Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10- Q**

 

| **x** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|-------|----------------------------------------------------------------------------------------------|

** **

**For the quarterly period ended June 30, 2009**

** **

**OR**

** **

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

**Forthe transition periodfrom                to                **

 

**CommissionFile Number - 001-32217**

 

**InfoSonicsCorporation**

(Exact name of registrant as specified in its charter)

 

| **Maryland**                                                     | ** ** | **33-0599368**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (IRS  Employer Identification Number) |

 

**4350Executive Drive, Suite #100, San Diego, CA 92121**

(Address of principal executive offices including zip code)

 

**(858)373-1600**

(Registrant’s telephone number, includingarea code)

 

**Not Applicable**

(Former Name or Former Address, if Changed Since Last Report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  x   No  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporatewebsite, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files). Yes  o   No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large  accelerated filer o                                        |   | Accelerated  filer o    |
|------------------------------------------------------------------------|--------|------------------------------|
|                                                                   |   |                         |
| Non-accelerated  filer o(Do not check if a  smaller reporting company) |   | Smaller  reporting company x |

 

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x

 

As of August 11, 2009, the Registrant had 14,184,147shares outstanding of its $.001 par value common stock.

 

 

 

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Table of Contents

 

**InfoSonicsCorporation and Subsidiaries**

 

**QuarterlyReport on Form 10-Q For The Period Ended June 30, 2009**

 

**Table of Contents**

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                                             |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                   | ** **                                                                                                                       |   |
| Item 1.                                | Financial Statements                                                                                                             |   |
|                                   |                                                                                                                             |   |
| ·                                 | Consolidated Balance Sheets as of  June 30, 2009 (unaudited) and December 31, 2008                                     | 2 |
|                                   |                                                                                                                             |   |
| ·                                 | Consolidated Statements of  Operations for the three and six months ended June 30, 2009 and 2008  (unaudited)               | 3 |
|                                   |                                                                                                                             |   |
| ·                                 | Consolidated Statements of  Comprehensive Operations for the three and six months ended June 30,  2009 and 2008 (unaudited) | 4 |
|                                   |                                                                                                                             |   |
| ·                                 | Consolidated Statements of  Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)                          | 5 |
|                                   |                                                                                                                             |   |
| ·                                 | Condensed  Notes to Consolidated Financial Statements (unaudited)                                                                | 6 |
|                                   |                                                                                                                             |   |
| Item 2.                                | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                      | 14 |
|                                   |                                                                                                                             |   |
| Item 3.                                | Quantitative and Qualitative Disclosures About Market  Risk                                                                      | 24 |
|                                   |                                                                                                                             |   |
| Item 4T.                               | Controls and Procedures                                                                                                          | 24 |
| ** **                             | ** **                                                                                                                       | ** ** |
| **PART II.  OTHER INFORMATION**   |                                                                                                                             |
|                                   |                                                                                                                             |   |
| Item  1.                               | Legal  Proceedings                                                                                                               | 25 |
|                                   |                                                                                                                             |   |
| Item  1A.                              | Risk  Factors                                                                                                                    | 25 |
|                                   |                                                                                                                             |   |
| Item 2.                                | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                     | 28 |
|                                   |                                                                                                                             |   |
| Item 3.                                | Defaults Upon Senior Securities                                                                                                  | 28 |
|                                   |                                                                                                                             |   |
| Item 4.                                | Submission of Matters to a Vote of Security Holders                                                                              | 29 |
|                                   |                                                                                                                             |   |
| Item  5.                               | Other  Information                                                                                                               | 29 |
|                                   |                                                                                                                             |   |
| Item 6.                                | Exhibits                                                                                                                         | 29 |

 

1

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Table of Contents

 

**Part I.  FINANCIAL INFORMATION**

** **

**Item 1.  Financial Statements**

 

**InfoSonics Corporation andSubsidiaries**

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                                                                                 | ** ** | **June 30,  2009** | ** **     | **December 31,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|----------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                 | ** ** | **(unaudited)**         | ** **     | **(audited)**               | ** ** |
| **ASSETS**                                                                                                                                                                                                                 |       |                    |           |                        |       |
| **Current  assets:**                                                                                                                                                                                                       |       |                    |           |                        |       |
| Cash  and cash equivalents                                                                                                                                                                                                 |       | $                       | 15,522,939     |                        | $          | 24,714,753 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $580,361 (unaudited)  and $429,126                                                                                                                         |       | 51,755,444              |           | 22,727,738                  |       |
| Other receivables                                                                                                                                                                                                          |       | 428,624                 |           | 4,209,658                   |       |
| Inventory, net of reserves of $224,556 (unaudited) and $161,556                                                                                                                                                            |       | 4,860,875               |           | 4,375,334                   |       |
| Prepaids                                                                                                                                                                                                                   |       | 286,977                 |           | 244,103                     |       |
| Assets of discontinued operations                                                                                                                                                                                          |       | 3,026,348               |           | 3,264,817                   |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| Total current assets                                                                                                                                                                                                       |       | 75,881,207              |           | 59,536,403                  |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| Property and equipment, net                                                                                                                                                                                                |       | 427,734                 |           | 498,079                     |       |
| Intangible assets                                                                                                                                                                                                          |       | 504,000                 |           | 504,000                     |       |
| Other assets                                                                                                                                                                                                               |       | 206,122                 |           | 115,900                     |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| **Total assets**                                                                                                                                                                                                           | ** ** | **$**                   | **77,019,063** | ** **                  | **$**      | **60,654,382** | ** ** |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                             | ** ** | ** **              | ** **     | ** **                  | ** ** |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| **Current liabilities:**                                                                                                                                                                                                   |       |                    |           |                        |       |
| Accounts payable                                                                                                                                                                                                           |       | $                       | 9,853,335      |                        | $          | 10,982,306 |   |
| Accrued expenses                                                                                                                                                                                                           |       | 7,483,364               |           | 7,304,090                   |       |
| Line of credit                                                                                                                                                                                                             |       | 31,476,001              |           | 14,273,978                  |       |
| Income taxes payable                                                                                                                                                                                                       |       | 39,300                  |           | 24,100                      |       |
| Liabilities of discontinued operations                                                                                                                                                                                     |       | 1,366,666               |           | 1,310,434                   |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| Total current liabilities                                                                                                                                                                                                  |       | 50,218,666              |           | 33,894,908                  |       |
| ** **                                                                                                                                                                                                                 | ** ** | ** **              |           | ** **                  |       |
| **Total liabilities**                                                                                                                                                                                                      |       | 50,218,666              |           | 33,894,908                  |       |
| ** **                                                                                                                                                                                                                 |       |                    |           |                        |       |
| **Commitments and contingencies (Note #13)**                                                                                                                                                                               |       |                    |           |                        |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| **Stockholders’ equity:**                                                                                                                                                                                             |       |                    |           |                        |       |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized (no  shares issued and outstanding as of applicable period end)                                                                                            |       | —                  |           | —                      |       |
| Common stock, $0.001 par value, 40,000,000 shares authorized; 14,745,755  and 15,010,807 shares issued and 14,184,147 and 14,956,270 shares outstanding  as of June 30, 2009 and December 31, 2008, respectively |       | 14,184                  |           | 14,956                      |       |
| Treasury stock, at cost, 561,608 and 54,537 shares as of  June 30, 2009 and December 31, 2008, respectively                                                                                                      |       | (434,381                | )              | (16,900                     | )          |
| Additional paid-in capital                                                                                                                                                                                                 |       | 31,697,995              |           | 31,666,434                  |       |
| Accumulated other comprehensive loss                                                                                                                                                                                       |       | (10,324                 | )              | (25,211                     | )          |
| Accumulated deficit                                                                                                                                                                                                        |       | (4,467,077              | )              | (4,879,805                  | )          |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| Total stockholders’ equity                                                                                                                                                                                            |       | 26,800,397              |           | 26,759,474                  |       |
|                                                                                                                                                                                                                       |       |                    |           |                        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                                                        | ** ** | **$**                   | **77,019,063** | ** **                  | **$**      | **60,654,382** | ** ** |

 

*Accompanyingnotes are an integral part of these financial statements.*

 

2

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Table of Contents

 

**InfoSonicsCorporation and Subsidiaries**

**Consolidated Statements ofOperations**

**(unaudited)**

 
| ** **                                                                    | ** ** | **For the Three Months  Ended June 30,** | ** **  | **For the Six  Months  Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|-------------|-------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2009**                                                          | ** **  | **2008**                                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                    | ** ** | ** **                                                        | ** **  | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net sales**                                                                 |       | $                                                                 | 61,706,104  |                                                        | $          | 59,039,970 |   | $ | 104,331,222 |   | $ | 126,973,238 |   |
| **Cost of sales**                                                             |       | 57,633,965                                                        |        | 55,814,413                                                  |       | 96,904,462 |   | 120,158,895 |   |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Gross profit**                                                              |       | 4,072,139                                                         |        | 3,225,557                                                   |       | 7,426,760 |   | 6,814,343 |   |
| **Operating expenses**                                                        |       | 3,558,921                                                         |        | 3,215,412                                                   |       | 6,435,893 |   | 6,908,598 |   |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Operating income (loss) from continuing  operations**                       |       | 513,218                                                           |        | 10,145                                                      |       | 990,867 |   | (94,255 | ) |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Other income (expense)**                                                    |       |                                                              |        |                                                        |       |   |   |   |   |
| Other income                                                                  |       | 211                                                               |        | 9,820                                                       |       | 253 |   | 10,262 |   |
| Interest (expense)                                                            |       | (109,300                                                          | )           | (334,962                                                    | )          | (137,178 | ) | (524,463 | ) |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Income (loss) from continuing operations before  benefit for income taxes** |       | 404,129                                                           |        | (314,997                                                    | )          | 853,942 |   | (608,456 | ) |
| **Benefit (provision) for income taxes**                                      |       | (7,100                                                            | )           | 159,527                                                     |       | (16,800 | ) | 127,356 |   |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Income (loss) from continuing operations**                                  |       | 397,029                                                           |        | (155,470                                                    | )          | 837,142 |   | (481,100 | ) |
| **Loss from discontinued operations, net of tax (Note #11)**             |       | (166,567                                                          | )           | (2,077,743                                                  | )          | (359,628 | ) | (2,165,293 | ) |
| ** **                                                                    | ** ** | ** **                                                        | ** **  | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                         | ** ** | **$**                                                             | **230,462** | ** **                                                  | **$**      | **(2,233,213** | **)** | **$** | **477,514** | ** ** | **$** | **(2,646,393** | **)** |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Basic earnings (loss) per share**                                           |       |                                                              |        |                                                        |       |   |   |   |   |
| From continuing operations                                                    | ** ** | **$**                                                             | **0.03**    | ** **                                                  | **$**      | **(0.01** | **)** | **$** | **0.06** | ** ** | **$** | **(0.03** | **)** |
| From discontinued operations                                                  | ** ** | **$**                                                             | **(0.01**   | **)**                                                       | **$**      | **(0.14** | **)** | **$** | **(0.02** | **)** | **$** | **(0.15** | **)** |
| Net income (loss)                                                             | ** ** | **$**                                                             | **0.02**    | ** **                                                  | **$**      | **(0.15** | **)** | **$** | **0.04** | ** ** | **$** | **(0.18** | **)** |
| **Diluted earnings (loss) per share**                                         | ** ** | ** **                                                        | ** **  | ** **                                                  | ** ** | ** ** | ** ** |   | ** ** |
| From continuing operations                                                    | ** ** | **$**                                                             | **0.03**    | ** **                                                  | **$**      | **(0.01** | **)** | **$** | **0.06** | ** ** | **$** | **(0.03** | **)** |
| From discontinued operations                                                  | ** ** | **$**                                                             | **(0.01**   | **)**                                                       | **$**      | **(0.14** | **)** | **$** | **(0.02** | **)** | **$** | **(0.15** | **)** |
| Net income (loss)                                                             | ** ** | **$**                                                             | **0.02**    | ** **                                                  | **$**      | **(0.15** | **)** | **$** | **0.04** | ** ** | **$** | **(0.18** | **)** |
|                                                                          |       |                                                              |        |                                                        |       |   |   |   |   |
| **Basic weighted-average number of common shares  outstanding**               | ** ** | **14,592,992**                                                    | ** **  | **14,881,523**                                              | ** ** | **14,736,585** | ** ** | **14,819,968** | ** ** |
| ** **                                                                    | ** ** | ** **                                                        | ** **  | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted weighted-average number of common shares  outstanding**             | ** ** | **14,785,901**                                                    | ** **  | **14,881,523**                                              | ** ** | **14,851,457** | ** ** | **14,819,968** | ** ** |

 

*Accompanying notes are an integral part of these financialstatements*.

