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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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The ONP short and distort tactics (at least in my opinion) generated by 2 unknown analysts (Muddy Waters) is coming to an end…Well, they are not unknown now for many..I did my due diligence myself during this whole saga..I uncovered one such recent tactic that happened last Thursday in Part Two of this article in another page…I will get into that later in this article..And please read it..It is very telling in this Saga..There are many more inconsistencies too that have already been addressed both thoroughly including documents by ONP that I don’t have time to get into all this saga since Muddy Waters made statements at the end of June on ONP being a fraud and a $1.00 stock..Especially since audited Earnings for the company on the 2nd Quarter happened Monday–August 16th and confirmed their stellar preliminary results….Actually on August 6th, Muddy Waters on their website stated they were dropping any further coverage on the stock and going else where barring any unforeseen events and letting others who are analyzing the stock continue..And they stated since an Audit Company was checking it, they stated they were moving on..What reputable company would just do that, especially during some of the company’s more telling times of audited earnings coming up and hopefully soon the truth about whether the company is a fraud or not..During their statements, they would make a disclaimer on a crazy sounding disclaimer statement as if what they were saying may not be true and to treat their statements as is or some such silliness..I am trying to be nice..ONP was their first inaugural analysis of any such stock in which they raised several statements –one is that ONP overstated revenue by 27 times the actual amount in 2008..However, ONP stated it was the wrong company which ended up at least according to ONP another Paper company with a similar English name and not theirs and that company was a much tinier company —with indeed I believe the tiny revenue Muddy Waters was stating..Lets look at the 27 times overstatements of revenue insight..Below inside brackets is an excerpt of a press release by ONP on July 6,2010:

[[[[[ Muddy Waters points to a "smoking gun" that they claim proves Orient Paper "overstated its 2008 revenue by 27 times." Their report claims that the "smoking gun" is that the audited 2008 PRC financial statements for a "He Bei Oriental Paper Co. Ltd.", which they claim is Orient Paper's China operating subsidiary, shows revenue of only RMB 16.3 million or approximately $2.4 million vs. the $65.2 million that Orient Paper claims HBOP generated in its SEC filings. Orient Paper previously pointed out that the translated English name of the entity for which 2008 financial statements were obtained by Muddy Waters did not match with the English name of HBOP. Subsequently, Muddy Waters claimed that despite the error in their translation, they have studied other corporate information of the entity they identified as being Orient Paper's China operating subsidiary and they continue to believe that this "entity" is indeed HBOP.

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Orient Paper has no knowledge about how and where Muddy Waters obtained their reports, which allegedly carry the "personal seal" of the Company's Chairman and Chief Executive Officer, Mr. Zhenyong Liu. In fact, all of HBOP's statutory audited financial statements are marked by HBOP's corporate seal, and never the personal seal of any natural person and most certainly never the personal seal of Mr. Liu. ]]]]]

Also the company confirmed that they have in excess of 25 million in cash from the latest offering..About 5 million was paid as a deposit on the new Manufacturing Machinery for new Business Ventures..About $ 5 million was paid as an initial down payment on the new machine for the Paper Business…Milestone payments would be for the rest..What fraud company would get the bank to confirm the cash balance??Hmmm…Below is confirmation as testified by a confirmation of bank account balance (entitled “Certificate of Creditworthiness” by the Industrial and Commercial Bank of China), which the Company is providing to the public via the following website..See this in brackets below:

As of 7/2/10

[[[[[ On June 11, 2010, Orient Paper transferred $25 million of the net proceeds that the Company received from the April 2010 financing to its wholly owned subsidiary "Baoding Shengde Paper Limited" ("Baoding Shengde"). Under the Company's current legal structure, Baoding Shengde is the operating entity which will own the title to new business assets and conduct the operations for the new business ventures of Orient Paper. On March 15, 2010, which was prior to the April 6, 2010, closing of the financing, Hebei Baoding Orient Paper Milling Co. Ltd. ("HBOP") made a $5.6 million security deposit to Henan Qinyang on behalf of Baoding Shengde to purchase the machinery. As of July 2, 2010, the only use of the financing proceeds is a net $4 million repayment of the March 15, 2010, HBOP new equipment advance. As of July 2, 2010, Baoding Shengde has a cash balance of RMB 142,837,284.23 (approximately $21 million) in its corporate bank account, as testified by a confirmation of bank account balance (entitled "Certificate of Creditworthiness" by the Industrial and Commercial Bank of China), which the Company is providing to the public via the following website

http://www.prnasia.com/sa/2010/07/06/201...

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. The translation of this certificate is available at the following weblink:

http://www.prnasia.com/sa/2010/07/06/201...

The rest of the net proceeds remain in the Company's U.S. bank account at JP Morgan Chase Bank to cover the regular ongoing operating expenses of the U.S. legal entity of Orient Paper. The $21 million cash held at the Industrial and Commercial Bank of China will be used to fund Baoding Shengde's future payment obligations under the installment payment schedule, commensurate with the progress made on equipment installation by Henan Qinyang.

