Diana Huang - IR Zhilin Li - President, CEO and Interim CFO Sam Hsing - Corporate VP

Ladies and gentlemen, thank you for standing by and welcome to Pharma Holdings' Third Quarter 2017 Earnings Conference Call. [Operator Instructions] Now, I would like to hand the conference over to your speaker for the day, Ms. Diana Huang. Over to you ma'am.

Thank you, Operator. Good morning ladies and gentlemen, and good evening to those of you joining us from China. Welcome to China Pharma Holding's third quarter 2017 earnings conference call. I'm Diana Huang, the Company's Investor Relations manager. Speaking on the call today are China Pharma's 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. I would 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 demands for our products, our ability to market our product, the impact of competitive product and pricing, the ability to develop and launch new product 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 results including spending for R&D 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, November 15, 2017. 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 third quarter 2017 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. Our performance in generating revenue in the third quarter of 2017 was similar to the same period last year and we increased gross margin slightly due to the better cost control. Nevertheless, increasing sales remains our top priority. Management will continue to vigorously promote sales through active participation in recent provincial market openings to receive new drug tender offers and through further research of the basic medical market. The ongoing generic drug consistency evaluations and reform of China's drug production registration and review policies will have a major impact on the future development of our industry and may change its business patterns. We will continue to actively adapt to state policy guidance and further evaluate market conditions for our current existing products, pipeline products, and competition in the market in order to optimize our development strategy." I will now read the rest of Ms. Li's prepared remarks in English. Now I would like to review our third quarter 2017 financial results and our balance sheet information. Revenues were $3.2 million and $3.1 million for the three months ended September 30, 2017 and 2016 respectively. Gross profit was $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively. Our gross profit margin in the third quarter of 2017 was 13.3% compared to 11.2% in the same period 2016. Our selling expenses for the three months ended September 30, 2017 were $0.7 million, which accounted for 21.7% of the total revenue in the third quarter of 2017,compared to $1 million for the same period 2016, which accounted for 29.7% of the total revenue in the third quarter of 2016. Due to many adjustments in our selling processes under healthcare reform policies, despite the decrease in sales, we still need to maintain personnel and continue our sales activities to support the sales and collection of accounts receivable, therefore our selling expenses did not decrease proportionally to our sales. Our general and administrative expenses for the three months ended September 30, 2017 and September 30, 2016, were both $0.3 million. General and administrative expenses accounted for 11% and 9.4% of our total revenues in the third quarters of 2017 and 2016, respectively. Our bad debt expense for the three months ended September 30, 2017 was $0.2 million, compared to a bad debt benefit of $0.1 million in the three months ended September 30, 2016. The change was due to the increase of aged accounts receivables. During the third quarter of 2017 the Company reviewed the contracts relating to advances made for purchases of intangible assets with independent laboratories and determined that advances made by the Company for two formulas to two independent laboratories were impaired. As a result, the Company recognized an impairment loss for the advances made to these laboratories in the amount of $1.2 million. In the same period in 2016, the company also recognized $0.6 million impairment loss for the advances made to one laboratory for one formula per the evaluation. Net loss for three months ended September 30, 2017 was $2.2 million, compared to net loss of $1.7 million for the three months ended September 30, 2016. The change in the net result was mainly due to the increase in impairments of long term asset in the third quarter of 2017 as compared to the same period of 2016. Nine months results; for the nine months ended September 30, 2017, our sales revenue was $9.4 million, which represented a decrease of $0.9 million, or 9.2%, from the $10.3 million in the corresponding period of 2016. Gross profit for the nine months ended September 30, 2017 was $1.8 million, compared to $1.5 million in the same period of 2016. Gross profit margin for the nine months ended September 30, 2017 and 2016 were 19% and 14%, respectively. Our selling expenses for the nine months ended September 30, 2017 were $2.2 million, a decrease of $0.5 million, or 20%, compared to $2.8 million for the same period of 2016. Selling expenses accounted for 23.6% and 26.7% of the total revenue in the first nine months of 2017 and 2016 respectively. Our general and administrative expenses for the nine months ended September 30, 2017 and 2016 were both $1.4 million. Our bad debt expenses for the nine months ended September 30, 2017 and 2016 were both $1 million. During the nine months ended September 30, 2017, the Company reviewed the contracts relating to advances made for purchases of intangible assets with independent laboratories and determined that the advances made by the Company for three formulas to two of the independent laboratories were impaired. As a result, the Company recognized an impairment loss for the advances made to those laboratories in the amount of $2.2 million. In the same period in 2016, the company also recognized $1.5 million impairment loss for the advances made to three laboratories for one formula per the evaluation. Our operating loss for the nine months ended September 30, 2017 was approximately $5 million, compared to $5.1 million for the same period of 2016. Net loss was $5.5 million, or $0.13 per basic and diluted share for the nine months ended September 30, 2017, compared to $5.8 million, or $0.13 per basic and diluted share, for the same period a year ago. Turning to the balance sheet, as of March 31, 2017, the Company had cash and cash equivalents of $2.5 million compared to $2.7 million as of December 31, 2016. Working capital decreased to $6.9 million as of March 31, 2017 from $7.1 million as of December 31, 2016. Our accounts receivable balance decreased to $3.7 million as of March 31, 2017 from $4 million as of December 31, 2016. As of September 30, 2017, the Company had cash and cash equivalents of $1.1 million compared to $2.7 million as of December 31, 2016. Working capital decreased to $4.6 million as of September 30, 2017 from $7.1 million as of December 31, 2016. As of September 30, 2017, our net accounts receivable was $2.9 million, compared to $4 million as of December 31, 2016. Overall, we will continue to focusing on our business developments and promote our sales and beliefs that this will support the fair evaluation of our shareholders increase in the future. With that, we will now open the call up to the questions. Operator?

On behalf of the entire China Pharma team, we would like to thank you for your interest in the Company and participation on this call. For any of you traveling to China, we always welcome and encourage any visitors from our shareholders, potential investors and analysts. This concludes China Pharma's third quarter 2017 earnings call.

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