 

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**InfoSonicsCorporation and Subsidiaries**

**Consolidated Statements ofComprehensive Operations**

**(unaudited)**

 
| ** **                                | ** ** | **For  the Three Months********Ended June 30,** | ** ** | **For  the Six Months********Ended June 30,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                | ** ** | **2009**                                                  | ** ** | **2008**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                      |       |                                                      |       |                                                    |       |   |   |   |   |
| Net  profit (loss)                        |       | $                                                         | 230,462    |                                                    | $          | (2,233,213 | ) | $ | 477,514 |   | $ | (2,646,393 | ) |
| Other  comprehensive income (loss):       |       |                                                      |       |                                                    |       |   |   |   |   |
| Foreign  currency translation adjustments |       | (1,144                                                    | )          | (1,694                                                  | )          | 14,887 |   | (3,903 | ) |
| Comprehensive  income (loss)              |       | $                                                         | 229,318    |                                                    | $          | (2,234,907 | ) | $ | 492,401 |   | $ | (2,650,296 | ) |

 

*Accompanying notes are an integral part of these financial statements.*

 

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**InfoSonicsCorporation and Subsidiaries**

**Consolidated Statements of CashFlows**

**(unaudited)**

 
| ** **                                                                                         | ** ** | **For the Six Months Ended  June 30,** | ** **     |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|----------------|
| ** **                                                                                         | ** ** | **2009**                                              | ** **     | **2008** | ** ** |
| **Cash flows from operating activities:**                                                          | ** ** | ** **                                            | ** **     | ** ** | ** ** |
| Net income (loss)                                                                                  |       | $                                                     | 477,514        |   | $ | (2,646,393 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities |       |                                                  |           |   |   |
| Depreciation                                                                                       |       | 121,208                                               |           | 337,057 |   |
| Provision for bad debt                                                                             |       | 151,235                                               |           | (212,382 | ) |
| Impairment on fixed assets                                                                         |       | —                                                |           | (9,125 | ) |
| Provision for obsolete inventory                                                                   |       | 63,000                                                |           | (82,882 | ) |
| Stock option and stock grant expense                                                               |       | 31,461                                                |           | 40,398 |   |
| (Increase) decrease in                                                                             |       |                                                  |           |   |   |
| Accounts receivable                                                                                |       | (25,397,907                                           | )              | 8,813,560 |   |
| Inventory                                                                                          |       | (548,541                                              | )              | (2,192,503 | ) |
| Prepaids                                                                                           |       | (42,875                                               | )              | 254,417 |   |
| Other assets                                                                                       |       | (90,222                                               | )              | 5,031 |   |
| Deferred tax asset current                                                                         |       | —                                                |           | (67,340 | ) |
| Deferred tax asset non current                                                                     |       | —                                                |           | (573,474 | ) |
| Increase (decrease) in                                                                             |       |                                                  |           |   |   |
| Accounts payable                                                                                   |       | (1,128,972                                            | )              | (7,223,457 | ) |
| Accrued expenses                                                                                   |       | 179,274                                               |           | 1,708,973 |   |
| Income tax liabilities                                                                             |       | 15,200                                                |           | (39,560 | ) |
| Cash used in continuing operations                                                                 |       | (26,169,625                                           | )              | (1,887,680 | ) |
| Cash provided by discontinued operations                                                           |       | 296,035                                               |           | 5,672,247 |   |
| Net cash provided by (used in) operating activities                                                |       | (25,873,590                                           | )              | 3,784,567 |   |
|                                                                                               |       |                                                  |           |   |   |
| **Cash flows from investing activities:**                                                          | ** ** | ** **                                            | ** **     | ** ** | ** ** |
| Purchase of property and equipment                                                                 |       | (50,862                                               | )              | (51,444 | ) |
| Cash provided by discontinued operations                                                           |       | —                                                |           | 48,000 |   |
| Net cash used in investing activities                                                              |       | (50,862                                               | )              | (3,444 | ) |
|                                                                                               |       |                                                  |           |   |   |
| **Cash flows from financing activities:**                                                          | ** ** | ** **                                            | ** **     | ** ** | ** ** |
| Borrowings from line of credit                                                                     |       | 117,341,477                                           |           | 131,467,733 |   |
| Payments on line of credit                                                                         |       | (100,139,453                                          | )              | (140,107,568 | ) |
| Cash received from stock and options                                                               |       | —                                                |           | 34,242 |   |
| Cash paid for treasury stock                                                                       |       | (483,040                                              | )              | — |   |
| Cash provided by (used in) discontinued operations                                                 |       | —                                                |           | — |   |
|                                                                                               |       |                                                  |           |   |   |
| Net cash provided by (used in) financing activities                                                |       | 16,718,984                                            |           | (8,605,593 | ) |
|                                                                                               |       |                                                  |           |   |   |
| Effect of exchange rate changes on cash                                                            |       | 13,654                                                |           | (3,903 | ) |
|                                                                                               |       |                                                  |           |   |   |
| Net decrease in cash and cash equivalents                                                          |       | (9,191,814                                            | )              | (4,828,373 | ) |
|                                                                                               |       |                                                  |           |   |   |
| **Cash and cash equivalents, beginning of period**                                                 |       | 24,714,753                                            |           | 20,652,154 |   |
|                                                                                               |       |                                                  |           |   |   |
| **Cash and cash equivalents, end of period**                                                       | ** ** | **$**                                                 | **15,522,939** | ** ** | **$** | **15,823,781** | ** ** |
| **Cash paid for interest**                                                                         | ** ** | **137,185**                                           | ** **     | **477,359** | ** ** |
| **Cash paid for taxes**                                                                            |       | —                                                |           | — |   |

 

***Non-Cash SupplementalDisclosure:***

* *

*During theperiod ended June 30, 2009, $4.15 million of the accrued legal settlementwas paid by the insurance carrier and the corresponding receivable andliability have been reduced. (see Note #7)*

 

Duringthe period ended June 30, 2009, the Company retired 265,053 shares of itstreasury stock.  The retirement reducedtreasury stock and increased the accumulated deficit by $65,559.

 

*Accompanyingnotes are an integral part of these financial statements.*

 

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**InfoSonicsCorporation**

**Condensed Notes to ConsolidatedFinancial Statements**

**(unaudited)**

 

**NOTE 1. Basisof Presentation**

 

The accompanying unauditedconsolidated financial statements and these condensed notes have been preparedin accordance with accounting principles generally accepted in the UnitedStates (“GAAP”) for interim financial information and with the instructions to Form 10-Qand Article 8 of Regulation S-X of the Securities Exchange Act of 1934, asamended (the “Exchange Act”). Accordingly, they do not include all of theinformation and notes required by GAAP for complete financial statements. Thepreparation of financial statements requires management to make estimates andassumptions that affect amounts reported in the financial statements andaccompanying notes. Actual results are likely to differ from those estimates,but management does not believe such differences will materially affect thefinancial position or results of operations of InfoSonics Corporation (the “Company”),although they may. These unaudited consolidated financial statements andcondensed notes should be read in conjunction with the financial statements andnotes as of and for the year ended December 31, 2008 included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2008.  These unaudited consolidatedfinancial statements reflect all adjustments considered, in the opinion of theCompany’s management, necessary to fairly present the results for the periodscovered herein and such adjustments are considered of a normal recurringnature.

 

The unaudited consolidated financial statements include theaccounts of the Company and its subsidiaries, Axcess Mobile LLC, InfoSonicsLatin America, Inc., InfoSonics de Mexico S.A. de C.V., InfoSonics deGuatemala S.A., InfoSonics El Salvador S.A. de C.V., InfoSonics S.A.,InfoSonics Corporation Chile y Compania Limitada, InfoSonics Colombia S.A. andverykool USA, Inc., all of which are wholly owned. Significantintercompany accounts and transactions have been eliminated in consolidation ofthese consolidated financial statements.

 

The unaudited consolidatedbalance sheet, the unaudited consolidated statements of operations and theunaudited consolidated statements of comprehensive operations as of or for thethree and six months ended June 30, 2009 and the unaudited consolidatedstatement of cash flows for the six months ended June 30, 2009 are notnecessarily indicative of the financial condition, operating results or cashflows that may be expected for the full fiscal year of 2009 or for any futureperiod.

 

**NOTE 2.****Stock-BasedCompensation**

 

The Company has three equity incentive plans, the 2006 Equity IncentivePlan (“2006 Plan”), the 2003 Stock Option Plan (“2003 Plan”) and the 1998 StockOption Plan (“1998 Plan”).  Each of theplans has been approved by our stockholders. The 2006 Plan authorizes the grantof up to 1,000,000 shares for equity incentives.  As of June 30, 2009, options to purchase398,500 shares were outstanding under the 2006 Plan and options to purchase102,000 shares have been exercised or forfeited under the plan. The Company isalso a party to non-plan option agreements with several non-employee directorsand several institutions.

 

On December 28,2007, the Securities and Exchange Commission (“SEC”) staff published StaffAccounting Bulletin No. 110 (SAB 110), which updates SAB 107 and providesthe SEC staff’s views on a variety of matters relating to stock-basedpayments.  SAB 110 requires stock-basedcompensation to be classified in the same expense line items as cashcompensation.   Information aboutstock-based compensation included in the unaudited results of operations forthe three and six months ended June 30, 2009 and 2008 is as follows:

 
| ** **                                                        | ** ** | **For  the Three Months Ended********June 30,** | ** ** | **For  the Six Months Ended********June 30,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                                                       | ** ** | **2008**                                                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                              |       |                                                           |       |                                                         |       |   |   |   |   |
| Officer compensation                                              |       | $                                                              | 3,620      |                                                         | $          | — |   | $ | 3,620 |   | $ | — |   |
| Non-employee  directors                                           |       | 950                                                            |       | 3,451                                                        |       | 950 |   | 6,902 |   |
| Sales,  general and administrative                                |       | 13,445                                                         |       | 16,555                                                       |       | 26,891 |   | 33,496 |   |
| Total  stock option expense, included in total operating expenses |       | $                                                              | 18,015     |                                                         | $          | 20,006 |   | $ | 31,461 |   | $ | 40,398 |   |

 

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Our stock options vest on an annual or a monthly basis.  TheCompany recognizes stock-based compensation costs on a straight-line basis overthe requisite service period of the award, which is generally the optionvesting term.   Such amounts maychange as a result of additional grants, forfeitures, modifications inassumptions and other factors. SFAS 123R provides that income tax effects ofshare-based payments are recognized in the financial statements for thoseawards which will normally result in tax deductions under existing tax law.During the three and six months ended June 30, 2009, we recorded anexpense of $18,015 and $31,461, respectively, related to options previouslygranted and granted during the first three and six months of 2009. During thethree and six months ended June 30, 2008, we recorded an expense of$20,006 and $40,398, respectively, related to options previously granted andgranted during the first three and six months of 2008. Under current U.S.federal tax law, we receive a compensation expense deduction related tonon-qualified stock options only when those options are exercised and vestedshares are received. Accordingly, the financial statement recognition ofcompensation cost for non-qualified stock options creates a deductibletemporary difference which results in a deferred tax asset and a correspondingdeferred tax benefit in our consolidated statements of operations.

 

The fair value of each option grant is estimated on the date of grantusing the Black-Scholes option pricing model with the followingweighted-average assumptions used for grants in 2008 and 2009: risk-freeinterest rate of 1.47% in 2008 and 0.91% in 2009, based on the U.S. Treasuryyields in effect at the time of grant; expected dividend yields of 0% as theCompany has not, and does not intend to, issue dividends; and expected lives of3 to 6 years based upon the historical life of options. For grants in 2008 and2009, the expected volatility used ranged from 88% to 108%, based on theCompany’s historical stock price fluctuations for a period matching theexpected life of the options.  As of June 30,2009, there was $177,000 of total unrecognized compensation costs related tothe non-vested stock options.  That costis expected to be recognized over the remaining weighted-average period of 3.75years.

 

Asummary of option activity under all of the above plans as of June 30,2009 and changes during the six months then ended is presented in the tablebelow:

 
| ** **                            | ** ** | **Shares** | ** ** | **Wtd. Avg.  Exercise Price** | ** ** | **Wtd. Avg.  Remaining  Contractual  Life** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------------------|------------|--------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at December 31, 2008 |       | 1,575,944  |       | $                                       | 1.46       |                                             | 2.98       |                            | —     |   |
| Granted                               |       | 252,500    |       | $                                       | 0.51       |                                             | 6.89       |                            | —     |   |
| Exercised                             |       | —     |       | $                                       | —     |                                             |       |                            | —     |   |
| Forfeited                             |       | 62,500     |       | $                                       | 1.60       |                                             |       |                            | —     |   |
| Outstanding at June 30, 2009     |       | 1,765,944  |       | $                                       | 1.32       |                                             | 3.16       |                            | —     |   |
| Vested and expected to vest           |       | 1,765,944  |       | $                                       | 1.32       |                                             | 3.16       |                            | —     |   |
| Exercisable at June 30, 2009     |       | 1,426,826  |       | $                                       | 1.46       |                                             | 2.39       |                            | —     |   |

 

A summary of the status of the Company’s non-vested options at June 30,2009 and changes during the six months ended June 30, 2009 is presentedbelow:

 
| ** **                           | ** ** | **Shares** | ** ** | **Weighted-average  grant-date fair value** | ** ** |
|--------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| Non-vested at December 31, 2008 |       | 146,660    |       | $                                                     | 1.27       |   |
| Granted                              |       | 252,500    |       | $                                                     | 0.51       |   |
| Vested                               |       | 30,042     |       | $                                                     | 1.48       |   |
| Forfeited                            |       | 30,000     |       | $                                                     | 1.04       |   |
| Non-vested at June 30, 2009     |       | 339,118    |       | $                                                     | 0.71       |   |

 

**NOTE 3. Earnings Per Share**

 

The Company utilizes SFAS No. 128,‘‘*Earnings perShare*.’’ Basic earnings per share is computed by dividing incomeavailable to common stockholders by the weighted-average number of commonshares outstanding. Diluted earnings per share is computed similarly to basicearnings per share, except that the denominator is increased to include thenumber of additional common shares that would have been outstanding if thepotential additional common shares that were dilutive had been issued. Commonshare equivalents are excluded from the computation if their effect isanti-dilutive. The Company’s common share equivalents consist of stock optionsand warrants.

 

Common shares from exercise of certain options and warrantshave been excluded from the computation of diluted earnings per share becausetheir exercise prices are greater than the Company’s weighted-average stockprice for the period.  For the three and six months ended June 30,2009 the number of shares excluded was 1,573,035 and 1,653,572,respectively.

 

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Since their effect would have been anti-dilutive, 2,991,616and 2,903,611, stock options and warrants to purchase shares of common stockhave been excluded from the computation of net loss per share for the three andsix months ended June 30, 2008, respectively.

 

**NOTE 4. IncomeTaxes**

 

The Company adopted the Financial Accounting Standards Board’s Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”) effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority.  As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by FIN 48. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. At the date of adoption, and as of December 31, 2008 and June 30, 2009, the Company does not have a liability for unrecognized tax benefits.   The Company concluded that at this time there are no uncertain tax positions. As a result of applying the provisions of FIN 48, there was no cumulative effect on retained earnings.

 

The Company is subject to USfederal income tax as well as income tax in multiple states and foreignjurisdictions. For all major taxing jurisdictions, the tax years 2003 through2008 remain open to examination. As of June 30, 2009, the Company does notexpect any material changes to unrecognized tax positions within the nexttwelve months.

 

SFAS No. 109, “*Accounting for IncomeTaxes,*” establishes financial accounting and reporting standards forthe effect of income taxes. The objectives of accounting for income taxes areto recognize the amount of taxes payable or refundable for the current year anddeferred tax liabilities and assets for the future tax consequences of eventsthat have been recognized in an entity’s financial statements or tax returns.Judgment is required in assessing the future tax consequences of events thathave been recognized in our financial statements or tax returns. Fluctuationsin the actual outcome of these future tax consequences could materially impactour financial position or our results of operations.  For the six months ended June 30, 2009,deferred income tax assets and the corresponding valuation allowance increasedby $671,000.