From 8k

http://www.sec.gov/Archives/edgar/data/1... ]]]]]]]

Muddy Waters stated they believed they had the right company after they heard from ONP stated Muddy Waters identified the wrong company with a very similar English translation name…These statements among too many others that I don’t have time to get into all of them (some by others in what I believe to be manipulating the stock) tanked the stock..I did my due diligence myself during this whole saga..I uncovered one such recent tactic that happened this past Thursday..This will be in Part 2 of my article on this subject…There are many more inconsistencies that have already been addressed both thoroughly including documents by the company and others that I am not going to reharp through all of them.. Before you read further in Part 2 of my article on this, read the comments in parenthesis next..This is to update anyone who doesn’t know what is going on in this saga..Read parenthesis for anyone that doesn’t know any of the Saga going on recently with ONP…

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(ONP now has retained an audit firm Loeb and Loeb LLP that plans to work with the Company’s Audit committee to obtain a Big Four audit firm..This was first announced on July 16,2010..They planned to obtain a Big Four audit firm to conduct an independent investigation into the issues raised by Muddy Waters,LLC.. Since then (13 days later), the company announced the preliminary results of the 2nd Quarter unaudited Earnings..They were stellar ..And I doubt they would have announced the preliminary unaudited earnings with Loeb and Loeb retained 13 days earlier if the company’s management knowingly committed fraud or cooked the books..This preliminary announcement was July 29th..Just this Monday.the audited 2nd Quarters was matching the stellar preliminary results..Back up in time, on August 3rd, Loeb & Loeb LLP had retained Deloitte & Touche Financial Advisory Services Limited (“Deloitte”) to help them..They are considered a well respected Big Four Audit Firm…Now we have what I would like to call as ambulance chasing by many other law firms getting into the action just in case ONP committed some major fraud…Some show Class Action suits for nearly 10 years on ongoing investigations but they have never been resolved..But I can understand their positioning..Without such methodology, we may never get any possible Bernie Madoff’ like scams so I understand all the filings of investigation by these law firms.. I appreciate what they do)…

See part 2– ONP-Revealing Investigation Work (May Mean Triple Digits Gains To The Upside In My Opinion)

Mike Marsh currently has a Long Position In ONP and is the author of Part One & Part Two but brother Rob Marsh currently doesn’t have a position in ONP…..Please do your own independent research before you make an investment purchase..See our disclaimer.
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Guys, here are the last 5 Dos and Donts of Smart Investing !!

# 6 If there is still adequate liquidity for the market..Don’t fight the tape..When liquidity looks scarce which is usually near market tops, do fight the tape..Waiting for a possible 10% more gain isn’t worth a possible pullback of 30 or more per cent..

# 7 Dont over analyze stocks..When that happens you are usually going into so much obscureness of variables,the market wouldn’t pick it up anyway to give it another direction..Usually only 4-5 variables at the most will impact a stock and most of them are easily identified in the stock with just a little study..

# 8 Do very little momentum trading if you are an individual small investor….Here’s why..The big hedge funds will bid prices up relatively fast and sell off fast making your bids and sells pushed much higher and many times not receiving your orders and having to place them much higher on the bids and lower on the sells..Sometimes it becomes a crowded trade where the bulls and bears come to a head and it can go into any direction fast without much certainty..This can cause great losses..Especially when you couldnt get your bids and sells where you wanted it to be..Also there is a higher risk of a investment not being as safe as undiscovered gems..Remember that..

# 9 Have an exit strategy on your stocks…I had about a 4th investment on a stock in the fall last year..The stock already spiralled down where I bought it at 37 a share..I knew in an owners earnings with just 9% growth at its core value without growth spurts they achieve on acquisition, the stock was worth 49..I double down at 23 in March and sold eventually at 49..Don’t be a price taker if a stock has great fundamentals and is undervalued…I refused to accept 20 a share was going to last and it didn’t..

# 10 Don’t let nervousness engulf you when picking stocks..I have many times not added positions to existing stocks during market negativity and fear and when I have done this more often than not, my stocks surge more without adding to it..

Remember,although you should have a bucket of small cap stocks in my opinion as your core investments, some larger caps can be added to the core especially one with juicy year in and year out rising dividend stocks bought after great market rises ..

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Heres to good investing and trading !!! Enjoy this Article produced by Editor in Chief and Co- Founder of this Blog, Mike Marsh !!

#1 Stocks should be approached more longer term..The best advise is to make sure the company is well-researched..Most stocks are not cheap..The market wont let it get too cheap..When you have a long horizon to a great gain..My advise is to not sell on a 50% rise to 70% rise to its intrinsic value..The best thing is to actually hold to what you think its worth..Too many people get out of a stock due to boredom or another stock that they feel has more upside potential..The one problem with this is becomes habit to not hold for longer terms..And may lead to mistakes since many stocks are not canvassed long enough for study..Best to buy and hold to a fair value..Taking profits after a great rise short term is not so bad..But only after several conviction of a strong uptrend has been reached–30% above 50 dma for example..

#2 Don’t be fanciful about bottom picking or top picking..The odds aren’t in your favor and by doing so you may miss the forest reading of a great many points to the upside of a stock that will in time obscure the 10 cent to 60 cent range of an attempted bottom pick..The biggest mistakes investors make..

# 3 Most of your stock picks should have strong revenue growth..It’s easy for a while to help the bottom line be more attractive by short term manipulation or just management decisions..But due to demand cycles like cutting work force may end up just increasing overtime in top peak seasons of the demand cycle of a company’s goods or services..Look for strong 40% growth or higher on revenues..Some companies you cant even find out where their earnings growth comes from..Without revenue,you cant expect a stock to surge ahead for long..

# 4 Over trading..You are nervous because you have too much of a position of a stock..Who knows what the nervousness is coming from..You then dont study a stock to see how its downtrending and pick a bad point in a pullback..Then because the bottom perfect picking dominates your psyche..Yor quickly sell the buy point you put in that day on the same day getting out of it..Simply because the pick was not close to being right..Had I done this yesterday to a stock I didnt have a good added position to a pullback, I would be squirming in despair..The 23 stock is up 3.57 a share..Again,the goal of an investor is to make money not picking exact bottoms or tops..

# 5 High growth stocks will be full of dilution-– selling after such is a huge mistake and selling during is a mistake too..Just take it on the chin if its one of those rare breeds where expansion looks good..This I can say for many China Agriculture stocks..Very few stocks with a lot of acquisition is healthy for stocks..Those I can say so is good for the gander..

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