InfoSonics Corporation (AMEX:IFO), one of the fastest growing
distributors of wireless handsets in the United States and Latin
America, announced today that it filed an amended 10-Q for the
quarter ended March 31, 2006 to include a restatement of certain
non-cash items in the financial statements for the same period.
This non-cash restatement does not affect the Company's operating
income from continuing operations or its statement of cash flows.
In addition, as described below, the proforma non-GAAP earnings per
share remain unchanged at $0.11 for the quarter ended March 31,
2006. The non-cash adjustment is a result of warrants issued in
conjunction with the Company's financing completed in January 2006.
The warrants were originally classified as a derivative liability
for the period of January 30, 2006 through the end of the first
quarter, March 31, 2006 and accounted for under Financial
Accounting Standards No. 133 (SFAS 133). However, upon further
investigation and an extensive review of the available literature
from the Financial Accounting Standards Board (FASB), the Emerging
Issues Task Force (EITF) and the U.S. Securities and Exchange
Commission (SEC) regarding the treatment of these warrants under
EITF 00-19 and SFAS 133, the Company determined the warrants should
have been reclassified as equity at February 17, 2006, the date
upon which the SEC declared effective the Company's registration
statement on Form S-3 registering the shares underlying the
warrants. Previously the warrants had been marked to market and
remained a liability at March 31, 2006 and would have remained as
such on a going forward basis, impacting each quarter's results.
After an extensive review and consultation with its independent
registered public accountants and its audit committee, the Company
determined to restate its historical financial statements for the
quarter ended March 31, 2006. Additionally, the Company believes
future operating results should not be affected by the
reclassification of the warrants. "Looking ahead, we are pleased
that our financial statements will not be affected on a quarterly
basis by having to mark-to-market the derivative liability which
has now been moved to equity," stated Jeff Klausner, InfoSonics'
Chief Financial Officer. The Company voluntarily initiated the
review of the classification of its warrants and has worked
diligently with its independent registered public accounting firm
to insure that the reclassification is in accordance with currently
available guidance by the FASB, EITF and SEC. While the Company and
its accountants believe that the reclassification is appropriate,
they cannot assure that accounting standards bodies or regulatory
agencies will provide contrary guidance in the future. The non-cash
adjustment relating to the reclassification of the warrants as of
February 17, 2006 affected the following accounts on the balance
sheet and statement of operations as follows: -0- *T Balance Sheet:
Three Months Ended March 31, 2006 (Unaudited)
-------------------------------------- As Previously Effect of
Reported Restatement As Restated Fair value of derivative liability
$ 2,041,265 $(2,041,265) $ --- Total liabilities 39,622,123
(2,041,265) 37,580,858 Additional paid-in capital 24,152,706
2,605,607 26,758,313 Retained earnings 6,348,938 (564,342)
5,784,596 Total stockholders equity 30,508,410 2,041,265 32,549,675
Total liabilities and stockholders' equity 70,130,533 -- 70,130,533
Statement of Operations Three Months Ended March 31, 2006
(Unaudited) ----------------------------------- As Previously
Effect of Reported Restatement As Restated Operating income from
continuing operations $1,083,765 $ -- $1,083,765 Other Income:
change in fair value of derivative liability 963,351 (564,342)
399,009 Income from continuing operations before provision for
income taxes 1,966,551 (564,342) 1,402,209 Income from Continuing
operations 1,739,513 (564,342) 1,175,171 Net income 1,737,669
(564,342) 1,173,327 Basic earnings per share $0.27 ($ 0.09) $0.18
Diluted earnings per share $0.22 ($ 0.07) $0.15 Excluding the
non-cash items described below, net income for the first quarter of
2006 remains unchanged at approximately $827,000, or $0.11 per
diluted share. 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: As previously
filed: 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
=========== ============ ============ Restated: Three months ended
Actual Adjustment Non-GAAP March 31, 2006 Pro-forma(c)
---------------------------- ----------- ------------ ---
------------ $52,443 (a) ( 399,009) (b) ------------ Net income
$1,173,327 $(346,566) $826,761 =========== ============
============ Diluted earnings per share $0.15 $(0.04) $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 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. Cautionary
Statement for the Purpose of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995 The matters in
this report that are forward-looking statements, including without
limitation to statements about future revenues, sales levels,
operating income and margins, wireless handset sales, stock-based
compensation expense, gain (loss) in value of derivatives, cost
synergies, operating efficiencies, profitability, market share and
rates of return, are based on current management expectations that
involve certain risks which, if realized, in whole or in part,
could cause such expectations to fail to be achieved and have a
material adverse effect on InfoSonics' business, financial
condition and results of operations, including, without limitation:
(1) intense competition, regionally and internationally, including
competition from alternative business models, such as
manufacturer-to-carrier sales, which may lead to reduced prices,
lower sales or reduced sales growth, lower gross margins, extended
payment terms with customers, increased capital investment and
interest costs, bad debt risks and product supply shortages; (2)
inability to secure adequate supply of competitive products on a
timely basis and on commercially reasonable terms; (3) foreign
exchange rate fluctuations, devaluation of a foreign currency,
adverse governmental controls or actions, political or economic
instability, or disruption of a foreign market, and other related
risks of our international operations; (4) 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; (5) 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; (6) significant changes in supplier terms
and relationships; (7) termination of a supply or services
agreement with a major supplier or product supply shortages; (8)
continued consolidation in the wireless handset carrier market; (9)
extended general economic downturn; (10) loss of business from one
or more significant customers; (11) customer and geographical
accounts receivable concentration risk; (12) rapid product
improvement and technological change resulting in inventory
obsolescence; (13) future terrorist or military actions; (14) the
loss of a key executive officer or other key employees; (15)
changes in consumer demand for multimedia wireless handset products
and features; (16) our failure to adequately adapt to industry
changes and to manage potential growth and/or contractions; (17)
future periodic assessments required by current or new accounting
standards such as those relating to long-lived assets, goodwill and
other intangible assets and expensing of stock options and valuing
gain or loss on fair value of derivatives may result in additional
non-cash income or expenses; (18) seasonal buying patterns; (19)
dependency on Latin American sales; and (20) uncertain political
and economic conditions internationally; and (21) the impact, if
any, of changes in EITF 00-19 or SFAS 133 guidance as it relates to
warrants and registration rights. Our actual results could differ
materially from those anticipated in our forward looking
statements. InfoSonics has instituted in the past and continues to
institute changes to its strategies, operations and processes to
address these risk factors and to mitigate their impact on
InfoSonics' results of operations and financial condition. However,
no assurances can be given that InfoSonics will be successful in
these efforts. For a further discussion of significant factors to
consider in connection with forward-looking statements concerning
InfoSonics, reference is made to Item 1A Risk Factors of
InfoSonics' Annual Report on Form 10-K for the year ended December
31, 2005 and Quarterly Report on Form 10-Q, as amended; other risks
or uncertainties may be detailed from time to time in InfoSonics'
future SEC filings. InfoSonics does not intend to update any
forward-looking statements.
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