Forward-Looking Statements and Other General Information

This discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and condensed notes thereto and other information included in this report and our Annual Report on Form 10-K for the year ended December 31, 2007 (including our 2007 audited consolidated financial statements and related notes thereto and other information). InfoSonics Corporation's ("InfoSonics" or the "Company") discussion and analysis of financial condition and results of operations are based upon, among other things, our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of financial statements in conformity with GAAP

requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent liabilities as of and at the financial statement date, and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from these estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations, although they may. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in "Critical Accounting Policies." All references to results of operations in this discussion generally are to results from continuing operations, unless otherwise noted.

The decision during the second quarter of 2008 to discontinue our operations in Mexico and the U.S., which we continued to implement in the third quarter of 2008, and the adjustments required to the financial statements related to that decision have affected certain amounts of our results of operations and the classifications on the balance sheet, statement of operations and statement of cash flows for prior periods, and as of prior dates, as well as, our disclosure in this report, including management's discussion and analysis.

Safe Harbor Statement

The matters in this report that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements about future revenues, sales levels, operating income and margins, wireless handset sales, stock-based compensation expense, gain loss in value of derivatives, cost synergies, operating efficiencies, profitability, market share, and rates of return, are based on current management expectations that involve certain risks and uncertainties. These risks and uncertainties, in whole or in part, could cause such expectations to fail to be achieved and have a material adverse effect on InfoSonics' business, financial condition and results of operations, and include, without limitation:
(1) intense competition internationally, including competition from alternative business models, such as manufacturer-to-carrier sales, which may lead to reduced prices, lower sales or reduced sales growth, lower gross margins, extended payment terms with customers, increased capital investment and interest costs, bad debt risks and product supply shortages; (2) dependency on Latin American sales; (3) extended general economic downturn; (4) inability to secure adequate supply of competitive products on a timely basis and on commercially reasonable terms; (5) foreign exchange rate fluctuations, devaluation of a foreign currency, adverse governmental controls or actions, political or economic instability, or disruption of a foreign market, and other related risks of our international operations; (6) the ability to attract new sources of profitable business from expansion of products or services or risks associated with entry into new markets, including geographies, products and services;
(7) an interruption or failure of our information systems or subversion of access or other system controls may result in a significant loss of business, assets, or competitive information; (8) significant changes in supplier terms and relationships; (9) termination of a supply or services agreement with a major supplier or product supply shortages; (10) continued consolidation in the wireless handset carrier market; (11) loss of business from one or more significant customers; (12) customer and geographical accounts receivable concentration risk; (13) rapid product improvement and technological change resulting in inventory obsolescence; (14) future terrorist or military actions;
(15) the loss of a key executive officer or other key employees; (16) changes in consumer demand for multimedia wireless handset products and features; (17) our failure to adequately adapt to industry changes and to manage potential growth and/or contractions; (18) seasonal buying patterns; (19) uncertain political and economic conditions internationally; (20) the resolution of any litigation against the Company; (21) the ability of the Company to successfully introduce and sell its verykool® products and the related inventory risk of such products; and (22) the ability of the Company to generate taxable income in future periods in order to utilize and realize any quarterly tax benefits recorded. Our actual results and condition could differ materially from those anticipated in our forward looking statements.

InfoSonics has instituted in the past and continues to institute changes to our strategies, operations and processes to address risks and uncertainties and to mitigate impact on InfoSonics' results of operations and financial condition. However, no assurances can be given that InfoSonics will be successful in these efforts. For a further discussion of significant factors to consider concerning InfoSonics, 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, 2007. In addition, other risks or uncertainties may be detailed from time to time in InfoSonics' future SEC filings.

Overview

We are one of the premier distributors and providers of wireless handsets and accessories in Latin America. We provide end-to-end handset and wireless terminal solutions for carriers in Latin America. We distribute products of several key original equipment manufacturers (OEMs), including Samsung, LG, and others. We are also involved in the designing, sourcing and distribution of a proprietary line of products under our own verykool®brand, which includes entry level, mid-tier and high-end products.

As an integral part of our customers' supply chain, we perform value added services and solutions, including product approval and certification, light assembly, warehousing, logistics services (packing, shipping and delivery), marketing campaigns, warranty services and end-user support. We provide these services for OEMs and for our own verykool® products in order to facilitate sales to carriers, agents, resellers, distributors, independent dealers and retailers in Latin America. During the first quarter of 2007, we initially introduced a proprietary line of handsets and accessories under the verykool® brand, for which we are involved in several aspects, including the design and feature sets determination, and contract with various design and contract manufacturers in Asia to develop exclusive or semi-exclusive products for us.

