IFO Citigroup Inc. Spx Lasers

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