Zhenyong Liu - Chairman, Chief Executive Officer Jing Hao - Chief Financial Officer

Hello, ladies and gentlemen and welcome to participate in Orient Paper's First Quarter 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. Joining us today are Mr. Zhenyong Liu, Orient Paper's Chairman and Chief Executive Officer; and Ms. Jing Hao, the Company's Chief Financial Officer. Remarks from both Mr. Liu and Ms. Hao will be delivered in English by interpreters. Orient Paper announced its first quarter 2018 financial results via Press Release yesterday, which can be found on the company's website at www.orientpaperinc.com. First Mr. Liu will brief you on the company's key operational highlights over the first quarter of 2018, and then Ms. Hao will review the company's financial results. Before we start, I would like to draw your attention to our safe harbor statement. Management's prepared remarks contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts in its announcements are forward-looking statements, including but not limited to anticipated revenues from the corrugating medium paper, tissue paper, offset printing paper and digital photo paper business segments; the actions and initiatives of current and potential competitors; the company's ability to introduce new products; the company's ability to implement capacity expansion; market acceptance of new products; general economic and business conditions; the ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the company and the industry. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectation except as may be required by the law. Although the company believes the expectations expressed in these forward-looking statements are reasonable, it cannot assure that the expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. This is a presentation document featuring management's prepared remarks, and it's now available for download from the company's website at www.orientpaperinc.com. Please note that there will be a discussion on non-GAAP financial measures or EBITDA or earnings before interest, taxes, depreciation and amortization. Please refer to our Press Release for a complete reconciliation of EBITDA to net income. As a kind reminder, all numbers in our presentation are quoted in U.S. dollars and all comparison are year-over-year comparisons unless otherwise stated. I would now like to turn the call over to Mr. Liu. His comments will be delivered in English by Dan McClory from Weitian Investor Relations. Mr. Dan, please go ahead.

Thank you, operator and good morning, everyone. Thank you for joining our first quarter 2018 earnings conference call. Both revenues and profits for our first quarter saw substantial decreases with a sharp decline in sales and volumes for all product categories. The disciplined first quarter results reflected the impact of temporary suspension of production due to government mandated restriction on the supply of natural gas that lasted for most of the first quarter. However, production at our manufacturing facilities has been back to normal since mid-March, and we anticipate a strong rebound in our business in the second quarter. Now I will turn the call over to our CFO, Ms. Jing Hao, who will review the comment on the first quarter financial results. Her comments will be delivered in English by my colleague Janice Wang. Janice please go ahead.

Thanks Dan, and thanks everyone for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the first quarter of 2018. Also, occasionally refer to specific production line associated with the various products. I will make clear to which products I am referring to. For reference, the numbering system for our production lines is provided in our earnings Press Release and on slide number 17 of the earnings call presentation. Now let's look at the financial performance for the first quarter of 2018. Please turn to slide number 7. For the first quarter of 2018, total revenue decreased to 92.5% to $1.9 million, due to the decrease in sales volumes for all products categories and partially offset by increase in blended average selling costs. Turning to slide 8. For the first quarter of 2018, the CMP segment including both regular CMP and light-weight CMP generated revenue of $1.6 million representing [82.6%] of total revenue. $0.9 million of revenue was from our regular CMP products and $0.7 million was from light-weight CMP. Volumes for CMP segment decreased by 94.5% to 2923 accounts, of which 1617 accounts with regular CMP and 1231 accounts was light-weight CMP. Average selling price or ASP for regular CMP increased by 33.4% to 543 accounts, while ASP for light-weight CMP increased 18.4% to 521 accounts. Turning to slide 9. For the first quarter of 2018, our offset printing paper segment generated revenue of $0.3 million, down 88.8% from same period last year and representing 17.4% of total revenue. We shipped 379 tons offset printing paper in the first quarter increased 92% from the same period last year. The ASP for offset printing paper also increased by 41% to 967 ton. Production of tissue paper was suspended in September and October 2017 for the replacement of coal boilers and maintenance production in the following months due to volatility of tissue paper price. We had no revenue from tissue paper products for the first quarter of 2018 compared to $0.7 million resulting from sales of 558 tons at an ASP of 1213 tons. For the first quarter of 2017, we expect to resume and increase production of tissue products when the market condition becomes favorable. Slide number 11 summarizes the changes in our revenue mix. For the first quarter of 2018, cost of sales decreased by $17.1 million to $2.6 million leading to rough loss of $0.7 million from $5.7 million for the same period last year. And gross loss margin of 36.8% compared to gross profit margin of 22.4% from the last year. For the first quarter of 2018, SG&A increased by $1 million or 37.1% to [$3.8] million compared to $2.8 million for the same period of the prior year. For the first quarter of 2018, loss from operations was $4.5 million compared to income from operations of $2.8 million [Technical Difficulty] 9.4% for the same period last year. [Technical Difficulty] [4.1] million, a net loss of $0.90 per basic diluted share, this compares to net income of $1.7 million or net earnings of $0.08 per basic and diluted share for the same period last year. Moving to slide 12. ['19 and '20] let's look at the balance sheet and liquidity. As of the March 31, 2018, the company had cash and cash equivalents, short term debt including related party loans, notes payable and the long-term debt including related party loans of $0.7 million, $19.7 million, $4 million and $7.6 million respectively, compared to $2.9 million, $13.6 million, $6.1 million and $11.9 million respectively at the end of 2017. Net accounts receivable was $0.8 million as of March 31, 2018 compared to $1.8 million as of December 31, 2017. Net inventory was $9 million as of March 31, 2018 compared to $8.5 million at the end of 2017. As of March 31, 2018, company had current assets of $17.8 million and current liabilities of $25.8 resulting in a working capital debt of $8 million, this compares to current assets of $20 million, current liabilities of $21.8 million and working capital debt of $1.8 million at the end of 2017. Net cash used in operating activities was $4.9 million for the three months ended March 31, 2018 compared to net cash provided by operating activities of $1.4 million for the same period of the prior year. Net cash used in investing activities was $0.7 million for the 3-months ended March 31, 2018 compared to $5.3 million for the same period of prior year. Net cash provided by financing activities was $0.8 million for the 3-months ended March 31, 2018 compared to $9.8 million for the same period of the prior year. If you have any questions, please contact us through email at ir@orientpaperinc.com. Management will response to your questions through email as soon as possible. Operator, please go ahead.

Thank you for attending the Orient Paper's first quarter 2018 earnings conference call. This concludes our call today. And we thank you for listening. Good bye. End of Q&A: