~~$130,370~~$127,351 as opposed to ~~$149,925~~$146,454 prior to the depreciation.

On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately ~~19.44%~~17.50% appreciation of the Renminbi against the U.S. dollar as of ~~December 31,~~March 24, 2010. While the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.

In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Round-Trip Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75. The policy announced in this notice required PRC residents to register with the relevant SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in May 2007 (known as Notice 106), expanded the reach of Circular 75. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

Because of uncertainty over the interpretation of Circular 75, we cannot assure you that, if challenged by government agencies, the structure of our organization has fully complied with all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. A failure by such PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75 and Notice 106, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

The PRC’s legal and judicial system may not adequately protect our business and operations and the rights of foreign investors.

The PRC legal and judicial system may negatively impact foreign investors. In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the “lawful rights and interests” of foreign investors in the PRC. However, the PRC’s system of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is inconsistent. Many judges in the PRC lack the depth of legal training and experience that would be expected of a judge in a more developed country. Because the PRC judiciary is relatively inexperienced in enforcing the laws that do exist, anticipation of judicial decision-making is more uncertain than would be expected in a more developed country. It may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. The PRC’s legal system is based on the civil law regime, that is, it is based on written statutes; a decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.

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The trend of legislation over the last 20 years has significantly enhanced the protection of foreign investment and allowed for more control by foreign parties of their investments in Chinese enterprises. However, the promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. A change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC’s political, economic or social life, may affect the PRC government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects.

The practical effect of the PRC legal system on our business operations in the PRC can be viewed from two separate but intertwined considerations. First, as a matter of substantive law, the foreign invested enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate articles and contracts to foreign invested enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are qualitatively different from the general corporation laws of the United States. Similarly, the PRC accounting laws mandate accounting practices, which are not consistent with U.S. generally accepted accounting principles. PRC’s accounting laws require that an annual “statutory audit” be performed in accordance with PRC accounting standards and that the books of account of foreign invested enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law requires a wholly foreign-owned enterprise to submit certain periodic fiscal reports and statements to designated financial and tax authorities, at the risk of business license revocation. While the enforcement of substantive rights may appear less clear than United States procedures, foreign invested enterprises and wholly foreign-owned enterprises are Chinese registered companies, which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Any award rendered by an arbitration tribunal is enforceable in accordance with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of foreign invested enterprises

Any recurrence of Severe Acute Respiratory Syndrome, or SARS, or another widespread public health problem, could harm our operations.

A renewed outbreak of SARS or another widespread public health problem (such as bird flu) in the PRC, where all of our revenues are derived, could significantly harm our operations. Our operations may be impacted by a number of health-related factors, including quarantines or closures of ~~any~~some of our ~~two locations in the city of Baoding~~offices that would adversely disrupt our operations. Any of the foregoing events or other unforeseen consequences of public health problems could significantly harm our operations.

Because our principal assets are located outside of the United States and most of our directors and officers reside outside of the United States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us and our officers or to enforce U.S. court judgment against us or them in the PRC.

Most of our directors and officers reside outside of the United States. In addition, our operating company is located in the PRC and substantially all of our assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. Federal securities laws against us in the courts of either the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties, under the U.S. Federal securities laws or otherwise.

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The relative lack of public company experience of our management team may put us at a competitive disadvantage.

Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. The individuals who now constitute our senior management have never had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately responds to such increased legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our business.

We may be required to broaden the coverage of the mandatory social security insurance programs under the New Labor Law of the PRC

The PRC New Labor Law, effective January 1, 2008, requires that employers enroll in the following social security insurance programs and offer certain employer-sponsored premium benefits to eligible employees: (1) retirement endowment, (2) healthcare insurance, (3) unemployment insurance, (4) workers’ compensation insurance, and (5) pregnancy insurance. Of these insurance programs, the retirement endowment fund requires employee withholdings of 4% to 8% of the gross compensation, while the employer’s matching contribution varies from 16% to 20% of such compensation. While the Company is enrolled in the retirement endowment fund and is withholding employees’ portion and the employer’s portion of the endowment contribution, many of the Company’s employees have elected to waive their coverage under these mandatory social security insurance programs in favor of certain other low-cost, local government-sponsored social security insurance programs for residents in non-urban districts. Although we have verified with the local government agencies for the validity of the employee waivers and reasonably believe that we are not required to cover the employees who waived the benefits, the local government may change its policy and ask us to broaden our insurance coverage to those who have specifically waived their rights.

Risks Related to Our Common Stock

Our officers and directors control us through their positions and stock ownership and their interests may differ from other stockholders.

As of ~~December 31,~~March 26, 2010, there were ~~18,344,811~~14,883,691 shares of our common stock issued and outstanding. Our officers and directors beneficially own approximately ~~27.98%~~34.42% of our common stock. Mr. Zhenyong Liu, our Chief Executive Officer, beneficially owns approximately ~~27.89%~~34.37% of our common stock. As a result, he is able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions including business combinations. Yet Mr. Liu’s interests may differ from those of other stockholders. Furthermore, ownership of ~~27.98%~~34.42% of our common stock by our officers and directors reduces the public float and liquidity, and may affect the market price, of our common stock as traded on the NYSE Amex.

We are not likely to pay cash dividends in the foreseeable future.

We intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.

If we fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner, our business could be harmed and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of U.S. public companies’ internal control over financial reporting, and attestation of this assessment by their independent registered public accountants. While the SEC has extended the compliance dates for smaller reporting companies with respect to the attestation by their independent registered public accountants, we, as a smaller reporting company, have voluntarily engaged our independent registered public accountants to perform an attestation of the effectiveness of the internal control over financial reporting as of December 31, 2009. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. While there has not been any detected significant deficiency or material weakness in our internal control and with respect to the assessment of the internal control for the year ended December 31, ~~2010,~~2009, we cannot guarantee the implementation of controls and procedures in future years to be without any significant deficiency or material weakness.

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Our common stock may be affected by limited trading volume and may fluctuate significantly.

Our common stock is traded on the NYSE Amex. Although an active trading market has developed for our common stock, there can be no assurance that an active trading market for our common stock will be sustained. Failure to maintain an active trading market for our common stock may adversely affect our shareholders’ ability to sell our common stock in short time periods, or at all. Our common stock has experienced, and may experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock.

Future financings may dilute stockholders or impair our financial condition.

In the future, we may need to raise additional funds through public or private financing, which might include the sale of equity securities. The issuance of equity securities could result in financial and voting dilution to our existing stockholders. The issuance of debt could result in effective subordination of stockholders’ interests to the debt, create the possibility of default, and limit our financial and business alternatives.

Item 1B. Unresolved Staff ~~Comments~~Comments.

Not applicable.

Item 2. ~~Properties~~Properties.

Our headquarters is located at Hebei Baoding Orient Paper Milling Company Limited, Science Park, Juli ~~Road,~~Rd, Xushui County, Baoding City, Hebei Province, People’s Republic of China. The headquarters and our main production base, separated by approximately 4 kilometers apart in Xushui County of the city of Baoding, have a total area of 258.06 mu or approximately 42.50 acres.

All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants landholders a "land use right" after a purchase price for such "land use right" is paid to the government. The "land use right" allows the holder the right to use the land for a specified long-term period of time and enjoys all the incidents of ownership of the land. The following are the details regarding HBOP’s land use rights with regard to the land that it uses in its business.

The land of our ~~major operating entity and our~~ main production base, comprising 200 mu ~~approximately 33 acres,~~ of land, is leased from the local government pursuant to a 30 year lease that expires December 31, 2031. The lease requires an annual payment of approximately ~~$18,149~~$17,551 (RMB 120,000) due by June 30 every year.

The remaining 58.06 mu ~~approximately 9.5 acres,~~ of land on which our ~~principal executive offices~~administration office and other production facilities ~~are situated~~ (including the new digital photo paper production ~~equipment),~~equipments) are situated is obtained pursuant to a land use right granted by the local government on March 10, 2003. HBOP obtained the right to use the 58.06 mu of land for 50 years through March 10, 2053. The purchase price of the land use right was approximately $2,189,328 (RMB14,984,200), which was fully paid on March 8, 2005.

On November 25, 2009, Baoding Shengde entered into an asset purchase agreement with Hebei Shuangxing Paper Co., Ltd. to acquire two coating production lines of digital photo paper, for a total purchase price of RMB 93 million Yuan (approximately $13.6 million). Of the RMB 93 million Yuan, RMB 30 million Yuan was paid in cash by Baoding Shengde, the remaining cash payment in the amount of RMB 63 million Yuan was advanced by HBOP on behalf of Baoding Shengde and paid to the seller as of December 31, 2009.

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~~As of December 31, 2010 our~~Our facilities include a total of 78 production lines, 35 warehouses, 2 office buildings, 2 cafeterias, and 1 dormitory. Major equipment includes 56 papermaking machines ~~(3 currently operating and 2 under renovation)~~ owned by HBOP and 2 coating production lines of digital photo paper that are owned by Baoding Shengde. ~~Except for the new corrugating medium paper production line, which is still under construction, all~~All costs of our facilities have been paid in full.

Item 3. Legal ~~Proceedings~~Proceedings.

We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation as of March 29, 2010.

On August 20, 2010, the Company was served notice of a stockholder class action lawsuit filed on August 6, 2010 in the U.S. District Court for the Central District of California against the Company, certain current and former officers and directors of the Company, and Roth Capital Partners, LLP. The complaint in the lawsuit, Mark Henning v. Orient Paper et al., CV-10-5887 RSWL (AJWx), alleges, among other claims, that the Company issued materially false and misleading statements and omitted to state material facts that rendered its affirmative statements misleading as they related to the Company’s financial performance, business prospects, and financial condition, and that the defendants failed to prevent such statements from being issued or corrected. The complaint seeks, among other relief, compensatory damages and plaintiff’s counsel’s fees and experts’ fees. Mr. Henning purports to sue on his own behalf and on behalf of a class consisting of the Company’s stockholders (other than the defendants and their affiliates). One group of three shareholders ~~including Mr. Henning,~~ with a total alleged loss of approximately $150,000 has filed a motion to be appointed as lead plaintiff and has been so appointed by the court. The Company and the defendant officers and directors have retained the law firm DLA Piper US LLP to represent them in connection with the lawsuit. The Company believes that the lawsuit has no merit and intends to mount a vigorous defense. The plaintiffs filed an amended complaint on January 28, 2011, and the Company filed a motion to dismiss with the court on March 14, 2011. The plaintiffs subsequently filed their opposition to the Company’s motion to dismiss on April 28, 2011. On July 25, 2011 the court denied the Company’s motion to dismiss, thus allowing the litigation to proceed. Nevertheless, at this stage of the proceedings, management cannot opine that a favorable outcome for the company is probable or that an unfavorable outcome to the company is remote. While certain legal defense costs may be later reimbursed by the Company’s insurance carrier, no reasonable estimate of any impact of the outcome of the litigation or related legal fees on the financial statements can be made as of date of this statement.

