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Zoom Technologies, Inc. (NASDAQ:ZOOM)

Q3 2012 Earnings Call

November 26, 2012 10:00 am ET

Executives

Patrick Wong – Vice President-Corporate Finance

Operator

Ladies and gentlemen thank you for standing by and welcome to the Zoom’s Q3 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. It will be a presentation followed by a question-and-answer session (Operator Instructions) I must advice you that this conference is being recorded today Monday, November 27, 2012.

I’d now like to hand the conference over to your speaker today Mr. Patrick Wong. Thank you, sir. Please go ahead.

Patrick Wong

Thank you, operator. Welcome back from Thanksgiving holiday. Thank you for joining Zoom Technologies Quarterly Earnings Conference Call. My name is Patrick Wong, Vice President of Corporate Finance. We will recap our results of operation during the third quarter of 2012 and our financial position at September 30, 2012. Afterwards, I will highlight developments and major events for Zoom since our last call. We will also talk about our plans for the fourth quarter and beyond. Lastly, we will open up the call for questions.

Before we begin, we must make a disclaimer regarding forward-looking statements. During this call, management of Zoom Technologies may make forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 as amended and Section 21E of the U.S. Securities Exchange Act of 1934 as amended.

Such forward-looking statements involve known and unknown risks and uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements.

Further information regarding these risks, uncertainties and other factors is included in the company’s most recent Annual Report on Form 10-K and the company’s other filings filed with the U.S. Securities and Exchange Commission.

The mobile phone industry is constantly changing. The players in the industry have continued to commit significant resources at meeting the continued growing yet ever changing demand for mobile handsets and related products.

At Zoom we have faults too, as well as made efforts to move into the forefront. We have become more and more focused on understanding the preferences of our customers, our business partners and the ultimate end users of the products. The company's business in the third quarter of 2012 was a reflection of this mindset.

We showed very slim profits during the quarter. However, our main goal was to grow our top line through increased volume, which we achieved. We are exactly a business that requires economies of scale. We believe continued growth in volume will begin to pay off in wider gross profit margins.

Let me now provide you with financial highlights of the third quarter of 2012. All details of the financials can be found in the 10-Q filed with the SEC on Monday November 19, 2012.

For the third quarter of 2012, we reported net revenue of $117.2 million, up 130.9% over $58.7 million for the third quarter of 2011. We continue to grow our revenues through increased sales of own branded Leimone phones and our export ODM business.

Gross profit for the third quarter of 2012 was $6 million, down 10.7% from $6.7 million for the same period a year ago. Gross margin for the third quarter 2012 was down 28.1%, down from $8.3 million during the second quarter of 2012.

Excellent gross margins for the third quarter of 2012 is reflective of our Leimone buying power, which were diligently working to improve based on our aforementioned continued growth and sales volume.

Our total operating expenses for the third quarter of 2012 were $4.6 million compared to $3.7 million for the same period in 2011. General and administrative expense for the third quarter of 2011 was $2.8 million compared to $1.7 million for the third quarter last year. A significant increase in cost as similar to last quarter was related to more business activities; compliance cost of being a public company and the inclusion of Portables results of operation.

R&D expense declined $2.4 million this quarter as compared to $1.4 million in quarter of 2011. R&D spend in 2011 was for development platforms that were applicable to variety of products. We scaled back our R&D cost bringing them in line with our gross profit margins. We'll continue to invest in R&D, but we will be cautious in the lower headcount and R&D projects we take on at once.

For the third quarter of 2012, income from operations was $1.4 million, a decrease from $3 million for the third quarter of 2011. Our net income for the third quarter ended September 30, 2012 was $0.8 million, a decrease from our net income of $2.6 million third quarter of last year. Our overall gross margins have been lower, accordingly our net profit margins were low as well.

In review of our financial position, at the balance sheet date, September 30, 2012, we had cash and equivalents of $3.8 million and restricted cash as $15.4 million as compared to cash and equivalents of $1.1 million and restricted cash of $15.5 million at December 31, 2011.

Net equity, net of non-controlling interest was $79.2 million at the end of second quarter of 2012 as compared to $75.9 million at the end of 2011. Total assets were approximately $22.7 million at the end of third quarter of 2012 compared to approximately $182.1 million at the end of the year 2011.

As seen in our recent press releases and filings, we’ve retained Marcum Bernstein & Pinchuk LLP as our new auditors. we are very pleased with their work thus far.

As you also see in our filings, we have resolved our dispute with Portables. I looked at bank and management of Portables for the global collaboration and help. Also I want to say that the Zoom family is glad to know that its members living in the New York, New Jersey area are safe and sound after the Hurricane.

On the side note, the Zoom and its Portables are diligently working through specifications to place our products in key mall stores as soon as possible. Additionally, we held a Business Luncheon in San Francisco in October in order for the investment public to get to know us little bit better. We’ve not set a date for our next luncheon, but we anticipate holding one in New York.

Our Chairman and Chief Executive Officer, Mr. Gu recently reminded management to stay on target and continue to executing our business plans. We hope that the fourth quarter and beyond will bring more exciting new events. Operator, that concludes our presentation and we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) As there are no questions at this time, I would now like to hand the conference back to Mr. Patrick Wong. Thank you, please continue.

Patrick Wong

We would like to thank everyone for being on the call today. Please stay tuned into Zoom. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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