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, 2008 (including our 2008 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, among other things, 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 continue to implement (although we substantially completed by the end of 2008) and record adjustments required in the financial statements, 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, 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 and other related risks; (13) rapid product improvement and technological change resulting in inventory obsolescence; (14) 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 for or 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 impacts 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, 2008. 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 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.

Our distribution and solution services include product testing, approval and certification, warehousing, logistics services (packing, shipping and delivery), marketing campaigns, warranty services and end-user support. These services are provided for OEMs and our verykool® branded wireless handsets and accessories, in order to facilitate sales to network carriers, agents, resellers, distributors, independent dealers and retailers in Central and South America. In addition, for our verykool® branded products, we design, test and contract with manufacturers to build these products.

Due to seasonal and other factors, our interim financial condition or operating results may not be indicative of the entire fiscal year 2009 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, inventory management and obsolescence, 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 and payment patterns of customers, the timing of holidays, the success of our proprietary verykool® products line and other events affecting our consumers.

Areas of Management Focus and Performance Indicators

We focus on the needs of our customers, developing and maintaining close relationships with manufacturers, looking to expand in current and enter into new markets, and sourcing and developing new and innovative products, while maintaining close attention to operational efficiencies and costs. We are focused on increasing shipping volumes and improving efficiencies to achieve higher levels of profitability and earnings growth, as well as monitoring and managing levels of accounts receivable and inventory. We provide distribution and other services for OEMs, such as Samsung, and our own proprietary line of verykool®handsets. Performance indicators that are important 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 products, customers and suppliers, as deemed 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 a June 2009 report by Cowen and Company, overall worldwide wireless handset sales increased by approximately 6% in 2008. However, they are forecasted to decrease in 2009 by 8%, before returning to growth in 2010 and 2011, with growth estimated at 7% and 4%, respectively. A rapid decline in wireless handset sales in the Central and South American markets we serve has and could continue to negatively impact our net sales. Excess supply conditions and the current economic downturn have and may continue to reduce demand for our products and reduce the market prices of the products we sell and therefore affect our ability to generate net sales, margins and gross profit at expected levels and could continue to affect the value of our inventory, as well as customer payment trends. For example, the second half of 2008 and the first quarter of 2009 generally saw a decrease in handset demand globally 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 the first quarter of 2009. The second quarter of 2009 began to see these impacts reducing in the regions we serve. 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 half of 2008 and the first half of 2009 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 this economic situation. 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 first quarter of 2009 were adversely impacted. The second quarter of 2009 began to see a minor increase in the demand for handsets, which positively impacted our results for the quarter.

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 global 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 2009 and is expected to become an increasing part of our overall business in the future.

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

Recent Events

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

Results of Operations

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

Net Sales

For the three months ended June 30, 2009, our net sales from continuing operations of $61.7 million increased 5% compared to our net sales from continuing operations of $59.0 million for the same period of 2008. Average selling price of wireless handsets sold in the second quarter of 2009 increased 10%, as compared to the second quarter of 2008, due primarily to increased volume of higher-priced handsets, including some of our verykool® and OEM products. This increase was in conjunction with a 3% increase in overall wireless handset sales volume. The geographic mix of net sales shifted in the 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 of 2008. Sales in Central America decreased to 9% of total net sales in the quarter ended June 30, 2009, as compared to 31% in the quarter ended June 30, 2008. These regional shifts in net sales were the result of the factors discussed 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 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 have continued efforts to market and sell our proprietary verykool® line of 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 increased sales 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 primarily due to the continuing unusually low demand during the quarter, which we believe was related to the worldwide and regional economic downturn. The second quarter of 2009 showed improvement from the first quarter of 2009.

Net Sales by 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 of sales was $57.6 million, or 93.4% of net sales, and gross margin was 6.6%, as compared with $55.8 million, or 94.5% of net sales, and 5.5% for gross margin for the quarter ended June 30, 2008. The increase in our cost of sales and increase in gross margin were due to product mix shift, including increased sales of higher-margin products (including our verykool® products), better product sourcing for our verykool® line of products and beneficial purchasing opportunities.

For the quarter ended June 30, 2009, our gross profit increased to $4.1 million from $3.2 million, as compared with the same quarter last year, a increase of 26%. This increase in gross profit was primarily the result of the increased net sales and by the factors which increased 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 from Continuing Operations

For the quarter ended June 30, 2009, operating expense increased 11%, as compared with the same quarter last year. As a percentage of net sales from continuing operations, 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 a percentage of net sales was primarily due to the increase in total net sales. However, management took action to reduce overall operational costs to match current market conditions. 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 maintain profitability in the current volatile market.

For the quarter ended June 30, 2009, our operating income from continuing operations was $513,000, as compared with operating income from continuing operations of $10,000 for the quarter ended June 30, 2008. As a percentage of net sales, operating income from continuing operations was 0.8% for the quarter ended June 30, 2009, compared to a virtual break-even for the quarter ended June 30, 2008. The increase in operating income from continuing operations was a result of the increase in gross margin and gross profit due to the factors discussed above.

                               Operating Expense



                                  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 %

                  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

Other Expense

During the second quarter of 2009, we incurred $109,000 of interest expense, compared to $335,000 for the same period last year, primarily due to a lower average outstanding balance on our line of credit, resulting from, among other things, lower inventory levels as compared to the same period in the prior year. We expect to continue 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 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 Income Taxes)

During the quarter ended June 30, 2009, our net income from continuing operations before income taxes was $404,000, as compared to a loss of $315,000 for the quarter ended June 30, 2008. This net income from continuing operations was primarily due to the increased gross margin 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 to implement actions necessary to close sales operations in both of those countries, which we continued to execute in the second quarter of 2009. For the quarter ended June 30, 2009, we incurred a loss from discontinued operations of approximately $167,000, as compared to a loss of $2.1 million from discontinued operations for the quarter ended June 30, 2008. The loss from discontinued operations resulted as we continued to wind down our business in the United States and Mexico. As of June 30, 2009, our plans for the discontinued operations were substantially complete. However, we expect to continue to record adjustments 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 net sales from continuing operations of $104.3 million decreased 18% compared to our net sales from continuing operations of $126.9 million for the same period of 2008. Average selling price of wireless handsets sold in the six months ended June 30, 2009 increased 15%, as compared to the six months ended June 30, 2008, due primarily to increased 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 wireless handset sales volume, primarily due to the impact of the worsening economic slowdown in the markets we serve during the second half of 2008 and the first and second quarters of 2009. The geographic mix of net sales shifted in the six months ended June 30, 2009 as sales in South America increased to nearly 92% of net sales, as compared to nearly 73% of net sales for the six months ended June 30, 2008. Sales in Central America decreased to 8% of total net sales in the six months ended June 30, 2009, as compared to 27% in the same period of 2008. These regional shifts in net sales were the result of the factors discussed both above and below.

                                                    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 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 $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 increased sales 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 primarily due to the continuing unusually low demand during the period, which we believe was related to the worldwide and regional economic downturn.

Net Sales by Geographic Region



                           For the Six Months
. . .