On April 1, 2011 the Company was served a summon for a complaint filed by Tribank Capital Investments, Inc. (“Tribank”) on March 30, 2011 in the Superior Court of the State of California for the County of Los Angeles against the Company and its Chairman and CEO Mr. Zhenyong Liu (the “Tribank Matter”). By filing the complaint, Tribank alleges, among other claims, that the Company breached the Non-Circumvention Agreement dated October 29, 2008 between the Company and Tribank (the “Agreement”), and that the Company was unjustly enriched as a result of breaching the Agreement. The complaint seeks, among other relief, compensatory damages and plaintiff’s counsel’s fees. On April 29, 2011 the Company filed a Notice of Removal to remove the jurisdiction of the case from the state court of California to the Federal District Court for the District of Central California and filed a motion to dismiss the lawsuit on May 6, 2011. On July 18, 2011, United States District Court Judge Manual Real granted Orient Paper motion to dismiss the complaint in its entirety, finding that venue is improper because the contract that forms the basis of the parties' relationship contains a valid and enforceable forum selection clause providing that the Hong Kong Special Administrative Region of China is the exclusive forum for resolution of disputes. Tribank filed a Notice of Appeal on August 5, 2011. The Company continues to believe that the action is without merit, and will vigorously defend any further litigation brought by Plaintiff.

Item 4. (Removed and Reserved)

PART II

~~Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Orient Paper’s common stock is quoted on NYSE Amex Equities under the symbol “ONP” since December 17, 2009, and was quoted on Over-the-Bulletin Board under the symbol “ORPN” and “OPAI” prior to December 17, 2009.

Until January 29, 2008, there was no active trading in our common stock.

The range of high and low bid quotations by quarter from January ~~1, 2009~~29, 2008 through December 31, ~~2010~~2009 is listed below. The information for the first quarter of 2008 commences on January 29, 2008. The quotations are taken from the OTC Bulletin Board and NYSE AMEX. They reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Calendar Quarter High Bid Low Bid
2009 First Quarter 0.56 0.20
2009 Second Quarter 2.80 0.48
2009 Third Quarter 5.60 1.80
2009 Fourth Quarter 10.76 4.64
2010 First Quarter 15.15 8.01
2010 Second Quarter 11.75 6.45
2010 Third Quarter 7.79 4.04
2010 Fourth Quarter 8.09 4.23

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Calendar Quarter	High Bid		Low Bid
2008 First Quarter		2.04		0.40
2008 Second Quarter		5.20		0.56
2008 Third Quarter		0.68		0.40
2008 Fourth Quarter		1.16		0.20
2009 First Quarter		0.56		0.20
2009 Second Quarter		2.80		0.48
2009 Third Quarter		5.60		1.80
2009 Fourth Quarter		10.76		4.64

As of ~~December 31,~~March 26, 2010, we had approximately ~~7,000~~23 shareholders of record of our common stock.

Dividends

Our Board of Directors has not declared a dividend on our common stock during the last two fiscal years and we do not anticipate the payments of dividends in the near future as we intend to reinvest our profits to grow operations.

~~Equity Compensation Plan Information~~

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~~None.~~

Recent Sales of Unregistered Securities

On October 29, 2007, the Company issued 7,450,497 aggregate shares of its common stock to the shareholders of Dongfang Holding in a merger transaction. The 7,450,497 shares were issued without registration under Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), in reliance on the exemptions from registration contained (i) in Section 4(2) of the Securities Act and (ii) under Regulation S of the Securities Act afforded generally to offshore transactions involving non-U.S. persons.

The Company did not sell any unregistered securities during the fiscal year ended December 31, 2008.

On August 31, 2009, the Company, the Company’s Chief Executive Officer, Zhenyong Liu and the HBOP entered into a Debt Assignment and Assumption Agreement. Pursuant to the Agreement, the Company 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 HBOP to Zhenyong Liu with immediate effect. On the same date, the Company issued to Zhenyong Liu a total of 1,204,340 restricted shares of common stock of the Company at $3.32132 per share. The Company has no obligation to register the shares issued in this transaction. The securities issued in this transaction were issued in connection with a private placement exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act.

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 shares of common stock, par value $0.001 of the Company for an aggregate purchase price of approximately $5,000,000. The issuance of the common stock to the Buyers under the securities purchase agreement dated October 7, 2009 was exempt from registration under Section 4(2) of the Securities Act based upon our compliance with Regulation D as promulgated by the SEC under the Securities Act of 1933, as amended. Transfers of such shares were restricted by the Company in accordance with the requirements of the Securities Act. All of the Buyers were provided with access to our Securities and Exchange Commission filings.

On November 12, 2009, the Company issued a total of 282,294 restricted shares of common stock to Chinamerica Holdings, Ltd as consideration of the consulting service of Chinamerica Holdings, Ltd. The issuance of the common stock to Chinamerica Holdings, Ltd under the consulting agreement was exempt from registration under Section 4(2) of the Securities Act based upon our compliance with Regulation D as promulgated by the SEC under the Securities Act of 1933, as amended (the “Securities Act”). Transfers of such shares were restricted by the Company in accordance with the requirements of the Securities Act. Chinamerica Holdings, Ltd was provided with access to our Securities and Exchange Commission filings.

Equity Compensation Plan Information

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial ~~Data~~Data.

Not applicable.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward-Looking Statements

The following discussion of the financial condition and results of operation of the Company for the years ended December 31, ~~2010~~2009 and ~~2009~~2008 should be read in conjunction with the selected financial data, the financial statements, and the notes to those statements that are included elsewhere in this Annual Report.

~~We make certain forward-looking statements~~Some of the information contained in this ~~report,~~discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, ~~and include~~includes forward-looking statements that involve risks and uncertainties. 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.

In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash. Please refer to the section entitled “Liquidity and Capital Resources” contained in this Report for additional discussion. Please also refer to our other filings with the Securities and Exchange Commission. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

You should ~~also~~ review the “Risk Factors” section of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Results of Operations

For simplicity of the following analysis, when referring to “offset printing paper,” we include any sales revenue and cost of sales of high-grade offset printing paper, writing paper, white card paper, Diazo paper and copy paper into the category of offset printing paper.

Comparison of the Years Ended December 31, ~~2010~~2009 and ~~2009~~2008

Revenue ~~of Offset Printing Paper and Corrugating Medium Paper~~

Revenue ~~from sales of offset printing paper and corrugating medium paper~~ for the year ended December 31, ~~2010~~2009 was ~~$118,858,497,~~$102,142,828, an increase of ~~$16,715,669~~$36,938,836 or ~~16.36%~~56.65% from ~~$102,142,828~~$65,203,992 for the comparable period in ~~2009. Nevertheless, total~~2008. The increase was attributable to (1) the increase in our customers’ demand for various paper ~~sold~~products in year 2009; (2) for year 2008, the interruption of production and delivery schedule before the 2008 Beijing Olympic Games with respect to our sales to customers in and around Beijing; (3) ramped up production capacity from the new white paper production line, which we converted to produce offset printing paper during the year ended December 31, 2010 amounted to 220,124 tons, a decrease of 18,758 tons or 7.85%, compared to 238,882 tons sold in the previous year. The changes in revenue dollar amount and in tonnage from year 2009, ~~to year 2010 are summarized as the followings:~~

Year Ended Year Ended Percentage
December 31, 2010 December 31, 2009 Change in Change
Sales Revenue Qty.(Ton) Amount Qty.(Ton) Amount Qty.(Ton) Amount Qty.(Ton) Amount
Corrugating medium Paper 107,203 $ 34,914,901 150,242 $ 42,194,791 (43,039 ) $ (7,279,890 ) (28.65 )% (17.25 )%
Medium-Grade Offset Printing Paper 112,900 83,923,667 53,540 36,188,231 59,360 47,735,436 110.87 % 131.91 %
High-Grade Offset Printing Paper - - 11,276 10,544,055 (11,276 ) (10,544,055 ) n/a n/a
Writing Paper - - 21,555 11,372,697 (21,555 ) (11,372,697 ) n/a n/a
White Card Paper - - 2,269 1,843,054 (2,269 ) (1,843,054 ) n/a n/a
Diazo Paper and Copy Paper 21 19,929 - - 21 19,929 n/a n/a
Total Corrugating Medium and Printing Paper Sales Revenue 220,124 $ 118,858,497 238,882 $ 102,142,828 (18,758 ) $ 16,715,669 (7.85 )% 16.36 %
and (4) improved efficiency.

Revenue from corrugating medium paper amounted to ~~$34,914,901~~$42,194,791 (or ~~29.38%~~41.31% of total ~~offset printing paper and corrugating medium paper~~ revenue) for the year ended December 31, ~~2010,~~2009, representing a ~~$7,279,890~~$14,218,178 (or ~~17.25%~~50.82%) ~~decrease~~increase over the corrugating medium paper revenue of ~~$42,194,791~~$27,976,613 for the comparable period in ~~2009. We sold 107,203 tons of~~2008. During year 2008, corrugating medium paper insales were negatively impacted or disrupted by (1) the ~~year ended December 31, 2010 versus 150,242 tons sold a year ago, representing a 28.65% drop in quantities sold, due to~~global financial crisis before the disposal of one of our corrugating medium paper production lines in June 2010 and the temporary loss of two boilers during the last two quarters of the year (see below). Despite the decrease in sales quantity, Average Selling Price (“ASP”) for corrugating medium paper rose from $281/ton in year 2009 to $326/ton in 2010, representing a 15.97% increase over the comparable period. We believe the increase in ASP is primarily attributable to (1) increasing customer demand, (2) the overall increased market price caused by relatively high wood pulp prices in the first half of year 2010, and most importantly (3) a regional shortage in paper products supply, caused by mandatory closures of other smaller paper manufacturers under government mandates. For example, the provincial government of Hebei announced on June 12, 2010 that it was working on closing 64 inefficient paper production lines with 26 local paper mills by the end of the year, accounting for an elimination of annual capacity of approximately 400,000 tons this year, while the neighboring province of Henan announced that it was closing more than 100 local paper mills with an aggregate capacity of over 2,000,000 tons of paper production. Unless further government-mandated capacity closure is implemented, we believe the ASP of major paper products may stabilize in the first quarter of year 2011.

Beginning in late June 2010, we shut down and later demolished one of our two corrugating medium paper production lines. We had originally planned to build a new 360,000 ton/year new corrugating medium paper production line and other facilities on some 667,000 square meters of land across the street from our current main manufacturing compound, but due to certain changes in the plan, we decided to instead build the new production line in our current manufacturing compound. To make room for the new production line and related pulping facilities, we tore down two existing buildings and an existing corrugating medium paper production line. We estimate the lost capacity could be approximately 34,000 tons per year. The new corrugating medium paper production line is expected to begin productionrebound in the second quarter of ~~2011.~~

~~In connection~~2009, and (2) the logistic challenge of shipping into and around the city of Beijing and the interruption of business activities of our customers in the second and third quarters 2008 because of the Beijing Olympic Games. Our production efficiency (in terms of machine speed) is further advanced for year 2009 after the installation of new machine calendars with the ~~government’s approval of our pending new corrugating medium paper production line, the Baoding City Environmental Protection Agency required that we replace two of our four steam boilers with new~~capital investment for more than a $4 million in 2008. The strong demand for packaging materials and more energy-efficient models. We removed the two old boilers in July 2010. Because of the loss of steam pressure, production quantities were lowered during this quarter. The new boilers were fully installed and inspected by the government in January 2011 and were placed in production.

