InfoSonics Reports Fourth Quarter 2010 Results

SAN DIEGO, March 31, 2011 /PRNewswire/ -- InfoSonics Corporation (Nasdaq: IFON), a provider of wireless handset solutions serving Latin America and Asia Pacific, today announced results for its fourth quarter ended December 31, 2010.

"I am pleased to report that we made progress on a number of fronts during the fourth quarter," said Joseph Ram, president and CEO of InfoSonics.  "We continued the rapid transition of 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.  We reported record quarterly sales of our verykool® branded products and recorded initial sales of such products into our newly-opened Asia Pacific market.  Two phones developed entirely by our in-house R&D team are now in market, and development continues on a roadmap of products to expand our verykool® lineup during 2011.  We will strive for an attractive industrial design as well as a unique combination of features which we believe will differentiate our handsets from the competition.  We anticipate this will translate into improved sales volumes, average selling prices and gross profit margins."

Commenting further on the results and strategy, Mr. Ram noted, "Although we had a spike in our Samsung distribution business in the fourth quarter of 2010 compared to the preceding third quarter, we expect that the first quarter of 2011 represented the final quarter of our distribution business.  Starting in the second quarter of 2011, we anticipate that our business will consist purely of the development, manufacture and sale of our own proprietary line of verykool® wireless products.  This should allow us greater flexibility in increasing gross margins.  In addition, we will strive to conduct our business more on a build-to-order basis, which may lower inventory levels and exposure to obsolescence.  We are focused on increasing sales volumes by introducing our new internally developed handsets into both our existing Latin American markets, as well as new markets in both Asia Pacific and Latin America.  In addition, we are working now to expand business in all our geographic markets to more open market, non-carrier customers, where time-to-market is quicker and system integration expenses can be reduced.  Although we know this will take time, we are excited about our strategy and feel that we have adequate working capital to support us through this transitional period."

InfoSonics reported net sales for the fourth quarter of 2010 of $14.5 million, compared to $61.7 million for the fourth quarter of 2009 and $8.2 million on a sequential basis for the third quarter of 2010.  The decrease in net sales from the prior year was due to continued reductions in Argentina distribution sales caused by the recently enacted import tariff, which increases the price of imported handsets by up to 30 percent.  The increase in net sales for the fourth quarter of 2010 compared to the preceding sequential quarter includes a 95.8 percent increase in sales of the company's verykool branded products and a 69.8 percent increase in distribution sales.

Gross margin in the fourth quarter of 2010 was 8.6 percent, compared to 5.7 percent in the fourth quarter of 2009 and 6.6 percent on a sequential basis for the third quarter of 2010.  The improvement in gross margin compared to the prior year reflects a higher percentage of total sales derived from the company's verykool product line which generate higher margins than our now completed distribution business.  The gross margin improvement compared to the preceding sequential quarter reflects higher margins during the fourth quarter on verykool branded sales in Asia Pacific and the fact that the third quarter gross margin was reduced by a $306,000 charge to write down certain inventories to estimated market values.  

Operating expenses in the fourth quarter of 2010 were $2.0 million, compared to $4.0 million in the fourth quarter of 2009 and $2.5 million on a sequential basis for the third quarter of 2010.  The fourth quarter of 2010 includes $324,000 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 fourth quarter of 2010 compared to the same quarter last year related mostly to reductions in variable expenses linked to the decline in the company's distribution sales, offset partially by the new R&D expenses.  The decline in expenses compared to the third quarter of 2010 reflects a reduction in marketing and customer incentives, offset partially by an increase in variable expenses related to the increase in distribution sales during the quarter.  In addition, SG&A expenses in the third quarter of 2010 included approximately $100,000 of expenses for bad debts and severance benefits from a reduction in force during that quarter.

The net loss for the fourth quarter of 2010 was $725,000, or $0.05 per share, compared to a net loss of $2.2 million, or $0.15 per share, in the fourth quarter of 2009 and a loss of $2.0 million, or $0.14 per share, on a sequential basis for the third quarter of 2010.

The company ended the fourth quarter of 2010 with $12.5 million in cash and cash equivalents.  This represented a $4.7 million decrease from $17.2 million at the end of the third quarter of 2010, which amount was invested in trade accounts receivable driven by the significant increase in sales for the quarter.  At December 31, 2010, the company had $20.9 million of net working capital and no outstanding indebtedness.

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 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 are expected to be eliminated by the end of March 2011 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) our ability to maintain the listing of our common stock on The NASDAQ Stock Market; (11) continued consolidation in the wireless handset carrier market; (12) loss of business from one or more significant customers; (13) customer and geographical accounts receivable concentration risk and other related risks; (14) rapid product improvement and technological change resulting in inventory obsolescence; (15) uncertain political and economic conditions internationally, including terrorist or military actions; (16) the loss of a key executive officer or other key employees and the integration of new employees; (17) changes in consumer demand for multimedia wireless handset products and features; (18) our failure to adequately adapt to industry changes and to manage potential growth and/or contractions; (19) seasonal buying patterns; (20) the resolution of any litigation for or against the Company; (21) 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 (22) 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

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