Algorhythm Holdings Inc (RIME) 2007 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Singing Machine's 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 Tuesday, August 15, 2006.

I would now like to turn the conference over to Mr. Danny Zheng, Chief Financial Officer. Please go ahead, Sir.

Thank you, Operator. Good morning, everyone.

After my prepared remarks, Mr. Jay Bauer, our Chairman, and I will be available to answer your questions. Mr. Y. P. Chan, our Interim CEO, is on a business trip to Hong Kong today and cannot participate on this call.

Please note that this conference call will include forward-looking statements. These statements are based on current expectations, estimates, and projections about business space, in part on assumptions made by management. These statements are not a guarantee 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 the Singing Machine various filings with SEC. The statements made during this call are made only as of the day of the call. We undertake no obligation to update these statements.

Based on the timing of order for our karaoke hardware and the software and our new consumer electronic product, we had anticipated a decline in the revenue for this year's first quarter compared to first quarter of fiscal 2006 which benefit for a large one-time purchase order.

For the three months ended June 30, 2006, net sales declined to $1,036,000 from $2,792,000 for the first quarter of fiscal 2006.

I will explain in a moment we continue to believe we are positioned to stabilize of all our sales of fiscal 2007 compared to last year.

Gross margin declined to 12% from 16% from the prior year reflecting the lower value of music sales. Total operating expenses decreased 29% for this year's first quarter to $1.2 million from $1.7 million for the same period last year, reflecting reductions in average expense category.

We anticipate a further decrease in operating expense in fiscal 2007 as we complete the consolidation of our Hong Kong office into facilities owned by our new majority owners, Starlight, over the summer.

The loss from operation for the first quarter of fiscal 2007 decreased to $1,151,000, compared to a loss of operation of $1,357,000 for the first quarter of fiscal 2006.

The net loss for the first quarter of fiscal 2007 decreased to $1,151,000 or $0.11 per share. This compared to a net loss for the first quarter of fiscal 2006 of $1,902,000 or $0.21 per share.

On the balance sheet at June 30, 2006, the Singing Machine reported cash and cash equivalents of $166,000 compared to cash and cash equivalents at March 31st, 2006, of $424,000 and $233,000 at June 30th, 2005.

Inventories declined to $1,606,000 at June 30th, 2006, from $1,688,000 at March 31st, 2006, and $2,192,000 at June 30th, 2005.

The working capital deficiency at June 30th, 2006 was $2,334,000 including income tax payable to Hong Kong tax authorities of $2,454,000. The Company continued to believe that the old no tax to the Hong Kong tax authorities. This compared to a working capital deficiency of $4,275,000 at March 31st, 2006 to and $4, 885,000 at June 30th, 2005, which also included income tax payable to the Hong Kong tax authorities.

Our June 30th balance should reflect closing of $3 million equity investment in the Company by a subsidiary of Starlight International Holdings Limited. The Starlight subsidiary has received approximately 12.9 million newly issue on rest of share of the Company's common stock - representing approximately 56% of total number of share issued and outstanding. Just as important as this impact Hong Kong financial position we believe that our relationship with Starlight will create new opportunities to reduce our production costs and expand our electronic business in the future.

We hope to have news regarding this aspect of our relationship with Starlight over the coming months.

In addition, yesterday we were pleased to announce an agreement with two institutional investors from private sales of 2.3 million shares of Company common stock at a price of $0.435 per share, for a total purchase price of $1,000,500.

The Singing Machine has received a $1,000,500 purchase price as of Friday. We expect to complete this offering within the next 30 days. Assuming all closing conditions are met, we believe that this fresh equity capital further enhanced our financial flexibility as we continue to implement our strategic growth plan.

As you know, our plan is to maintain our leadership in the karaoke market and leverage our manufacturing and distribution capacity with an extended line of consumer electronic products to supplement our karaoke business. On the karaoke music side, we recently announced the release of 13 additional titles to our successful Pop culture music - featuring the best of the best of current, classic and timeless music.

We also plan to release about three other new karaoke titles in the next few months. With this release, the Singing Machine will have a total approximately of 61 karaoke titles creating tremendous selection and a value for our customers and business partners.

[Wether] Electric Atlantic Corporation will contribute the Singing Machine's entire line of karaoke music products throughout the United States in many mass merchandise stores like Best Buy, Wal-Mart and Sam's Club. We are very optimistic about the growth of music sales in this fiscal year.

We also are optimistic that our new licensing agreement with MGA Entertainment - to produce and distribute a variety of karaoke products based on breadth franchise - will help us to compete in the youth electronic category.

The Singing Machine has faced two major challenges in the past three years. The increase in competition in the consumer electronic market and its financial conditions. Without improving its financial condition, the Company will not have the resource to develop a new product and invest in marketing.

The Company has wisely selected the new investor in Hong Kong - Starlight International - will not only inject their capital into the Company but also will assist the Company in the product environment and logistics operation. This will enable the management to focus in on the development of sales, marketing and strategic acquisitions. We believe that we have a more detailed information of our progress for you in the next conference call.

Operator, we're ready for the first question.

(OPERATOR INSTRUCTIONS). Linda Donnelly from Wachovia Securities.

Thank you. I know in the last fiscal year your major customers were Costco, Circuit City, Best Buy, Radio Shack, Sam's Club and you had one big one in the UK and one in Scandinavia. Are you retaining these customers and are you picking up anyone else?

Yes. We have a customer of those in mass merchandise. Currently we see most of the existing customer base and we also picking up some new customers in the UK; and of course as a business going on you have some customers coming in, and some customers leave. We do have one or two customers now we're not currently doing business. And we were doing big business last year.

Who are they?

One of that is Circuit City. We are not currently doing business. We are looking forward to doing business in the next year.

All right. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS). Gentlemen, there are no further questions that this time.

Operator?

Yes Sir. There are no further questions at this time.

Do we make any remarks or are we otherwise just closing. If there is someone still listening I would just like to make - this is Jay Bauer, Chairman of the Company.

Just like to make a closing remark that we accomplished a lot this year. We brought our financial house in order as Danny already mentioned which is very very important. And equally important, we have the right partner now where we can develop new products; where we will have access to further capital as needed for if business requires it. We are very Company and bullish that this is going to be a new beginning for the Singing Machine.

And we look forward to reporting the next time and hopefully will have some important news at that time for the investors. Thank you very much, ladies and gentlemen.

Ladies and gentlemen, that does conclude the conference call for today. We'd like to thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.

Thank you.