~~As a partial remedy~~ for the lost production, starting in August 2010 the Company entered into four offset printing paper supply agreements and one corrugating medium paper supply agreement with paper manufacturers in Hebei Province and the neighboring Shandong province (the “Supply Agreements”). These paper Supply Agreements are all effective through the end of year 2010. During year 2010, revenue generated from sales of corrugating medium paper finished goods purchased from these vendors pursuant to the Supply Agreements was in the amount of $1,072,469 (or 3,314 tons), representing 3.07% of annual sales revenue of corrugating medium paper in 2009 contributed to the ~~year~~increase as regional economy started to recover in the second half of ~~2010.~~the year.

Revenue from medium-grade offset printing paper amounted to ~~$83,923,667~~$36,188,231 (or ~~70.61%~~35.43% of total ~~offset printing paper and corrugating medium paper~~ revenue) for the year ended December 31, ~~2010,~~2009, which represents a ~~$47,735,436~~$24,877,791 (or ~~131.91%~~219.95%) increase over the medium-grade offset printing paper revenue of ~~$36,188,231~~$11,310,440 for the comparable period in ~~2009. Since~~2008. The factors contributing to the ~~fourth quarter of 2009, our only white paper-based product has been~~increase include (1) we converted the writing paper production line that we acquired in year 2008 to start producing medium-grade offset printing paper to meet increasing customer demand for medium-grade offset printing paper. As(2) the demand for medium-grade offset printing paper is such ~~though~~that, starting the second half of 2009, we ~~sold~~turned the capacities usually used by writing paper and high-grade offset printing paper ~~(which uses wood pulp as a raw material) in year 2009, there were no sales of~~into producing medium-grade offset printing paper. Revenue from high-grade offset printing paper dropped $575,891 or 5.18% to $10,544,055 (or 10.32% of total revenue) for the year ended December 31, 2009 from $11,119,946 for the comparable period in 2008. Revenue from writing paper infor the ~~entire~~year ended December 31, 2009 dropped by $3,424,296 to $11,372,697, which represents 23.14% decrease from the total revenue of $14,796,993 for the year of ~~2010. We sold 112,900 tons~~2008. A summary of medium-grade offset printing paper in the year 2010 compared to 53,540 tons of medium-grade offset printing paper in the year 2009, an increase of 59,360 tons or 110.87%. Total white paper (high and medium-grade, plus writing paper and white card paper) sold in the year 2010 amounted to 112,921 tons, or $83,943,596, versus 88,640 tons and $59,948,037 during the same period in 2009. While production and sales activities in the second half of 2010 were negatively impacted by the loss of two boilers, the factors contributing to the year 2010 net increase of $23,995,559 or 40.03% in total white paper sales revenue include (1) ASP for offset printing paper products increased from $676/ton in year 2009 to $743/ton in the year 2010, representing an annual increase of 9.91%, (2) the increase of production in the first half of year 2010 from the 2008 writing paper production line, which was converted to production of medium-grade offset printing paper in 2009, and (3) additional revenue from the sales of offset printing paper finished goods purchased from other paper manufacturers. Out of the total medium-grade offset printing paper sales revenue in year 2010, $12,961,311 (or 17,444 tons, or 15.44% of total medium-grade offset printing paper revenue) was attributable to sales of medium-grade offset printing paper finished goods purchased from other vendors pursuant to the above supply agreements.these changes is as follows:

	Year Ended				Year Ended				Change in						Percentage
	December 31, 2009				December 31, 2008										Change
Sales Revenue	Qty.(Ton)		Amount		Qty.(Ton)		Amount		Qty.(Ton)			Amount			Qty.(Ton)			Amount

Corrugating medium Paper		150,242	$	42,194,791		78,423	$	27,976,613		71,819		$	14,218,178			91.58	%		50.82	%
Medium-Grade Offset Printing Paper		53,540	$	36,188,231		14,805	$	11,310,440		38,735		$	24,877,791			261.63	%		219.95	%
High-Grade Offset Printing Paper		11,276	$	10,544,055		10,693	$	11,119,946		583		$	(575,891	)		5.45	%		(5.18	)%
Writing Paper		21,555	$	11,372,697		22,490	$	14,796,993		(935	)	$	(3,424,296	)		(4.14	)%		(23.14	)%
White Card Paper		2,269	$	1,843,054		-	$	-		2,269		$	1,843,054			N/A			N/A
Total Sales Revenue		238,882	$	102,142,828		126,411	$	65,203,992		112,471		$	36,938,836			88.97	%		56.65	%

27- 33 -

Our Average Selling Prices (“ASPs”) have been changing along with the changes of the general market prices in China during the last two years. Annual weighted-Average ASPs for our main products in the years ended December 31, 2008 and 2009 are summarized as follows:

	High-Grade Offset		Medium-Grade Offset		Writing Paper		Corrugating
Year 2008	$	1,040	$	764	$	658	$	357
Year 2009	$	935	$	676	$	528	$	281

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During the two years ended December 31, 2009 and 2008, ASPs for all of our main products peaked in August and September 2008, particularly during the 2008 Beijing Olympic Games and immediately before the global financial crisis. Nevertheless, since the third quarter of 2009 ASPs for the corrugating medium paper and medium-grade offset printing paper have shown clear signs of recovery. Our management believes the upward trend of ASPs for the Chinese domestic paper products will continue into the next year. The following is a chart showing the month-by-month ~~ASPs (except~~ASP for the ~~ASPs of the digital photo paper) for the period of 24 months~~years ended December 31, ~~2010:~~2008 and 2009:

Monthly sales revenue, including revenue from the sales of purchased paper finished goods and excluding revenue of digital photo paper, for the period of January through December 2010, are summarized below:

~~Revenue of Digital Photo Paper~~

Since March 2010, we have started producing and selling digital photo paper. Revenue generated from selling digital photo paper was $5,131,420 (or 4.14% of total revenue) for the period from inception to December 31, 2010:

Ten Months Ended Year Ended Percentage
December 31, 2010 December 31, 2009 Change in Change
Sales Revenue Qty.(Ton) Amount Qty.(Ton) Amount Qty.(Ton) Amount Qty.(Ton) Amount

Digital Photo Paper 1,039.50 $ 5,131,420 - $ - 1,039.50 $ 5,131,420 n/a n/a

During the second quarter of year 2010, the Company made a decision to significantly lower the ASP across the board for all digital photo paper products to make the pricing of our digital photo paper products more competitive. We currently produce glossy and semi-matte photo papers in various weights (from 120g/m2 ~~to 260g/m~~2). As a result of the aggressive pricing in different product structure, which lowered the ASP from $12,365/ton in April 2010 to $4,293/ton in December 2010, monthly sales quantity increased from 29 tons and 39 tons in the months of April and May of 2010 to 196 tons in December 2010.

~~Digital photo paper products’ monthly ASPs, monthly sales quantity (in tons) and monthly sales for the period from inception to December 31, 2010 are summarized as follows:~~

Cost of Sales

Total cost of sales ~~(excluding cost of sales of digital photo paper, which was not produced and sold until March 2010)~~ for the year ended December 31, ~~2010~~2009 was ~~$94,905,625,~~$ 82,107,531, an increase of ~~$12,798,094~~$ 29,463,740 or ~~15.59%~~55.97% from ~~$82,107,531~~$ 52,643,791 for the comparable period in ~~2009.~~2008. The increase in cost of sales is largely in line with the increase in sales proportionately, despite the fluctuations in the unit costs of various major raw materials during the years ended December 31, 2008 and 2009. Generally, raw materials account for approximately 70% of our total cost of sales. Electricity and coal account for approximately 10% and 10% of total cost of sales, in year 2010 is primarily due to the net increased sales revenue in the year relative to the revenue in 2009. As explained above, total sales revenue (excluding revenue from sales of digital photo paper) grew from $102,142,828 in year 2009 to $118,858,497 in year 2010, representing a 16.36% year-over-year increase. Despite a decrease in tonnage of corrugating medium and offset printing paper products sold in year 2010 relative to tonnage sold in year 2009,respectively. Other cost of sales ~~of corrugating medium~~included chemicals, packaging materials, direct labor, and offset printing paper per unit became higher in year 2010 than in year 2009 because of (1) the higher unit cost (and therefore, lower sales mark-up) for the sales of finished goods products purchased from other ~~paper manufacturers under the Supply Agreements, and (2) the inflated market costs of raw materials and energy in year 2010 as opposed to year 2009.~~

~~Monthly~~overheads. The monthly average purchase costs of our major raw materials ~~for the period of January 2009 through December 2010 are as follows:~~

Except for the purchase cost of recycled paper board, which market price fluctuates depending on various economic factors, costs for the other types of raw materials in the two-year period ended December 31, 2010 were on an upward trend and reached the highest point over the ~~period toward the end of year 2010. We believe that all of the raw material prices will either remain stable or fluctuate slightly in the next few periods.~~past two years are summarized below:

30- 35 -

Electricity and coal are the two main sources of energy for our paper manufacturing activities. Coal prices have been subject to seasonal fluctuations in China, with peaks often occurring in the winter months. Historically, electricity and coal account for approximately 11% and 10% of our total cost of sales, or approximately 9% and 8% of total sales, respectively. The monthly energy costs (electricity and coal) as a percentage of total monthly cost of sales (excluding the cost of sales purchased from other paper product suppliers and not manufactured by us in year 2010) of our main paper products for the two years ended December 31, 2010 are summarized as follows:

~~The total cost of sales of digital photo paper amounted to $2,908,690 for the period from inception to December 31, 2010.~~

Gross Profit

Gross profit for the year ended December 31, 2009 was $ 20,035,297, an increase of $ 7,475,096 or 59.51% from $ 12,560,201 for the comparable year in 2008. The increase was primarily attributable to the continued growth in sales of corrugating medium paper and medium-grade offset printing ~~paper~~paper. The gross profit margin for the year ended December 31, ~~2010 was $23,952,872, a net increase of $3,917,575 or 19.55%~~2009 increased only slightly by 0.35% from ~~$20,035,297 for the comparable period in 2009. The net increase in gross profit was primarily attributable~~19.26% to various factors affecting the production activities and sales revenue in the year of 2010, including the rise in product ASPs and the utilization of the writing paper machine that was converted to produce medium grade offset printing paper, offset by the interruption in production for the loss of two boilers in the second half of year 2010. The overall gross profit margin for corrugating medium paper and offset printing paper19.61%.

