Tony Tian - Investor Relations Feng Peng - Chief Financial Officer

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Ossen Innovation Company Limited Third Quarter 2016 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. This conference is being recorded today, December 28, 2016. I now like to hand the conference over to Tony Tian of Weitian Investor Relations. Please go ahead.

Thank you, operator, and welcome everyone to today’s earnings call for Ossen Innovation Company Limited. This call will cover Ossen’s financial and operating results for the three months ended September 30, 2016. Joining us today is 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 federal securities laws regarding Ossen Innovation Company Limited. Forward-looking statements include statements about plans, objectives, goals, strategies, future events or 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 SEC. All such forward-looking statements, whether written or oral, made on behalf of the company are expressly qualified by these cautionary statements, and 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. Feng Peng, CFO of the company. Feng, please go ahead.

Thank you Tony and I thank everyone for joining us today for our third quarter 2016 financial results conference call. Our third quarter results reflect a continued weakness in China’s macroeconomics. The 4.8% decrease in total revenues in the third quarter was mainly due to the management’s decision to scale back plain surface PC strands sales as its gross margin has been on a downslide in recent quarters. Despite this, sales of rare earth coated products remained strong in the third quarter with sales volume increasing by 42.6% to 67,000 tons, the highest level in recent years and more than offset the decrease in its average selling price. Looking forward, we remain cautious in our viewpoint as signs of meaningful improvement in macro and industry fundamentals remain elusive in the near term. Next, I will discuss our financial results for the three months ended September 30, 2016. For the third quarter of 2016, revenues decreased by 4.8% to $28.5 million from $30 million for the same period of last year. This decrease was mainly due to decreases in sales from plain surface PC strands and other products and partially offset by increased sales from coated PC steel materials. The sales of coated PC steel materials, including both rare earth and zinc coated products, increased by $3.5 million to $27.2 million and accounted for 95% of total sales for the third quarter of 2016. Sales of rare earth and zinc coated products were $27.2 million and $25.5 thousand for the third quarter of 2016, compared to $23.8 million and nil, respectively for the same period of last year. Sales of plain surface PC strands and others decreased by 79.3%, to $1.3 million and accounted for 5% of total sales for the third quarter of 2016. Cost of goods sold increased by 1.1% to $25.3 million for the third quarter of 2016 from $25 million for the same period of last year. Gross profit decreased by 35%, to $3.2 million for the third quarter of 2016 from $4.9 million for the same period of last year. Gross margin decreased to 11.2% for the third quarter of 2016 from 16.5% for the same period of last year. Gross margins for rare earth and zinc coated products were 12.3% and 34.6%, respectively for the third quarter of 2016, compared to 16.1% and nil, respectively, for the same period of last year. Gross loss margin for plain surface PC strands and others was 11.2% for the third quarter of 2016, compared to gross margin of 17.8% for the same period of last year. Selling expenses were approximately $0.01 million for the third quarter of 2016 decreasing $0.02 from the same period of last year. General and administrative expenses were approximately $1 million for the third quarter of 2016 compared to general and administrative expenses of negative $0.2 million for the same period of last year. Operating income was $2.1 million for the third quarter of 2016, compared to $5 million for the same period of last year. Operating margin was 7.3% for the third quarter of 2016, compared to 16.5% for the same period of last year. After allocating net income attributable to non-controlling interest, net income attributable to Ossen Innovation was $1.3 million for the third quarter of 2016, compared to $3.3 million for the same period of last year. Earnings per share, both basic and diluted were $0.07 for the third quarter of 2016, compared to $0.16 for the same period of last year. Now shifting gear to nine months ended September 30, 2016 financial results. For the nine months ended September 30, 2016 revenues decreased by 0.7%, to $82.1 million from $82.6 million for the same period of last year. This decrease was