 

**NOTE 5.Inventory**

 

Inventoryis stated at the lower of cost (first-in, first-out) or market and consistsprimarily of cellular phones and cellular phone accessories.  The Company provides for the possibleinability to sell its inventory by recording a reserve.  As of June 30, 2009 and December 31,2008, the inventory reserve was $224,556 and $161,556, respectively.  From time to time, the Company has prepaidinventory as a result of payments for products which have not been received bythe balance sheet date.  As of June 30,2009 and December 31, 2008, the prepaid inventory balances were $50,051and $170, respectively.  Included inAssets for Discontinued Operations as of June 30, 2009 and December 31,2008 are inventory balances of $1,076,589 and $1,307,463, respectively.    Inventory consists of the following:

 
| ** **           | ** ** | **June 30,  2009  (unaudited)** | ** ** | **December 31,  2008  (audited)** | ** ** |
|----------------------|------------|--------------------------------------|------------|----------------------------------------|------------|
| Finished goods       |       | $                                    | 4,823,626  |                                   | $          | 4,536,890 |   |
| Inventory in-transit |       | 261,805                              |       | —                                 |       |
| Inventory reserve    |       | (224,556                             | )          | (161,556                               | )          |
| Net inventory        |       | $                                    | 4,860,875  |                                   | $          | 4,375,334 |   |

 

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**NOTE 6.Property and Equipment**

 

Property and equipmentare primarily located in the United States, with the exception of certaintooling and product molds which are located in Asia, and consisted of thefollowing as of the dates presented:

 
| ** **                    | ** ** | **June 30,  2009  (unaudited)** | ** ** | **December 31,  2008  (audited)** | ** ** |
|-------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|
| Machinery and equipment       |       | $                                    | 469,928    |                                   | $          | 469,411 |   |
| Furniture and fixtures        |       | 106,314                              |       | 106,314                                |       |
| Tooling and molds             |       | 381,174                              |       | 330,828                                |       |
| Subtotal                      |       | 957,416                              |       | 906,553                                |       |
| Less accumulated depreciation |       | (529,682                             | )          | (408,474                               | )          |
| Total                         |       | $                                    | 427,734    |                                   | $          | 498,079 |   |

 

Depreciationexpense was $47,111 and $121,208 for the three and six months ended June 30,2009, respectively.

Depreciation expense was $160,435 and $337,057 for thethree and six months ended June 30, 2008, respectively.

 

**NOTE 7. Accrued Expenses**

 

As of June 30, 2009 and December 31, 2008,accrued expenses consisted of the following:

 
| ** **                       | ** ** | **June 30,  2009  (unaudited)** | ** ** | **December 31,  2008  (audited)** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|
| Accrued product costs            |       | $                                    | 4,869,820  |                                   | $          | 3,070,058 |   |
| Accrued legal settlement*        |       | —                               |       | 4,150,000                              |       |
| Other accruals (including taxes) |       | 2,613,544                            |       | 84,032                                 |       |
| Total                            |       | $                                    | 7,483,364  |                                   | $          | 7,304,090 |   |

 

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*As of June 30, 2009,$4.15 million of the accrued legal settlement was paid by our insurance carrierand is being held in an escrow account for the benefit of the plaintiffs of theclass action lawsuit and derivative suit, and thus has been removed from thebalance sheet at June 30, 2009.

 

**NOTE 8. Borrowings**

 

On April 30, 2008, the Company entered into a Loan, Security and Bulk Purchase Agreement and a Letterof Credit and Security Agreement (collectively, the “Agreement”) with WellsFargo Century, Inc. (“Lender”), replacing the then-existingasset-based secured credit facility withWells Fargo HSBC Trade Bank, N.A. Pursuant to the Agreement, the Lender may advance up to $45,000,000 tothe Company based on the expected collections of eligible receivables as wellas value of the Company’s eligible inventory determined in accordance with theAgreement.  The outstanding advances maynot exceed the lesser of (i) $45,000,000 or (ii) the sum of the valueof the eligible receivables and eligible inventory multiplied by theirrespective advance rates as set forth in the Agreement.  At June 30,2009, the majority of our debt was based on foreign accounts receivable amajority of which is insured.  This creditfacility has a two-year term ending April 2010 and is secured by all ofthe assets of the Company. The interest rate for each borrowing under the creditfacility is, at the option of the Company, either the Wells Fargo Bank N.A.prime rate minus 0.50% (3.25% less 0.50%  at June 30, 2009) or the LIBORrate plus 2.00% (0.6207% plus 2.00% at June 30,2009).  At June 30,2009, the amount drawn against the Lender line of credit was $31,476,001 of thetotal amount available at June 30, 2009 of $35,730,635.  As of June 30, 2009, the Company was incompliance with the covenants of the credit facility.  If any adverse events occur or we are unableto renew our credit facility or enter into an adequate credit relationship asneeded, our business’ financial condition or operating results could benegatively affected.

 

TheCompany has no other notes payable.

 

**NOTE 9.Stockholders’ Equity**

 

Common Stock

 

On May 15, 2008, the Company agreed to issue 100,000 unregisteredshares of common stock in connection with an amendment to a then-existingagreement with an unrelated partner.  Theshares were issued October 20, 2008. The amendment modifies a profit sharing agreement to increase theportion of profit sharing the Company earns. The increase in the portion of the profit sharing to the Company isretroactive to January 1, 2008 and continued to December 31, 2008.

 

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StockOptions

 

Effective March 18, 2008 and May 13, 2008, the Companygranted options to purchase an aggregate of 180,500 and 2,500 shares,respectively, of its common stock to certain non-executive employees (the “Employee Options”).One-fourth of the total shares subject to these options became exercisable oneyear from the date of grant, and 1/48th of the total shares subject to theseoptions become exercisable each month thereafter until fully vested.  These options have exercise prices of $1.04per share, which was the closing price per share of the Company’s common stockon each of March 18, 2008 and May 13, 2008, and expire sixyears from the date of grant. See Note 2 for Stock-Based Compensationdiscussion.

 

Effective May 19, 2009, the Company granted options to purchase anaggregate of 252,500 shares, of its common stock to certain executive andnon-executive employees and the members of the Board of Directors (the “Employee Options”).One-fourth of the total shares subject to these options become exercisable oneyear from the date of grant, and 1/48th of the total shares subject to theoptions become exercisable each month thereafter until fully vested.  These options have exercise prices of $0.51per share, which was the closing price per share of the Company’s common stockon May 19, 2009, and expire six years from the date of grant. SeeNote 2 for Stock-Based Compensation discussion.

 

TreasuryStock

 

On December 15,2008, the Company announced a share buyback program, authorizing up to $500,000to be used for stock repurchases.  As of June 30,2009 and December 31, 2008, we had purchased 826,661 and 54,537 shares,respectively, at a total cost of $499,994 and $16,955, respectively. During thequarter ended June 30, 2009 the Company retired 265,053 shares whichpreviously had been held in treasury.

 

**NOTE 10.Recent Accounting Pronouncements**

 

Recently Adopted:

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, FairValue Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework formeasuring fair value, and expands disclosures about fair valuemeasurement.  SFAS No. 157 alsoemphasizes that fair value is a market-based measurement, not anentity-specific measurement, and sets out a fair value hierarchy with thehighest priority being quoted prices in active markets.  Under SFAS No. 157, fair valuemeasurements are disclosed by level within that hierarchy.  In February 2008, the FASB issued FASBStaff Position No. 157-2, Effective Date of FASB Statement No. 157,which permitted a one-year deferral for the implementation of SFAS No. 157with regard to nonfinancial assets and liabilities that are not recognized ordisclosed at fair value in the financial statements on a recurring basis.  The Company adopted SFAS No. 157 for thefiscal year beginning January 1, 2008, except for nonfinancial assets andnonfinancial liabilities that are recognized or disclosed at fair value in thefinancial statements on a nonrecurring basis, which was adopted in the firstquarter of 2009.  The adoption of theremaining provisions of SFAS No. 157 did not have a material impact on theCompany’s condensed consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — an amendmentof ARB No. 51,” (SFAS 160).  SFAS160 amends Accounting Research Bulletin 51, “Consolidated Financial Statementsto establish accounting and reporting standards for the noncontrolling interestin a subsidiary and for the deconsolidation of a subsidiary.” This standarddefines a noncontrolling interest, sometimes called a minority interest, as theportion of equity in a subsidiary not attributable, directly or indirectly, toa parent. SFAS 160 requires, among other items, that a noncontrolling interestbe included in the consolidated statement of financial position within equityseparate from the parent’s equity; consolidated net income to be reported atamounts inclusive of both the parent’s and noncontrolling interest’s sharesand, separately, the amounts of consolidated net income attributable to theparent and noncontrolling interest all on the consolidated statement of income;and if a subsidiary is deconsolidated, any retained noncontrolling equityinvestment in the former subsidiary be measured at fair value and a gain orloss be recognized in net income based on such fair value. SFAS 160 becameeffective for the Company on January 1, 2009. The adoption of SFAS 160 didnot have a material impact to our condensed consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures and Derivative Instruments and Hedging Activities — an amendmentof FASB Statement No. 133, (“SFAS No. 161”), which requiresadditional disclosures about objectives and strategies for using derivativeinstruments, how the derivative instruments and related hedged items areaccounted for under SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” and related interpretations, and how the derivativeinstruments and related hedged items affect our financial statements. SFAS No. 161also requires disclosures about credit risk-related contingent features inderivative agreements. The adoption of SFAS No. 161 did not have amaterial impact to our condensed consolidated financial statements as theCompany does not have derivative instruments for purposes of hedging activities.

 

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In May 2008, the FASB issued FASB Staff Position(“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That May beSettled in Cash upon Conversion (Including Partial Cash Settlement).” FSP No. APB14-1 nullifies EITF Issues No. 90-19 and No. 03-7 and amends No. 98-5,No. 99-1, No. 00-27, No. 04-8, No. 05-1 and No. 06-7.This FSP applies to convertible debt instruments that, by their stated terms,may be settled in cash (or other assets) upon conversion, including partialcash settlement, unless the embedded conversion option is required to beseparately accounted for as a derivative under FASB No. 133, “Accountingfor Derivative Instruments and Hedging Activities.” Under this FSP, companiesare required to separately account for the liability and equity components ofconvertible debt by first determining the carrying amount of the liability componentby measuring the fair value of a similar liability that does not have anassociated equity component and then determining the carrying amount of theequity component embedded in the instrument by deducting the fair value of theliability component from the initial proceeds ascribed to the convertible debtinstrument as a whole. The carrying amount of the equity component will then beamortized over the expected life of the debt to interest expense. The Companyadopted the FSP during the first quarter of 2009, which did not have a materialimpact to the condensed consolidated financial statements as the Company doesnot have convertible notes outstanding which can be converted in whole or inpart, to cash.

 

In December 2007, the FASB issued SFAS No. 141(R),“Business Combinations,” (SFAS 141(R)). SFAS 141(R) replaces SFAS No. 141,“Business Combinations,” (SFAS 141) and retains the fundamental requirements inSFAS 141, including that the purchase method be used for all businesscombinations and for an acquirer to be identified for each businesscombination. This standard defines the acquirer as the entity that obtainscontrol of one or more businesses in the business combination and establishesthe acquisition date as the date that the acquirer achieves control instead ofthe date that the consideration is transferred. SFAS 141(R) requires anacquirer in a business combination, including business combinations achieved instates (step acquisition), to recognize the assets acquired, liabilitiesassumed, and any noncontrolling interest in the acquire at the acquisitiondate, measured at their fair values of that date, with limited exceptions. Italso requires the recognition of assets acquired and liabilities assumedarising from certain contractual contingencies as of the acquisition date,measured at their acquisition-date fair values. SFAS 141(R) becameeffective for the Company on January 1, 2009. The adoption of SFAS No. 141(R) didnot have a material impact to our consolidated financial statements as theCompany did not make any acquisitions in the first two quarters of 2009.

 

In June 2008, the FASB ratified EITF 07-5, “DeterminingWhether an Instrument (or Embedded Feature) Is Indexed to an Entity’s OwnStock,” (“EITF 07-5”). Paragraph 11(a) of SFAS No. 133, “Accountingfor Derivatives and Hedging Activities, (“SFAS 133”) specifies that a contractthat would otherwise meet the definition of a derivative but is both (a) indexedto the Company’s own stock and (b) classified in stockholders’ equity inthe statement of financial position would not be considered a derivativefinancial instrument. EITF 07-5 provides a new two-step model to be applied indetermining whether a financial instrument or an embedded feature is indexed toan issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scopeexception. EITF 07-5 became effective for the Company beginning January 1,2009. See Note 11 for further information.

 

On June 30, 2009, weadopted Statement of Financial Accounting Standards (SFAS) No. 165, “SubsequentEvents,” (SFAS 165). SFAS 165 establishes general standards of accounting forand disclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. Specifically,SFAS 165 sets forth the period after the balance sheet date during whichmanagement of a reporting entity should evaluate events or transactions thatmay occur for potential recognition or disclosure in the financial statements,the circumstances under which an entity should recognize events or transactionsoccurring after the balance sheet date in its financial statements, and thedisclosures that an entity should make about events or transactions thatoccurred after the balance sheet date. The adoption of SFAS 165 did not have amaterial impact on the Company’s condensed consolidated financial statements.

 

On June 30, 2009, weadopted FASB Staff Position (FSP) No. FAS 157-4, “Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly,”(FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fairvalue in accordance with SFAS 157 when the volume and level of activity for theasset or liability have significantly decreased and includes guidance foridentifying circumstances that indicate a transaction is not orderly. Thisguidance is necessary to maintain the overall objective of fair valuemeasurements, which is that fair value is the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date under current market conditions.The adoption of FSP FAS 157-4 had no impact on the condensed consolidatedfinancial statements.

 

On June 30, 2009, weadopted FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation ofOther-Than-Temporary Impairments,” (FSP FAS 115-2/124-2). FSP FAS 115-2/124-2amends existing other-than-temporary impairment guidance for debt securities tomake the guidance more operational and to improve the presentation anddisclosure of other-than-temporary impairments on debt and equity securities.The adoption of FSP FAS 115-2/124-2 had no impact on the condensed consolidatedfinancial statements.

 

On June 30, 2009, weadopted FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about FairValue of Financial Instruments,” (FSP FAS 107-1/APB 28-1). FSP FAS 107-1/APB28-1 requires a publicly traded company to include disclosures about the fairvalue of its financial instruments whenever it issues summarized financialinformation for interim reporting periods. Such disclosures include the fairvalue of all financial instruments, for which it is practicable to estimatethat value, whether recognized or not recognized in the statement of financialposition; the related carrying amount of these financial instruments; and themethod(s) and significant assumptions used to estimate the fair value. Theadoption of FSP FAS 107-1/APB 28-1 had no impact on the condensed consolidatedfinancial statements.

