Tina Xiao - Weitian Investor Relations Feng Peng - Chief Financial Officer

John Sheeny - Private Investor

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Ossen Innovation Company Limited’s First Quarter 2016 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. This conference is being recorded today June 30, 2016. I would now like to turn the conference over to Tina Xiao of Weitian Investor Relations. Please go ahead.

Thank you operator and welcome everyone to today's conference call for Ossen Innovation Company Limited. This call will cover Ossen's financial and operating results for the three months ended March 31, 2016. Joining us today are the Company’s Chief Financial Officer Mr. Feng Peng. Before we get started, I'm going to quickly read a disclaimer about forward-looking statements. This conference call may contain in addition to historical information forward-looking statements within the meaning of the federal securities laws regarding Ossen Innovation Company Limited. Forward-looking statements include statements about plans, objectives, goals, strategies, future events and performance and underlying assumptions, and other statements that are different than historical facts. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements. Potential risks and uncertainties include change in demand for the company's products, the impact of competition and government regulation, and other risks contained in the statements filed from time to time with the SEC. All such forward-looking statements, whether written or oral, made on behalf of the company are expressly qualified by this cautionary statements. As such forward-looking statements are subject to risks and uncertainties and we caution you not to place undue reliance on these. At this time, I would like to turn the call over to Mr. Mr. Feng Peng, CFO of the Company. Feng, please go ahead.

Thank you Tina and thanks everyone for joining us today for our first quarter 2016 financial results conference call. Despite the macro headwinds and the steel industry challenges, our total revenue increased by 12.4% year-over-year in the first quarter. However, our overall gross margin decreased by 3.2% from 13.5% to 10.4% in the first quarter due to a shift in product mix towards lower margin products and increased pricing pressure for our major products. We believe macro and the industry challenges will remain in the near future and we continue to be cautious on our outlook. Next, I will discuss our financial results for the first three months ended March 31, 2016. For the three months ended March 31, 2016, revenues increased by $3.3 million, or 12.4%, to $30.1 million from $26.8 million for the same period of last year. This increase was primarily due to increased revenue contribution from rare earth coated products, plain surface PC strands and other products and partially offset by decrease in sales from zinc coated products. The sales of coated PC steel materials, including both rare earth and zinc coated products, increased by $1.9 million, or 8.8%, to $24.0 million and accounted for 79.7% of total sales for the three months ended March 31, 2016 from $22.1 million, or 82% of total sales, for the same period of last year. Sales of rare earth coated products increased by $5.5 million, or 30.5%, to $23.7 million for the three months ended March 31, 2016 from $18.2 million for the same period of last year. Sales of zinc coated products decreased by $3.6 million, or 92.6%, to $0.3 million for the three months ended March 31, 2016 from $3.9 million for the same period of last year. Sales of plain surface PC strands and others increased by $1.4 million, or 30.4%, to $6.1 million and accounted for 20.3% of total sales for the three months ended March 31, 2016 from $4.7 million, or 17.6% of total sales, for the same period of last year. Cost of goods sold increased by 16.5% to $27 million for the first quarter of 2016 from $23.1 million for the same period of last year. Gross profit decreased by 13.8%, to $3.1 million for the three months ended March 31, 2016 from $3.6 million for the same period of last year. Gross margin decreased to 10.4% for the three months ended March 31, 2016 from 13.5% for the same period of last year. Gross margins for rare earth and zinc coated products were 7.7% and 33.7%, respectively, for the three months ended March 31, 2016, compared to 11.5% and 26.2%, respectively, for the same period of last year. Gross margin for plain surface PC strands and others was 20.4% for the three months ended March 31, 2016, compared to 11.2% for the same period of last year due to higher gross margin of plain surface products in the first quarter of 2016. Selling expenses were approximately $0.2 million for the first quarter of 2016 increasing $0.1 million from the same period of last year due to higher transportation cost and the higher commission fees. General and administrative expenses were approximately $1.4 million for the first quarter of 2016 decreased $0.5 million from the same period of last year, due to decrease in bad debt provision in this quarter. Operating income was $1.5 million for the first quarter of 2016 compared to $1.7 million for the same period of last year. Operating margin was 5.1% for the first quarter of 2016, compared to 6.2% for the same period of last year. After allocating net income attributable to non-controlling interest, net income attributable to Ossen Innovation was $0.5 million for the first quarter of 2016 compared to $0.9 million for the same period of last year. Earnings per share, both basic and diluted, were $0.02 for the first quarter of 2016, compared to $0.04 for the same period of last year. Now turning to balance sheet and cash flows. As of March 31, 2016, Ossen had approximately $12.1 million of cash and restricted cash compared to $9.6 million at December 31, 2015. Total accounts receivables were $53.7 million as of March 31, 2016, compared to $43.2 million at December 31, 2015. The increase in accounts receivable was mainly due to increased sales in this quarter. So days of sales outstanding were 145 days for the three months ended March 31, 2016, compared to 150 days for the year of 2015. The balance of prepayment to suppliers for raw materials was $62.4 million as of March 31, 2016, compared to $55.7 million at December 31, 2015. The company had inventories of $20.9 million as of March 31, 2016, compared to $27.3 million at December 31, 2015. Total working capital was $96.1 million as of March 31, 2016, compared to $94.7 million at December 31, 2015. Net cash used in operating activities was $0.8 million for the three months ended March 31, 2016, compared to net cash provided by operating activities of $3.6 million for the same period of last year, due to the increase in advance to suppliers. Net cash used in investing activities was approximately $3000 for the three months ended March 31, 2016, compared to $17,000 for the same period of last year. Net cash used in financing activities was approximately $91,000 for the three months ended March 31, 2016, compared to $4.1 million for the same period of last year, due to less repayment of notes payable in this quarter. Now, I will turn the call next to operator for any questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Mr. Jonathan Chang [ph]. Please ask your question.