Due to seasonal and other factors, our interim financial condition or operating results may not be indicative of fiscal year 2008 or other future financial condition or operating results. Our financial condition and operating results are influenced by several seasonal, general economic and other factors, which may cause our financial condition and operating results to fluctuate on a quarterly basis, including, but not limited to, the timing and introduction of new products by our suppliers and competitors, promotions and subsidies by network operators, technical and certification delays by industry bodies as well as operators, purchasing patterns of customers, the timing of holidays, the success of our proprietary verykool® products line and other events affecting consumer demand.

Areas of Management Focus and Performance Indicators

We focus on the needs of our customers, developing and maintaining close relationships with manufacturers, expanding in current and entering new markets and exiting markets, as determined appropriate, and sourcing and developing new and innovative products, while maintaining close attention to operational efficiencies and costs. We intend to increase shipping volumes and improve efficiencies to the extent possible based on market conditions in efforts to attain profitability and earnings growth. We provide distribution and other services for OEMs, such as Samsung and LG and our own proprietary line of verykool®handsets. Performance indicators that are key for the monitoring and management of our business include operating and net income, cost of sales and gross margin percentage, operating expenses as a percent of revenues, and overall net sales growth, as well as balances of accounts receivable and inventory. We make extensive use of our customized information system to closely monitor all aspects of our business, including customer relationship management, intelligent purchasing, inventory control, inventory flow, line item margin control for every order, and weighted-average cost and statistical data for our products, customers and suppliers, as appropriate. We believe a strong focus on providing better service to customers leads to increased customer satisfaction and retention and potential increases in sales.

Management spends a significant amount of time traveling to Latin America and Asia with the purpose of spending time with key customers, suppliers and employees. We believe that these relationships are vital to our success, and we will continue to dedicate a significant amount of time to this area.

Industry Trends and Risks

According to an October 2008 report by Cowen and Company, 2007 overall worldwide wireless handset sales increased by approximately 16% over 2006, and are forecasted to increase 10% in 2008 and 5% in 2009. The two largest areas of growth are the Africa and Asia Pacific regions in which we do not currently operate. A rapid decline in wireless handset sales in the Latin American markets we serve has and could continue to negatively impact our net sales. Excess supply conditions and the current economic downturn has and may continue to reduce the demand for our products and market prices of the products we sell and therefore affect our ability to generate net sales and gross profit at expected levels and could continue to affect the value of our inventory. Conversely, should manufacturers be unable to respond to an unanticipated increase in demand on a timely basis, we, along with others in our industry, could experience supply constraints that would affect our ability to deliver products. We are unable to quantify these effects, as it is difficult to predict future supply conditions and demand patterns which affect our ability to meet customer demand or sell handsets at an acceptable gross profit.

During the second and third quarters of 2008 in particular, our industry was impacted by the economic slowdown impacting the United 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 United States, and have been impacted by the economic situation during the second and third quarters of 2008 in the United States in particular, as well as, generally globally. We believe this impacted consumer demand for wireless handsets in some of the countries we operate, and therefore our overall operations, including net sales, during the second and third quarters of 2008 were adversely impacted.

Company Specific Trends and Risks

Our long-term strategy incorporates overall market growth elements for our business, which we hope will result in future growth as economic conditions recover. Certain of our manufacturers entered into the low-tier handset market during 2007 and continue to market them in 2008, which has had a positive impact on our volumes of handsets sold, but a negative impact on gross profit margin. Our verykool®proprietary line of products, for which we have six models selling as of September 30, 2008, continued to show orders and sales during the first nine months of 2008 and is expected to become an increasing part of our overall business in the future.

The addition of verykool® and LG products during 2007 and the first nine months of 2008 continues to assist with manufacturer and product diversification for Central and South America, which should be beneficial as we move forward and work towards profitability again. We have complete control over the verykool® line of products, whereas for LG products we perform distribution and other services to the extent needed by LG. On a sequential quarterly basis, we were able to maintain our gross margins at 5.5% for the quarter ended September 30, 2008, compared to the quarter ended June 30, 2008, and increased as compared to 5.3% for the quarter ended March 31, 2008 and 4.3% for the quarter ended December 31, 2007. These results were primarily due to the volume and product mix of our verykool® products and continued focus on higher margin products.

In the United States, we have halted substantially all sales. Much of our significant United States customer base completed the transitional stage as regional carriers, including some of our customers being acquired in 2007 by AT&T, TMobile USA and Verizon Wireless. With our potential United States customer base significantly reduced, we decided during the second quarter of 2008 to discontinue this portion of our operations, together with a discontinuation of our operations in Mexico, which we continued to implement in the third quarter of 2008. These two areas accounted for less than 1% of our net sales in the first nine months of 2008, as compared to 13% of our net sales for the first nine months of 2007.