Income from operations

Operating income for the year ended December 31, ~~2010~~2009 was $ 18,006,096, an increase of $ 6,277,728 or 53.53% from $ 11,728,368 for the comparable period in 2008. The increase was primarily attributable to increased ~~slightly by 0.54%, from 19.61% a year ago to 20.15%, because of reasons discussed above, offset by the substantially lower~~sales and gross profit ~~margins~~ of ~~the sales of the purchased finished good products. Gross profit margins for the purchased finished good of~~our corrugating medium paper and medium-grade offset printing paper during the year ended December 31, 2010 were 14.29% and 6.28%, respectively. Overall annual gross profit margins for corrugating medium paper and offset printing paper (including those contributed by sales of purchased finished goods) for the year ended December 31, 2010 were 20.68% and 19.93%, respectively.

~~Gross profit from the sales of digital photo paper for the year ended December 31, 2010 amounted to $2,222,730, or 43.32% as a percentage to total digital photo paper sales.~~products.

Selling, General and Administrative Expenses

~~Selling, general~~General and administrative expenses for the year ended December 31, ~~2010~~2009 were ~~$3,074,256,~~$2,029,201, an increase of ~~$1,045,055~~$ 1,197,368 or ~~51.50%~~143.94% from ~~$2,029,201~~$ 831,833 for the comparable period in ~~2009.~~2008. The increase was primarily attributable to payments of various professional service fees, investor relations, ~~regulatory fees~~ and ~~more specifically, legal and accounting fees~~road shows that are related to our status as a public company. The Following schedule summarizes these public company expenses incurred ~~in connection with the independent investigation into certain allegations against~~by the Company ~~during~~for the ~~second half of~~ year ~~2010 (for more information refer to “Item 4 – Legal Proceedings” and notes to consolidated financial statements). As of~~ended December 31, ~~2010, total expenses incurred or accrued for the independent investigation~~2009 and ~~legal defense cost amounted to $1,041,452.~~2008, respectively:

	For the Year Ended		For the Year Ended
	12/31/2009		12/31/2008
Legal	$	386,899	$	13,000
Auditing		194,780		49,000
Other		40,767		1,640
Travel		128,270		-
Consulting		346,840		500,000
Investor relations		220,989		-
Officer and director compensations		205,835		86,352
	$	1,524,380	$	649,992

31- 36 -

~~Income from Operations~~

Operating income for the year ended December 31, 2010 was $21,985,984, an increase of $3,979,888 or 22.10% from $18,006,096 for the comparable period in 2009. The increase was primarily attributable to the increase in sales and gross profit of our corrugating medium paper and medium-grade offset printing paper products as explained above, as well as the additional operating income in the amount of $2,151,281 from the digital photo paper operations since March 2010.

Net Income

Net income was ~~$15,551,536~~$ 12,720,208 for the year ended December 31, ~~2010,~~2009, an increase of ~~$2,831,328~~$ 4,445,793 or ~~22.26%~~53.73% from ~~$12,720,208~~$ 8,274,415 for the comparable period in ~~2009.~~2008. The increase was primarily attributable to ~~the~~ increased sales revenue and gross profit ~~and accretive net income from the digital photo paper operations, offset by the increased legal and accounting expenses~~ during ~~the second half of~~ the year ended December 31, ~~2010.~~2009.

Accounts Receivable

Accounts receivable ~~and trade notes receivable~~ increased ~~slightly by $90,916 (or 4.42%)~~44.25% to ~~$2,147,774 (including notes receivable in the amount of $308,539)~~$ 2,056,858 as of December 31, ~~2010,~~2009, compared with ~~$2,056,858 as of~~$1,425,899 at December 31, ~~2009. We usually collect~~2008. The increase in accounts receivable ~~within 30 days~~was in relation to the increased sales volume in the year of ~~delivery~~2009. Because of increased demand from our customers and ~~completion of sales.~~an improved economic environment among our customers, we have asked more customers (especially new customer accounts) to either prepay or accelerate the payment terms on their purchases from us. Accounts receivable turnover ~~based on average accounts receivable using balances at the beginning and ending dates of the~~increased from 51.36 times in year ~~and annual sales revenue for the entire year of 2010, increased from~~2008 to 58.66 times in year 2009, ~~to 63.65 times in year 2010,~~ while days in accounts receivable decreased from 7.11 days in year 2008 to 6.22 days in year 2009 to 5.73 days in year 2010. We, similar to many other Chinese business enterprises, tend to accelerate receivable collection toward the end of the calendar year to prepare for the upcoming Chinese new year holidays. Therefore, accounts receivable (and to a certain extent, the accounts payable balance) usually appear lower than the balance during the rest of the year. Alternatively, accounts receivable turnover calculated using the average quarterly ending balances (at the end of first, second, and third quarter) of year 2010 was 33.93 times with days in accounts receivable at 10.76 days (with comparable accounts receivable turnover and days in accounts receivable being 38.79 times and 9.41 days for the year ended December 31, 2009).2009. We usually collect the accounts receivable within 30 days of delivery and completion of sales.

Inventory

Inventory consists of raw materials (accounting for ~~91.73%~~91.25% of total value of ending inventory as of December 31, ~~2010)~~2009) and finished goods. As of December 31, ~~2010,~~2009, the recorded value of our inventory has increased ~~7.16%~~145.52% to ~~$7,422,518~~$6,926,392 from ~~$6,926,392~~$ 2,821,063 as of December 31, ~~2009.~~2008. A summary of changes in major inventory items is as follows:

	December 31, 2010		December 31, 2009		$ Change			% Change				December 31, 2009		December 31, 2008		$ Change			% Change
Raw Materials
Recycled paper board	$	3,807,678	$	2,301,282	$	1,506,396			65.46	%		$	2,301,282	$	797,806	$	1,503,476			188.45	%
Pulp		13,180		12,744		436			3.42	%			12,744		914,061		(901,317	)		(98.61	)%
Recycled printed paper		593,604		533,771		59,833			11.21	%			533,771		277,739		256,032			92.18	%
Recycled white scrap paper		801,783		1,731,170		(929,387	)		(53.69	)%	��		1,731,170		389,151		1,342,019			344.86	%
Coal		1,441,082		1,704,905		(263,823	)		(15.47	)%			1,704,905		-		1,704,905			N/A
Digital photo base paper and other raw materials		151,269		36,801		114,468			311.05	%
Other raw materials													36,801		-		36,801			N/A
Total Raw Materials		6,808,596		6,320,673		487,923			7.72	%			6,320,673		2,378,757		3,941,916			165.71	%

Finished Goods		613,922		605,719		8,203			1.35	%			605,719		442,306		163,413			36.95	%
Totals	$	7,422,518	$	6,926,392		496,126			7.16	%		$	6,926,392	$	2,821,063		4,105,329			145.52	%

~~To prepare~~The increase is due to a number of reasons:

The market price of recycled paper board, which is the main raw material for ~~the launch of the new 360,000 tons~~our corrugating medium paper, ~~production line,~~has been slowly going up since the second half of 2009. To hedge the increasing cost of the recycled paper board, we ~~have begun~~decided to purchase more recycled paper boards ~~during~~and control the ~~fourth quarter of year 2010. Although our purchase price~~average cost of recycled ~~white scrap~~ paper ~~increased substantially~~boards in ~~December 2010 for approximately 20% as compared to~~ the ~~beginning of~~subsequent period at a lower level and shield the ~~year, we anticipate~~Company from potentially higher prices in the ~~price hike to be temporary and~~next few periods.

We have not ~~replenished~~been producing high-grade offset printing paper since August 2009. Therefore, the ~~recycled white scrap~~inventory stock of pulp, which is a major raw material for high-grade offset printing paper, ~~at the level similar~~has decreased from $914,061 on December 31, 2008 to ~~the end~~$12,744 as of ~~2009. Because of the increase in ending inventory at~~ the end of year ~~2010,~~2009.

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Due to increasing customer demand, we have been producing increasing amount of medium-grade offset printing paper since August 2009 (see the analysis of the 2009 increase in medium-grade offset printing paper as compared to year 2008 under “Revenue” above). Accordingly, we increased the inventory stock of recycled printed paper from $389,151 as of December 31, 2008 to $1,731,170 as of December 31, 2009.

Starting from the third quarter of year 2009, we began to track the usage of coal and other chemicals (under the category of “Other Raw Materials”) used in pulp/paper production process and to charge only the quantities consumed as of the end of the period to the pool of production cost, with the quantities/amount left on hand as of the end of the period capitalized as part of the raw material inventory. Prior to the third quarter of 2009, we chose to expense whatever amount of coal and chemicals costs as current period cost of goods sold. Such change has no material effect on the inventory balance and the cost of sales because the coal on hand at December 31, 2008 was insignificant. In addition, in the case of coal, we decided to purchase and store extra amount of coal to prepare for the 2009-2010 severe winter weather and any possible interruption caused by any severe weather condition.

Inventory turnover of all items of inventory of the Company decreased from ~~16.85~~32.52 times during the year ~~2009~~of 2008 to ~~13.63~~16.81 times in the year ~~2010.~~of 2009. Number of days in inventory increased from ~~21.72~~11.22 days in year ~~2009~~2008 to ~~26.77~~21.72 days for the year ended December 31, ~~2010.~~2009. The reason for the change in inventory turnover ratios is attributable to the higher average inventory level during year 2009 compared to the average inventory level in year 2008, caused particularly by the low beginning inventory in the 2008 fiscal year.

Accounts Payable

Accounts payable (excluding non-inventory purchase payables and accrued expenses) was ~~$413,468~~$1,819,448 for the year ended December 31, 2009, an increase of $1,819,448 from exactly a year ago. The increase was primarily attributable to the surge in unpaid purchase of inventory stock because of ramped up production activities as of December 31, 2010, a decrease of $1,405,980 or 77.28% from one year ago. The accounts payable balance decreased because, among other things and as explained above under the analysis of inventory, we purchased large quantities of recycled paper boards in November 2010 but purchased no recycled paper board in the following month of December. The large November payable balance was mostly paid down as of December 31, 2010.2009.

Liquidity and Capital Resources

Overview

We had net working capital of ~~$9,347,926~~$7,024,253 at December 31, ~~2010,~~2009, an increase of ~~$2,323,673~~$8,190,048 over a net working capital deficit of ~~$7,024,253~~($1,165,795) at December 31, ~~2009.~~

The Company finances its daily operations mainly by cash flows generated from its business operations and loans from banking institutions and major shareholders. Major capital expenditures in year 2009 and 2010 are financed by cash flows generated from business operations and by proceeds of equity financing transactions. As of December 31, 2010 we had approximately $7,600,000 in capital expenditure commitments that were related to the construction of a new corrugating medium paper production line and will be satisfied by payment of cash within the next 12 months. We also intend to complete the acquisition of some 667,000 square meters of land within the next 12 months. The land acquisition is expected to consume an additional $14,500,000 in cash to pay for the financial compensation to current land owners and for the land use rights to the government. We expect to finance the above capital expenditures and land acquisition with the net working capital of $9,347,926, the net cash inflows generated from year 2011 business operations, which is estimated to be at least $19,000,000, and if necessary, new loans from local Chinese banks. We do not have any firm commitment from the local banks with respect to new credit facilities in addition to the current bank borrowings, which aggregated to approximately $4,900,000 as of December 31, 2010. However, based on the present loan to equity ratio (which is less than 14% as of December 31, 2010), we do not believe the Company will have any problem securing additional bank loans as needed.