 

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Effective January 1,2009, we adopted FSP No. FAS 141(R)-1, “Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies,”(FSP FAS 141(R)-1), which was issued on April 1, 2009. FSP FAS 141(R)-1applies to all assets acquired and liabilities assumed in a businesscombination that arise from certain contingencies as defined in this FSP andrequires (i) an acquirer to recognize at fair value, at the acquisitiondate, an asset acquired or liability assumed in a business combination thatarises from a contingency if the acquisition-date fair value of that asset orliability can be determined during the measurement period otherwise the assetor liability should be recognized at the acquisition date if certain definedcriteria are met; (ii) contingent consideration arrangements of anacquiree assumed by the acquirer in a business combination be recognizedinitially at fair value; (iii) subsequent measurements of assets andliabilities arising from contingencies be based on a systematic and rationalmethod depending on their nature and contingent consideration arrangements bemeasured subsequently in accordance with the provisions of SFAS 141(R); and (iv) disclosuresof the amounts and measurement basis of such assets and liabilities and thenature of the contingencies. The provisions of FSP FAS 141(R)-1 did not have amaterial impact to our condensed consolidated financial Statements, as theCompany did not make any acquisitions in the first two quarters of 2009.

 

On January 1, 2009,we adopted FSP No. FAS 142-3, “Determination of the Useful Life ofIntangible Assets,” (FSP FAS 142-3). FSP FAS 142-3 amends the factors that shouldbe considered in developing renewal or extension assumptions used to determinethe useful life of a recognized intangible asset under FASB Statement No. 142,“Goodwill and Other Intangible Assets,” (SFAS 142) in order to improve theconsistency between the useful life of a recognized intangible asset under SFAS142 and the period of expected cash flows used to measure the fair value of theasset under SFAS 141(R) and other GAAP. The adoption of FSP FAS 142-3 didnot have a material impact to our condensed consolidated financial statements.

 

Issued:

 

In June 2009, theFinancial Accounting Standards Board (FASB) issued SFAS No. 168, “The FASBAccounting Standards CodificationTM and the Hierarchy of Generally AcceptedAccounting Principles—a replacement of FASB Statement No. 162,” (SFAS168). SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally AcceptedAccounting Principles,” and establishes the FASB Accounting StandardsCodificationTM (Codification) as the source of authoritative accounting principlesrecognized by the FASB to be applied by nongovernmental entities in thepreparation of financial statements in conformity with GAAP. Rules andinterpretive releases of the Securities and Exchange Commission (SEC) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants. The FASB will no longer issue new standards in the form ofStatements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;instead the FASB will issue Accounting Standards Updates. Accounting StandardsUpdates will not be authoritative in their own right as they will only serve toupdate the Codification. The issuance of SFAS 168 and the Codification does notchange GAAP. SFAS 168 becomes effective for us for the period ending September 30,2009. Management has determined that the adoption of SFAS 168 will not have amaterial impact on the condensed consolidated financial statements.

 

**NOTE11.  Discontinued Operations**

 

During the quarter ended June 30,2008, the Company assessed opportunities in the United States and Mexico, andthe Company began to implement actions necessary to close sales operations inboth of those countries, which actions continue, although were substantiallycompleted by the end of 2008. These two areas accounted for less than 1% of ournet sales in the first three and six months of 2009 and 2008.  Due to the changing environment and consolidation inthe United States of the regional cellular carriers, along with the challengesof opening sales relations with the cellular carriers in Mexico, managementdetermined that it was necessary to take decisive actions to mitigate furtherlosses.  The results of the unaudited discontinued operationsare as follows:

 
| ** **                     | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                     | ** ** | **2009**                                      | ** ** | **2008**                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net  Sales                     |       | $                                             | 236,402    |                                        | $          | 359,084 |   | $ | 483,348 |   | $ | 733,436 |   |
| Gross  profit                  |       | (156,265                                      | )          | (1,264,968                                  | )          | (311,569 | ) | (1,333,170 | ) |
| Operating  income (loss)       |       | (166,957                                      | )          | (2,688,568                                  | )          | (358,997 | ) | (3,320,259 | ) |
| Identifiable  assets           |       | 3,026,348                                     |       | 5,113,626                                   |       | 3,026,348 |   | 5,113,626 |   |
| Capital  expenditures          |       | —                                        |       | —                                      |       | — |   | — |   |
| Depreciation  and amortization |       | —                                        |       | 7,235                                       |       | — |   | 15,367 |   |
|                                |            |                                               |            |                                             |            |  |  |  |  |  |  |  |  |

 

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Liabilities ofdiscontinued operations consist primarily of accounts payable.  Assets of discontinued operations are asfollows:

 
| ** **           | ** ** | **June 30, 2009****(unaudited)** | ** ** | **December 31,  2008  (audited)** | ** ** |
|----------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| Accounts  Receivable |       | $                                     | 1,043,706  |                                   | $          | 1,050,758 |   |
| Inventory            |       | 1,076,589                             |       | 1,307,463                              |       |
| Prepaid  Taxes       |       | 899,656                               |       | 897,955                                |       |
| Other  Assets        |       | 6,397                                 |       | 8,641                                  |       |
| Total                |       | $                                     | 3,026,348  |                                   | $          | 3,264,817 |   |

 

As of June 30, 2009,the plans for the discontinued operations were substantially complete.  However, the Company expects to continue torecord adjustments and expenses through discontinued operations as necessary.

 

The Company hasre-evaluated its’ discontinued operations as of June 30, 2009 inaccordance with FAS 144 due to the Company’s remaining discontinued operationsbeing outstanding for more than one year since the declaration to discontinue.

 

The remaining accountsreceivable and accounts payable are part of arbitration currently in processand out of the company’s control to settle. The prepaid taxes are in the process of being recovered from a foreigngovernment, also out of the Company’s control to settle.  The remaining inventory has been marked tomarket and discounted heavily to adjust for the unforeseen changes in thecurrent economic condition and the market for which the Company sells.  The Company has taken action to reduce theirprices to market and aggressively sell their product. Pursuant to FAS 144,p.31, as these are out of the Company’s control, classification as discontinuedoperations is still deemed appropriate.

 

**NOTE 12. Geographic Information**

 

TheCompany currently operates in one business segment.  All fixed assets are located in Company orthird party facilities in the United States, Asia and Mexico. The unaudited netsales by geographical area for the three and six months ended June 30,2009 and 2008 were:

 
| ** **       | ** ** | **For  the Three Months Ended** | ** ** | **For  the Six Months Ended** | ** ** |
|------------------|------------|-------------------------------------------|------------|------------------------------------|------------|
| ** **       | ** ** | **June 30, 2009**               | ** ** | **June 30, 2008**        | ** ** | **June 30, 2009** | ** ** | **June 30, 2008** | ** ** |
| Central  America |       | $                                         | 5,623,717  |                               | $          | 13,527,600 |   | $ | 8,738,314 |   | $ | 34,693,824 |   |
| South  America   |       | 56,082,387                                |       | 45,512,370                         |       | 95,592,908 |   | 92,279,414 |   |
| Total            |       | $                                         | 61,706,104 |                               | $          | 59,039,970 |   | $ | 104,331,222 |   | $ | 126,973,238 |   |

 

Theunaudited net sales for the Discontinued Operations for the three months ended June 30,2009 and 2008 were $236,402 and $359,084, respectively.  The unaudited net sales for the DiscontinuedOperations for the six months ended June 30, 2009 and 2008 were $483,348and $733,436, respectively.

 

**NOTE 13.  Commitments and Contingencies**

 

*Securities Class Actions*

 

InfoSonics has settled the securities class action against the Companyand certain of its officers and directors, captioned *In Re: InfoSonics Corporation SecuritiesLitigation*, Lead Case No. 06 CV 1231, filed in the UnitedStates District Court for the Southern District of California.  Plaintiffs’ third amended consolidatedcomplaint had alleged violations of Section 10(b) of the Exchange Actand associated Rule 10b-5, Section 20(a) and Section 20A inconnection with the announcement of the Company’s restatement of first quarter2006 earnings and in connection with allegedly false and/or misleadingstatements related to the Company’s distribution of the VK Mobile phone.  On October 17, 2008, the parties entereda Stipulation and Agreement of Settlement (the “Securities Settlement”) of thecase, which provides for, among other things, a dismissal with prejudice of thelawsuit, releases of the defendants, and a payment by the Company or itsinsurer of $3.8 million to plaintiffs (inclusive of any plaintiffs’ attorneysfees, to be determined by the Court). The Securities Settlement further provides that defendants deny anyliability or responsibility for the claims made and make no admission of anywrongdoing.  On February 10, 2009,the Company’s insurer funded the full settlement payment.  On May 5, 2009, the Court entered anorder finally approving the Securities Settlement as fair and reasonable, anddirecting the clerk to enter final judgment and dismissing the action withprejudice.

 

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*Derivative Action*

 

InfoSonics has settled the derivative action purportedly on behalf ofthe Company against certain of its officers and directors, and the Company as anominal defendant, captioned *In ReInfoSonics Corporation Derivative Litigation*, Lead Case No. 06CV 1336, filed in the United States District Court for the Southern District ofCalifornia.  Plaintiffs’ consolidatedcomplaint had alleged claims for violations of Section 14(a) of theExchange Act, Sections 25402 and 25403 of the California Corporations Code,disgorgement under the Sarbanes-Oxley Act of 2002, breach of fiduciary duty,abuse of control, gross mismanagement, waste of corporate assets, unjustenrichment, rescission, a constructive trust, and an accounting, in connectionwith the Company’s restatement of first quarter 2006 earnings and in connectionwith allegations of wrongdoing with respect to granting, exercising, accountingand reporting of the stock options that the Company granted in December 2005.  On September 4, 2007, the Court granteddefendants’ motion to dismiss for failure to make a demand on the board, andalso granted with prejudice the motion to dismiss the Sarbanes-Oxleyclaim.  On October 17, 2008, theparties entered into a Stipulation and Agreement of Settlement (the “DerivativeSettlement”), which provides for, among other things, a dismissal withprejudice of the lawsuit, releases of the defendants, corporate governancechanges and a payment by the Company or its insurer of plaintiffs’ attorneysfees to be ordered by the Court up to a maximum of $350,000. The DerivativeSettlement further provides that defendants deny any liability orresponsibility for the claims made and make no admission of any wrongdoing. TheCompany’s insurer funded the full settlement payment.  On June 3, 2009, the Court approved thesettlement and entered the final judgment and order of dismissal with prejudiceof the case.

 

The Company has reduced the related other receivables and accruedexpenses, in the accompanying balance sheet, by the $4.15 million as of June30, 2009.

 

We maybecome involved in certain other legal proceedings and claims which arise inthe normal course of business. Other than as described above, as of June 30,2009, we did not have any significant litigation outstanding.

 

**NOTE 14. ****Fair Value ofFinancial Instruments**

 

The Company’s financial instruments include cash and cashequivalents, accounts receivable, prepaid expenses, accounts payable andaccrued expenses. The book value of all other financial instruments isrepresentative of their fair values.

 

**NOTE 15.  Subsequent Events**

 

Management evaluated allactivity through August 14, 2009 (the issue date of the condensedconsolidated financial statements) and, except as noted below, concluded thatno subsequent events have occurred that would require recognition in thecondensed consolidated financial statements or disclosure in the Notes to thecondensed consolidated financial statements.

 

*LGElectronics Litigation*

 

On July 1, 2009, theCompany filed suit in the Superior Court of the State of California, County ofSan Diego (the Superior Court) (Case No. 37-2009-00092797-CU-BT-CTL)against LG Electronics, Inc., LG Electronics USA, Inc., LGElectronics Panama S.A., LG Electronics Inc. Chile LTDA, LG ElectronicsGuatemala S.A. de C.V. (collectively LG) and DOES 1-10 (and together with LG,the Defendants).  The complaint allegesclaims for interference with contractual relations/inducing breach of contract,intentional interference with prospective economic relations, negligentinterference with prospective economic relations, breach of contract, breach ofimplied covenant of good faith and fair dealing, unjust enrichment, fraud,promissory estoppel and violation of California Business and Professions Code§§ 17200, et seq.  The Company is seekingin excess of $5 million in damages.  On July 31,2009, the Defendants removed the case to federal court in San Diego, CA.

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Forward-LookingStatements and Other General Information**

 

This discussion and analysisof financial condition and results of operations should be read in conjunctionwith the accompanying unaudited consolidated financial statements and condensednotes thereto and other information included in this report and our AnnualReport on Form 10-K for the year ended December 31, 2008 (includingour 2008 audited consolidated financial statements and related notes theretoand other information). InfoSonics Corporation’s (“InfoSonics” or the “Company”)discussion and analysis of financial condition and results of operations arebased upon, among other things, our unaudited consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States (“GAAP”). The preparation of financialstatements in conformity with GAAP requires us to, among other things, makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosures of contingent liabilities as of and at thefinancial statement 

 

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date, andthe reported amounts of revenues and expenses during the reporting periods. Onan ongoing basis, we review our estimates and assumptions. Our estimates arebased on our historical experience and other assumptions that we believe to bereasonable under the circumstances. Actual results are likely to differ fromthese estimates under different assumptions or conditions, but we do notbelieve such differences will materially affect our financial position orresults of operations, although they may. Our critical accounting policies, thepolicies we believe are most important to the presentation of our financialstatements and require the most difficult, subjective and complex judgments areoutlined below in “Critical Accounting Policies.”  All references to results of operations inthis discussion generally are to results from continuing operations, unlessotherwise noted.

 

The decision during thesecond quarter of 2008 to discontinue our operations in Mexico and the U.S.,which we continue to implement (although we substantially completed by the endof 2008) and record adjustments required in the financial statements, affectedcertain amounts of our results of operations and the classifications on the balancesheet, statement of operations and statement of cash flows for prior periods,and as of prior dates, as well as our disclosure in this report, includingmanagement’s discussion and analysis.