mainly due to decreases in sales from zinc coated products and plain surface PC strands and other products and partially offset by increased sales from rare earth coated products. The sales of coated PC steel materials, including both rare earth and zinc coated products, increased by $4 million to $72.1 million and accounted for 88% of total sales for the nine months ended September 30, 2016. Sales of rare earth and zinc coated products were $71.5 million and $0.6 million for the nine months ended September 30, 2016 compared to $61.9 and a $6.2 million respectively for the same period of last year. Sales of plain surface PC strands and others decreased by 31.4% to $9.9 million for the nine months ended September 30, 2016. Cost of goods sold increased by 3.5% to $73.3 million for the nine months ended September 30, 2016 from $70.8 million for the same period of last year. Gross profit decreased by 25.8% to $8.8 million for the nine months ended September 30, 2016 from $11.9 million for the same period of last year. Gross margin decreased to 10.7% for the nine months ended September 30, 2016 from 14.3% for the same period of last year. Gross margins for rare earth and zinc coated products were 10% and 33%, respectively, for the nine months ended September 30, 2016, compared to 12.6% and 23.6%, respectively, for the same period of last year. Gross margin for plain surface PC strands and others was 14.4%, compared to 17.7% for the same period of last year. Selling expenses were approximately $0.6 million for the nine months ended September 30, 2016 decreasing $0.1 million from the same period of last year. General and administrative expenses were approximately $3.7 million for the nine months ended September 30, 2016 increasing $1.2 million for the same period of last year. Operating income was $4.5 million for the nine months ended September 30, 2016 compared to $8.6 million for the same period of last year. Operating margin was 5.5% for the nine months ended September 30, 2016, compared to 10.5% for the same period of last year. After allocating net income attributable to non-controlling interest, net income attributable to Ossen Innovation was $2.1 million for the nine months ended September 30, 2016 compared to $5.4 million for the same period of last year. EPS, both basic and diluted, were $0.11 for the nine months ended September 30, 2016, compared to $0.27 for the same period of last year. Now turning to balance sheet and cash flows. As of September 30, 2016, Ossen had approximately $6.7 million of cash and restricted cash compared to $9.6 million at December 31, 2015. Total accounts receivable were $34.1 million as of September 30, 2016, compared to $43.2 million at December 31, 2015. The days of sales outstanding were 118 days for the three months ended September 30, 2016, compared to 129 days for the three months ended September 30, 2015. The balance of prepayment to suppliers for raw materials was $67.5 million as of September 30, 2016, compared to $55.7 million at December 31, 2015. The company had inventories of $21.8 million as of September 30, 2016, compared to $27.3 million at December 31, 2015. Total working capital was $102.5 million as of September 30, 2016, compared to $94.7 million at December 31, 2015. Net cash flow provided by operating activities was $6.2 million for the nine months ended September 30, 2016, compared to $12.5 million for the same period of last year. Net cash used in investing activities was $11.4 thousand for the nine months ended September 30, 2016, compared to $18.8 thousand for the same period of last year. Net cash used in financing activities was $3 million for the nine months ended September 30, 2016, compared to $7.6 million for the same period of last year. Now, I will discuss recent developments of the company. On November 23, 2016, the company announced the completion of its 2016 annual general meeting of shareholders, which was held on November 22, 2016 at the company's headquarter in Shanghai. At the Annual Meeting, the company's shareholders elected seven directors, Dr. Liang Tang, Mr. Wei Hua, Mr. Junhong Li, Mr. Xiaobing Liu, Ms. Yingli Pan, and Mr. Zhongcai Wu to Board of Directors; and re-appointed BDO China Shu Lun Pan Certified Public Accountants LLP as the company's independent registered accounting firm for the fiscal year ending December 31, 2016. Now, I will turn the call next to operator for any questions.

Thank you, operator. On behalf of our entire management team, I would like to thank everyone again for joining us today for Ossen Innovation’s third quarter 2016 earnings conference call. We appreciate your interest and support in Ossen and look forward to speaking with you again next time. Goodbye.

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