InfoSonics Reports Third Quarter 2010 Results

SAN DIEGO, Nov. 11, 2010 /PRNewswire-FirstCall/ -- InfoSonics Corporation (Nasdaq: IFON), a provider of wireless handset solutions serving Latin America and Asia Pacific, today announced results for its third quarter ended September 30, 2010.

"Although our results for the quarter were disappointing, we remain confident in our strategy," said Joseph Ram, president and CEO of InfoSonics.  "We're rapidly transitioning our business from being primarily a distributor of wireless handsets in Latin America to being a designer and manufacturer of handsets serving both Latin America and other emerging markets.  This quarter we experienced a significant drop in our legacy distribution business, but we are still in the investment and startup phase of our new Asia Pacific business.  While we had significant expenses related to R&D and marketing during the quarter, we still believe the benefits of our new business are forthcoming, as evidenced by our October 19th announcement of the inaugural shipment of our new ruggedized R80 wireless handset to our first customer in China."

Commenting further on the results and strategy, Mr. Ram noted, "Our change in strategy will result in a change in our business model.  The distribution business is characterized by very thin gross profit margins, exposure to inventory carrying costs and obsolescence, high levels of sales and marketing expenses and post sales service and support.  By the end of 2011, we expect that a minority of our business will come from distribution revenues with the remainder being derived from the development, manufacture and sale of our own proprietary line of wireless handsets.  In addition, we believe a substantial portion of our future revenues will come from sales to OEM customers in Asia Pacific.  As a consequence, we expect that our gross profit margins will improve and operating expenses will decline as a percent of sales.  Although we will now incur research and development expenses, the reduction in other SG&A spending should more than offset our internal development costs.  Additionally, much of our production will be scheduled on a build-to-order basis, which should result in lower inventory levels and exposure.  This quarter we incurred a number of expenses linked to this business transition which we believe will not be recurring.  We have also taken additional steps to de-leverage costs related to our distribution business and better align our cost structure to our new business model.  Our goal is to restore InfoSonics to profitability in the coming year."

InfoSonics reported net sales for the third quarter of 2010 of $8.2 million, compared to $65.3 million for the third quarter of 2009 and $22.4 million on a sequential basis for the second quarter of 2010.  The decrease in net sales in both periods was due principally to continued reductions in Argentina distribution sales caused by the recently enacted import tariff, which can increase the price of imported handsets by up to 30 percent.  Gross margin in the third quarter of 2010 was 6.6 percent, which was the same percentage in the third quarter of 2009 and 7.0 percent in the second quarter of 2010.  Included in cost of sales for the third quarter of 2010 was a $306,000 charge to write down certain inventories to estimated market values.  Without this charge, the gross profit margin for the quarter would have been 10.4 percent, reflecting a higher percentage of sales derived from the company's verykool product line.

Operating expenses in the third quarter of 2010 were $2.5 million, compared to $4.0 million in the third quarter of 2009 and $2.4 million in the second quarter of 2010.  The third quarter of 2010 includes $406,000 in research and development expenses related to the company's new China development subsidiary, which was established during the second quarter of 2010.  The decrease in expenses in the third quarter of 2010 compared to the same quarter last year related mostly to reductions in variable expenses linked to the decline in sales, offset partially by the new R&D expenses.  The slight increase in expenses compared to the second quarter of 2010 reflects a full quarter of spending for our development team and the same level of SG&A spending.  However, SG&A expenses in the third quarter of 2010 included over $200,000 of customer incentives which are not expected to be recurring and approximately $100,000 of expenses for bad debts and severance benefits from a reduction in force during the quarter.

The company ended the third quarter of 2010 with $17.2 million in cash and cash equivalents, representing  a 38-percent increase over $12.5 million at the end of the previous quarter.  The company has no outstanding indebtedness, and stockholders' equity at September 30, 2010 amounted to $22.1 million, equivalent to $1.56 per common share outstanding.

