InfoSonics Corporation (InfoSonics) is a distributor and provider of wireless handsets and accessories in Central and South America. The Company provides end-to-end handset and wireless terminal solutions for carriers in both Central and South America. It distributes products of original equipment manufacturers (OEMs), including Samsung and others. It is also involved in the designing, sourcing and distributing of a line of products under its own verykool brand, which includes entry level, mid-tier and high-end products. InfoSonics operates a warehouse and distribution center, which serves customers. The Company has wholly owned subsidiaries in Central and South America, which conduct some of its business activities in their respective regions.
The country in which it sells most of its phones, Argentina, slapped a 30% tarif on phone imports, which reduced demand for the company’s products. Furthermore, the company has shut down its US and Mexican operations and its use of outsourcing in the design of its private label phone products. These and other issues have contributed to a massive drop in the company’s revenue. And when I say massive it is incredibly massive from 64m in sale per quarter to 8! The company is now losing 2m per quarter. They do have an impressive balance sheet of NCAV over 22m.
Instead of trying to fight with the 30% tariff, the company has decided to focus on developing a strong portfolio of private label phones. To that end, it just opened a design centre in Asia, and expects to concentrate its sales in Asia and South America. InfoSonics completed its first handset sale in Asia subsequent to the end of the last quarter.
This investment has some similarities to a that of a venture capital endeavor, in that management has a strong stake and the company faces a lot of uncertainty as it tools itself up to develop new products for new markets. But there is one major difference between this investment and a venture capital investment: this company has more equity in the form of cash alone than the investment’s asking price.
The good news for shareholders is that management is along for the ride: the company’s CEO owns about $3 million worth of this company. As such, he is likely to invest company money only for the purpose of generating returns, rather than for empire-building. The company’s recent exit from unprofitable segments (generating cash from receivables and inventory in the process) are a testament to this.
Infosonics have a brand new company to create
– It has no clear barriers to entry
– The business is hypothetic
– The NASDAQ capital market have provided a warning to the company regarding the fact that they have been trading under the 1$ mark for the last months. NASDAQ requires shares trading over 1$ to stay listed. They have until may 1st to change that or they’ll be unlisted.
The opportunity exists because
– sales are down, let’s say to the floor.
– new business regarding private label phone is unprovened.
– cash is burning!
Disclosure : Author has a position in IFON.