 

**Safe HarborStatement**

 

The matters inthis report that are forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995, including, withoutlimitation, statements about future revenues, sales levels, operating incomeand 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 currentmanagement expectations that involve certain risks and uncertainties.  These risks and uncertainties, in whole or inpart, could cause such expectations to fail to be achieved and have a materialadverse effect on InfoSonics’ business, financial condition and results ofoperations, and include, without limitation: (1) intense competitioninternationally, including competition from alternative business models, suchas manufacturer-to-carrier sales, which may lead to reduced prices, lowersales, lower gross margins, extended payment terms with customers, increasedcapital investment and interest costs, bad debt risks and product supplyshortages; (2) dependency on Latin American sales; (3) extendedgeneral economic downturn; (4) inability to secure adequate supply ofcompetitive products on a timely basis and on commercially reasonable terms; (5) foreignexchange rate fluctuations, devaluation of a foreign currency, adversegovernmental controls or actions, political or economic instability, ordisruption of a foreign market, and other related risks of our internationaloperations; (6) the ability to attract new sources of profitable businessfrom expansion of products or services or risks associated with entry into newmarkets, including geographies, products and services; (7) an interruptionor failure of our information systems or subversion of access or other systemcontrols may result in a significant loss of business, assets, or competitiveinformation; (8) significant changes in supplier terms and relationships; (9) terminationof a supply or services agreement with a major supplier or product supplyshortages; (10) continued consolidation in the wireless handset carriermarket; (11) loss of business from one or more significant customers; (12)customer and geographical accounts receivable concentration risk and otherrelated risks; (13) rapid product improvement and technological changeresulting in inventory obsolescence; (14) terrorist or military actions; (15)the loss of a key executive officer or other key employees; (16) changes inconsumer demand for multimedia wireless handset products and features; (17) ourfailure to adequately adapt to industry changes and to manage potential growthand/or contractions; (18) seasonal buying patterns; (19) uncertain politicaland economic conditions internationally; (20) the resolution of any litigationfor or against the Company; (21) the ability of the Company to successfullyintroduce and sell its *verykool*®products and the related inventory risk of such products; and (22) the abilityof the Company to generate taxable income in future periods in order to utilizeand realize any quarterly tax benefits recorded.  Our actual results and condition could differmaterially from those anticipated in our forward-looking statements.

 

InfoSonics hasinstituted in the past and continues to institute changes to our strategies,operations and processes to address risks and uncertainties and to mitigateimpacts 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 concerningInfoSonics, see “Risk Factors” below in this report and “Item 1A. Risk Factors”of InfoSonics’ Annual Report on Form 10-K for the year ended December 31,2008. In addition, other risks or uncertainties may be detailed from time totime in InfoSonics’ future SEC filings.

 

**Overview**

 

We are one of thepremier distributors and providers of wireless handsets and accessories inLatin America. We provide end-to-end handset and wireless terminal solutions forcarriers in Latin America.   Wedistribute products of several key original equipment manufacturers (OEMs),including Samsung and others.  We arealso involved in the designing, sourcing and distribution of a proprietary lineof products under our own *verykool®* brand, which includes entry level, mid-tier andhigh-end products.

 

Our distributionand solution services include product testing, approval and certification,warehousing, logistics services (packing, shipping and delivery), marketingcampaigns, warranty services and end-user support. These services are providedfor OEMs and our *verykool*® branded wirelesshandsets and accessories, in order to facilitate sales to network carriers,agents, resellers, distributors, independent dealers and retailers in Centraland South America.  In addition, for our *verykool*® branded products, we design, test and contractwith manufacturers to build these products.

 

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Due to seasonaland other factors, our interim financial condition or operating results may not beindicative of the entire fiscal year 2009 or other future financial conditionor operating results. Our financial condition and operating results areinfluenced by several seasonal, general economic and other factors, which maycause our financial condition and operating results to fluctuate on a quarterlybasis, including, but not limited to, inventory management and obsolescence,the timing and introduction of new products by our suppliers and competitors,promotions and subsidies by network operators, technical and certificationdelays by industry bodies as well as operators, purchasing and payment patternsof customers, the timing of holidays, the success of our proprietary *verykool®* products line and other events affectingour consumers.

 

**Areas ofManagement Focus and Performance Indicators**

 

We focus on the needs of our customers, developing andmaintaining close relationships with manufacturers, looking to expand incurrent and enter into new markets, and sourcing and developing new andinnovative products, while maintaining close attention to operationalefficiencies and costs. We are focused on increasing shipping volumes andimproving efficiencies to achieve higher levels of profitability and earningsgrowth, as well as monitoring and managing levels of accounts receivable andinventory.  We provide distribution and other services for OEMs, such asSamsung, and our own proprietary line of *verykool®*handsets.  Performance indicators that are important for the monitoringand management of our business include operating and net income, cost of salesand gross margin percentage, operating expenses as a percent of revenues, andoverall net sales growth, as well as balances of accounts receivable andinventory. We make extensive use of our customized information system toclosely monitor all aspects of our business, including customer relationshipmanagement, intelligent purchasing, inventory control, inventory flow, lineitem margin control for every order, and weighted average cost and statisticaldata for products, customers and suppliers, as deemed appropriate. We believe astrong focus on providing better service to customers leads to increasedcustomer satisfaction and retention and potential increases in sales.

 

Managementspends a significant amount of time traveling to Latin America and Asia withthe purpose of spending time with key customers, suppliers and employees. Webelieve that these relationships are vital to our success, and we will continueto dedicate a significant amount of time to this area.

 

**IndustryTrends and Risks**

 

According to a June 2009report by Cowen and Company, overall worldwide wireless handset sales increasedby approximately 6% in 2008.  However,they are forecasted to decrease in 2009 by 8%, before returning to growth in2010 and 2011, with growth estimated at 7% and 4%, respectively. A rapid declinein wireless handset sales in the Central and South American markets we servehas and could continue to negatively impact our net sales. Excess supplyconditions and the current economic downturn have and may continue to reducedemand for our products and reduce the market prices of the products we selland therefore affect our ability to generate net sales, margins and grossprofit at expected levels and could continue to affect the value of ourinventory, as well as customer payment trends. For example, the second half of2008 and the first quarter of 2009 generally saw a decrease in handset demandglobally as well as in our sales regions and an increase in carrier inventory,which both had a negative impact on our financial results during 2008 and thefirst quarter of 2009.  The secondquarter of 2009 began to see these impacts reducing in the regions weserve.   Conversely, should manufacturersbe unable to respond to an unanticipated increase in demand on a timely basis,we, along with others in our industry, could experience supply constraints thatwould affect our ability to deliver products. We are unable to quantify theseeffects, as it is difficult to predict future supply conditions and demandpatterns which affect our ability to meet customer demand or sell handsets atan acceptable gross profit.

 

During the second half of 2008 and the first half of 2009 inparticular, our industry was impacted by the economic slowdown impacting theUnited States and the rest of the world. We believe that some of the countries in the regions we operate,particularly in Central America, have close economic relations with the UnitedStates, and have been impacted by this economic situation.  We believe this impacted consumer demand forwireless handsets in some of the countries we operate, and therefore ouroverall operations, including net sales, during the first quarter of 2009 wereadversely impacted.  The second quarterof 2009 began to see a minor increase in the demand for handsets, whichpositively impacted our results for the quarter.

 

**Company SpecificTrends and Risks**

 

Our long-term strategy incorporates overall marketgrowth elements for our business, which we hope will result in future growth asglobal economic conditions recover. Our *verykool®*proprietary line of products, for which we had several models selling as of June 30,2009, continued to show orders and sales during the first six months of 2009and is expected to become an increasing part of our overall business in thefuture.

 

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Our *verykool®*products continue to increase product diversification in Central and SouthAmerica, which we believe should continue to be beneficial as we move forwardand work towards continued profitability. We have control over the *verykool**®* line of products, whereas for OEM products weperform distribution and other services as needed.  On a sequential quarterly and year-over-yearbasis, we were able to increase our gross margins to 6.6% for the quarter endedJune 30, 2009, compared to 5.5% for the quarter ended June 30,2008.  These results were primarily dueto product mix shift, including increased sales of higher-margin products(including our *verykool®*products),better product sourcing for our *verykool®*lineof products and beneficial purchasing opportunities.

 

**Recent Events**

 

On July 7, 2009, wereceived notification from the NASDAQ Listing Qualifications Department that wehad regained compliance with the $1.00 minimum bid price requirement underListing Rule 5450(a)(1) (formerly Marketplace Rule 4450(a)(5))and the matter from the prior notification on  July 10, 2008 was nowclosed.  On July 10, 2008, wereceived a Nasdaq Staff Deficiency letter indicating that for the last 30consecutive business days the bid price for our common stock had closed belowthe $1.00 minimum bid requirement for continued listing on The Nasdaq StockMarket under Marketplace Rule 4450(a)(5).

 

**Resultsof Operations**

** **

***Threemonths ended June 30, 2009 Compared with Three months ended June 30,2008***

*** ***

**Net Sales**

 

For the three months ended June 30, 2009, our netsales from continuing operations of $61.7 million increased 5% compared to ournet sales from continuing operations of $59.0 million for the same period of2008.  Average selling price of wirelesshandsets sold in the second quarter of 2009 increased 10%, as compared to thesecond quarter of 2008, due primarily to increased volume of higher-priced handsets,including some of our *verykool®* andOEM products.  This increase was inconjunction with a 3% increase in overall wireless handset sales volume.  The geographic mix of net sales shifted inthe second quarter of 2009 as sales in South America increased to more than 91%of net sales, as compared to 69% of net sales for the second quarter of2008.  Sales in Central America decreasedto 9% of total net sales in the quarter ended June 30, 2009, as comparedto 31% in the quarter ended June 30, 2008. These regional shifts in net sales were the result of the factorsdiscussed below.

 
| ** **                                      | ** ** | **For the Three Months  Ended June 30,**            | ** **   |
|-------------------------------------------------|------------|---------------------------------------------------------------|--------------|
| ** **                                      | ** ** | **2009**                                                      | ** **   | **2008** | ** ** |
| ** **                                      | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **   |
| Net sales                                       |       | $                                                             |  61,706 |   | $ |  59,040 |   |
| Units sold, increase (decrease) over prior year |       | 3                                                             | %            | (7 | )% |
| Average selling price, increase over prior year |       | 10                                                            | %            | 6 | % |
|                                                 |            |                                                               |              |  |  |  |  |

 

In South and Central America, we have continued towork to expand our customer base as well as our geographic presence by seekingadditional customers and further business with existing customers.  In addition, we have continued efforts tomarket and sell our proprietary *verykool*® lineof products in South and Central America. In South America, net sales were $56.1 million for the quarter ended June 30,2009, a 23% increase from the same quarter in 2008.  This increase was primarily due to increasedsales in existing countries where we sell products, primarily Argentina.  In Central America, net sales decreased 58%to $5.6 million for the quarter ended June 30, 2009, which was primarilydue to the continuing unusually low demand during the quarter, which we believewas related to the worldwide and regional economic downturn.  The second quarter of 2009 showed improvementfrom the first quarter of 2009.

 

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**Net Salesby Geographic Region**

 
| ** **      | ** ** | **For the Three months  Ended June 30,**            | ** **   | **Increase** | ** ** |
|-----------------|------------|---------------------------------------------------------------|--------------|--------------|------------|
| ** **      | ** ** | **2009**                                                      | ** **   | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **      | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **   | ** **   | ** ** |
| Central America |       | $                                                             |  5,624  |         | $          |  13,528 |   | (58 | )% |
| South America   |       | 56,082                                                        |         | 45,512       |       | 23 | % |
| Total           |       | $                                                             |  61,706 |         | $          |  59,040 |   | 5 | % |

 

**Cost of Sales, Gross Profit and Gross Margin**

 

For the quarter ended June 30, 2009, cost ofsales was $57.6 million, or 93.4% of net sales, and gross margin was 6.6%, ascompared with $55.8 million, or 94.5% of net sales, and 5.5% for gross marginfor the quarter ended June 30, 2008. The increase in our cost of sales andincrease in gross margin were due to product mix shift, including increasedsales of higher-margin products (including our *verykool®*products), better product sourcing for our *verykool®*line of products and beneficialpurchasing opportunities.

 

For the quarter ended June 30, 2009, our grossprofit increased to $4.1 million from $3.2 million, as compared with the samequarter last year, a increase of 26%. This increase in gross profit wasprimarily the result of the increased net sales and by the factors whichincreased our gross margin as described above.

 
| ** **    | ** ** | **For the Three months  Ended June 30,**            | ** **   | ** ** | ** ** |
|---------------|------------|---------------------------------------------------------------|--------------|------------|------------|
| ** **    | ** ** | **2009**                                                      | ** **   | **2008**   | ** ** | **Increase** | ** ** |
| ** **    | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **   | ** ** | ** ** |
| Net sales     |       | $                                                             |  61,706 |       | $          |  59,040 |   | 5 | % |
| Cost of sales |       | 57,634                                                        |         | 55,814     |       | 3 | % |
| Gross profit  |       | $                                                             |  4,072  |       | $          |  3,226 |   | 26 | % |
| Gross margin  |       | 6.6                                                           | %            | 5.5        | %          | 21 | % |

 

**Operating Expense and Operating Income fromContinuing Operations**

 

For the quarter ended June 30, 2009, operatingexpense increased 11%, as compared with the same quarter last year.  As a percentage of net sales from continuingoperations, operating expense increased to 5.8% in the quarter ended June 30,2009, as compared with 5.4% for the same quarter last year.  The increase in operating expense as apercentage of net sales was primarily due to the increase in total netsales.  However, management took actionto reduce overall operational costs to match current market conditions.  Management continues to review expenses in aneffort to better match the operational costs with the future businessopportunities.   We believe such measureswill assist us as we strive to maintain profitability in the current volatilemarket.

 

For the quarter ended June 30, 2009, ouroperating income from continuing operations was $513,000, as compared withoperating income from continuing operations of $10,000 for the quarter ended June 30,2008. As a percentage of net sales, operating income from continuing operationswas 0.8% for the quarter ended June 30, 2009, compared to a virtualbreak-even for the quarter ended June 30, 2008. The increase in operatingincome from continuing operations was a result of the increase in gross marginand gross profit due to the factors discussed above.

