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Orient Paper Inc. (ONP) Announces Second Quarter 2010 Results

BAODING, Hebei, China, Aug. 16 /PRNewswire-Asia-FirstCall/ — Orient Paper, Inc. (Amex:ONP.aNews) (“Orient Paper” or the “Company”), a leading manufacturer and distributor of diversified paper products in Hebei, China, today announced its financial results for the three and six months ended June 30, 2010.

    Second Quarter 2010 Highlights and Recent Events
    -- Revenue increased 70.8% to $38.3 million
    -- Gross profit increased 129.9% to $9.1 million
    -- Gross margin increased 610 basis points to 23.9%
    -- Operating income increased 100.5% to $7.4 million
    -- Excluding the $1.1 million non-cash charge related to the disposal
       of property, plant and equipment, non-GAAP operating income
       increased 129.8% to $8.5 million, or 22.2% of sales (*)
    -- Net income increased 116.3% to $5.4 million, or $0.30 per share
    -- Excluding the $1.1 million non-cash charge related to the disposal
       of property, plant and equipment, non-GAAP net income increased
       160.0% to $6.4 million, or $0.36 per share (*)
    -- Digital photo paper sales quantity reached 102 tons during the month
       of June 2010

“We achieved strong revenue and earnings growth during the second quarter,” commented Mr. Zhenyong Liu, Chief Executive Officer. “Our performance was driven by increased pricing in both our medium-grade offset printing and corrugating medium paper businesses, a significantly higher volume of sales in our medium-grade offset printing paper business, and the contribution made by our new digital photo paper business. We are also very pleased with our bottom line performance, which benefited from our strong sales growth, and the contribution of our higher margin digital photo paper business.”

Second Quarter 2010 Financial Results

For the three months ended June 30, 2010, revenue was $38.3 million, a 70.8% increase from $22.4 million for the same period last year. The increase was attributable to the growth in overall sales quantities and higher average selling prices (ASP) for the Company’s products, which was driven by strong market demand and the rise in global and domestic paper and pulp pricing during the second quarter.

Sales of white paper increased 130.3% to $25.6 million, compared to $11.1 million in the comparable period in 2009. (The Company produced only medium- grade offset printing paper under this category in the second quarter of 2010 and produced no high-grade offset printing paper or writing paper.) The Company sold 34,365 tons of white paper, up 104.4% from 16,816 tons in the prior year period. To meet the strong market demand for medium-grade offset printing paper, which is driven by high wood pulp prices, the Company ramped- up production utilization at its second white paper production line, which was converted to produce medium-grade offset printing paper in the third quarter of 2009.

Revenue from corrugating medium paper increased 2.2% year-over-year to $11.5 million compared to $11.3 million in the same period last year. The Company sold 35,599 tons of corrugating medium paper, as compared to 39,455 tons in the same period last year. The decline in quantity sold was mainly due to the disposal of a 34,000 tons annual capacity corrugating medium paper production line to accommodate the Company’s new 360,000 tons annual capacity corrugating medium paper production line. The Company’s average selling price for corrugating medium paper increased by 13.2% year-over-year, an increase driven by global and domestic paper and pulp pricing, and was high enough to offset for the drop in sales volume.

Orient Paper also reported revenue of $1.1 million, or 3.0% of total revenue, from its new digital photo paper segment. The Company aggressively reduced the ASPs of its digital photo paper products in May and June 2010. The reduction in price was well received by the Company’s customers, who purchased a total of 102 tons of high-gloss and semi-matte digital photo paper in the month of June. As of June 30, 2010, the Company has been running two shifts of production at its digital photo paper production lines.

Gross profit was $9.1 million, an increase of 129.9% from $4.0 million for the same period last year. Gross profit margin was 23.9%, up 610 basis points from 17.7% for the same period last year. The increase in gross margin was mainly due to higher prices for the Company’s offset printing paper and corrugating medium paper, and contribution from the Company’s high-margin digital photo paper products. On a sequential basis, gross margin improved 560 basis points from 18.3% in the first quarter of 2010.

Selling, general and administrative expenses were $0.6 million, an increase of 131.5% from $0.3 million in the second quarter of 2009. The increase was primarily attributable to the increase in expenses related to the Company’s status as a public company, including professional fees related to legal, accounting, consulting, investor relations and road show activity.

Operating income increased 100.5% to $7.4 million from $3.7 million in the second quarter of 2009. Excluding the $1.1 million non-cash charge related to the disposal of property, plant and equipment, non-GAAP operating income was $8.5 million, or 22.2% of sales, up 129.8% from $3.7 million, or 16.5% of sales, in the prior year period. (*)

Net income increased 116.3% to $5.4 million, or $0.30 per share, compared to $2.5 million, or $0.22 per share, for the three months ended June 30, 2009. Excluding the $1.1 million non-cash charge related to the disposal of property, plant and equipment, non-GAAP net income increased 160.0 % to $6.4 million, or $0.36 per share, from $2.5 million, or $0.22 per share, in the prior year period.(*)

Six months ended June 30, 2010 Results

Revenue for the first six months of 2010 was $64.7 million, up 60.8% from the first six months of 2009. Gross profit was $14.0 million, up 91.2% from gross profit of $7.3 million in the comparable period a year ago. Gross margin was 21.6%, up 340 basis points from 18.2% in the prior year period. Operating income was $11.8 million, up 72.9% from $6.8 million in the first six months of 2009. Excluding the $1.1 million non-cash charge related to the disposal of property, plant and equipment, non-GAAP operating income was $12.9 million up 88.7% from $6.8 million in the prior year period. Net income was $8.5 million, up 77.6% from approximately $4.8 million in the first six months of 2009. Excluding the non-cash charge related to the disposal of property, plant and equipment, non-GAAP net income was $9.6 million up 100.3% from $4.8 million in the prior year period. Earnings per share was $0.51 for the first six months of 2010 compared to $0.42 in the first six months of 2009. Excluding the loss related to disposal of property, plant and equipment, non-GAAP earnings per share was $0.58, up 38.0% from $0.42 in the prior year period.(*)

    (*) See table at the end of this press release for a reconciliation of
        operating income, net income and EPS to exclude the non-cash charge
        related to the disposal of property, plant and equipment.

Financial Condition

As of June 30, 2010, Orient Paper had $22.1 million in cash and cash equivalents. Working capital was $25.4 million with a current ratio of 3.5. The Company had $1.9 million in short-term bank loans (down from $4.3 million of short-term bank loan six months ago) and $6.1 million in long term debt. As of June 30, 2010, shareholders’ equity totaled $91.6 million compared to $56.3 million at the end of 2009.

During the first half of 2010, Orient Paper generated net cash flow from operating activities of approximately $10.7 million.

The Company incurred $19.9 million in capital expenditures in the first half of 2010, which included installment payments in the total amount of $8.5 million for the construction of a new corrugating medium paper production line and an $11.1 million investment for the first phase of the acquisition of a parcel of roughly 667,000 square meters of land across the street from its current manufacturing facilities for the Company’s future expansion over the next five years. The remaining $19.4 million of the purchase price of the 360,000 tons annual capacity corrugating medium paper production line will be made in additional installments throughout 2010 in conjunction with progress made on equipment installation. The Company will finance the estimated capital expenditure requirement for the next six-to-twelve months in the amount of $30 million, which includes $20 million for the new production line and $10 million for the second phase of the land acquisition, with (i) net cash proceeds from the April 2010 public offering, (ii) cash flow from operating activities, and/or (iii) additional bank loans.

    Recent Developments
    -- In July 2010, the Company's Audit Committee retained the
       international law firm, Loeb & Loeb LLP ("Loeb & Loeb"), to conduct
       an independent investigation into the issues raised by Muddy Waters,
       LLC ("Muddy Waters").  In August 2010, the Company announced that
       Loeb & Loeb retained Deloitte & Touche Financial Advisory Services
       Limited ("Deloitte") to assist with the investigation.  Deloitte
       will provide support to Loeb & Loeb, which is working with the
       Company's Audit Committee, in connection with the independent review
       of the accounting aspects of the issues raised and the investigation
       of the relevant financial transactions and customer relationships.

Business Outlook

Mr. Liu added, “Due to the rapidly increasing prices of wood pulp and the government’s environmental protection initiatives, the demand for medium-grade offset printing paper as a substitute for the high-grade printing paper that consumes wood pulp continues to exhibit robust growth. We are confident that the strong market demand, partly caused by the government-mandated elimination of inefficient capacities, may continue into the second half of the year.”

“We expect some minor delays in the installation of our new 360,000 tons annual capacity corrugating medium paper production line, which was expected to be completed in October 2010. Our current expectation is that trial production will begin at the end of the year. We expect this new facility will ramp up to achieve an annualized utilization rate of approximately 60%-70% by the end of fiscal year 2011.

“In connection with the government’s approval of our new corrugating medium paper production line, the Baoding City Environmental Protection Agency requires that we replace two of our four steam boilers with new more energy- efficient models. We removed the two old boilers in July 2010. Our production in the third quarter may be lower until the new boilers are installed and inspected possibly in the fourth quarter. As a result of all of the above mentioned factors, we now expect fiscal year 2010 adjusted net income of $16.2 million compared to our previously provided guidance of $18.0 million.”

