InfoSonics Corporation (AMEX:IFO), one of the fastest growing
distributors of wireless handsets in the United States and Latin
America, today announced financial results for the first quarter
ended March 31, 2006. Revenues for the first quarter of 2006 were
$54.1 million, a 125% increase compared with $24.0 million reported
for the first quarter a year ago. Units shipped during the quarter
increased by 253% year-over-year, offsetting a 33% decline in
average selling price. Excluding the non-cash items described
below, net income for the first quarter of 2006 increased 163% to
approximately $827,000, or $0.11 per diluted share based on 7.7
million weighted-average shares outstanding, as compared with
approximately $315,000, or $0.05 per diluted share based on 5.9
million weighted-average shares outstanding in the same quarter a
year ago. Reconciliation of the foregoing non-GAAP financial
measures follows later in this press release. During the first
quarter 2006, the Company had income from a non-cash change in fair
value of derivative liability (for financing related warrants) of
$963,000 and non-cash expense related to stock-option compensation
of $52,000. To comply with accounting rules for treatment of
derivative liabilities (SFAS 133), the Company will record a
non-cash loss or gain each quarter, based on the calculated change
in fair value of the warrants, which were issued in conjunction
with the Company's financing during the first quarter. In addition,
the company will recognize non-cash compensation expense (SFAS
123R) each quarter for outstanding stock options. These non-cash
items have the potential to materially affect the Company's
earnings per share, both positively and negatively, on a quarterly
basis. Operating income from continuing operations for the first
quarter of 2006 increased 92% to $1.1 million compared with
$564,000 for the first quarter of 2005. "The first quarter was a
promising start for 2006, building on strong results in 2005,"
stated Joseph Ram, InfoSonics' President and Chief Executive
Officer. "During the quarter we significantly strengthened our
balance sheet to position us for continued growth by completing a
$14.4 million equity private placement, a portion of which will be
used for our new Mexico facility. Additionally, we further executed
on our strategy of expanding our product offering, adding Alcatel
as a new manufacturer to our line-up. We now have a full range of
low, mid and high-end phones to offer our carrier customers. In
April we announced several new phone models which we displayed at
the recent CTIA show in Las Vegas, which were well received." Mr.
Ram continued, "During the first quarter, we prepared for the
positive sales momentum we are experiencing in our overall business
by adding personnel and a new facility in Mexico. We continue to
focus on growing our sales and profits by expanding our presence in
existing markets and through new opportunities in growing markets;
both of which augment our business scope and market position."
Gross profit for the first quarter of 2006 was $4.2 million or 7.7%
of revenues, a dollar increase of 96%, compared to $2.1 million, or
8.9% of revenues for the first quarter of 2005. The Company's gross
margins vary from quarter-to-quarter depending on product and
geographic mix. The dollar increase in gross profit is due to the
125% increase in sales. The decline in gross profit percentage in
the first quarter is primarily attributable to a decrease in U.S.
sales, as product availability was limited and new product
introductions did not materialize as expected during the quarter.