About InfoSonics Corporation

InfoSonics is a provider of wireless handsets and related products to OEMs, carriers and distributors in Latin America and Asia Pacific.  The Company distributes products supplied by OEMs and also designs, develops, manufactures, markets, sells and provides after-sales support for its own proprietary line of products under the verykool® and other private label brands.  Additional information can be found on our corporate website at www.infosonics.com and www.verykool.net.

Except for the factual statements made herein, the information contained in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions that are difficult to predict.  Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as "believes," "hopes," "intends," "estimates," "expects," "projects," "plans," "anticipates" and variations thereof, or the use of future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Such forward-looking statements are not guarantees of performance and our actual results could differ materially from those contained in such statements. Factors that could cause or contribute to such differences include, without limitation: (1) intense competition internationally, including competition from alternative business models, such as manufacturer-to-carrier sales, which may lead to reduced prices, lower sales, lower gross margins, extended payment terms with customers, increased capital investment and interest costs, bad debt risks and product supply shortages; (2) dependency on sales in Argentina which have been significantly reduced and may be further reduced or eliminated as a result of the recently adopted import tariff in that country; (3) the ability of the Company's new China R&D group to develop new verykool® handsets and successfully introduce them into new emerging markets; (4) extended general economic downturn in world markets; (5) inability to secure adequate supply of competitive products on a timely basis and on commercially reasonable terms; (6) foreign exchange rate fluctuations, devaluation of a foreign currency, adverse governmental controls or actions, political or economic instability, or disruption of a foreign market, including, without limitation, the imposition, creation, increase or modification of tariffs, taxes, duties, levies and other charges and other related risks of our international operations, such as the recently adopted tax/duty change in Argentina on certain electronics (including cellular phones), which could significantly increase selling prices to our customers and end-users; (7) the ability to attract new sources of profitable business from expansion of products or services or risks associated with entry into new markets, including geographies, products and services; (8) an interruption or failure of our information systems or subversion of access or other system controls may result in a significant loss of business, assets or competitive information; (9) significant changes in supplier terms and relationships or shortages in product supply; (10) continued consolidation in the wireless handset carrier market; (11) loss of business from one or more significant customers; (12) customer and geographical accounts receivable concentration risk and other related risks; (13) rapid product improvement and technological change resulting in inventory obsolescence; (14) uncertain political and economic conditions internationally, including terrorist or military actions; (15) the loss of a key executive officer or other key employees and the integration of new employees; (16) changes in consumer demand for multimedia wireless handset products and features; (17) our failure to adequately adapt to industry changes and to manage potential growth and/or contractions; (18) seasonal buying patterns; (19) the resolution of any litigation for or against the Company; (20) the recent loss of the Company's bank line of credit and the ability of the company to have access to adequate capital to fund its operations; and (21) the ability of the Company to generate taxable income in future periods.  Reference is also made to other factors detailed from time to time in our periodic reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and we undertake no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this release.

InfoSonics Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
		Three months ended				Nine months ended
		September 30,				September 30,
		2010		2009		2010		2009
Net sales		$   8,171		$   65,262		$   58,065		$   169,593
Cost of sales		7,629		60,928		54,513		157,832
Gross profit		542		4,334		3,552		11,761
Operating expenses:
	Selling, general and administrative	2,103		4,013		6,191		10,414
	Research and development	406		10		653		45
		2,509		4,023		6,844		10,459
Operating income (loss) from continuing operations		(1,967)		311		(3,292)		1,302
Other income (expense):
	Other income	7		7		9		7
	Interest expense	-		(80)		(23)		(217)
Income (loss) from continuing operations before benefit (provision) for income taxes		(1,960)		238		(3,306)		1,092
Benefit (provision) for income taxes		20		(6)		415		(23)
Income (loss) from continuing operations		(1,940)		232		(2,891)		1,069
Loss from discontinued operation, net of tax		(22)		(47)		48		(406)
Net income (loss)		$   (1,962)		$   185		$   (2,843)		$   663
Earnings (loss) per share - basic:
	Continuing operations	$   (0.14)		$   0.02		$   (0.20)		$   0.07
	Discontinued operations	-		(0.01)		-		(0.02)
	Net income (loss)	$   (0.14)		$   0.01		$   (0.20)		$   0.05
Earnings (loss) per share - diluted:
	Continuing operations	$   (0.14)		$   0.02		$   (0.20)		$   0.07
	Discontinued operations	-		(0.01)		-		(0.03)
	Net income (loss)	$   (0.14)		$   0.01		$   (0.20)		$   0.04
Weighted average common shares outstanding:
	Basic	14,184		14,184		14,184		14,550
	Diluted	14,184		14,932		14,184		14,875