Recent Events

On July 10, 2008, InfoSonics Corporation, (the "Company") received a Nasdaq Staff Deficiency letter indicating that for the last thirty consecutive business days the bid price for the Company's common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Stock Market under Nasdaq Marketplace Rule 4450(a)(5). In accordance with Nasdaq Marketplace Rule 4450(e)(2), the Company was provided an initial period of 180 calendar days, or until January 6, 2009, to regain compliance. The letter stated that the Nasdaq staff would provide written notification that the Company had achieved compliance with Rule 4450(a)(5) if at any time before January 6, 2009, the bid price of the Company's common stock closed at $1.00 per share or more for a minimum of ten consecutive business days, although the letter also stated that the Nasdaq staff had discretion to require compliance for a period in excess of ten consecutive business days, but generally no more than twenty consecutive business days, under certain circumstances. On October 16, 2008, Nasdaq implemented a temporary suspension of enforcement of Nasdaq Marketplace Rule 4450(a)(5) until Friday, January 16, 2009, due to the volatility of then current market conditions. As a result of the temporary suspension, Nasdaq informed the Company that its deadline for compliance with Nasdaq Marketplace Rule 4450(a)(5) was extended from January 6, 2009 to April 13, 2009.

During this period before April 13, 2009, absent the occurrence of any unexpected events, the Company's common stock is expected to continue to trade on The Nasdaq Global Market. If compliance with Nasdaq Marketplace Rule 4450(a)(5) cannot be demonstrated by April 13, 2009, the staff of The Nasdaq Stock Market Listing Qualifications department is expected to deliver a written notification to the Company that its securities will be delisted from The Nasdaq Global Market. If the Company receives a delisting notice, the Company may appeal the Nasdaq staff's determination to a Listing Qualifications Panel. Alternatively, the Company may apply to transfer its securities to The Nasdaq Capital Market or another exchange or trading market. The Company intends to monitor the bid price of its common stock and consider available options if its common stock does not trade at a level likely to result in the Company regaining compliance with Nasdaq's minimum bid price rule.

Results of Operations

Three Months ended September 30, 2008 Compared with Three Months ended September 30, 2007

Net Sales

For the three months ended September 30, 2008, our net sales from continuing operations of $52.9 million decreased 18% compared to our net sales from continuing operations of $64.4 million for the same period of 2007. Average selling price of wireless handsets sold in the third quarter of 2008 increased 2%, as compared to the third quarter of 2007, due primarily to increased volume of higher-priced handsets, including some of our verykool® and OEM products. However, this increase was more than offset by a 22% decrease in overall wireless handset sales volume, due to the impact of the worsening economic slowdown in the markets we serve during the third quarter 2008. The geographic mix of net sales shifted in the third quarter of 2008 as sales in South America increased to more than 83% of net sales, as compared to 65% of net sales for the third quarter of 2007. Sales in Central America decreased to 17% of total net sales in the quarter ended September 30, 2008, as compared to 36% in the quarter ended September 30, 2007. These regional shifts in net sales were the result of the factors discussed below.

In South and Central America, we have continued to work to expand our customer base as well as our geographic presence by seeking additional customers and further business with existing customers. In addition, we continued efforts to market and sell our proprietary verykool® line of products in South and Central America. In South America, net sales were $44.1 million for the quarter ended September 30, 2008, a 7% increase from the same quarter in 2007. This increase was primarily due to increased sales in existing countries and the addition during the first half of 2008 of a new carrier relationship in Colombia. In Central America, net sales decreased 62% to $8.8 million for the quarter ended September 30, 2008, which was primarily due to the continuing unusually low demand during the quarter, which we believe was related to the worsening worldwide economic downturn.

Net Sales by Geographic Region



                        For the Three Months
                         Ended September 30,           Increase
                       2008               2007        (Decrease)
                    (Dollar amounts in thousands)
                             (unaudited)
Central America            8,826             23,331          (62 )%
South America             44,058             41,067            7 %
Total                     52,884             64,398          (18 )%

Cost of Sales, Gross Profit and Gross Margin

For the quarter ended September 30, 2008, cost of sales was $49.9 million, or 94.5% of net sales, and gross margin was 5.5%, as compared with $60.5 million, or 93.9% of net sales, and 6.1% for gross margin for the quarter ended September 30, 2007. The increase in our cost of sales as a percentage of net sales and decrease in gross margin were due to the lower levels of sales and product mix shift, including increased sales of low-margin products. Some of our OEM partners previously entered into the low-tier handset range, which has had less margin opportunity than mid-tier and high-end handsets sales. This was partially offset by sales of our verykool® proprietary products, which generally have gross margins higher than OEM product sales. Our gross margin continues to be impacted by the change of product and regional mix of our sales, as different products and different regions have varying margins, as well as the worsening economic downturn.

For the quarter ended September 30, 2008, our gross profit decreased to $2.9 million from $3.9 million, as compared with the same quarter last year, a decrease of 26%. This decrease in gross profit was primarily the result of the decreased net sales which was further impacted by the decrease in gross margin due to product mix shift.

For the Three Months

                       Ended September 30,            Increase
                      2008               2007        (Decrease)
                  (Dollar amounts in thousands)
                           (unaudited)
Net sales       $         52,884     $      64,398          (18 )%
Cost of sales             49,982            60,459          (17 )%
Gross profit    $          2,902     $       3,939          (26 )%
Gross margin                 5.5 %             6.1 %        (10 )%

Operating Expense and Operating Income (Loss) from Continuing Operations

For the quarter ended September 30, 2008, operating expense decreased 11%, as compared with the same quarter last year. As a percentage of net sales from continuing operations, operating expense increased to 6.1% in the quarter ended September 30, 2008, as compared with 5.6% for the same quarter last year. The increase in operating expense as a percentage of net sales was primarily due to the decrease in total net sales; however, the decrease in operating expense was due to management efforts to reduce overall operational costs to match current market conditions. Management believes that pursuant to its efforts, and assuming economic conditions improve, future sales and margins could provide gross profits to better cover operational costs. In addition, management continues to review expenses in an effort to better match the operational costs with the future business opportunities. We believe such measures will assist us as we strive to return to continued profitability.

For the quarter ended September 30, 2008, our operating loss from continuing operations was $309,000, as compared with operating income from continuing operations of $317,000 for the quarter ended September 30, 2007. As a percentage of net sales, operating loss from continuing operations was 0.5% for the quarter ended September 30, 2008, compared to income of 0.5% for the quarter ended September 30, 2007. The decrease in operating income from continuing operations was a result of the decrease in gross margins and gross profits due to the factors discussed above.

                               Operating Expense



                                 For the Three Months
                                 Ended September 30,            Increase
                                2008               2007        (Decrease)
                            (Dollar amounts in thousands)
                                     (unaudited)
Net sales                 $         52,884     $      64,398          (18 )%
Operating expense         $          3,211     $       3,622          (11 )%
Percentage of net sales                6.1 %             5.6 %         (9 )%

               Operating Income (Loss) from Continuing Operations



                                             For the Three Months
                                              Ended September 30,              Increase
                                           2008                  2007         (Decrease)
                                         (Dollar amounts in thousands)
                                                  (unaudited)
Net sales                            $         52,884       $       64,398           (18 )%
Operating income (loss) from
continuing operations                $           (309 )     $          317          (197 )%
Percentage of net sales                          (0.6 )%               0.5 %        (200 )%

Other Income

During the third quarter of 2008, the Company settled an outstanding claim against a former service provider in which the Company received a gross amount of $655,000, of which $87,000 represented reimbursement for legal fees and also had a gain of $85,000 related to revenue sharing negotiations and an insurance settlement. During the same period in the prior year, we received $2.1 million in compensation due to our agreement to an early termination and relocation for our corporate headquarters. During the third quarter of 2008, we also incurred $34,000 of interest expense, compared to $360,000 for the same period last year, primarily due to a lower average outstanding balance on our line of credit, as compared to the same period in the prior year. We expect to regularly utilize amounts on our revolving line of credit, which will impact our interest expense in future periods depending on applicable interest rates, among other things.

                                   For the Three Months
                                    Ended September 30,            Increase
                                2008                2007          (Decrease)
                               (Dollar amounts in thousands)
                                        (unaudited)
Other Income                $        653     $            2,095          (69 )%
Interest income (expense)            (34 )                 (360 )        (91 )%
Total                       $        619     $            1,735          (64 )%

Net Income from Continuing Operations

During the quarter ended September 30, 2008, our net income from continuing operations was $182,000, as compared to $1.9 million for the quarter ended September 30, 2007. This net income from continuing operations was primarily due to the settlement discussed above, partially offset by our operating loss from continuing operations.

Net Loss from Discontinued Operations

During the quarter ended June 30, 2008, the Company assessed opportunities in the United States and Mexico and decided to implement actions necessary to close sales operations in both of those countries, which we continued to implement in the third quarter of 2008. For the quarter ended September 30, 2008, we incurred a loss of approximately $81,000 from discontinued operations, as compared to a loss of $1.5 million for the quarter ended September 30, 2007. The loss was a result of very low sales in the U.S. and Mexico during the third quarter of 2008, as we continued to wind down our business in these areas. As of September 30, 2008, our plans for the discontinued operations were substantially . . .