The products in the U.S. market have traditionally held higher
gross margins than those in other regions in which the Company
currently operates. The Company anticipates increased U.S. sales in
the coming quarters and expects new product launches in the U.S.,
thereby improving the balance to its regional sales. Operating
expenses in the first quarter of 2006 declined as a percent of
sales to 5.7% or $3.1 million, compared with $1.6 million, or 6.5%
of sales for the first quarter of 2005. The decrease as a percent
of revenue is primarily due to operating efficiencies realized
during the quarter. Operating margins declined to 2.0% as compared
to 2.3% a year ago due to product and geographic mix and the
resulting reduced gross margins. -0- *T Summary Financial
Information (GAAP) For the Quarter ended March 31, (unaudited) 2006
2005 Increase Net Sales $54,127,089 $24,024,217 125% Gross Profit
$4,179,865 $2,131,260 96% Operating Income from Continuing
Operations $1,083,765 $564,345 92% Net Income $1,737,669 $314,838
452% Diluted Earnings per share: --------------------------- From
continuing operations $0.22 $0.05 340% Net Income $0.22 $0.05 340%
Diluted weighted average shares outstanding 7,733,469 5,856,686
First quarter 2006 results with Reconciliation of Non-GAAP
Financial Measures to the Corresponding GAAP Financial Measures
(unaudited) The following are selected results excluding and
including the impact of SFAS 123 R and SFAS 133: Three months ended
Actual Adjustment Non-GAAP March 31, 2006 Pro-forma(c)
----------------------------- ----------- ---------- ---
------------- $52,443 (a) ( 963,351) (b) ---------- Net income
$1,737,669 $(910,908) $826,761 =========== ========== =============
Diluted earnings per share $0.22 $(0.11) $0.11 ===========
========== ============= (a) To eliminate stock-option compensation
charges (SFAS 123 R) recorded in the first quarter of 2006. (b) To
eliminate change in fair value of derivative liability (warrants)
(SFAS 133) recorded in the first quarter of 2006. (c) Non-GAAP
pro-forma basis of presentation *T Effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123R, "Share-Based Payment," which requires the cost relating
to share-based payment transactions in which an entity exchanges
its equity instruments for goods or services from either employees
or non-employees recognized in the Consolidated Financial
Statements as the goods or services are rendered. The cost is
measured at the fair value of the equity instrument issued. The
Company is no longer permitted to follow the intrinsic value
accounting method under previous accounting guidance, which
resulted in no expense for stock options for which the exercise
price was equal to the fair value of the underlying stock on the
date of grant. The Company believes that excluding the incremental
impact of SFAS 123R from net income provides meaningful
supplemental information regarding its financial results for the
three months ended March 31, 2006 as compared to the same period in
2005 since the Company's Consolidated Financial Statements issued
prior to January 1, 2006 did not change as a result of adopting
SFAS 123R. The Company also believes that this financial
information is useful in assessing the Company's historical
performance and year-over-year growth and when planning,
forecasting and analyzing future periods. The incremental impact of
SFAS 123R during the three months ended March 31, 2006 represents
the stock option expense related to stock options issued prior to
the adoption of SFAS 123R and vested during the current period and
the impact of estimating forfeitures related to nonvested shares.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In
January 2006, the Company sold shares of common stock including
warrants to purchase common stock from the Company. The Company
evaluated the warrants in the transaction as derivatives in
accordance with SFAS No. 133. The warrants, to the extent that they
are to be satisfied with common stock of the Company, would
normally be included as equity obligations. However, in the event
that the Company does not maintain effectiveness of the
registration statement shares issued upon exercise of the warrants
could be restricted; therefore, the Company is required to record a
liability for the fair value of the warrants (included in the
liabilities as a "derivative liability"). The Company accounts for
warrants and embedded conversion features as described in SFAS 133,
EITF 00-19, and APB 14 as follows: -- The Company allocated the
proceeds received between the common shares and the warrants based
upon the relative fair market values on the transaction date,
January 30, 2006. -- Subsequent to the initial recording, the
change in the fair value of the warrants, determined under the
Black-Scholes option pricing formula, and the change in the fair
value of the derivative of the warrants at each reporting date, are
recorded as adjustments to the liabilities. -- The expense relating
to the change in the fair value of the Company's stock reflected in
the change in the fair value of the warrants is included as other
income (expense). Webcast and Conference Call Information
InfoSonics will host a conference call today at 1:30 p.m. PDT (4:30
p.m. EDT) to discuss the Company's financial results and
achievements and answer participants' questions. Representing
InfoSonics will be Joseph Ram, the Company's President & Chief
Executive Officer, and Jeff Klausner, the Company's Chief Financial
Officer. Investors interested in participating in the call can dial
800-299-7098 from the U.S. International callers can dial
617-801-9715 and enter passcode 72600752. There will also be a
simultaneous webcast available at www.infosonics.com. A digital
replay will be available by telephone for two weeks and may be
accessed by dialing 888-286-8010 from the U.S., or (617) 801-6888
for international callers, and entering passcode 99715593. About
InfoSonics Corporation InfoSonics is one of the fastest growing
distributors of wireless handsets and accessories in the United
States and Latin America. InfoSonics provides end-to-end handset
and wireless terminal solutions for network operators in both the
United States and Latin America. These solutions include product
approval and certification, light assembly, logistics services,
marketing campaigns, warranty services and end user support. For
more information please visit http://www.infosonics.com. The
forward-looking statements contained herein are subject to certain
risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements.
