Algorhythm Holdings Inc (RIME) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to The Singing Machine first-quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Monday, August 15 of 2005. I would now like to turn the conference over to Danny Zheng, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. With me this morning is Interim CEO Yi Ping Chan. Jay Bauer, our Chairman, is currently traveling in Europe and thus cannot join us for the conference call today. After our prepared remarks, we will be all available to answer your questions.

I begin with the Safe Harbor statement. Please note that this conference call will include forward-looking statements. These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance, and actual results might differ materially. A more detailed discussion of these risks and uncertainties is contained in this morning's press release and Singing Machine's various filings with SEC.

The statements made during this call are made only as of day of the call, and we undertake no obligation to update these statements.

I now will briefly review our financial results for the first quarter of fiscal 2006. For more detailed financial information, I urge you to read the Form 10-K that we will file today.

For the three months ending June 30, 2005, net sales decreased to $2,792,000 from $3,857,000 for the same period of prior year. This decline reflected lower sales of karaoke hardware and music, which decreased by $600,000 and $525,000, respectively. Gross margin also declined to about 16% from 20% last year. This was primarily due to the decrease in music sales, since music yields a higher margin than hardware.

Total operating expenses were down slightly to $1,794,000, compared to$1,854,000 last year. We remain intensively focused on reducing costs. Our single biggest cost reduction opportunity in the short run is to sublease what remains of our warehouse space in California. We are actively seeking a tenant for this space and hope to complete a subleasing in the next few months.

The loss from operations increased to $1,357,000, compared to an operating loss of $1,084,000 for the last-year first quarter. The net loss for this year's first quarter was $1,902,000 or $0.19 per share. This compares to a net loss for the first quarter of fiscal 2005 of $1,520,000 or $0.17 per share.

Results for this year's first quarter include a $446,000 non-cash expense related to the amortization of discounts on convertible debentures. For the first quarter of fiscal 2004, this expense was $333,000. On the balance sheet, working capital was negative 4.8 million. Note that our current liability at June 30, 2005, includes $2.5 million related to income tax payable in Hong Kong and a net $2.8 million representing the convertible debenture that we plan to complete (ph) in 2006. Shareholders' equity at June 30, 2005, was negative 3.7 million. YP?

Thank you, Danny. I am now going to try to show it clearly. We clearly face a number of significant challenges, but I'm confident in our management team, which has been tested repeatedly over the past couple of years, and I can tell you that we are addressing all of the issues head-on. We intend to prevail.

Last month, we announced that The Singing Machine was notified by the American Stock Exchange that the Company has fallen below the contingent listing standard of the AMEX and that our listing is being continued under an extension. The main issues are that we have fallen below the minimal shareholders' equity requirements and that we report net losses in each of the past two fiscal years.

In order to maintain our AMEX listing, we will soon submit a plan to the AMEX detailing the action we will take to regain compliance. If the AMEX accepts the plans, we will be able to maintain on the AMEX the plan period of up to 18 months. While I'm not at liberty to reveal our plan in details, I note that the Hong Kong test liability and the convertible debentures represent more than $5 million of our core liabilities. So obviously, it would make a huge difference if we are able to deal with these two issues in a positive way over the next few months.

This is a high priority for us right now. We expect improved financial results in our fiscal second and third quarters, which are historically for seasonality the strongest quarter of the year in our business. The backlog of the orders for the Company's karaoke products was approximately $25.5 million at July 31, 2005. And while I must note that these orders are subject to cancellation or modification in any time prior to delivery, this backlog gives us a solid base of business to work with between now and year-end.

Operator, we are ready for questions.

(Operator Instructions). Linda Donnelly, Franklin Management.

Ms. Donnelly, your line is now open. Please proceed with your question. Can you un-mute your phone, Ms. Donnelly, or pick up your handset?

Can you hear me now?

We can hear you, Ms. Donnelly, thank you. Please proceed.

Could you give us what the backlog was at the comparable time for fiscal '04?

For the fiscal '04 -- it's a very close number; it's a similar number. It's about 25 million at the same time.

(Operator Instructions). Ethan Starr, private investor.

When do you anticipate releasing your new product geared toward campers and outdoor enthusiasts?

This is YP Chan. Let me address your question here. We announced last quarter that we are (technical difficulty) our new products. It is what we call a portable entertainment/emergency system that is catered to campers and outdoor emergency theme. We've released this product to the marketplace. Our sales team are actually in the role try to get for this particular product, and so far, response has been really interesting, but we have yet to get a definitive order so far. And for all the (technical difficulty), the new order will not impact Q2 and Q3 numbers. Hopefully, we are able to get something the middle of next year.

Okay, and are you still sell -- how much music are you still selling? Are you still selling discs?

Yes. We are still selling music, and this -- as a matter of fact, a couple of weeks ago, we (technical difficulty) music director who spent 15 years with EMI (ph) Music Distribution and (technical difficulty) two years with a karaoke distributor. He has been very instrumental in helping us to bring the music business back. Specifically he had tremendous know-how in relationship with our music distributor and he's now working very actively with (technical difficulty) to help increase our music (technical difficulty).

Mr. Chan and Mr. Zheng, just to let you know that your line is cutting off periodically, if we can make an adjustment.

Eric Connelly, Boston Partners.

Do you have firm plans on how many of the outdoor units you are likely to build, or do you need to see the orders first?

Basically, we will see the orders first before we are going to manufacture a unit. And based on a historical issue, we are reluctant to (technical difficulty) order and bring them into inventory unless we see this deal (technical difficulty).

Okay. Do you have a good idea of where inventory will peak before the Christmas season?

Well, the good (technical difficulty) outdoor product is that it's not a very seasonal product. Basically you could sell it in the spring; we sell it in Father's Day or -- Father's Day. It could sell during the summer. It could sell during the Christmas season. Historically, looking at consumer electronics, hopefully the biggest sale is coming from Christmas season, but this outdoor product will help reduce the dependency on the seasons.

Where will inventory peak out this year before the Christmas season?

The inventory peak-out of our karaoke business, the inventory is peaking now in October and November time frame for us.

And where would you guess the dollar amount will be?

Our backlog order at this point is about, as we mentioned before, is about $25.5 million, and this is the percentage -- the order that has been placed for the early part of the seasons. At this point, it's too early to tell what the order will look like. Normally, the order will come in early October and mid-October for delivery in November. It's too early to tell now.

Mr. Chan, there no further questions at this time. I will turn the call back to you. Please continue with your presentation or closing remarks.

Since there is no question, I will put a closing remark here. Ladies and gentlemen, thank you for listening to this conference call. We will keep in touch base in the next few months to announce our Q2 number. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.