Use of Non-GAAP Financial Measures

GAAP results for the three months and six months ended June 30, 2010 include a non-cash charge related to the disposal of property, plant and equipment. To supplement the Company’s condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. It is a departure of U.S. GAAP; however, the Company’s management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company’s historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Conference Call

The Company will host a conference call at 9:00 a.m. Eastern Time on Monday, August 16, 2010, to discuss the 2010 second quarter financial results.

To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 877-410-4789. International callers should dial +1 706-679-8006. The conference call passcode is 937 602 01.

If you are unable to participate in the call at this time, a replay will be available starting on Monday, August 16, 2010 at 12:00 noon Eastern Time, through Monday, August 30, 2010. To access the replay, dial 800-642-1687. International callers should dial +1 706-645-9291. The conference call passcode is 937 602 01.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.orientalpapercorporation.com/ . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

About Orient Paper, Inc.

Orient Paper, Inc., through its wholly-owned subsidiary, Shengde Holdings, Inc., controls and operates Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”), and Hebei Baoding Orient Paper Milling Co., Ltd (“HBOP”). Founded in 1996, HBOP is engaged in the production and distribution of products such as corrugating medium paper, offset printing paper, and other paper and packaging-related products in China. The Company uses recycled paper as its primary raw material. Baoding Shengde, founded in June 2009 located in Baoding, is engaged in the production and distribution of digital photo paper. As one of the largest paper producers in Hebei Province, China, HBOP is strategically located in Baoding, a city in close proximity to Beijing where the majority of publishing houses are based. Orient Paper is led by an experienced management team committed to diversifying the Company’s product offering and delivering tailored services to its customers. For more information, please visit http://www.orientalpapercorporation.com .

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, anticipated revenues from the digital photo paper business segment; the actions and initiatives of current and potential competitors; the Company’s ability to introduce new products; the Company’s ability to implement the planned capacity expansion of corrugate medium paper; market acceptance of new products; general economic and business conditions; the ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the companies and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

                              ORIENT PAPER, INC.
     CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
          FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2010 AND 2009
                                 (Unaudited)

                              Three Months Ended         Six Months Ended
                                   June 30,                   June 30,
                              2010           2009        2010         2009

    Revenues:             $38,257,140    $22,400,383 $64,715,328  $40,237,862

    Cost of Sales         (29,130,668)   (18,431,400)(50,748,327) (32,932,440)
    Gross Profit            9,126,472      3,968,983  13,967,001    7,305,422
    Selling, General and
     Administrative
    Expenses                 (638,361)      (275,808) (1,077,699)    (474,561)
    Loss from disposal of
     property, plant
     and equipment         (1,082,454)            --  (1,082,454)          --
    Income from Operations  7,405,657      3,693,175  11,806,848    6,830,861
    Other Income
     (Expense):
       Interest income         62,286          6,964      89,474       31,942
       Interest expense      (169,929)      (326,231)   (333,246)    (416,080)
    Income before Income
     Taxes                  7,298,014      3,373,908  11,563,076    6,446,723
    Provision for Income
     Taxes                 (1,946,159)      (899,250) (3,085,127)  (1,673,463)
    Net Income              5,351,855      2,474,658   8,477,949    4,773,260
    Other Comprehensive
     Income:
       Foreign currency
       translation
       adjustment             318,553        (99,632)    327,496     (146,268)

    Total Comprehensive
     Income                $5,670,408     $2,375,026  $8,805,445   $4,626,992

    Earnings Per Share:
    Basic Earning per
     Share                      $0.30          $0.22       $0.51        $0.42
    Fully Diluted Earning
     per Share                  $0.30          $0.22       $0.51        $0.42

    Weighted Average
     Number of Shares
       Outstanding -
        Basic              18,113,740     11,277,324  16,510,549   11,276,415
       Outstanding -
        Fully Diluted      18,113,740     11,277,324  16,512,621   11,276,415

                                ORIENT PAPER, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2010, AND DECEMBER 31, 2009
                                   (Unaudited)

                                               June 30,          December 31,
                                                  2010               2009
    Current Assets:
      Cash and cash equivalents               $22,089,907         $6,949,953
      Restricted cash                                  --             29,105
      Accounts receivable (net of
       allowance for doubtful
       accounts of $73,562 and
       $41,977 as of June 30,
       2010 and December 31, 2009,
       respectively)                            3,604,543          2,056,858
      Inventories                               9,328,868          6,926,392
      Prepayment and other current
       assets                                     383,575            434,093
      Total current assets                     35,406,893         16,396,401
    Prepayment on property, plant and
     equipment                                 19,901,301                 --
    Property, plant and equipment, net         52,462,805         55,303,753
    Total Assets                             $107,770,999        $71,700,154