~~The Company currently does not have any specific plan for new equity financing in the next 12 months.~~2008.

Cash and Cash Equivalents

Our cash and cash equivalents as at the ~~end~~beginning of the year ended December 31, ~~2010~~2009 was ~~$11,348,108,~~$3,234,419 and increased to $6,949,953 by the end of the period, an increase of ~~$4,398,155 from $6,949,953 as~~$3,715,534 or 114.87% over the base amount at January 1, 2009. The net change in cash and cash equivalents in the amount of $3,715,534 for the year ended December 31, ~~2009.~~2009 represented an increase of $1,103,776 or 42.26% from $2,611,758 for the comparable period in 2008. The increase over the ~~year 2009~~comparable 2008 balance was primarily attributable to a number of factors, including the ~~following:~~followings:

Net cash provided by operating activities

Net cash provided by operating activities was ~~$20,359,738~~$15,038,670 for the year ended December 31, ~~2010, representing~~2009, an increase of ~~$5,321,068~~$5,405,498 or ~~35.38%~~56.11% from ~~$15,038,670~~$9,633,172 for the comparable period in ~~2009.~~2008. The 2009 net income ~~for the year ended December 31, 2010~~ in the amount of ~~$15,551,536 represented an increase of $2,831,328~~$12,720,208 increased $4,445,790 or ~~22.26%~~53.73% from ~~$12,720,208~~$8,274,418 for the comparable period in ~~2009.~~2008. In addition to the net income, there are certain non-cash charges (including depreciation in the amount of $4,147,777 and a one-time charge of $1,115,362 for the loss on disposition of a smaller corrugating medium paper production line and two industrial buildings that were demolished for the purpose of constructing a new plant in late June 2010)$3,510,082) that reduced the year 2009 net income but nevertheless did not have the effect of reducing the balance of cash and cash ~~equivalents. In addition to the~~equivalent. Total non-cash charges amounted to $4,112,218 for the year ended December 31, 2009. Besides the increase in net income, the increase in cash ~~flow~~ from operating activities ~~was also affected by a decrease~~ in ~~accounts payable of $1,431,851, as well as increases in other accrued expenses and income tax payable for a total amount of $954,723 during~~year 2009, compared to the ~~year of 2010.~~

~~ii.~~

~~Net~~ cash ~~used in investing activities~~

The Company incurred $41,560,741 in cash expenditures for investing activities, including $34,774,829 in purchases of new equipment and progress payments for the construction of a new corrugating medium paper production line and ancillary facilities and $6,785,912 for the first phase of the acquisition of a parcel of roughly 667,000 square meters of land across the street from our current main manufacturing facilities. The total contract price for the new corrugating medium paper production equipment, which will have an annual capacity of 360,000 tons, is $29,507,850 and represents an unpaid purchase commitment in the next twelve months in the amount of $4,401,222. In addition, cost of contracts that we entered into to build other ancillary facilities for the new corrugating medium paper production line, including a new pulping station and water treatment plant, amounted to $10,210,154, of which $3,090,989 was unpaid as of December 31, 2010. Total unpaid capital expenditure commitment as of December 31, 2010 was in the amount of $7,628,331, which we expect to pay for with (1) current cash and cash equivalent balance of approximately $11.4 million, (2) additional bank loans, and/or (3) cash flows from operating activities in the ~~next twelve months.~~

~~The Company made a land acquisition deposit payment~~same period in ~~June 2010 in the amount of $11,494,601~~2008, is mainly attributable to the ~~local residents council, which is in charge~~increased balances of accounts payable and other payables and accrued liabilities as of December 31, 2009, offset by additional cash paid to purchase inventory and increased balance of accounts receivable and prepaid expenses and other receivables as of the ~~reimbursement and relocation~~end of the residents who occupied the parcel of subject land that is a vital part of any future expansion of our facilities. As of September 30, 2010, 56 families of local residents on the subject land have contracted to surrender their land use rights (representing roughly 85% of the total land to be acquired) and have been reimbursed. The land acquisition process will continue throughout the rest of the year for us to obtain the title through the local government. Unsatisfied with the slow progress of the acquisition, we demanded partial returns of the deposit from the local resident village council in December 2010 and received two refunds in total amount of $4,537,341. In addition to the remaining deposit, to complete the land acquisition we estimate that the entire land acquisition process will require an additional $14,500,000 (based on an estimated total average cost of approximately $31.78 per square meter) of cash payment in the next six to twelve months, which is expected to be paid for by future cash flows generated by our operating activities. If, however, the relocation and financial restoration phase progress continue to stall for more than six to twelve months, we may demand the full refund of whatever deposit already made from the local resident village council.2009.

33- 38 -

~~iii.~~

~~Net cash provided by financing activities~~

Net cash used in investing activities

The Company incurred $13,604,113 cash expenditure in investing activities during the year ended December 31, 2009. There is an increase of cash outflow in the amount of $2,244,382 or 19.75% from $11,359,731 for the comparable period in 2008. The cash out-flow for the year ended December 31, 2008 was primarily attributable to the cash payment associated with our acquisition of a new white paper production line and new corrugating medium paper mill machine calendars in year 2008. During the year ended December 31, 2009, the Company purchased certain digital photo paper production equipments for a total consideration of RMB 93,000,000 Yuan (or approximately $13,602,059 as of December 31, 2009).

Net cash provided by financing activities

Net cash from financing activities was ~~$25,091,542~~$2,306,853 during the year ended December 31, ~~2010,~~2009, as compared ~~to $2,306,853~~with $4,250,077 net cash provided by financing activities for the comparable period in ~~2009. In April 2010~~2008. During the ~~Company closed~~year ended December 31, 2009, the company paid off a ~~public offering of 3,450,000 shares of its common stock and received net proceeds~~short-term loan borrowed from Huaxia Bank in the amount of ~~$26,570,161. $25 million of~~approximately $1,246,950 and made a partial loan repayment to the United Commercial Bank (China) Limited in the amount $1,300,000. The Company also completed a private placement transaction in October 2009 to raise net proceeds ~~were wired to~~of $4,898,849. During the ~~PRC bank account~~comparable period in year 2008 the Company borrowed $1,946,025 from related parties and netted $2,304,052 of ~~Baoding Shengde on June 11, 2010 for future installment payments for the construction of the new corrugating medium paper production line.~~loan proceeds from local banks and a credit union.

Short term loans ~~and current portion of long-term bank debt~~

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 (or ~~$1,966,182~~$1,901,363 at December 31, ~~2010)~~2009). The loan is renewable at maturity and is subject to a 6.372% annual interest rate. The loan is secured by certain manufacturing ~~equipment~~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. The Company renewed the loan with the Industrial &and Commercial Bank of China on January 28, 2010 for another one year ~~period with the applicable interest rate adjusted to 5.841% per annum.~~period.

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.~~yuan (or $877,552 at December 31, 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 June 1, 2009 and adjusted the interest rate to 5.841% per annum. ~~The Company paid off the entire loan balance in May 2010 without renewing the loan.~~

On July 28, 2010, the Company obtained a new accounts receivable factoring facility with a maximum credit limit at $907,468 as of December 31, 2010. Under the factoring agreement, the bank has recourse against the Company if the receivables, which remain in the Company’s books at all times, are not fully collected. The term of the factoring facility expires on July 19, 2011.

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.~~$816,976. 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, ~~equipment~~equipments and land use rights and personally guaranteed by Zhenyong Liu, our Chief Executive Officer. Interest payment is made monthly 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.”) ~~and began paying off~~Under the ~~revolving credit line and~~Deferred Payment Agreement, the Company agrees to repay the principal amount of the loan ~~balances.~~according to the following payment schedule:

$400,000 on 8/31/2009

All the accrued interest as of 8/31/09 on 9/15/2009

$400,000 on 9/30/2009

$200,000 on 10/31/2009

$300,000 on 11/30/2009

$300,000 on 12/31/2009

$200,000 on 1/31/2010

$200,000 on 2/28/2010

$200,000 on 3/31/2010

$200,000 on 4/30/2010

$200,000 on 5/31/2010

$216,476.39 on 6/30/2010

The Company does not believe the above payment schedule will have any negative impact on its financial position. As of December 31, ~~2010, total principal~~2009 the remaining balance of ~~such~~the United Commercial Bank (China) loan ~~has been completely paid off.~~balance was $1,494,835.

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Long term loan

On August 12, 2008, HBOP entered into a loan agreement with the Rural Credit ~~Cooperative~~Union of Xushui, ~~Country,~~ Dayin Branch, for a loan in the amount of RMB 13,280,000 ~~Yuan~~yuan (or ~~$2,008,530~~$1,942,316 as of December 31, ~~2010)~~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~~Related party 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, ~~when~~ 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. On December 31,~~ 2009 ~~a new loan agreement was entered into between Mr. Liu and HBOP to replace~~at the ~~prior loan agreement. Under the new agreement, the loan~~price of ~~Mr. Liu is interest bearing and the interest rate is determined by reference to the People's Bank of China, which was 5.85%~~$3.32132 (post reverse split) per ~~annum as of December 31, 2010. The term is for 3 years and starts from January 1, 2010.~~share. As of December 31, ~~2010, HBOP’s remaining loan balance payable~~2009 and 2008, net amount due to ~~our Chief Executive Officer was $2,209,068 with interest payable at 5.85% per annum.~~

Mr. Liu were $2,136,242 and $6,157,104, respectively.

On August 1, 2008, Shuangxi Zhao, a director of HBOP, loaned money to ~~the Company~~HBOP for working capital purposes, which amounted to ~~$907,468~~$877,552 as of December 31, ~~2010.~~2009. The amount owed bears interest at ~~5.85%~~7.56% per annum (equivalent to the interest rate determined by the People’s Bank of China), and is due on July 31, 2011.

On August 5, 2008, Xiaodong Liu, Vice President and a ~~director~~shareholder of ~~HBOP,~~the Company, loaned money to ~~the Company~~HBOP for working capital purposes, which amounted to ~~$1,134,336~~$1,096,940 as of December 31, ~~2010.~~2009. The amount owed bears interest at ~~5.85%~~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 February 5, 2010, the Company borrowed $200,000 from a shareholder to pay for various expenses incurred in the U.S. The amount is interest free and is repayable on demand. The Company repaid the entire balance on April 14, 2010.

~~Critical Accounting Policies and Estimates~~

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates. The most critical accounting policies are listed below:

~~Revenue Recognition Policy~~

The Company recognizes revenue when goods are shipped (delivery is generally deemed complete when the goods are shipped as the typical shipment terms are FOB shipping point), when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured. Typical shipment term for all customers is FOB Shipping Point. Goods are considered shipped and delivered when customer’s truck picks up goods at our finished goods inventory warehouse or when the goods are shipped to the customer from our warehouse.

~~Long-Lived Assets~~

The Company 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. Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry. For the years ended December 31, 2010 and 2009, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required. We are currently not aware of any events or circumstances that may indicate any need to record such impairment in the future.