Hello, I just want to know that how is the raw material pricing of first quarter of 2016 compared to last year? Do you expect that this trend to continue? Thank you.

Thank you. Branded [ph] average sales price for our products decreased about 90% in the first quarter, largely reflecting the decrease in raw material costs, particularly steel in this quarter. Second quarter we also saw steel price increase in April and May, but then decreased in June with the prior demand imbalance continued to affect the steel industry in China in the foreseeable future despite the continuing government efforts to consolidate the industry and force closure of some steel mills. So we believe raw material price will remain low in, in the rest of 2016.

Okay, well noted [ph]. Thank you.

Thank you. The next question comes from the line of Mr. John Sheeny. Please ask your question.

Hello, thank you for taking my call. I’d like to ask about your outlook the government statistics on fixed asset investment in infrastructure and budget for railway spending has been pretty strong this year. So can you help us understand why the outlook for your products is a little bit weak?

Thank you, John. It’s -- I understand that the outlook for fixed asset investment is pretty strong by the government, but you know as the macroeconomic condition in China is pretty bad and we have a lot of competitors in different regions is they are competing with us, with almost same products because you know for the steel, for the railway it doesn’t require very high strengths materials. And also you know the steel industry is also very over capacity, in fact, it’s very over capacity. So price pressure also affected our margin in this quarter.

Thank you. [Operator Instructions] We have the next question from the line of Mr. John Sheeny. Please ask your question.

Thank you. That’s right; I had a few more questions. One thing I ask about the Chinese steel industry, there’s been a lot of news about Zombie [ph] Enterprises and government plans to reduce capacity. So can you tell us what you are seeing and how your business may be affected?

Although you know as the government in China too closed some of our steel mills, some small steel mills but as there is some interest of the local government set which will push them to keep these mills running so they can gain more tax or gain more profit from these steel mills. So there’s effort in local area that keep the mills running. So unless what we are seeing but eventually we are seeing the government’s efforts will reach these regions and close these mills but it will take some time. And we are seeing in the long term, it will benefit our company, but in the short term it won’t be a big difference for us, it’s not going to be a magic for our company.

Thank you sir. There are no further questions at this time. I would like to hand the conference back to your speaker today. Please go ahead sir.

Okay. On behalf of our entire management team, I would like to thank everyone again for joining us today for Ossen Innovation first quarter 2016 earnings conference call. We appreciate your interest and the support in Ossen and look forward to speaking with you again next time. Good bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect the lines now.