 

**OperatingExpense**

 
| ** **              | ** ** | **For the Three Months  Ended June 30,**                 | ** **   | ** ** | ** ** |
|-------------------------|------------|---------------------------------------------------------------|--------------|------------|------------|
| ** **              | ** ** | **2009**                                                      | ** **   | **2008**   | ** ** | **Increase** | ** ** |
| ** **              | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **   | ** ** | ** ** |
| Net sales               |       | $                                                             |  61,706 |       | $          |  59,040 |   | 5 | % |
| Operating expense       |       | $                                                             |  3,559  |       | $          |  3,215 |   | 11 | % |
| Percentage of net sales |       | 5.8                                                           | %            | 5.4        | %          | 7 | % |

 

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**Operating Income from Continuing Operations**

 
| ** **                                  | ** ** | **For the Three Months  Ended June 30,**                 | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | **2009**                                                      | ** ** | **2008**   | ** ** | **Increase** | ** ** |
| ** **                                  | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** ** | ** ** | ** ** |
| Net sales                                   |       | $                                                             | 61,706     |       | $          | 59,040 |   | 5 | % |
| Operating income from continuing operations |       | $                                                             | 513        |       | $          | 10 |   | 5,030 | % |
| Percentage of net sales                     |       | 0.8                                                           | %          | 0.0        | %          | n/m |   |

 

**OtherExpense**

 

During the second quarter of 2009, weincurred $109,000 of interest expense, compared to $335,000 for the same periodlast year, primarily due to a lower average outstanding balance on our line ofcredit, resulting from, among other things, lower inventory levels as comparedto the same period in the prior year.  Weexpect to continue to regularly utilize amounts on our revolving line ofcredit, which will impact our interest expense in future periods depending onapplicable interest rates, among other things.

 
| ** **          | ** ** | **For the Three Months  Ended June 30,** | ** ** | **Increase** | ** ** |
|---------------------|------------|----------------------------------------------------|------------|--------------|------------|
| ** **          | ** ** | **2009**                                           | ** ** | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **          | ** ** | **(Dollar amounts in thousands)**   | ** ** | ** **   | ** ** |
| ** **          | ** ** | **(unaudited)**                                    | ** ** | ** **   | ** ** |
| Other Income        |       | $                                                  | —     |         | $          | — |   | — | % |
| Interest expense    |       | (109                                               | )          | (325         | )          | (66 | )% |
| Total other expense |       | $                                                  | (109       | )            | $          | (325 | ) | (66 | )% |

 

**Income (Loss) from Continuing Operations (Before IncomeTaxes)**

 

Duringthe quarter ended June 30, 2009, our net income from continuing operationsbefore income taxes was $404,000, as compared to a loss of $315,000 for thequarter ended June 30, 2008.  Thisnet income from continuing operations was primarily due to the increased grossmargin and gross profit discussed above.

 

**Loss from Discontinued Operations (Net of Tax)**

 

During the quarter ended June 30,2008, we assessed opportunities in the United States and Mexico, and began toimplement actions necessary to close sales operations in both of those countries,which we continued to execute in the second quarter of 2009.  For thequarter ended June 30, 2009, we incurred a loss from discontinuedoperations of approximately $167,000, as compared to a loss of $2.1 millionfrom discontinued operations for the quarter ended June 30, 2008. The loss from discontinued operations resulted as we continued to wind down ourbusiness in the United States and Mexico. As of June 30, 2009, our plansfor the discontinued operations were substantially complete.  However, we expect to continue to recordadjustments and expenses through the discontinued operations, as necessary.

 

***Six months ended June 30,2009 Compared with Six months ended June 30, 2008***

*** ***

**Net Sales**

 

For the six months ended June 30, 2009, our netsales from continuing operations of $104.3 million decreased 18% compared toour net sales from continuing operations of $126.9 million for the same periodof 2008.  Average selling price ofwireless handsets sold in the six months ended June 30, 2009 increased15%, as compared to the six months ended June 30, 2008, due primarily toincreased volume of higher-priced handsets, including some of our *verykool®* and OEM products. This increase was more than offset by a 24% decrease in overall wirelesshandset sales volume, primarily due to the impact of the worsening economicslowdown in the markets we serve during the second half of 2008 and the firstand second quarters of 2009.  Thegeographic mix of net sales shifted in the six months ended June 30, 2009as sales in South America increased to nearly 92% of net sales, as compared tonearly 73% of net sales for the six months ended June 30, 2008.  Sales in Central America decreased to 8% oftotal net sales in the six months ended June 30, 2009, as compared to 27%in the same period of 2008.  Theseregional shifts in net sales were the result of the factors discussed bothabove and below.

 

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| ** **                                                 | ** ** | **For the Six months  Ended June 30,**              | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                                                      | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** ** |
| Net sales                                                  |       | $                                                             | 104,331    |   | $ | 126,973 |   |
| Units sold, increase (decrease) over prior year            |       | (24                                                           | )%         | 20 | % |
| Average selling price, increase (decrease) over prior year |       | 15                                                            | %          | (8 | )% |
|                                                            |            |                                                               |            |  |  |  |  |

 

In South and Central America, we have continued towork to expand our customer base as well as our geographic presence by seekingadditional customers and further business with existing customers.  In addition, we continued efforts to marketand sell our proprietary *verykool*® lineof products in South and Central America. In South America, net sales were $95.6 million for the period ended June 30,2009, a 4% increase from the same period in 2008.  This increase was primarily due to increasedsales in existing countries, primarily Argentina.  In Central America, net sales decreased 75%to $8.7 million for the period ended June 30, 2009, which was primarilydue to the continuing unusually low demand during the period, which we believewas related to the worldwide and regional economic downturn.

 

**Net Salesby Geographic Region**

 
| ** **      | ** ** | **For the Six Months  Ended June 30,**              | ** ** | **Increase** | ** ** |
|-----------------|------------|---------------------------------------------------------------|------------|--------------|------------|
| ** **      | ** ** | **2009**                                                      | ** ** | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **      | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** ** | ** **   | ** ** |
| Central America |       | $                                                             | 8,738      |         | $          | 34,694 |   | (75 | )% |
| South America   |       | 95,593                                                        |       | 92,279       |       | 4 | % |
| Total           |       | $                                                             | 104,331    |         | $          | 126,973 |   | (18 | )% |

 

**Cost of Sales, Gross Profit and Gross Margin**

 

For the period ended June 30, 2009, cost of saleswas $96.9 million, or 92.9% of net sales, and gross margin was 7.1%, ascompared with $120.2 million, or 94.6% of net sales, and 5.4% for gross marginfor the period ended June 30, 2008. The decrease in our cost of sales as apercentage of net sales and increase in gross margin were due to product mixshift, including increased sales of higher-margin products (including our *verykool®*products), better productsourcing for our *verykool®*lineof products and beneficial purchasing opportunities.

 

For the period ended June 30, 2009, our grossprofit increased to $7.4 million from $6.8 million, as compared with the sameperiod last year, an increase of 9%. This increase in gross profit wasprimarily the result of the increased gross margin as described above.

 
| ** **    | ** ** | **For the Six Months  Ended June 30,**              | ** ** | **Increase** | ** ** |
|---------------|------------|---------------------------------------------------------------|------------|--------------|------------|
| ** **    | ** ** | **2009**                                                      | ** ** | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **    | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** ** | ** **   | ** ** |
| Net sales     |       | $                                                             | 104,331    |         | $          | 126,973 |   | (18 | )% |
| Cost of sales |       | 96,904                                                        |       | 120,159      |       | (19 | )% |
| Gross profit  |       | $                                                             | 7,427      |         | $          | 6,814 |   | 9 | % |
| Gross margin  |       | 7.1                                                           | %          | 5.4          | %          | 31 | % |

 

**Operating Expense and Operating Income (Loss) fromContinuing Operations**

 

For the period ended June 30, 2009, operatingexpense decreased 7%, as compared with the same period last year.  As a percentage of net sales from continuingoperations, operating expense increased to 6.2% in the period ended June 30,2009, as compared with 5.4% for the same period last year.  The increase in operating expense as apercentage of net sales was primarily due to the decrease in total netsales.  However, management took actionto reduce overall operational costs to match current market conditions,resulting in a 7% decrease in operating expense for the period.  Management continues to review expenses in aneffort to better match the operational costs with the future businessopportunities.   We believe such measureswill assist us as we strive to maintain profitability in the current volatilemarket.

 

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For the period ended June 30, 2009, our operatingincome from continuing operations was $991,000, as compared with operating lossfrom continuing operations of $94,000 for the period ended June 30, 2008.As a percentage of net sales, operating income from continuing operations was0.9% for the period ended June 30, 2009, compared to an operating lossfrom continuing operations of 0.1% for the period ended June 30, 2008. Theincrease in operating income from continuing operations was a result of theincrease in gross margin and gross profit as well as the decrease in operatingexpense due to the factors discussed above.

 

**OperatingExpense**

 
| ** **              | ** ** | **For the Six Months  Ended June 30,**                   | ** **    | **Increase** | ** ** |
|-------------------------|------------|---------------------------------------------------------------|---------------|--------------|------------|
| ** **              | ** ** | **2009**                                                      | ** **    | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **              | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **    | ** **   | ** ** |
| Net sales               |       | $                                                             |  104,331 |         | $          |  126,973 |   | (18 | )% |
| Operating expense       |       | $                                                             |  6,436   |         | $          |  6,908 |   | (7 | )% |
| Percentage of net sales |       | 6.2                                                           | %             | 5.4          | %          | 15 | % |

 

**Operating Income (Loss) from ContinuingOperations**

 
| ** **                                         | ** ** | **For the Six Months  Ended June 30,**                   | ** **    | **Increase** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------------|---------------|--------------|------------|
| ** **                                         | ** ** | **2009**                                                      | ** **    | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **                                         | ** ** | **(Dollar amounts in thousands)  (unaudited)** | ** **    | ** **   | ** ** |
| Net sales                                          |       | $                                                             |  104,331 |         | $          |  126,973 |   | (18 | )% |
| Operating income (loss) from continuing operations |       | $                                                             |  991     |         | $          |  (94 | ) | 1,154 | % |
| Percentage of net sales                            |       | 0.9                                                           | %             | (0.1         | )%         | n/m |   |

 

**OtherExpense**

 

Duringthe period ended June 30, 2009, we incurred $137,000 of interest expense,compared to $524,000 for the same period last year, primarily due to a loweraverage outstanding balance on our line of credit, resulting from, among otherthings, lower inventory levels as compared to the same period in the prioryear.  We expect to continue to regularlyutilize amounts on our revolving line of credit, which will impact our interestexpense in future periods depending on applicable interest rates, among otherthings.

 
| ** **                   | ** ** | **For the Six Months  Ended June 30,** | ** ** | **Increase** | ** ** |
|------------------------------|------------|--------------------------------------------------|------------|--------------|------------|
| ** **                   | ** ** | **2009**                                         | ** ** | **2008**     | ** ** | **(Decrease)** | ** ** |
| ** **                   | ** ** | **(Dollar amounts in thousands)** | ** ** | ** **   | ** ** |
| ** **                   | ** ** | **(unaudited)**                                  | ** ** | ** **   | ** ** |
| Other Income                 |       | $                                                | —     |         | $          |  10 |   | n/m |   |
| Interest income (expense)    |       | (137                                             | )          | (524         | )          | (74 | )% |
| Total other income (expense) |       | $                                                |  (137 | )            | $          |  (514 | ) | (73 | )% |

 

**Income (Loss) from Continuing Operations (Before IncomeTaxes)**

 

Duringthe period ended June 30, 2009, our net income from continuing operations beforeincome taxes was $854,000, as compared to a loss of $608,000 for the periodended June 30, 2008.  This netincome from continuing operations was primarily due to the increased grossmargin and decreased operating expense as discussed above.

 

**Loss from Discontinued Operations (Net of Tax)**

 

During the quarter ended June 30,2008, we assessed opportunities in the United States and Mexico, and began toimplement actions necessary to close sales operations in both of thosecountries, which we continued to execute in the first and second quarter of2009.  For the period ended June 30, 2009, we incurred a loss fromdiscontinued operations of approximately $360,000, as compared to a loss of$2.2 million from discontinued operations for the period ended June 30,2008.  The loss from discontinued operations resulted as we continued towind down our business in the United States and Mexico. As of June 30,2009, our plans for the discontinued operations were substantiallycomplete.  However, we expect to continueto record adjustments and expenses through the discontinued operations, asnecessary.

 

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**FinancialCondition, Liquidity and Capital Resources**

 

Wegenerally use cash from our sale of products, lines of credit (bank and vendor)and the sale and exercise of securities (from time to time) to provide capitalneeded to support our business.  As of June 30,2009, we did not have any material commitments for capital expenditures, aswell we believe that we have sufficient liquidity (cash and available borrowings)to continue our operations for the next 12 months.

 

**Cash Used inOperating Activities**

 

At June 30, 2009, we had $15.5 million in cash, adecrease of $9.2 million from December 31, 2008.  During the six months ended June 30, 2009, we usedcash and continued to leverage our bank line of credit to fund ouroperations.  The increase in our use ofthe bank line of credit was directly related to the decrease in our use ofvendor lines of credit and our taking advantage of purchase discounts, as wellas significantly increased levels of accounts receivable during the six monthsended June 30, 2009.   The net cashused in operating activities was $25.9 million for the six months ended June 30,2009 compared to net cash provided from operating activities of $3.8 millionfor the period ended June 30, 2008. The change resulted primarily from significantly increased accountsreceivable and decreased accounts payable. Trade accounts receivable increased by $29.0 million from December 31,2008 which was offset by a decrease in other accounts receivable by $3.6million.  The increase in accountsreceivable was primarily due to the sales activity towards the later part ofthe period and the standard payment terms of sales we provide ourcustomers.  Inventory increased by $0.5million and prepaid inventory increased by $0.1 million from December 31,2008, resulting in a negligible net impact. Accounts payable at June 30, 2009 decreased $1.1 million, comparedto December 31, 2008, primarily due to our taking advantage of beneficialpurchasing terms offered by other vendors and partners in the ordinary courseduring the period.

 

**Days of SalesOutstanding**

 

Days of sales outstanding (the average number of days ittakes to collect revenue after a sale is made) at June 30, 2009 was 65days, compared with 56 days at December 31, 2008.  This increase was due to several customersmaking payments shortly after the close of the second quarter of 2009, as morethan 75% of our accounts receivable at June 30, 2009 were still withincurrent terms provided to our customers. Normal payment terms require our customers to pay on a net 30-day or net60-day basis depending on the customer. We are constantly working with ourcustomers to reduce our days of sales outstanding. The extension of net 60-dayterms is required to remain competitive in the regions we currently operate,Central and South America. In an effort to obtain new customers and penetratenew markets, we may offer terms beyond our normal terms.

 

**Cash Used inInvesting Activities**

 

The net cash used in investing activities was $51,000 forthe six months ended June 30, 2009, compared to net cash used of $3,000for the six months ended June 30, 2008. This use of cash continued to beprimarily the result of our investment related to geographic expansion, toolingand molds for our proprietary *verykool®*products.