~~Foreign Currency Translation~~

The functional currency of HBOP and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. The current exchange rates used by the Company as of December 31, 2010 and 2009 to translate the Chinese RMB to the U.S. Dollars are 6.61180:1 and 6.8372:1, respectively. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective years at 6.77875:1 and 6.84088:1 for the years ended December 31, 2010 and 2009, respectively. Translation adjustments are included in other comprehensive income (loss). The functional currency of Orient Paper, Dongfang Holding and Shengde Holdings is United States dollars. Monetary assets and liabilities denominated in currencies other than United States dollars are translated into United States dollars at the rates of exchange ruling at the balance sheet date. Translation in currencies other than United States dollars are converted into United States dollars at the applicable rates of exchange prevailing the transactions occurred. Transaction gains or losses are recognized in the consolidated statement of income.

~~Contractual Obligations and Off-Balance Sheet Arrangements~~

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.

35- 40 -

Payments Due by Period
Contractual Obligations Total
Less than
1 year
1 – 3 years 3 – 5 years
More than
5 years
Debt Obligations $ 4,882,180 $ 4,882,180 $ — — $ —
Equipment and Construction Costs Commitment 7,628,331 7,628,331 — — —
Operating Lease Obligations 381,137 18,149 36,298 36,298 290,392
Total $ 12,891,648 $ 12,528,660 $ 36,298 $ 36,298 $ 290,392
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
Debt Obligations	$	6,216,065	$	4,273,750	$	—	$	1,942,315	$	—

Operating Lease Obligations		386,123		17,551		35,102		35,102		298,368
Total	$	6,602,188	$	4,291,301	$	35,102	$	1,977,417	$	298,368

Make Good Securities Escrow Agreement

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.~~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.

(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.

- 41 -

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 ~~losses~~loss or ~~expenses)~~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.

As of December 31, 2009, the Company has achieved the ~~financial performance threshold for 2009. The Company’s net income determined in accordance with the US GAAP for the year 12-month period ended December 31, 2010 is $15,551,536, which fails the 2010~~2009 Performance Threshold of $18 million by more than 10%. However, the Buyers and the Company have agreed to reduce the 102,019 Escrow Shares that are otherwise transferable to the Buyers by 50% to 51,010 Escrow Shares pursuant to a carve-out under Article 1.6 (vii) of the Make Good Securities Escrow Agreement for items that are “whatsoever beyond the Company’s reasonable control,“ including part of the $1,041,452 of 2010 legal and accounting fees related to (1) the internal independent investigation conducted by the Company’s Audit Committee during 2010 in response to certain allegations against the Company and its financial positions and operations, and (2) defending the shareholder class action lawsuit filed on August 6, 2010.Threshold.

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 ~~Private Placement.~~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 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.

As However, as of ~~January 6,~~March 26, 2010 ~~the Company has been in breach of certain obligations under the October 7, 2009 Registration Rights Agreement and was subject~~all Buyers have agreed to the liquidated damages provisions under the same agreement. Under the Registration Rights Agreement, which was entered into by the Company and the Buyers of the October 7, 2009 private placement, the Company is obligated to file a registration statement to register the Buyers’ shares within 90 days of October 7, 2009. Nevertheless, the Company has decided to postpone the registration of the Buyers’ shares until after the closing of the next financing transaction. On March 15, 2010, the Company and the Buyers entered into a Waiver Agreement for the Buyers to waivetemporarily suspend their registration rights and ~~the~~any cash payment of liquidated ~~damages under the Registration Rights Agreement.~~damages.

Off Balance Sheet Arrangements

None.

~~Recent Accounting Pronouncements~~

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC Topic 820 to require additional disclosures regarding fair value measurements. One of the areas concerned is related to the inclusion of information about purchases, sales, issuances and settlements in the reconciliation of recurring Level 3 measurements. Such disclosure requirements will be effective for annual reporting periods beginning after December 15, 2010 and for interim periods within those fiscal years. The Company is currently evaluating the effect of ASC 2010-06 on its financial statements and believes that this ASU is only related to disclosures and would have no impact on the Company’s results of operations.

In April 2010, the FASB issued ASU 2010-13, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. It addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB ASC Topic 718, Compensation—Stock Compensation, was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments will be effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. The Company currently evaluating the effect of ASU 2010-13 on its financial statements and would have no impact on the Company's results of operations.

37- 42 -

~~In July 2010,~~Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the ~~FASB issued ASU 2010-20, “Receivables – Disclosures about~~United States requires us to make estimates and assumptions that affect the ~~Credit Quality~~reported amounts. A discussion of ~~Financing Receivables~~the more significant estimates follows. Management has discussed the development, selection and the Allowance for Credit Losses” (ASU 2010-20). ASU 2010-20 amends Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a resultdisclosure of these ~~amendments, an entity~~estimates and assumptions with the Audit Committee of our Board of Directors.

Inventories

Inventories consist principally of raw materials (e.g., recycled paper, pulp and coal) and finished goods, and are stated at the lower of cost (average cost method) or market. While we believe the market value (in terms of replacement cost or net realizable value) of essentially all raw materials is required to disaggregate by portfolio segment or class certain existing disclosures and provide new disclosures about its financing receivables and related allowance for credit losses. These provisions are effective for interim and annual reporting periods ending on or after December 15, 2010. In January 2011, ASU 2011-06, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20” is issued to temporarily delay the effective date of the disclosures about troubled debt restructurings for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. Accordingly, ASU 2010-20 are changed to be effective for interim and annual periods ending after June 15, 2011. Management assessed that ASU 2010-20 concerns disclosures onlyrising and will not result in any near-term impairment in value, any change in the assumptions of the market value could have ~~a material~~an impact on our stated cost of raw materials.

Income Taxes

As mentioned under Significant Accounting Policies, the Company has adopted ASC Topic 740-10-05, Income Taxes (former FIN 48, Accounting for Uncertainty in Income Taxes) . To date, the adoption of this interpretation has not impacted the Company’s financial condition, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. Until December 31, 2009, the management considered that the Company had no uncertain tax positions affecting its consolidated financial position orand results of ~~operations.~~

~~In August 2010,~~operations or cash flows, and will continue to evaluate for the ~~FASB issued ASU 2010-22, “Accounting for Various Topics - Technical Corrections to SEC Paragraphs”. It amends various SEC paragraphs based on external comments received~~uncertain position in future. There are no estimated interest costs and penalties provided in the ~~issuance of SEC Staff Accounting Bulletin (SAB) No. 112, which amends or rescinds portions of certain SAB topics. The topics affected include reporting of inventories in~~Company’s consolidated financial statements for ~~Form 10-Q, debt issue costs~~the years ended December 31, 2009 and 2008, respectively. The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities and the major one is the China Tax Authority. The open tax year for examination in ~~conjunction with a business combination, sales~~PRC is 5 years.

The Company’s effective tax rate for the year ended December 31, 2009 and 2008 are 26.8% and 26.1%, respectively. Any change in the estimate of ~~stock by subsidiary, gain recognition~~our utilization of tax attributes or carryover could have an impact on ~~sales of business, business combinations prior to an initial public offering, loss contingent and liability assumed in business combination, divestitures, and oil and gas exchange offers.~~ our effective tax rate.

Share-Based Compensation

The Company applies the provisions of ASC Topic 505-50, Equity Based Payments to Non-Employees (formerly named as EITF 96-18) to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is ~~currently evaluating~~more reliably measurable. The calculation of fair value using the ~~effect of ASU 2010-22 on its financial statements and believes it would have no impact on~~Black-Scholes option pricing model involves certain assumptions that are reasonably estimated. However, if these estimates change, the ~~Company's results of operations.~~fair value calculated could be materially impacted.

Item 7A. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.

~~Not Applicable.~~All of our long-term debt at year-end 2009 is at fixed interest rates and, therefore, is not affected by changes in interest rates before maturity. When our long-term debt instruments mature, we may refinance them at the existing market interest rates, which may be more or less than interest rates on the maturing debt.

Certain cash and cash equivalents earn interest at variable rates and are affected by changes in interest rates. During the years ended December 31, 2009 and 2008, interest income amounted to $108,610 and $65,316, respectively. We do not believe the change in interest rate on our cash and cash equivalent accounts will result in any material market risk for the Company.

We were not a party to any material derivative financial instruments in 2009 and 2008.

- 43 -

Item 8. Financial Statements and Supplementary ~~Data~~Data.

Our audited financial statements for the fiscal years ended December 31, ~~2010~~2009 and ~~2009,~~2008, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1.

- 44 -

ORIENT PAPER, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Balance Sheets	F - 3
Consolidated Statements of Income and Comprehensive Income	F - 4
Consolidated Statements of Stockholder’s Equity	F - 5
Consolidated Statements of Cash Flows	F - 6
Notes to Consolidated Financial Statements	F - 7

38F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Orient Paper, Inc.

We have audited the accompanying consolidated balance sheets of Orient Paper, Inc. (“the Company”) as of December 31, ~~2010~~2009 and ~~2009~~2008, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, ~~2010.~~2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our ~~audits provide~~audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2010 and~~ 2009 and 2008, and the ~~result~~results of its operations and its cash flows for each of the two years in the period ended December 31, ~~2010,~~2009 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, ~~2010,~~2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated ~~March 15,~~September 26, 2011, expressed an unqualified opinion thereon.

/s/ BDO Limited

Hong Kong, ~~March 15,~~September 26, 2011

Nevada	20-4158835
State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization	~~(I.R.S. Employer~~ Identification No.)