Some of these uncertainties and risks include, but are not limited
to, the demand for our products, our ability to obtain our products
from our suppliers, maintain commercially feasible margins,
implement our geographical sales expansion, obtain and maintain
adequate capital, expand and maintain supplier and carrier
relationships, and other factors. In addition, references to past
operating results should not be considered to be indicative of
future performance. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. InfoSonics
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the
date hereof. Readers should carefully review the risks described in
other documents that InfoSonics files from time to time with the
Securities and Exchange Commission ("SEC"), including our Form 10-K
for the year ended December 31, 2005. -0- *T InfoSonics Corporation
and Subsidiaries Consolidated Balance Sheets March 31 December 31
2006 2005 ------------ ------------ (unaudited) ASSETS Current
assets Cash and cash equivalents $12,346,313 $ 7,712,915 Trade
accounts receivable, net of allowance for doubtful accounts of
$865,290 (unaudited) and $552,993 43,302,911 19,962,630 Inventory,
net of reserves of $418,450 (unaudited) and $249,476 7,849,851
5,612,343 Prepaid Inventory 4,112,667 1,680,086 Prepaid expenses
841,980 478,196 Net assets of discontinued operations 16,458 18,931
Deferred tax assets - current 644,000 550,000 ------------
------------ Total current assets 69,114,180 36,015,101 Property
and equipment, net 422,074 426,917 Intangible assets 504,000
504,000 Other assets 90,279 90,791 ------------ ------------ Total
assets $70,130,533 $37,036,809 ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Line of
credit $17,911,931 $10,000,000 Accounts payable 15,958,692
5,986,890 Accrued expenses 3,462,606 2,983,880 Income taxes payable
244,629 -- ------------ ------------ Total current liabilities
37,577,858 18,970,770 Fair value of derivative liability 2,041,265
-- Deferred tax liability non-current 3,000 22,207 ------------
------------ Total Liabilities 39,622,123 18,992,977 Stockholders'
equity Preferred stock, $0.001 par value 10,000,000 shares
authorized 0 and 0 shares issued and outstanding -- -- Common
stock, $0.001 par value 40,000,000 shares authorized 6,766,348 and
5,626,422 shares issued and outstanding 6,766 5,626 Additional
paid-in capital 24,152,706 13,426,937 Retained earnings 6,348,938
4,611,269 ------------ ------------ Total stockholders' equity
30,508,410 18,043,832 ------------ ------------ Total liabilities
and stockholders' equity $70,130,533 $37,036,809 ============
============ InfoSonics Corporation and Subsidiaries Consolidated
Statements of Income (unaudited) For the Three Months Ended March
31, ------------------------- 2006 2005 ------------ ------------
Net sales $54,127,089 $24,024,217 Cost of sales 49,947,224
21,892,957 ------------ ------------ Gross profit 4,179,865
2,131,260 Operating expenses, including non-cash expense for stock
options of $52,443 and zero 3,096,100 1,566,914 ------------
------------ Operating income from continuing operations 1,083,765
564,346 ------------ ------------ Other income (expense) Change in
fair value of derivative liability 963,351 -- Interest income
(expense) (80,565) (24,821) ------------ ------------ Income from
continuing operations before provision for income taxes 1,966,551
539,525 Provision for income taxes 227,038 218,610 ------------
------------ Income from continuing operations 1,739,513 320,915
------------ ------------ Loss from discontinued operations (1,844)
(6,077) ------------ ------------ Net income $ 1,737,669 $ 314,838
============ ============ Basic earnings per share From continuing
operations $ 0.27 $ 0.06 ============ ============ From
discontinued operations $ (0.00) $ (0.00) ============ ============
Net Income $ 0.27 $ 0.06 ============ ============ Diluted earnings
per share From continuing operations $ 0.22 $ 0.05 ============
============ From discontinued operations $ (0.00) $ (0.00)
============ ============ Net Income $ 0.22 $ 0.05 ============
============ Basic weighted-average number of common shares
outstanding 6,397,911 5,212,000 ============ ============ Diluted
weighted-average number of common shares outstanding 7,733,469
5,856,686 ============ ============ *T
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