InfoSonics Reports Second Quarter 2010 Results

SAN DIEGO, Aug. 16 /PRNewswire-FirstCall/ -- InfoSonics Corporation (Nasdaq: IFON), one of the premier providers of wireless handset solutions serving Latin America, today announced results for its second quarter ended June 30, 2010.

"Our results this quarter reflect the transition our company is going through," said Joseph Ram, the company's President and Chief Executive Officer.  "In the past, we were primarily a distributor in Latin America of handsets produced by others.  We are now transforming our business to become primarily a designer and manufacturer of handsets serving Latin America and other emerging markets.  This shift has been accelerated by the introduction in late 2009 of a substantial import tariff in Argentina, our primary market, as well as a more competitive landscape as tier-one manufacturers respond to margin squeeze."

Commenting on InfoSonics' change in strategy, Mr. Ram continued, "For many years we have enjoyed a robust distribution business with high volumes, but with very thin margins.  Envisioning changes to the industry, in early 2007 we worked with contract developers and manufacturers and launched our own proprietary line of handsets under the verykool® label.  Sales of these phones produce higher gross margins compared to our distribution business.  Although we have enjoyed success with our products in Latin America, we needed a way to accelerate our progress.  In May 2010, after much research and diligence, we founded a new R&D center in Beijing, China.  Referred to as verykool China, this entity was formed through an agreement with a very experienced Chinese development and business team and will operate under the umbrella of verykool USA, a wholly owned subsidiary of InfoSonics.  This new in-house team will help us design and develop a broader line of verykool handsets, and should enable us to break into other emerging markets outside our traditional Latin American market.  Our goal in bringing a large portion of R&D in-house is to deliver more sophisticated and costeffective products, accelerate our time-to-market and protect our intellectual property and business processes internally.  We are pleased with the team's progress to date and are excited about our prospects for the future.  We expect to deliver our first internally designed phone to customers beginning in the second half of 2010."

InfoSonics reported net sales for the second quarter of 2010 of $22.4 million, compared to $61.7 million for the second quarter of 2009 and $27.5 million on a sequential basis for the first quarter of 2010.  The decrease in net sales in both periods was due principally to 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 second quarter of 2010 was 7.0 percent, compared to 6.6 percent in the second quarter of 2009 and 5.2 percent in the first quarter of 2010.  The improved margin in the current quarter resulted from a higher percentage of sales derived from the company's verykool product line.

Operating expenses in the second quarter of 2010 were $2.4 million, compared to $3.6 million in the second quarter of 2009 and $2.0 million in the first quarter of 2010.  The second quarter of 2010 includes $227,000 in research and development expenses related to the company's new China development subsidiary.  Expenses in the first quarter of 2010 benefited from a $400,000 recovery of bad debt expense.  The reduction in expenses compared to the second quarter of 2009 was primarily attributable to lower sales commissions and other revenue-related variable expenses, as well as reductions in headcount, lower bad debt expense and other cost efficiencies.

The net loss in the second quarter of 2010 was reduced by an income tax benefit of $400,000 from the carry-back of U.S. federal income tax losses in 2007 and 2008 to prior years.

The company ended the second quarter of 2010 with $12.5 million in cash and cash equivalents, compared to $18.4 million at the end of 2009.  During the second quarter of 2010, the company repaid all outstanding indebtedness under its bank line of credit and has no other funded debt.  Stockholders' equity at June 30, 2010 amounted to $24.0 million, equivalent to $1.70 per common share outstanding.

About InfoSonics Corporation

InfoSonics is a provider of wireless handsets and related products to carriers and distributors in Latin America.  InfoSonics 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® brand.   For additional information, please visit www.infosonics.com.

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 and will continue to be significantly 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.

SOURCE InfoSonics Corporation