Title of each class		Name of each exchange on which registered
Common Stock		NYSE Amex LLC

Large accelerated filer o¨		Accelerated filer o¨
Non-accelerated filer o¨ (Do not check if a smaller reporting company)		Smaller reporting company þx

		Page

	PART I

Item 1.	BUSINESS	34
Item 1A.	RISK FACTORS	1316
Item 1B.	UNRESOLVED STAFF COMMENTS	2329
Item 2.	PROPERTIES	2329
Item 3.	LEGAL PROCEEDINGS	2330
Item 4.	(REMOVED AND RESERVED)	2430

	PART II

Item 5.	MARKET FOR ~~REGISTRANT'S~~REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	2430
Item 6.	SELECT FINANCIAL DATA	2532
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2533
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3843
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	3844
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	3945
Item 9A.	CONTROLS AND PROCEDURES	3945
Item 9A(T).	CONTROLS AND PROCEDURES	45
Item 9B.	OTHER INFORMATION	40 47

	PART III

Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	4048
Item 11.	EXECUTIVE COMPENSATION	4152
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	4354
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	4555
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	4656

	PART IV

Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	4657

SIGNATURES		4858

Province	2008 Capacity (‘000 tons)		2009 Capacity (‘000 tons)		Change (‘000 tons)			% Change
Shandong		13,500		14,300		800			5.93	%
Zhejiang		12,830		13,720		890			6.94	%
Guangdong		11,540		13,160		1,620			14.04	%
Jiangsu		9,300		10,260		960			10.32	%
Henan		8,060		8,640		580			7.20	%
Hebei		3,790		3,670		(120	)		-3.17	%
Fujian		2,970		3,130		160			5.39	%
Hunan		2,800		3,000		200			7.14	%
Sichuan		2,110		2,270		160			7.58	%

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Province	No. of Companies Affected	Capacities Eliminated in 2010 (tons)
Henan	121	2,395,000
Shaanxi	9	463,200
Hebei	18	354,800
Heilongjiang	15	195,400
Liaoning	7	189,000
Sichuan	8	180,000
Hunan	10	152,000

	2010 Sales Amount ($USD, net of applicable VAT)		% of Total Revenue
Company A (Beijing)		5,541,426		4.47	%
Company B (Baoding)		4,953,012		3.99	%
Company C (Baoding)		4,545,653		3.67	%
Total Major Customers		15,040,091		12.13	%

	2009 Sales Amount ($USD, net of applicable VAT)		% of Total Revenue
Company B (Baoding)		5,333,532		5.22	%
Company C (Baoding)		4,920,583		4.82	%
Company A (Beijing)		4,516,621		4.42	%
Company D (Baoding)		4,284,054		4.19	%
Company E (Hebei)		3,435,540		3.36	%
Company F (Baoding)		3,112,362		3.05	%
Total Major Customers		25,602,692		25.06	%

Major customers and revenue generated for the year ended December 31, 2009
Name	Amount (US$)
Hebei Tianpurun Printing Company Limited		5,333,532
Baoding Huatai Printing Company Limited		4,920,583
Beijing Huafumei Paper Sales Company Limited		4,516,621
Baoding Hengyi Printing Company Limited		4,284,054
Mancheng Wenzhai Printing Company Limited		3,435,540
Baoding Times Printing Company Limited		3,112,362
Baoding Morning Light Printing Company Limited		2,902,108
Beijing Yuewei Culture Development Company Limited		2,586,026
Shanghai Hengxin Paper Company Limited		2,573,800
Hebei Marching Paper Products & Packaging Company Limited		2,101,852

Name	Amount (US$)
Beijing People’s Fine Arts Publishing House		3,336,984
Beijing Qiuhao Printing Company Limited		2,957,782
Baoding Binghe Printing Company Limited		2,876,174
Beijng Yutian Planet Books Company Limited		2,760,200
Baoding Dadi Colour Printing Company Limited		2,743,550
Baoding Xida Printing Company Limited		2,705,405
Beijing Yuewei Cultural Development Company Limited		2,644,575
Baoding Xinmin Printing Company Limited		2,298,147
China Lucky Offset Group Integrated Services Company		2,244,297
Baoding Huatai Printing Company Limited		2,199,226

	2010 Purchase Amount ($USD, including applicable VAT)		2009 Purchase Amount ($USD, including applicable VAT)
Company A		49,190,698		30,735,933
Company B		12,194,668		26,957,033
Company C		7,916,398		11,235,281

Name	Amount (US$)
Xushui County Dongfang Trading Company Limited		30,735,933
Beijing Jianshun Fanya Resource Renewable Company Limited		26,957,033
Baoding Tianhe Coal Industries Company		11,235,281
Qingdao Shengda Pulp & Paper Company Limted		5,810,495
Baoding Ranhua Dye and Chemical Company		4,359,764

Trademark		Certificate No.		Category		Registrant		Valid Term
Shuangxing		3298963		Fax paper, thermal paper, blueprint paper, sensitized paper, spectrum sensitized paper, blueprint cloth, photographic paper, ~~cyanotype~~cyanotyping solution, diazo paper		HBOP		April 4, 2004 through April 6, 2014

	~~100% ownership~~
	~~Controlled by contractual agreements~~

		December 31,		December 31,		December 31,
		2010		2009		2009		2008
ASSETS	ASSETS

Current Assets
Current Assets:
Cash and cash equivalents		$	11,348,108	$	6,949,953	$	6,949,953	$	3,234,419
Restricted cash			-		29,105		29,105		-
Notes receivable			308,539		-
Accounts receivable (net of allowance for doubtful accounts of $37,535 and $41,977 as of December 31, 2010 and 2009, respectively)			1,839,235		2,056,858
Accounts receivable, net of allowance for doubtful accounts of $41,977 and nil as of December 31, 2009 and 2008, respectively							2,056,858		1,425,899
Inventories			7,422,518		6,926,392		6,926,392		2,821,063
Prepayments and other current assets			184,723		434,093

Prepaid expense and other receivable							434,093		-
Total current assets			21,103,123		16,396,401		16,396,401		7,481,381

Prepayment on property, plant and equipment			6,957,258		-

Property, plant and equipment, net			87,445,960		55,303,753		55,303,753		45,340,681

Total Assets		$	115,506,341	$	71,700,154	$	71,700,154	$	52,822,062

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Short-term bank loans		$	2,873,650	$	4,273,750	$	4,273,750	$	6,858,652
Current portion of long-term debt			2,008,530		-
Loan from related parties			2,041,804		-
Accounts payable			413,468		1,819,448		1,819,448		-
Accrued payroll and employee benefits			336,932		271,208		271,208		228,161
Other payables and accrued liabilities			2,363,686		1,662,673		1,662,673		815,642
Income taxes payable			1,717,127		1,345,069		1,345,069		744,721

Total current liabilities			11,755,197		9,372,148		9,372,148		8,647,176

Loan from credit union			-		1,942,315		1,942,315		1,948,176
Loan from related parties			2,209,068		4,110,735
Loans from related parties							4,110,735		8,137,554

Total liabilities			13,964,265		15,425,198		15,425,198		18,732,906

Commitments and Contingencies							-		-

Stockholders' Equity
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 18,344,811 and 14,875,714 shares issued and outstanding as of December 31, 2010 and 2009, respectively			18,345		14,876
Stockholders’ Equity:
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 14,875,715 and 11,275,497 shares issued and outstanding as of December 31, 2009 and 2008, respectively							14,876		11,275
Additional paid-in capital			45,727,656		19,169,469		19,169,469		9,598,944
Statutory earnings reserve			5,661,587		4,442,450		4,442,450		3,079,063
Accumulated other comprehensive income			7,138,233		3,984,305		3,984,305		4,092,839
Retained earnings			42,996,255		28,663,856		28,663,856		17,307,035

Total stockholders' equity			101,542,076		56,274,956

Total Liabilities and Stockholders' Equity		$	115,506,341	$	71,700,154
Total Stockholders’ Equity							56,274,956		34,089,156
Total Liabilities and Stockholders’ Equity						$	71,700,154	$	52,822,062

	Year Ended						Year Ended December 31,
	December 31,						2009			2008
	2010			2009

Revenues	$	123,989,917		$	102,142,828

Revenue							$	102,142,828		$	65,203,992
Cost of Sales		(97,814,315	)		(82,107,531	)		(82,107,531	)		(52,643,791	)

Gross Profit		26,175,602			20,035,297			20,035,297			12,560,201

Selling, General and Administrative Expenses		(3,074,256	)		(2,029,201	)		(2,029,201	)		(831,833	)
Loss from Disposal of Property, Plant and Equipment		(1,115,362	)		-

Income from Operations		21,985,984			18,006,096			18,006,096			11,728,368

Other Income (Expense):
Interest income		163,183			108,610
Interest Income								108,610			65,316
Interest expense		(633,010	)		(728,429	)		(728,429	)		(594,463	)

Income before Income Taxes		21,516,157			17,386,277			17,386,277			11,199,221

Provision for Income Taxes		(5,964,621	)		(4,666,069	)

Income Taxes								(4,666,069	)		(2,924,806	)
Net Income		15,551,536			12,720,208			12,720,208			8,274,415

Other Comprehensive Income:
Other Comprehensive Income
Foreign currency translation adjustment		3,159,472			(108,534	)		(108,534	)		1,801,652

Total Comprehensive Income	$	18,711,008		$	12,611,674		$	12,611,674		$	10,076,067

Earnings Per Share:

Basic Earnings per Share	$	0.89		$	1.04

Fully Diluted Earnings per Share	$	0.89		$	1.04

Earnings Per Share
Basic Earning per Share							$	1.04		$	0.77
Fully Diluted Earning per Share							$	1.04		$	0.77
Weighted Average Number of Shares
Outstanding - Basic		17,435,218			12,221,782			12,221,782			10,814,431
Outstanding - Fully Diluted		17,436,246			12,232,878			12,232,878			10,814,431

					Additional			Statutory		Accumulated Other																	Accumulated
	Common Stock				Paid-in			Earnings		Comprehensive			Retained										Additional		Statutory		Other
	Shares		Amount		Capital			Reserve		Income			Earnings			Total			Common stock				Paid-in		Earnings		Comprehensive			Retained

Description																			Shares		Amount		Capital		Reserve		Income			Earnings			Totals
Balance at December 31, 2007																				10,025,497	$	10,025	$	9,100,194	$	1,762,900	$	2,291,187		$	10,348,783		$	23,513,089
Common stock issued for services																				1,250,000		1,250		498,750		-		-			-			500,000
Foreign currency translation adjustment																				-		-		-		-		1,801,652			-			1,801,652
Transfer to Statutory Earnings Reserve																				-		-		-		1,316,163		-			(1,316,163	)		-
Net income for the year																				-		-		-		-		-			8,274,415			8,274,415
Balance at December 31, 2008		11,275,497	$	11,275	$	9,598,944		$	3,079,063	$	3,592,839		$	17,807,035		$	34,089,156			11,275,497		11,275		9,598,944		3,079,063		4,092,839			17,307,035			34,089,156

Reserve reclassification adjustment		-		-		-			-		500,000			(500,000	)		-

Employee stock compensation		15,250		16		82,860			-		-			-			82,876			15,250		16		82,860		-		-			-			82,876

Common stock issued for services		297,294		297		361,914			-		-			-			362,211			297,294		297		361,914		-		-			-			362,211

Issuance of common stock to a director		1,204,340		1,205		3,998,795			-		-			-			4,000,000

Issuance of common stock to a director(Note 7)																				1,204,340		1,205		3,998,795		-		-			-			4,000,000
Issuance of common stock for cash		2,083,333		2,083		4,896,766			-		-			-			4,898,849			2,083,333		2,083		4,896,766		-		-			-			4,898,849

Warrants issued for services		-		-		230,190			-		-			-			230,190			-		-		230,190		-		-			-			230,190

Foreign currency translation adjustment		-		-		-			-		(108,534	)		-			(108,534	)		-		-		-		-		(108,534	)		-			(108,534	)

Transfer to statutory earnings reserve		-		-		-			1,363,387		-			(1,363,387	)		-

Transfer to Statutory Earnings Reserve																				-		-		-		1,363,387		-			(1,363,387	)		-
Net income for the year		-		-		-			-		-			12,720,208			12,720,208			-		-		-		-		-			12,720,208			12,720,208

Balance at December 31, 2009		14,875,714	$	14,876	$	19,169,469		$	4,442,450	$	3,984,305		$	28,663,856		$	56,274,956			14,875,714	$	14,876	$	19,169,469	$	4,442,450	$	3,984,305		$	28,663,856		$	56,274,956

