Algorhythm Holdings Inc (RIME) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Singing Machine's third-quarter results conference call.

During the presentation, all participants will be in the listen-only mode.

Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Danny Zheng, Chief Financial Officer for the Singing Machine.

Thank you, operator, and good morning everyone.

After our prepared remarks, Chairman Jay Bauer and I will be available to answer your questions.

The interim CEO, Yi Ping Chan, is meeting with a customer in Minnesota today, and so is not available for today's conference call.

Please note that this conference call will include forward-looking statements.

These statements are based on current expectations, estimates, and projections of our business, based in part on assumptions made by management.

These statements are not guarantee of future performance, and actual results may differ materially.

A more detailed discussion of this risk and uncertainty is contained in this morning's press release and the Singing Machine's various filings with SEC.

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

For the three months ended December 31, 2005, net sales declined to $9,877,000 from $14,368,000 for the third quarter of fiscal 2005.

This decrease was the result of lower sales of karaoke hardware systems, as well as a shift in music sales of approximately $800,000 from third quarter to fourth quarter.

Because music sales typically earn a higher margin than hardware sales, this shift in the timing of music sales contributed to a decline in the gross margin than hardware sales versus prior-year period.

With our recent signing of new music distribution agreement with WEA, we expect an increase in music sales in this current quarter versus fourth quarter last year, when music sales amounted only to about $130,000.

Total operating expense decreased by 35% for this year's third quarter compared to third quarter of fiscal 2005, reflecting decrease in every expense category.

On the subject of expense reduction, I am pleased to announce that earlier this month The Singing Machine signed a sublease on its remaining warehouse space in California.

We estimate that this will reduce company annual leasing costs from their current level by approximately $200,000, beginning in fiscal 2007.

Income from operations for the third quarter of fiscal 2006 declined to $52,000 compared to $1,011,000 for third quarter of fiscal 2005, as the decline operation cost was not enough to offset lower revenue and gross margin.

Non-cash amortization of discount on convertible debentures was $451,000 for this year's third quarter versus $446,000 a year earlier.

As you know, the convertible debentures are due on February 20, 2006.

We are in discussions with convertible debenture holders.

I am not at liberty to reveal the nature of this discussion at this time.

However, we hope to reach agreement in the near future.

We will make a public announcement as soon as new information is available.

The net loss for the third quarter of fiscal 2006 was $565,000 or $0.06 per share.

This compares to net income for the third quarter of fiscal 2005 of $493,000 or $0.05 per share.

For the nine months ended December 31, 2005, net sales were $31,201,000 compared to net sales of $36,979,000 for the same period of fiscal 2005.

The net loss for this year's first nine months was $1,541,000 or $0.15 per share.

This compared to a net loss for last year's first nine months of $304,000 or $0.03 per share.

On the balance sheet at December 31, 2005, the Singing Machine report cash and cash equivalents of $677,000 compared to cash and cash equivalents at March 31, 2005 of $617,000.

Inventories declined to $1,615,000 at December 31, 2005, from $3 million at March 31, 2005.

The working capital deficiency at December 31, 2005 was $4.1 million, which among other items reflected income tax payable to Hong Kong tax authority of $2.5 million.

As we have stated on the previous conference call, the Company believes it owes no tax to Hong Kong tax authority.

Also on the balance sheet as the current liability at December 31, 2005, was net value of convertible debentures due in February in 2006 of $3.7 million.

One final note, as we announced in addition to our karaoke line for the new season, The Singing Machine introduced a number of non-karaoke products at the CES show in Las Vegas last month.

We are encouraged by our customers' response to our karaoke line and to these new consumer electronic products, which we developed to take advantage of our low-cost sourcing capability in our U.S. distribution network.

Right now, it looks like that is a real customer interest in several of these new products, although it is too early in the season for orders to be booked.

We will be able to provide better information on how our new product initiatives are going on the next conference call.

Operator, we are ready for the first question.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line of [Ethan Starr], private investor.

How have the karaoke CDs been selling at retail stores?

I'm sorry, can you repeat the question, please?

Yes.

How have the karaoke CDs been selling at retail stores?

The CDs, the CD chip, we have actually had some very, very good sell-through.

You will note that our sales actually last year at the third quarter were a bit lower, but I can confirm that we have received very substantial orders for the period for January, February and March shipments, and we are greatly encouraged that we have extremely competitive line right now.

We have added some new products to our line which are coming onstream now, and we are basically encouraged by the sell-through of our line and by repeat orders which we are receiving.

I recall you mentioned last summer a new product you were working on for people with boats or outdoors.

What is happening with that?

That, we did not continue our negotiations.

There were price issues and most importantly, there were quality issues with the product that we felt that as we are very concerned about -- all our karaoke line and any items that we handle, we like to produce them only if we are totally confident that we can produce the best quality that is possible.

And we left that project behind because of quality issues.

So when might the new products you introduced last month at CES appear at retail, assuming there are orders, of course?

But are they really more for the holiday season?

Some of these projects actually would be introduced earlier, because that is the idea also that we are targeting some products that will be kind of like more evergreen products that can be sold throughout the year.

We have received a fairly good response, and at the moment we are presenting our lines and that is ongoing process after usually about the end of March when customers, especially larger customers, commit to orders.

And as Mr. Zheng has mentioned before, as on the next conference call that we have after our fourth quarter, we will certainly have some more information on that subject.

Are these new projects all designed internally at The Singing Machine?

They are designed with our input.

Some of them have been proposed to us by manufacturers, which our engineers have then modified to make them better products.

But essentially, it's a combination of some of our suppliers working in tandem with our engineers in Hong Kong to develop these products.

Thank you very much.

Good luck.

(OPERATOR INSTRUCTIONS).

We seem to have no questions at this moment.

I'll turn the call back to you.

Thank you very much.

We are always available if anybody has any questions.

Of course, you can always reach us at our office.

Thank you for your interest, and we are hopeful that we can have some good news for the Company, and we appreciate all your input and your loyalty to us.

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.

Thank you and have a great day.