 

**Cash Providedby Financing Activities**

 

The net cash provided by financing activities for the sixmonths ended June 30, 2009 of $16.7 million was primarily the result ofborrowings on our bank line of credit, which was partially offset by the netpurchase of $483,000 of common stock. The net cash used by financing activities for the six months ended June 30,2008 of $8.6 million was primarily used to make payments on our line of credit,which was partially offset by cash received from the exercise of stock options.

 

**WorkingCapital**

 

Our net working capital at June 30, 2009 was $25.7million, as compared with $25.6 million at December 31, 2008. This slightincrease was primarily due to the increase in accounts receivable and thedecreases in accounts payable and accrued expenses offset by a decrease in cashand cash equivalents and an increase in amounts drawn on our line of credit.

 

**Borrowings**

 

On April 30, 2008, the Company entered into a Loan, Security and Bulk Purchase Agreement and a Letterof Credit and Security Agreement (collectively, the “Agreement”) with WellsFargo Century, Inc. (the Lender), replacing the then existingasset-based secured credit facility withWells Fargo HSBC Trade Bank, N.A. Pursuant to the Agreement, the Lender may advance up to $45,000,000 tothe Company based on the expected collections of eligible receivables as wellas value of the Company’s eligible inventory determined in accordance with theAgreement.  The outstanding advances maynot exceed the lesser of (i) $45,000,000 or (ii) the sum of the valueof the eligible receivables and eligible inventory multiplied by theirrespective advance rates as set forth in the Agreement.  At June 30,2009, the majority of our debt was based on foreign accounts receivable amajority of which is insured.  This creditfacility has a two-year term ending April 2010 and is secured by all ofthe assets of the Company. The interest rate for each borrowing under the creditfacility is, at the option of the Company, either the Wells Fargo Bank N.A.prime rate minus 0.50% (3.25% less 0.50%  at June 30, 2009) or the LIBORrate plus 2.00% (0.62% plus 2.00% at June 30,2009).  At June 30,2009, the amount drawn against the Lender line of credit was $31,476,001 of thetotal amount available at June 30, 2009 of $35,730,635.  As of June 30, 2009, the Company was incompliance with the covenants of the credit facility.

 

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We have no other notes payable.

 

At June 30,2009 and December 31, 2008, the amount drawn against the Lender line ofcredit was $31.5 million and $14.3 million, respectively.  Credit lines have been an importantpart of operating and growing our business, and market changes affectingaccounts receivable have, and will in the future, diminish or increase theborrowing base of available funds under our current credit line. At June 30,2009 and December 31, 2008, advances were at 88% and 96% of the availableborrowing base.

 

***CriticalAccounting Policies***

*** ***

We believe the following critical accounting policiesare important to the presentation of our financial condition and operatingresults, and require management’s judgments to make assumptions and estimatesabout the effects of matters that are inherently uncertain.

 

*RevenueRecognition and Allowance for Returns*

 

Revenues for wirelesshandset and accessory sales are recognized when (i) shipment of theproducts to customers has occurred and title has passed, (ii) whencollection of the outstanding receivables is probable and (iii) the finalprice of the products is determined, which occurs at the time of shipment.Sales are recorded net of discounts, rebates, cooperative arrangements(marketing, training and promotional funds), returns, and allowances.Consideration is given on select sales for cooperative arrangements related tomarket development, training and special promotions, usually agreed upon inadvance. The amount given is generally in the form of a credit memo, which isapplied as a reduction of the sale price and such amount is recorded as acurrent liability. Expenditures made pursuant to the agreed upon activityreduce this liability. To the extent that we incur costs in excess of theestablished cooperative fund, we recognize that amount as a selling ormarketing expense. As part of the sales process, we may perform certain valueadded services such as programming, software loading and quality assurancetesting. These value added services are considered an ancillary component ofthe sales process and amounts attributable to these processes are included inthe unit cost to the customer. Furthermore, these value added services arerelated to services prior to the shipment of the products, and no value addedservices are provided after delivery of the products. We recognize a reserveagainst the related receivables estimates for product returns based onhistorical experience and other judgmental factors. We evaluate these estimateson an on-going basis and adjust the estimates each period based on actualproduct return activity. We recognize freight costs billed to our customers inrevenue and actual freight costs incurred as a component of cost of sale.

 

*Allowancefor Doubtful Accounts*

* *

We recognize allowance for doubtful accounts based onthe length of time the receivables are past due, the current businessenvironment and our historical experience. Credit evaluations are undertaken for all major sales transactionsbefore shipment is authorized. Normal payment terms require payment on a net 30or 60-day basis depending on the customer. On an ongoing basis, we analyze thepayment history of customer accounts, including recent customer purchases. Weevaluate aged items in accounts receivable and provide reserves for doubtfulaccounts. Customer creditworthiness and economic conditions may change,including increasing the risk of collectability and sales returns, and mayrequire additional provisions, which could negatively impact our operatingresults.  Such was the case during 2008,as we adjusted some of our inventory levels down.

 

*InventoryWrite-Off and Effect on Gross Margin*

* *

We regularly monitor inventory quantities on hand andrecord a provision for excess and obsolete inventories based primarily onhistorical usage rates and our estimated forecast of product demand for aperiod of time, generally three months. Because of obsolescence, we willgenerally provide a full reserve for the costs of our inventories in excess ofour relevant demand forecast for the applicable period. We attempt to controlour inventory levels so that we limit inventories in excess of demand for thesucceeding several months. However, because we need to place non-cancelableorders with significant lead time and because it is difficult to estimateproduct demand, we sometimes build inventories in excess of demand for theapplicable future periods. If this occurs, we provide a reserve, which may havea negative impact on our reported results of operations and financialcondition.

 

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**Item 3. Quantitative and QualitativeDisclosures about Market Risk**

 

The primary objective of the following information is to provideforward-looking quantitative and qualitative information about our potentialexposure to market risks. The term “market risk” for us refers to the risk of lossarising from adverse changes in interest rates and various foreign currencies.The disclosures are not meant to be precise indicators of expected futurelosses, but rather indicators of reasonably possible losses. Thisforward-looking information provides indicators of how we view and manage ourongoing market risk exposures.

 

**InterestRate**

 

We are exposed to market risk from changes in interest rates on ouroutstanding revolving line of credit. At June 30, 2009, we had $31.5million outstanding under our line of credit, which could be affected bychanges in short-term interest rates. Under our current credit facility, theinterest rate for funds borrowed is, at our option, of the Wells Fargo primerate minus 0.5% (3.25% minus 0.5% at June 30, 2009) or the LIBOR rate plus2.00% (0.62% plus 2.00% at June 30, 2009). For every 1% increase in WellsFargo’s prime rate or the LIBOR rate, our interest expense increases by$315,000 annually assuming $31.5 million remained outstanding for the entireyear.

 

The above sensitivity analysis for interest-rate risk excludes accountsreceivable, accounts payable and accrued liabilities because of the short-termmaturity of such instruments. The analysis does not consider the effectinterest-rate movement may have on other variables relating to our business,including changes in sales volumes that could be indirectly attributed tochanges in interest rates. The actions that we would take in response to such achange are also not considered. If it were possible to quantify this impact,the results could differ from the sensitivity effects shown above.

 

**MarketRisk**

 

Almost all portions of our revenue and expenses are transacted inmarkets outside the United States. However, all sales transactions and accounts receivable are denominatedin U.S. dollars. As a result of our international sales (at this time, LatinAmerica), our future operating results could be adversely affected by a varietyof factors, including changes in specific countries’ political, economic orregulatory conditions, and trade protection measures.  Our market risk management includes anaccounts receivable insurance policy for our sales.  However, there can be no assurance that ourinsurance policy will substantially offset the impact of fluctuations in currencyexchange rates, political, economic or regulatory conditions on our results ofoperations and financial position. We do not believe that foreign currencyfluctuations had a material impact on our financial results during the threeand six months ended June 30, 2009.   See “Consolidated Statements ofComprehensive Operations” in our financial statements included in this report.

 

**Item 4T.Controls and Procedures**

 

**Disclosure Controls**

 

An evaluation wasperformed under the supervision and with the participation of our management,including the Chief Executive Officer and President and the Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), asof the end of the period covered by this quarterly report pursuant to ExchangeAct Rule 13a-15(b).  Based on the evaluation, the Chief ExecutiveOfficer and President and the Chief Financial Officer concluded that as of theend of the period covered by this quarterly report, the Company’s disclosurecontrols and procedures were effective in ensuring that information required tobe disclosed by the Company in the reports that it files or submits under theExchange Act is (i) recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms, and (ii) accumulatedand communicated to our management, including our principal executive andprincipal financial officers, or persons performing similar functions, asappropriate to allow timely decisions regarding required disclosure.

 

**Changes in Internal Control over FinancialReporting**

 

There was no change inour internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f) of the Exchange Act) during our second fiscal quarter ended June 30,2009, that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item 1. LegalProceedings**

 

*Securities Class Actions*

 

InfoSonics has settled the securities class actionagainst the Company and certain of its officers and directors, captioned *In Re: InfoSonicsCorporation Securities Litigation*, Lead Case No. 06 CV 1231,filed in the United States District Court for the Southern District ofCalifornia.  Plaintiffs’ third amendedconsolidated complaint had alleged violations of Section 10(b) of theExchange Act and associated Rule 10b-5, Section 20(a) and Section 20Ain connection with the announcement of the Company’s restatement of firstquarter 2006 earnings and in connection with allegedly false and/or misleadingstatements related to the Company’s distribution of the VK Mobile phone.  On October 17, 2008, the parties entereda Stipulation and Agreement of Settlement (the “Securities Settlement”) of thecase, which provides for, among other things, a dismissal with prejudice of thelawsuit, releases of the defendants, and a payment by the Company or itsinsurer of $3.8 million to plaintiffs (inclusive of any plaintiffs’ attorneysfees, to be determined by the Court). The Securities Settlement further provides that defendants deny anyliability or responsibility for the claims made and make no admission of anywrongdoing.  On February 10, 2009,the Company’s insurer funded the full settlement payment.  On May 5, 2009, the Court entered anorder finally approving the Securities Settlement as fair and reasonable, anddirecting the clerk to enter final judgment and dismissing the action withprejudice.

 

*Derivative Action*

 

InfoSonics has settled the derivative actionpurportedly on behalf of the Company against certain of its officers anddirectors, and the Company as a nominal defendant, captioned *In Re InfoSonics Corporation Derivative Litigation*,Lead Case No. 06 CV 1336, filed in the United States District Court forthe Southern District of California. Plaintiffs’ consolidated complaint had alleged claims for violations of Section 14(a) ofthe Exchange Act, Sections 25402 and 25403 of the California Corporations Code,disgorgement under the Sarbanes-Oxley Act of 2002, breach of fiduciary duty,abuse of control, gross mismanagement, waste of corporate assets, unjustenrichment, rescission, a constructive trust, and an accounting, in connectionwith the Company’s restatement of first quarter 2006 earnings and in connectionwith allegations of wrongdoing with respect to granting, exercising, accountingand reporting of the stock options that the Company granted in December 2005.  On September 4, 2007, the Court granteddefendants’ motion to dismiss for failure to make a demand on the board, andalso granted with prejudice the motion to dismiss the Sarbanes-Oxleyclaim.  On October 17, 2008, theparties entered into a Stipulation and Agreement of Settlement (the “DerivativeSettlement”), which provides for, among other things, a dismissal withprejudice of the lawsuit, releases of the defendants, corporate governancechanges and a payment by the Company or its insurer of plaintiffs’ attorneysfees to be ordered by the Court up to a maximum of $350,000. The DerivativeSettlement further provides that defendants deny any liability orresponsibility for the claims made and make no admission of any wrongdoing. TheCompany’s insurer funded the full settlement payment.  On June 3, 2009, the Court approved thesettlement and entered the final judgment and order of dismissal with prejudiceof the case.

 

We maybecome involved in certain other legal proceedings and claims which arise inthe normal course of business. Other than as described above, as of June 30,2009, we did not have any significant litigation outstanding.

 

*LGElectronics Litigation*

 

On July 1, 2009, theCompany filed suit in the Superior Court of the State of California, County ofSan Diego (the Superior Court) (Case No. 37-2009-00092797-CU-BT-CTL)against LG Electronics, Inc., LG Electronics USA, Inc., LGElectronics Panama S.A., LG Electronics Inc. Chile LTDA, LG ElectronicsGuatemala S.A. de C.V. (collectively LG) and DOES 1-10 (and together with LG,the Defendants).  The complaint allegesclaims for interference with contractual relations/inducing breach of contract,intentional interference with prospective economic relations, negligentinterference with prospective economic relations, breach of contract, breach ofimplied covenant of good faith and fair dealing, unjust enrichment, fraud,promissory estoppel and violation of California Business and Professions Code§§ 17200, et seq.  The Company is seekingin excess of $5 million in damages.   On July 31,2009, the Defendants removed the case to federal court in San Diego, CA.

 

**Item 1A.  Risk Factors**

 

In addition to the riskfactors included below and other information set forth in this report, youshould carefully consider the factors discussed in “Part I. Item 1A. RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2008, which factors and information could materially affect our business,financial condition or operating results. The risk factors and uncertaintiesdescribed in our last Annual Report on Form 10-K and this report are not theonly risks and uncertainties facing us. Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially affect our business, financial condition or operating results.  Except as set forth below, there have been nomaterial changes to the risk factors included in our last Annual Report on Form 10-K.

 

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***Despite being profitable in the first two quartersof 2009, we have recently experienced net losses and net losses may reoccur inthe near future. If we operate at a loss, our business may not be financiallyviable.***

 

Although we hadnet income for the first and second quarter of 2009, we experienced losses and negative cash flowsfor the year ended 2008.  As of June 30,2009, we had working capital of $25.7 million. Given the economic slowdown and contraction in the wider markets,including the Central and South American markets that we serve and generallyglobally, we cannot adequately evaluate the financial viability of our businessor our long-term prospects.

 

To maintain profitability, we must, among other things:

 

·              Continue to increase gross profits while controllingoperational expenses;

·              Generate sales and consumer demand for our *verykool®* products; and

·              Continue to work with our OEM vendors for increased marginopportunities.

 

If we do not succeed in these objectives, our business, among otherthings, might experience losses again and may not be sustainable in the future.