                       LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities
      Short-term bank loans                    $1,909,350         $4,273,750
      Accounts payable                          3,648,021          1,819,448
      Accrued payroll and employee
       benefits                                   276,655            271,208
      Other payables and accrued
       liabilities                              2,179,209          1,662,673
      Income taxes payable                      2,042,775          1,345,069
      Total current liabilities                10,056,010          9,372,148
    Loan from credit union                      1,950,474          1,942,315
    Loan from related parties                   4,128,002          4,110,735
      Total liabilities                        16,134,486         15,425,198
    Commitments and Contingencies                      --                 --

    Stockholders' Equity:
      Common stock, 500,000,000 shares
       authorized, $0.001 par value per
       share, 18,344,811 and 14,875,715
       shares issued and outstanding as
       of June 30, 2010 and December 31,
       2009, respectively                          18,345             14,876
      Additional paid-in capital               45,727,657         19,169,469
      Statutory earnings reserve                4,442,450          4,442,450
      Accumulated other comprehensive
       income                                   4,306,256          3,984,305
      Retained earnings                        37,141,805         28,663,856
      Total stockholders' equity               91,636,513         56,274,956
    Total Liabilities and Stockholders'
     Equity                                  $107,770,999        $71,700,154

                                ORIENT PAPER, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
                                   (Unaudited)

                                                  Six Months Ended June 30,
                                                     2010            2009
    Cash Flows from Operating Activities:
      Net income                                  $8,477,949      $4,773,260
      Adjustments to reconcile net income to net
      cash provided by operating activities:
          Depreciation and amortization            2,022,597       1,702,861
          Loss on disposal of property, plant
           and equipment                           1,082,454              --
          Impairment on accounts receivable           31,289          55,587
          Stock-based expense for service
           received                                  101,046          27,300
      Changes in operating assets and
      liabilities:
          Accounts receivable                     (1,564,445)     (1,372,180)
          Prepayment and other receivable            (58,243)             --
          Inventories                             (2,364,301)     (2,855,060)
                                                                    2,779,16
          Accounts payable                         1,813,964
            Accrued payroll and employee
            benefits                                   4,291              --
          Other payables and accrued liabilities     507,642         375,695
          Income taxes payable                       689,408        (410,919)
    Net Cash Provided by Operating Activities    $10,743,651       5,075,708

    Cash Flows from Investing Activities:
      Purchases of property, plant, and
      equipment                                     (263,022)             --
      Prepayment for purchases of equipment       (8,486,045)             --
      Prepayment for Purchases of land use right (11,119,646)             --
    Net Cash Used in
    Investing Activities                         (19,868,713)             --

    Cash Flows from Financing Activities:

      Proceeds from related party loans              200,000          (8,017)
      Repayment of related party loans              (200,000)             --
      Repayments on short term loans              (2,373,237)     (1,265,845)
      Proceeds from public offering of common
       stock                                      26,570,162              --
      Restricted cash                                 29,105        (430,000)
    Net Cash Provided by Financing Activities     24,226,030      (1,703,862)

    Effect of Exchange Rate Changes on Cash and
     Cash
    Equivalents                                       38,986          57,973
    Net Increase in Cash and Cash Equivalents     15,139,954       3,429,819
    Cash and Cash Equivalents - Beginning of
     Period                                        6,949,953       3,234,419
    Cash and Cash Equivalents - End of Period    $22,089,907      $6,664,238

                              ORIENT PAPER, INC.
                 Reconciliation of Non-GAAP to GAAP Measures

                          For the quarter ended         Six months ended
                       June 30, 2010 June 30, 2009 June 30, 2009 June 30, 2010

    Operating Income as   7,405,657     3,693,175    11,806,848     6,830,861
    reported under GAAP
    Add: Loss on
     Disposal of
      property, plant
      and equipment       (1,082,454)           0    (1,082,454)            0
    Non-GAAP Operating
     Income                8,488,111    3,693,175    12,889,302     6,830,861

    Net Income as
     reported under GAAP   5,351,855    2,474,658     8,477,949     4,773,260
    Add: Loss on
     disposal
    of property, plant
    and equipment         (1,082,454)           0    (1,082,454)            0
    Non-GAAP Net Income    6,434,309    2,474,658     9,560,403     4,773,260

    Diluted Earnings
     Per Share reported
     under GAAP                $0.30        $0.22          0.51          0.42
    Add: Loss on
     disposal of
     property, plant
     and equipment            ($0.06)       $0.00        ($0.07)        $0.00
    Non-GAAP Diluted
     Earnings Per Share        $0.36        $0.22         $0.58         $0.42

    Diluted weighted
     average number of
     common stock
     outstanding          18,113,740   11,277,324    16,512,621    11,276,415

    For more information, please contact:

    CCG Investor Relations
     Crocker Coulson, President
     Phone: +1-646-213-1915
     Email: crocker.coulson@ccgir.com

    Orient Paper, Inc.
     Winston Yen, CFO
     Phone: +1-562-818-3817
     Email: info@orientalpapercorporation.com
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