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Last Thursday, August 12, a person by the name of Chimin Sang wrote an article published by the Seeking Alpha blog whom at least as of that writing indicated was short the stock..You can see it if you go to YahooFinance and enter ONP in the ticker symbol and it’s in the Headlines for August 12,2010…But I will show at the very inception of his article (this in the part 1 issues raised in the filings to the SEC)..Read his first issue about ONP possibly being fraudulent below in brackets and below it I will show you something that at least as far as I can that Mr Sang is not revealing that G & A isn’t the only expenses of a company’s revenue…This about on the negative G & A 4Q of ($327,064)…They did an amendment on the 10K for 2008 for the General and Administrative Expenses for 2008..Excerpt From Chimin Sang On Seeking Alpha article titled–Orient Paper:Inconsistent Record Keeping Raises Red Flags inside brackets:

[[[[[ 1. Inconsistent G&A Spending

Compared to its reported revenue, Orient Paper’s G&A spending is disproportionally low. In 2008, only $327k was spent on revenue of $65ma, which amounted to 0.5%. If you think this number is odd enough, then the Q4 G&A number is even odder. If you look up their quarterly reports for 2008, the first three quarters show the G&A cost at $221kb, $203kc, and $231kd respectively, which leaves the fourth quarter G&A cost a negative $327k. There is no explanation in the 10-K for this abnormality.
FY 2008
G&A $327,825

4Q
G&A ($327,064)

3Q
G&A $231,116

2Q
G&A $202,816

1Q
G&A $220,957

a. 2008 10-K, Page F-4

b. 2008 Q1 10-Q, Page F-3

c. 2008 Q2 10-Q, Page F-3

d. 2008 Q3 10-Q, Page F-3 ]]]]] End

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My belief is that G&A is just a small part of their expenses..G and A is general and administrative expenses..Any well bred stock analysis knows a company doesn’t have to file a 10 Q for the 4th quarter –just has to file a 10 Q for the first 3 quarters..They had to file an amendment of the 10K which showed the General and Administrative Expenses for the year at $327,825 for 2008..Here is the reason why the expenses are not high particularly the General Administrative Expenses…Chinese companies are different in a lot of industries and some have few expenses for R & D..Below is some responses to possible shorts or even longs on the stock as far as the low expenses of G & A Expenses if such questions or issues were brought up:

1) How Has ONP Grown While Reducing Employees from 893 to 600?

ONP has no idea how many were short term, how many were simply part time, or what the positions were to accrue to the number. .

2) How Did ONP Grow Sales While Spending Hardly Anything on Advertising & Promotion?

I am going to say this statement..How much has some of the other other companies spent in this area? I personally had extreme difficulty in finding lot of expenses by many companies in this area as others are focuses on this “burning” issue… If I am wrong on this, please give links to show me otherwise..I just don’t see a lot of R & D Expenses by many companies…No joke aside…

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Here is their full year SGA for 2007 and 2008 (2009 had a large increase from these 2 years due to professional service fees relating to becoming a public company such as investor relations and others):

Selling, general and administrative expenses

Selling, general and administrative expenses were $327,825 for the year ended December 31, 2008, an increase of 129.1% as compared to $143,112 for the same period of 2007. This increase was due primarily to increased business travel and research expenses required to expand our production capacity and market position as well as a general salary increment made to employees, offset by realized foreign currency gains

2008 10-k:
http://secfilings.nasdaq.com/filingFrame…\2010\02\01\&CoName=ORIENT+PAPER+INC.&FormType=10-K/A&R cvdDate=2/1/2010&pdf

2009 10-k:
http://secfilings.nasdaq.com/filingFrame…\2010\03\29\&CoName=ORIENT+PAPER+INC.&FormType=10-K&Rcv dDate=3/29/2010&pdf

3) How can ONP state that advanced technology and intellectual property rights from a team of 37 R&D professionals with comprehensive R&D facilities while it is reporting to the SEC R&D incurring expenses of less than $32,000 a year for R&D and reporting no intellectual property assets?

-from 2009 10-k–See it inside my brackets:

[[[[[ Our R&D activities are carried out by a task force led by a group of 5 senior managers (in charge of product development and quality control) and joined by a group of selected engineers and technicians. The Company charged the time spent on the R&D projects (manufacturing waste discharge recycling and digital photo paper manufacturing) to R&D expenses and incurred $30,130 and $30,546 in R&D expenses for the years ended December 31, 2008 and 2009, respectively. Our R&D efforts have resulted in our capability to manufacture digital photo papers.]]]]]

(2009 10-k link is above in another statement)

-Obviously, ONP does not have a full time R & D department and are used only for specific projects and they are going to promote their R & D strongly..

Supposedly Muddy Waters was turned down late last year of asking for about $300,000 according to ONP management for a good writeup of the company and I believe like 20,000 shares or close to it was asked by one of them which one of the 2 Muddy Waters analysts has purportedly already admitted to..The shares to be given for a good writeup of the company..This author wonders if Muddy Waters would have given ONP a good writeup if ONP did offer compensation to them…This particular analyst isn’t lying about the first 3 Q’s of G & A spending..But that is only a small part of the expenses of the 65 million in revenue earned in 2008..And for any company really..A company doesn’t have just G & A expenses..How about Cost Of Sales? The apparently bear short and distort happening generated by the analysts says that is only .5% of the yearly revenue..But he fails to include the Cost of Sales in any of the first 3 Quarters in the SEC filings..For the 3rd quarter of 2008, the Cost Of Goods Sold is $14,731,309…The 10 Q for 2008 in the 3rd Quarter is $231,116 in G & A spending, but the analysts omitted the Cost of Sales–yeah, it would be only .5% of revenue probable without including the Cost Of Sales…Unbelievable….Many companies have low r & D costs..Does that mean all of them are probable frauds ? I stopped reading after that 1 Issue..

Once so many bashed maliciously a company like ONP and distorted the truth about a company IMO, the real truths at least IMO based on their sources that are now coming out will rocket such a stock ..Some are running but not the company..The very ones that seem to be running as far as coverage of the stock is Muddy Waters..The issue of fraud by the company is remote IMO..Yes there could be small mistakes in accounting but my belief is if so,those minor errors in the books will be minor and wont hurt the stock in the long term at these very depressed below 5 P/E levels…IMO the stock will rocket–you don’t audit yourself if you are a fraud and the only thing keeping it from a double digit share price is to show these statements were all “smoking guns” to manipulate the stock to the downside…

Mike Marsh who is the author of Part One and Part Two currently has a Long Position In ONP but brother Rob Marsh currently doesn’t have a position in ONP…..We believe that the research on several statements on Part One and Part Two is true to the best of our knowledge..Do your own independent research before you make an investment purchase..See our disclaimer.
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