 

***We have outstandingindebtedness, which is secured by substantially all our assets and couldprevent us from borrowing additional funds, if needed.***

 

Asof June 30, 2009, we had outstanding debt in the amount of $31.5 millionunder a receivables-based credit facility. Under this credit facility,which expires in April 2010, Wells Fargo Century, Inc. may advance usup to $45,000,000 based on the expected collections of eligible receivables aswell as the value of our eligible inventory as determined in accordance withthe terms of the facility. Any significant decrease in our level of eligibleaccounts receivable or inventory will reduce our ability to borrow additionalfunds under the credit facility and may affect our ability to adequatelyfinance our operations and expansion strategies. Further, if we violate ourloan covenants, default on our obligations or become subject to a change ofcontrol, our indebtedness would become immediately due and payable. Inaddition, the terms of our credit facility restrict us from incurring certainadditional indebtedness, which could limit our ability to expand ouroperations. Some of our loan covenants subject us to, among other things,limits on our ability to sell certain assets and make certain payments,including, but not limited to, dividends, repurchases of common stock and otherpayments outside the normal course of business, as well as prohibits usregarding merging or consolidating with another corporation or selling all orsubstantially all of our assets.  As of June 30, 2009, the Companywas in compliance with the covenants of the credit facility.  If any of these adverse events occur or we areunable to renew our new credit facility or enter into an adequate creditrelationship as needed, our business’ financial condition or operating resultscould be negatively affected.

 

***We buy a significant amountof our products from a limited number of suppliers, who may not provide us withcompetitive products at reasonable prices when we need them in the future.***

 

Wepurchase wireless handsets and accessories principally from wirelesscommunications OEMs and distributors. We depend on these suppliers to provideus with adequate inventories of currently popular brand name products on atimely basis and on favorable pricing and other terms, as well as on thesesuppliers’ quality products and services and financial stability. Forthe period ended June 30, 2009, one vendor, (Samsung Electronics deAmazonia, S.A.), accounted for 91%, of our total cost of sales. We currently have one exclusive and several non-exclusive agreementswith our principal suppliers, which can be terminated on short notice andprovide for certain territorial restrictions. Our suppliers may not offer uscompetitive products on favorable terms or with timely delivery. In addition,new products from other manufacturers could impact the demand for products frommanufacturers we represent. From time to time, we have been unable to obtainsufficient product supplies. Any failure or delay by our suppliers,particularly our one primary vendor, in supplying us with products on favorableterms may severely diminish our ability to obtain and deliver products to ourcustomers on a timely and competitive basis. If we lose any of our principalsuppliers, or if these suppliers are unable to fulfill our product needs, or ifany principal supplier imposes substantial price increases and alternativesources of supply are not readily available, it would have a material adverseeffect on our results of operations and financial condition.

 

***The loss or reduction inorders from principal customers or a reduction in prices we are able to chargethese customers will have a negative impact upon our revenues and could causeour stock price to decline.***

 

Ourthree largest customers (carriers in South America) in the period ended June 30,2009 represented 31%, 25% and 24% of our net sales during that period.  These customers are carriers in LatinAmerica. The markets we serve are subject to significant price competition.Additionally, our customers are not contractually obligated to purchaseproducts from us. For these and other reasons, such as competitive pricing andcompetitive pressures, customers may seek to obtain products or services fromus at lower prices than we have been able to obtain from these customers in thepast. This could occur, for example, in the case of a customer purchasing largequantities of a product from us, who then terminates this relationship becausethe customer can obtain a lower price by buying directly from the manufactureror other supplier. The loss of any of our principal customers, a reduction inthe amount of product or

 

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services ourprincipal customers order from us or the inability to maintain current terms,including price, with these or other customers could have an adverse effect onour financial condition, results of operations and liquidity. In addition, wehave experienced losses of certain customer bases through industry consolidationand in the ordinary course of business. Overall, there can be no assurance that any of our customers willcontinue to purchase products or services from us or that their purchases willbe at the same or greater levels than in prior periods, with any such customerdecisions having the potential to adversely affect our business operations andprofitability.

 

***Almost all of our revenues will be generated outsideof the United States in countries that may have volatile currencies or otherrisks in the foreseeable future.***

 

Wenow engage in all of our significant sales activities in territories andcountries outside of the United States, specifically in Latin Americancountries.  All our sales transactionsare completed in U.S. dollars and therefore may be impacted by changes in thestrength of the U.S. dollar. Further, the fact that we distribute a substantialamount of our products into a number of territories and countries other thanthe United States exposes us to, among other things, increased credit risks, customsduties, import quotas and other trade restrictions, potentially greater andmore unpredictable inflationary and currency pressures, and shipping delays.Changes may occur in social, political, regulatory and economic conditions orin laws and policies governing foreign trade and investment in the territoriesand countries where we currently distribute products. United States laws andregulations relating to investment and trade in foreign countries could alsochange to our detriment. Any of these factors could have material adverseeffects on our business and operations. Also, although we purchase and sellproducts and services in U.S. dollars and do not engage in exchange swaps,futures or options contracts or other hedging techniques, fluctuations incurrency exchange rates could reduce demand for products sold in U.S. dollars.We cannot predict the effect that future exchange rate fluctuations will haveon our operating results or financial position. We may in the future engage incurrency hedging transactions, which could result in our incurring significantadditional financial risks, including expenses and losses.

 

***Our ability to maintain future profitability depends on our ability tomaintain and increase existing margins, including through increased net sales,which we may not be able to do.***

 

Thegross margins that we realize on sales of wireless handsets may not increase orcould be reduced due to, among other things, increased competition and agrowing industry and customer emphasis on cost containment, thereby negativelyaffecting our ability to remain profitable. Our ability to obtain future profitability will continue to depend onour ability to increase our margins through increased sales (either through ahigher volume of sales of wireless handset products or a higher average priceper wireless handset product) or lower our cost of sales. However, we may notbe able to increase existing margins for products or services we offer. Ourability to generate sales is based on demand for wireless handset products thatwe can deliver and our having an adequate supply of these products to coverdemand. Even if our sales rates increase, the gross margins that we receivefrom our sales may not be sufficient to make our future operations profitableas our cost of sales may increase at higher rates. For example, in 2008,although we had higher sales, we did not have operating income from continuingoperations due to lower gross margins, as well as, among other things, higheroperating expenses. We cannot guarantee that we will be able to improve grossmargins, including increasing sales, or do so in a profitable manner in thefuture.

 

***We may bedelisted from The NASDAQ Stock Market if we do not satisfy continued listingrequirements.***

 

Between January 1,2008 and August 7, 2009, our common stock share price fluctuated between$0.10 and $2.51 per share, and on August 7, 2009 it closed at $1.87.  On July 10, 2008, we received a letterfrom the Listing Qualifications Department of The NASDAQ Stock Market indicatingthat for the then-last 30 consecutive trading days, the bid price for ourcommon stock had closed below the minimum $1.00 per share requirement forcontinued listing on The Nasdaq Stock Market under Nasdaq Marketplace Rule 4450(a)(5).  However, on July 7, 2009, we received aletter from The NASDAQ Stock Market indicating that we had regained compliancewith the $1.00 minimum bid price requirement under Listing Rule 5450(a)(1)(formerlyMarketplace Rule 4450(a)(5)) and the matter noted in the July 10, 2008letter was closed.  Even though wecurrently satisfy the continued listing standards of The NASDAQ Global Market,if in the future we fail to comply with the continued listing standards of TheNASDAQ Global Market, including the minimum bid price requirement, our commonstock would be delisted from that market.

 

If we are delisted fromThe NASDAQ Global Market, we may apply to transfer our common stock to TheNASDAQ Capital Market.  However, ourapplication may not be granted if we do not satisfy the applicable listingrequirements for The NASDAQ Capital Market at the time of the application.  Even if we successfully transfer our commonstock to The NASDAQ Capital Market, but are unable to satisfy the minimum bidprice requirement or any of the other continued listing standards of The NASDAQCapital Market, our common stock would be delisted from The NASDAQ CapitalMarket.

 

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***If our commonstock were delisted from The NASDAQ Stock Market, you may find it difficult todispose of your shares and our share price may be adversely affected.***

 

If our common stock wereto be delisted from The NASDAQ Global Market and we could not satisfy thelisting standards of The NASDAQ Capital Market, trading of our common stockmost likely would be conducted in the over-the-counter market on an electronicbulletin board established for unlisted securities such as the Pink Sheets orthe OTC Bulletin Board.  Such tradingwould reduce the market liquidity of our common stock.  As a result, an investor would find it moredifficult to dispose of, or obtain accurate quotations for the price of, ourcommon stock, thereby negatively impacting the share price of our common stock.

 

If our common stock isdelisted from The NASDAQ Global Market and we could not satisfy the listingstandards of The NASDAQ Capital Market and the trading price remains below$5.00 per share, trading in our common stock might also become subject to therequirements of certain rules promulgated under the Securities ExchangeAct of 1934, which require additional disclosure by broker-dealers inconnection with any trade involving a stock defined as a “penny stock”(generally, any equity security not listed on a national securities exchange orquoted on The NASDAQ Stock Market that has a market price of less than $5.00per share, subject to certain exceptions). Many brokerage firms are reluctantto recommend low-priced stocks to their clients. Moreover, various regulationsand policies restrict the ability of shareholders to borrow against or “margin”low-priced stocks, and declines in the stock price below certain levels maytrigger unexpected margin calls. Additionally, because brokers’ commissions onlow-priced stocks generally represent a higher percentage of the stock pricethan commissions on higher priced stocks, the current price of the common stockcan result in an individual shareholder paying transaction costs that representa higher percentage of total share value than would be the case if our shareprice were higher. This factor may also limit the willingness of institutionsto purchase our common stock. Finally, the additional burdens imposed uponbroker-dealers by these requirements could discourage broker-dealers fromfacilitating trades in our common stock, which could severely limit the marketliquidity of the stock and the ability of investors to trade our common stock,thereby negatively impacting the share price of our common stock.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

 

## **Issuer Repurchases of Equity Securities.**

##  

Duringthe second quarter of 2009, we repurchased 605,626 shares of our common stockat a total cost (including brokerage commissions) of $444,600, at an averageprice per share of $0.73.  Such shareswere purchased by us in the open market in accordance with Commission Rule 10b-18.  We have authorized the repurchase of up to$500,000 worth of shares of our common stock under this previously announcedplan.

 

Thefollowing table summarizes information regarding shares repurchased during thequarter ended June 30, 2009:

 
| ** **              | ** ** | **Total Number  of Shares  Repurchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number  of Shares  Purchased as  Part of the  Publicly  Announced  Repurchase  Programs** | ** ** | **Maximum  Approximate  Dollar Value  of Shares That  May Yet be  Purchased  Under the  Programs** | ** ** |
|-------------------------|------------|------------------------------------------|------------|------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
|                    | ** ** |                                     | ** ** |                               | ** ** |                                                                                                   |       |                                                                                                    |       |
| 4/01/09  – 4/30/09 |       | 49,718                                   |       | $                                  | 0.22       |                                                                                                   | 49,718     |                                                                                                    |       |   |
| 5/01/09  – 5/31/09 |       | 179,735                                  |       | $                                  | 0.53       |                                                                                                   | 179,735    |                                                                                                    |       |   |
| 6/01/09  – 6/30/09 |       | 376,173                                  |       | $                                  | 0.90       |                                                                                                   | 376,173    |                                                                                                    |       |   |
| Total                   |       | 605,626                                  |       | $                                  | 0.73       |                                                                                                   | 605,626    |                                                                                                    | $          | 6 |   |
|                         |            |                                          |            |                                    |            |                                                                                                        |            |                                                                                                         |            |  |  |

 

·                  The share repurchase program was previously announced December 15,2008.  Under the plan, the Company mayrepurchase up to $500,000 of its common stock until December 15, 2009, unlessthe maximum dollar amount authorized is repurchased or our of Board ofDirectors determines to discontinue the plan earlier.  The Company completed the share repurchaseprogram during the second quarter of 2009 and does not intend to make furtherpurchases under the plan.

 

**Item 3.    Defaults Upon Senior Securities**

 

None.

 

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**Item 4.    Submission of Matters to a Vote of SecurityHolders**

 

On June 8, 2009, we held our 2009 Annual Meeting ofStockholders.  At that meeting, ourstockholders took the following actions on the following proposals by the voteof shares indicated:

 

(a)           The election of thefollowing directors to serve on our Board of Directors, each director to serveuntil the next annual meeting of stockholders or until their respectivesuccessor is elected and qualified:

 
| **Name**          | ** ** | **Votes Cast For** | ** ** | **Votes Against** | ** ** | **Votes Withheld** | ** ** |
|-------------------|------------|------------------------------|------------|------------------------|------------|-------------------------|------------|
| Joseph Ram        |       | 10,632,084                   |       | 2,635,592              |       | 26,846                  |       |
| Abraham G. Rosler |       | 10,645,068                   |       | 2,622,608              |       | 26,846                  |       |
| Randall P. Marx   |       | 10,632,201                   |       | 2,635,475              |       | 26,846                  |       |
| Robert S. Picow   |       | 10,615,972                   |       | 2,655,271              |       | 23,379                  |       |
| Kirk A. Waldron   |       | 10,615,563                   |       | 2,653,210              |       | 25,749                  |       |

 

(b)           The ratification ofthe employment of Singer Lewak LLP as our independent registered publicaccounting firm for the fiscal year ending December 31, 2009:

 
| For: 13,031,088 |   | Against: 164,752 |   | Abstain: 98,682 |   | Broker Non-votes: 0 |
|-----------------|--------|------------------|--------|-----------------|--------|---------------------|

 

**Item 5.    Other Information**

 

None

 

**Item 6.****   ****Exhibits**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                |       | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934, implementing Section 302 of Sarbanes-Oxley Act of  2002 (+). |
| 31.2                |       | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934, implementing Section 302 of Sarbanes-Oxley Act of  2002 (+). |
| 32.1                |       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (+).                            |
| 32.2                |       | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (+).                            |
| 99.1                |       | Final Approval of  Securities Settlement in In Re InfoSonics Securities Litigation Lead Case  No. 06CV1231 (1)                                                                       |

 

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(1)          Incorporated by reference from the Company’s CurrentReport on Form 8-K, filed on May 11, 2009.

(+)         Filed herewith.

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, as amended, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| ** ** | ** **           | **InfoSonics Corporation** |
|------------|----------------------|----------------------------|
|       |                 |                       |   |
|       |                 |                       |   |
| Date:      | August 14, 2009 | By:                        | /s/  Joseph Ram |
|       |                 |                       | Joseph Ram |
|       |                 |                       | Chief Executive Officer and President |
|       |                 |                       |   |
|       |                 |                       |   |
| Date:      | August 14, 2009 | By:                        | /s/  Jeffrey Klausner |
|       |                 |                       | Jeffrey Klausner |
|       |                 |                       | Chief Financial Officer |

 

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