BEHOLD: The New “Hot” Phone In South America

I was gonna buy it; but why bother? The market cap is so small, I’ll end up burying myself in a sea of illiquidity if this should seize up.

BEHOLD:

The VERYKOOL [sic] smartphone, made by IFON.

Here’s what I know:

Their suite of phones are entirely retarded, yet they seem to be selling quite a few in Latin American countries. Their market cap is a paltry $42 million and sales are ramping. According to their last earnings release:

 

“We shipped 477,000 handsets this quarter, a 166% increase compared to unit shipments in the particularly soft third quarter last year.  Sales to customers in South America more than doubled, and sales in Central America increased by 59%.  Our efforts to realign our cost structure reduced total operating expenses by 23% compared to the prior year period and produced a profitable quarter.  We continued to refresh our product portfolio by expanding our Xtreme line of ruggedized handsets with the verykool®RS90 “Vortex” smartphone and introduced the verykool®s470 “Black Pearl,” a powerful smartphone with a quad-core processor, Android 4.2 and a 4.7″ HD screen.”

InfoSonics reported net sales for the third quarter of 2013 of $9.9 million, which represented a $4.5 million, or 84%, increase from $5.4 million for the third quarter of 2012.  As noted above, net sales to carrier customers in South America doubled and sales to customers in Central America grew 59%.  Sales were also strong to U.S. based distributors selling to customers in Latin America and Mexico.

Gross profit for the third quarter of 2013 was $1.8 million, a 60% increase from $1.1 million in the 2012 third quarter, reflecting the significantly higher level of net sales.  Gross margin as a percent of net sales in the 2013 third quarter was 18.5% compared to 21.2% in the 2012 third quarter.  The lower gross margin this year reflects the sale of slow moving inventory at reduced prices and margins, as well as a decrease of private label sales to customers in EMEA and APAC.

Operating expenses in the third quarter of 2013 of $1.8 million declined 23% compared to $2.3 million in the 2012 third quarter.  Reduced spending in a number of areas resulted in a 13% decrease in selling, general and administrative expenses.  R&D expenses fell by 58%, reflecting savings associated with the consolidation of our China development team earlier in the year into one location in Shenzhen.

Net income for the third quarter of 2013 was $34,000, or $0.00 per share, compared to a net loss of $1.2 million, or $0.08 per share, in the third quarter of 2012.

At September 30, 2013, the Company had $15.8 million in working capital, including $1.9 million in cash and restricted cash, and no outstanding indebtedness.  Cash and restricted cash balances declined by $4.5 million compared to the June 30, 2013 balances primarily as a result of increased accounts receivable incident to the increased sales level.

If this trend continues, there’s no reason to believe it cannot trade at 1.5x sales, which is 50% higher than current levels, not to mention a much higher multiple can be affixed when extrapolating its recent growth rate. The truth is, I know very little about this name and just started exploring its potential. The market cap makes it too small for me to play in any significant way. But that shouldn’t preclude the pikers out there reading, who tend to experiment in the world of high finance, playing Gordon Gekko, with their 4 figure Zeeco accounts.