Warrant issued for services		16,597		16		(30,048	)		-		(5,544	)		-			(35,576	)

Issuance of common stock by public offering		3,450,000		3,450		26,566,711			-		-			-			26,570,161

Issuance of shares for officer services		2,500		3		21,524			-		-			-			21,527

Foreign currency translation adjustment		-		-		-			-		3,159,472			-			3,159,472

Transfer to statutory earnings reserve		-		-		-			1,219,137		-			(1,219,137	)		-

Net income for the year		-		-		-			-		-			15,551,536			15,551,536

Balance at December 31, 2010		18,344,811	$	18,345	$	45,727,656		$	5,661,587	$	7,138,233		$	42,996,255		$	101,542,076

	Year Ended December 31,
	2010			2009			Year Ended December 31,
							2009			2008
Cash Flows from Operating Activities:
Net income	$	15,551,536		$	12,720,208		$	12,720,208		$	8,274,415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,147,777			3,510,082			3,510,082			3,179,592
Loss from Disposal of Property, Plant and Equipment		1,115,362			-
Impairment on accounts receivable		(5,728	)		41,954			41,954			-
Stock-based expense for service received		101,046			560,182
Issuance of warrants for services								115,095			-
Issuance of stock for services								445,087			500,000
Changes in operating assets and liabilities:
Accounts and note receivable		(14,557	)		(676,861	)
Prepayments and other current assets		138,782			(318,765	)
Accounts receivable								(676,861	)		(230,455	)
Prepaid expenses & other receivables								(318,765	)		-
Inventories		(253,598	)		(4,111,602	)		(4,111,602	)		(2,350,733	)
Accounts payable		(1,431,851	)		1,818,470			1,818,470			(352,781)
Accrued payroll and employee benefits		56,246			43,710
Accrued payroll and related expenses								43,710			-
Other payables and accrued liabilities		636,553			849,028			849,028			486,108
Income taxes payable		318,170			602,264			602,264			127,026

Net Cash Provided by Operating Activities		20,359,738			15,038,670			15,038,670			9,633,172

Cash Flows from Investing Activities:
Prepayment for property, plant and equipment		(6,785,912	)		-
Purchases of property, plant and equipment		(34,774,829	)		(13,604,113	)

Purchases of property, plant, and equipment								(13,604,113	)		(11,359,731	)
Net Cash Used in Investing Activities		(41,560,741	)		(13,604,113	)		(13,604,113	)		(11,359,731	)

Cash Flows from Financing Activities:
Proceeds from related party loans		200,000			-
Repayment of related party loans		(200,000	)		-
Loans from related parties								-			1,946,025
Repayment of short term loans								(2,562,891	)		(2,792,471)
Proceeds from long-term and credit union loans								-			5,096,523
Proceeds from common stock issued in private placement, net		-			4,898,849			4,898,849			-
Proceeds from short term loans		885,119			-
Repayments of short term loans		(2,392,843	)		(2,562,891	)
Proceeds from public offering of common stock		26,570,161			-
Reclassification of restricted cash to cash and cash equivalents		29,105			(29,105	)

Restricted cash								(29,105	)		-
Net Cash Provided by Financing Activities		25,091,542			2,306,853			2,306,853			4,250,077

Effect of Exchange Rate Changes on Cash and Cash Equivalents		507,616			(25,876	)		(25,876	)		88,240

Net Increase in Cash and Cash Equivalents		4,398,155			3,715,534		$	3,715,534		$	2,611,758

Cash and Cash Equivalents - Beginning of Period		6,949,953			3,234,419			3,234,419			622,661

Cash and Cash Equivalents - End of Period	$	11,348,108		$	6,949,953		$	6,949,953		$	3,234,419

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	390,458		$	728,428		$	728,428		$	594,464
Cash paid for income taxes	$	5,592,563		$	4,065,720		$	4,065,720		$	2,755,258

Supplemental Disclosure of significant non-cash transactions:

Disposal of property, plant and equipment in lieu of payment for construction cost of a new plant	$	243,479		$	-

Issuance of 1,250,000 shares of common stock for consultancy services							$	-		$	500,000
Issuance of 3,750 shares of common stock for staff compensation								25,375			-
Issuance of 297,294 shares of common stock for legal and consultancy services								362,211			-
Issuance of 1,204,340 shares of common stock to a director (Note 7)								4,000,000			-
Issuance of 11,500 shares of common stock for directors’ compensation								57,501			-
Issuance of warrants for consultancy services		79,521			115,093			230,190			-

Issuance of 297,294 shares of common stock for legal and consultancy services		-			362,211
Issuance of 1,204,340 shares of common stock to a director		-			4,000,000

Name	Date of ~~Incorporation~~ Incorporation or Establishment	Place of Incorporation or Establishment	Percentage of Ownership	Principal Activity
Subsidiary:
Dongfang Holding	November 13, 2006	BVI	100%	~~Inactive investment~~Investment holding, inactive as of December 31, 2009
Shengde Holdings	February 25, 2009	State of Nevada	100%	Investment holding
Baoding Shengde	June 1, 2009	PRC	100%	Paper Production and distribution
Variable interest entity:
HBOP	March 10, 1996	PRC	100%	Paper Production and distribution

Land use right	Over the lease term
Building and improvements	30 years
Machinery and equipment	5-15 years
Vehicles	15 years

	December 31, 2010		December 31, 2009
Prepaid cash to service providers	$	-	$	250,000
Prepaid stock warrant compensation to a service provider		-		115,095
Prepaid insurance		19,000		-
Prepayment for purchase of materials		158,848		-
Others		6,875		68,998
	$	184,723	$	434,093

Repayment Date	Repayment Amount
August 31, 2009	$	400,000
September 15, 2009		All accrued interest
September 30, 2009		400,000
October 31, 2009		200,000
November 30, 2009		300,000

December 31, 2009			3,300,000
January 31, 2010			2,200,000
February 28, 2010			2,200,000
March 31, 2010			2,200,000
April 30, 2010			2,200,000
May 31, 2010			2,200,000
June 30, 2010			2,216,476

	December 31, 2010		December 31, 2009
Accrued electricity	$	573,294	$	1,051,706
Accrued audit and professional fees		290,000		110,000
Value-added tax payable		884,779		442,307
Accrued interest		248,676		-
Payable for purchase of equipment		236,698		-
Others		130,239		58,660
Totals	$	2,363,686	$	1,662,673

	Year ended December 31,
	2009

Risk free interest rate		1	%
Volatility		206	%
Expected life (years)		1.5
Dividends		-
Fair value per share of the warrant granted during the year	$	9.208

December 31,	Amount
2011	$	18,149
2012		18,149
2013		18,149
2014		18,149
2015		18,149
Thereafter		290,392
Total operating lease payments	$	381,137

	Year Ended December 31, 2010
	HBOP		Baoding Shengde		Not Attributable to Segments			Elimination of Inter-segment			Enterprise-wide, consolidated

Revenues	$	118,858,497	$	5,131,420		-					$	123,989,917
Gross Profit		23,952,872		2,222,730		-						26,175,602
Depreciation and amortization		3,421,975		725,802		-						4,147,777
Interest income		72,303		83,749		7,131						163,183
Interest expense		633,010		-		-						633,010
Income tax expense		5,405,884		558,737								5,964,621
Net Income (Loss)		16,172,333		1,676,293		(2,297,090	)					15,551,536
Total Assets		91,883,320		32,931,982		95,724			(9,404,685	)		115,506,341

Name	Age	Position/Title
Zhenyong Liu	47	Chief Executive Officer and Chairman of the Board
Winston C. Yen	42	Chief Financial Officer
Dahong Zhou	31	Secretary
Drew Bernstein	54	Director
Wenbing Christopher Wang	39	Director
Fuzeng Liu	61	Director
Zhaofang Wang	55	Director

Board of Directors	97

Audit Committee	5N/A (not formed until October 28, 2009)

Compensation Committee	1N/A (not formed until October 28, 2009)

Nominating Committee	1N/A (not formed until October 28, 2009)

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation($)		Total ($)
Zhenyong Liu, Chairman, CEO	2010	$	35,405		-		-		-		-	$	35,405
	2009	$	35,083		-		-		-		-	$	35,083

Winston C. Yen CFO	2010	$	120,000		-	$	37,425		-		-	$	157,425
	2009	$	38,000		-	$	25,375		-		-	$	63,375

Dahong Zhou, Secretary	2010	$	3,895		-		-		-		-	$	3,895
	2009	$	3,508		-		-		-		-	$	3,508

Name and PrincipalPosition	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compen sation($)		Total ($)
Zhenyong Liu,	2009	$	35,083		-		-		-		-	$	35,083
Chairman, CEO	2008	$	34,472		-		-		-		-	$	34,472

Winston C. Yen CFO	2009	$	38,000		-	$	25,375		-		-	$	63,375
	2008		-		-		-		-		-

Dahong Zhou,	2009	$	3,508		-		-		-		-	$	3,508
Secretary	2008	$	3,447		-		-		-		-	$	3,447

Jing Hao	2009	$	1,462		-		-		-		-	$	1,462
Former CFO	2008	$	4,309		-		-		-		-	$	4,309

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percentage of Common Stock

Directors and Executive Officers

Common Stock	Zhenyong Liu CEO and Director		5,115,852		27.89	%

Common Stock	Winston C. Yen CFO (1)		6,250		*

Common Stock	Dahong Zhou Secretary		0		0	%

Common Stock	Drew Bernstein Director (2)		7,500		*

Common Stock	Fuzeng Liu Director		0		0	%

Common Stock	Wenbing Christopher Wang Director (3)		4,000		*

Common Stock	Zhaofang Wang Director		0		0	%


All Directors and Executive Officers as a Group (7 persons)			5,133,602		27.98	%


Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percentage of Common Stock

Common Stock	Pope Investments II, LLC 5100 Poplar Ave. Suite 805 Memphis, TN 38137 (1)		833,333		5.60	%

Directors and Executive Officers

Common Stock	Zhenyong Liu CEO and Director		5,115,852		34.37	%

Common Stock	Winston C. Yen CFO (2)		3,750		*

Common Stock	Dahong Zhou Secretary		0		0	%

Common Stock	Drew Bernstein Director (3)		7,500		*

Common Stock	Fuzeng Liu Director		-0-		0

Common Stock	Wenbing Christopher Wang Director (4)		4,000		*

Common Stock	Zhaofang Wang Director		0		0

Common Stock
All Directors and Executive Officers as a Group (7 persons)			5,131,102		34.47	%

Exhibit No.		Description of Exhibit

3.1		Articles of Incorporation.(1)
3.2		Certificate of Amendment to Articles of Incorporation.(2)
3.3		Bylaws.(1)
3.4		Specimen of Common Stock certificate.(1)
10.1		Land Lease Agreement, dated January 2, 2002, by and between the Company and Xushui County Dayin Township Wuji Village Committee and Party Branch. (3)
10.2		Land Use Rights Certificate, dated March 10, 2003. (3)