InfoSonics Corporation
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
		September 30,		December 31,
		2010		2009
		(unaudited)		(audited)
ASSETS
Current assets:
	Cash and cash equivalents	$   17,166		$   18,418
	Accounts receivable, net of allowance for doubtful accounts of $194 and $590	4,936		41,914
	Accounts receivable other	1,110		1,004
	Inventory, net of reserves of $406 and $112	2,507		3,423
	Prepaid assets	541		369
	Assets of discontinued operations	925		880
	Total current assets	27,185		66,008
Property and equipment, net		244		316
Other assets		86		98
	Total assets	$   27,515		$   66,422
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$   2,380		$   9,619
	Accrued expenses	2,918		5,666
	Line of credit	-		25,494
	Income taxes payable	97		91
	Liabilities of discontinued operations	55		724
	Total current liabilities	5,450		41,594
Commitments and Contingencies (Note 13)
Stockholders' equity:
	Preferred stock, $0.001 par value, 10,000 shares authorized (no shares issued and outstanding)	-		-
	Common stock, $0.001 par value, 40,000 shares authorized, 14,184 shares issued and outstanding as of September 30, 2010 and December 31, 2009	14		14
	Additional paid-in capital	31,813		31,727
	Accumulated other comprehensive loss	(13)		(7)
	Accumulated deficit	(9,749)		(6,906)
	Total stockholders' equity	22,065		24,828
	Total liabilities and stockholders' equity	$   27,515		$   66,422

InfoSonics Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands)
(unaudited)
				For the Nine Months Ended
				September 30,
				2010		2009
Cash flows from operating activities:
	Net income (loss)			$ (2,843)		$ 663
	Adjustments to reconcile net income (loss) to net cash provided (used in)  operating activities:
		Depreciation		242		223
		Loss on disposal of fixed assets		65		-
		Provision for (recovery of) bad debt		(396)		153
		Provision for obsolete inventory		306		(42)
		Stock-based compensation expense		86		49
		(Increase) decrease in:
			Accounts receivable	37,374		(32,118)
			Accounts receivable other	(106)		3,599
			Inventory	610		578
			Prepaids	(172)		(318)
			Other assets	11		(90)
		Increase (decrease) in:
			Accounts payable	(7,239)		(158)
			Accrued expenses	(2,747)		1,937
			Income tax liabilities	6		22
Cash provided by (used in) continuing operations				25,197		(25,502)
Cash provided by (used in) discontinued operations				(714)		305
Net cash provided by (used in) operating activities				24,483		(25,197)
Cash flows from investing activities:
	Purchase of property and equipment			(235)		(137)
	Net cash used in investing activities			(235)		(137)
Cash flows from financing activities:
	Net borrowings (payments on) line of credit			(25,494)		15,792
	Cash paid for treasury stock			-		(483)
	Net cash provided by (used in) financing activities			(25,494)		15,309
Effect of exchange rate changes on cash				(6)		21
Net decrease in cash and cash equivalents				(1,252)		(10,004)
	Cash and cash equivalents, beginning of period			18,418		24,715
	Cash and cash equivalents, end of period			$ 17,166		$ 14,711
	Cash paid for interest			$ 23		$ 217
	Cash paid for taxes			-		-

SOURCE InfoSonics Corporation

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