Diana Huang - IR Manager Zhilin Li - President and CEO and Interim CFO Sam Hsing - Corporate Vice President

Ladies and gentlemen, thank you for standing by and welcome to the Quarter Four 2014 China Pharma Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded today, 31st of March, 2015. I would now like to hand the conference over to your speaker today, Mr. Diana Hong. Please go ahead, ma’am.

Good morning ladies and gentlemen and good evening to those of you joining us from China. Welcome to China Pharma Holdings Fiscal Year 2014 Earnings Conference Call. I’m Diana Huang, the company’s Investor Relations Manager. Speaking on the call today are China Pharma President and CEO and Interim CFO, Ms. Zhilin Li and Corporate Vice President Mr. Sam Hsing. In addition, I will provide translation during the Q&A session of the call. The company’s earnings press release issued earlier this morning is available on our website at www.chinapharmaholdings.com. I’d like to remind our listeners that on this call management’s prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks as market and customer acceptance and demand for our products, our ability to market our products, the impact of competitive products and the pricing, the ability to develop and launch new products on a timely basis, the regulatory environment including government regulation in the PRC, our ability to obtain the requisite regulatory approvals to commercialize our products, fluctuations in operating result, including spending for research and development, and sales and marketing activities, and other risks detailed from time-to-time in our filings with the SEC. In addition, any projections as to the company’s future performance represent management’s estimates as of today, March 31, 2015. China Pharma assumes no obligation to update those projections in the future as market conditions change. Now it is my pleasure to turn the call over to China Pharma’s CEO and Interim CFO, Ms. Li to make her opening remarks in Chinese which will be translated by Sam. Afterwards, Sam will continue translating Ms. Li’s detailed discussion of the company’s fiscal year 2014 fiscal financial results.

Thank you, Diana, and good morning everyone. I would like to thank each of you for joining us today and for your continued support of China Pharma. We have experienced tough challenges and made remarkable achievements in 2014. We completed the construction of a 20,000 square meters new factory, installed with four sterilization production lines, two liquid injectables and two dry powder injectables production lines after nearly two years of construction. In November 2014, we obtained new GMP certificate issued by CFDA, as defined below and commenced the manufacturing at our dry powder injectables and liquid injectables production lines. While sustained the loss brought by once-in-forty-year 16 grade super typhoon during the period from January 1, 2014 to November 3, 2014; we suspended such two production lines as they did not then meet the GMP upgrading deadline. In this production-suspended period, we controlled our market by limiting our credit sales and executed a prudent marketing strategy and specifically by screening our existing and potential distributors and hospital customers based on their payment speed in order to gradually improve our trade turnover, especially in terms of the collection of our accounts receivables. This strategy has temporarily impacted our sales in the current period by limiting our credit sales. I will now read the rest of the miscellaneous prepared remarks in English. The Chinese pharmaceutical industry has been a key contributor to the PRC’s economic growth. The Chinese pharmaceutical market reached RMB 926.1 billion in 2012 according to Medical Blue Book, China Pharmaceutical Market Report 2012, the Blue Book published by the Chinese Academy of Social Sciences, CASS, on December 28, 2012. The compound growth rate of the China’s pharmaceutical market was over 20% from 2005 to 2010 and the Blue Book forecasts that it will continue its rapid expansion at an average rate of 12% from 2013 to 2020. The Blue Book pointed out that the Chinese pharmaceutical market is showing features of rapid expansion, fierce competition, lower concentration, and is greatly influenced by government’s policies. The Blue Book further mentioned that the pharmaceutical market expansion was supported by increased demand for medicine associated with population aging, improved social welfare and residents’ enhanced purchasing power along with economic development. Now, I would like to review our fiscal year 2014 financial results and balance sheet information. Revenue for the year ended December 31, 2014 was $24.9 million, a decrease of 24% from revenue of $32.8 million for the year ended December 31, 2013. This decrease primarily resulted from decreases in sales throughout all our production categories, especially our CNS Cerebral &Cardio Vascular products decreased by roughly $2.8 million and our Anti-Viro/Infectious & Respiratory products decreased by roughly $1.8 million. We have had decreases in sales estimates between the time when raw materials were purchased and the time when the sales performance is realized for certain products. We have also assessed the fair value of our raw material, as a result we determined that certain inventory was slow moving or obsolete. Based on the developed estimates as of December 31, 2014 and 2013, we recognized additional inventory obsolescence expense of $2.3 million and $9.9 million for the years ended December 31, 2014 and 2013, respectively. Gross profit for the year ended December 31, 2014 was $5.5 million, compared to gross loss of $0.5 million in 2013. Our gross profit margin in 2014 was 21.90% compared to gross loss margin of 1.5% in 2013. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 30.9% in 2014 and 28.7% in 2013. Selling, general and administrative expenses in 2014 were $5.1 million, or 20.3% of sales, compared to $5.7 million, or 17.3% of sales in 2013. For the year ended December 31, 2014, the company’s research and development expense was $2.8 million, compared to $1.7 million in 2013. The change in research and development expenses was mainly due to the costs related to testing of the new production lines. In addition, we commenced leading formulation screening, new technology exploration and technical criteria improvement activities since 2013. As a result, the expenses related to such activities increased in 2014. For the year ended December 31, 2014, the company’s bad debt expenses were $20.6 million, compared to the bad debt expense of $10.5 million in 2013. The increase in bad debt expenses in 2014 was mainly due to the increase in our long-aging accounts receivable. We suffered losses of $2,276,519 relating to the tropical typhoon during the 12 months ended December 31, 2014. There was no comparable expense in the prior year period. Net loss for the year 2014 was $26 million, or $0.6 per basic and diluted share, compared to net loss of $20 million, or $0.46 per basic and diluted share in 2013. The decrease in net income was mainly due to the decrease in revenue, increase in bad debt expense, and losses from natural disaster. Turning to the balance sheet. As of December 31, 2014, the company had cash and cash equivalents of $5.3 million compared to $6 million as of December 31, 2013. Our accounts receivable balance decreased to $24.9 million as of December 31, 2014 from $45.1 million as of December 31, 2013. Our receivables decreased due to our enhanced collection efforts, increased allowance, and the trade receivables collection discount program implemented in the third quarter of 2014 to encourage the collection of accounts receivable aged over one year and decrease in sales. For the year ended December 31, 2014, cash flow from operating activities was $4.6 million, as compared to $8.6 million in 2013. However, we will continue focusing on our building development and new GMP projects construction and believe that this will support the fair evaluation of our shareholders’ interest in the future. With this, we will now open the call up to the question. Operator?

On behalf of the entire China Pharma team, we would like to thank you for your interest in the company and the participation on this call. For any of you traveling to China, we always welcome and encourage any visitors from our shareholders, potential investor and analysts. This concludes China Pharma’s fiscal year 2014 earnings call. Thanks.

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