SPY Inc. Reports Financial Results for the First Half and Second Quarter 2014

CARLSBAD, CA--(Marketwired - Aug 6, 2014) - SPY Inc. (OTCBB: XSPY) today announced financial results for the three and six months ended June 30, 2014.

First half sales were $17.4 million in 2014, a decrease of 9% or $1.6 million less than in the first half of 2013. Sales included lower closeout sales of $0.8 million in 2014, compared to $1.4 million in 2013. The decrease in our net sales was primarily driven by an overall decline in the consumer market coupled with several key retailers currently holding lower levels of inventory and fewer closeout sales of our sunglass products. Gross profit as a percentage of net sales was 54% for the six months ended June 30, 2014, compared to 52% for the six months ended June 30, 2013.

Second quarter sales were $8.2 million in 2014, a decrease of 18% or $1.8 million less than in the second quarter of 2013. The decrease in our net sales was primarily driven by an overall decline in the consumer market coupled with several key retailers currently holding lower levels of inventory and fewer closeout sales of our sunglass products. Gross profit as a percentage of net sales was 56% for the three months ended June 30, 2014, compared to 53% for the three months ended June 30, 2013. 

"Although we encountered a challenging consumer environment in the first couple of months of the second quarter we were pleased with the top line improvements in June and especially with the increase in our gross margin rate to the highest level in the last four years," said Michael Marckx, president and CEO. "The margin expansion is a direct result of our strong product development team as well as a concerted effort across the organization to reduce operating costs. Achieving an operating profit along with our expanding portfolio of products, including our successful Happy Lens™ Collection, positions us well for the balance of 2014 as we focus on fulfilling strong pre-orders for snow goggles, driving overall sales, improving our product margins and managing our operating costs."

Income from operations decreased by $0.2 million to $0.2 million in the first half of 2014, compared to income from operations of $0.4 million in the first half of 2013. The $0.2 million decrease was partially due to the decrease in sales offset with a 167 basis point improvement in gross profit as a percent of sales. Additionally, total operating expenses in the first half of 2014 were lower by $0.4 million, compared to the first half of 2013. Cash flow generated by operating activities was $1.5 million in the first half of 2014.

Income from operations decreased by $0.2 million to $0.1 million in the second quarter of 2014, compared to income from operations of approximately $0.3 million in the second quarter of 2013. The $0.2 million decrease was partially due to the decrease in sales offset with a 271 basis point improvement in gross profit as a percent of sales. Additionally, total operating expenses in the second quarter of 2014 were lower by $0.5 million, compared to the second quarter of 2013.

The Company incurred a net loss of $1.5 million and $1.3 million during the first half of 2014 and 2013, respectively.

The Company incurred a net loss of $0.7 million and $0.6 million during the second quarter of 2014 and 2013, respectively.

SPY Inc. invites you to join the investor conference call on Wednesday, August 6, 2014, at 1:30 p.m. PDT. The dial-in number for the call in North America is 1-866-700-6067 and 1-617-213-8834 for international callers. The participant pass code is 95387010. The call will also be webcast live on the internet and can be accessed by logging on at investor.spyoptic.com.

The results of our operations for the quarters ended June 30, 2014 and 2013 are more fully discussed in our Form 10-Q for the quarter ended June 30, 2014, filed with the Securities and Exchange Commission on August 6, 2014.

SPY Inc.:

We have a happy disrespect for the usual way of looking (at life) and the need to SEE HAPPY. It is this mindset that drives us to design, market, and distribute premium products for people who "live" to be outdoors, pushing the boundaries in action sports, motorsports, snow sports, cycling and multi-sports. We actively support the lifestyle subcultures that surround these pursuits, and as a result our products serve the broader fashion, music and entertainment markets of the youth culture. Our reason for being is to create the unusual and this is what helps us deliver distinctive products to people who are active, fun and a bit irreverent, like us. Our principal products -- sunglasses, goggles and prescription frames -- are marketed with fun and creativity under the SPY® brand. More information about SPY may be obtained from: www.spyoptic.com, www.facebook.com/spyoptic, Twitter @spyoptic and Instagram @spyoptic.

Safe Harbor Statement:

This press release contains forward-looking statements. These statements relate to future events or future financial performance and are subject to risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "feel," "estimate," "predict," "hope," the negative of such terms, expressions of optimism or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that could cause actual results to differ from those contained in our forward-looking statements include, but are not limited to lack of continuity and effectiveness of our management team, our ability to generate sufficient incremental sales of our core SPY^® brand and new products to recoup our significant investments in sales and marketing, our ability to lower our expenses or otherwise reduce our breakeven point on an operating basis, our ability to maintain or increase the availability of our existing credit facilities and otherwise finance our strategic objectives, and the other risks identified from time to time in our filings made with the U.S. Securities and Exchange Commission. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results. Moreover, except as required by law, we assume no responsibility for the accuracy or completeness of such forward-looking statements and undertake no obligation to update any of these forward-looking statements.

SPY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands, except number of shares and per share amounts)
				June 30,				December 31,
				2014				2013
				(Unaudited)
Assets
Current assets
	Cash			$	808			$	686
	Accounts receivable, net				5,316				6,543
	Inventories, net				6,557				5,872
	Prepaid expenses and other current assets				883				680
	Income taxes receivable				-				3
		Total current assets			13,564				13,784
Property and equipment, net					391				438
Intangible assets, net of accumulated amortization of $800 and $782 at June 30, 2014 and December 31, 2013, respectively					54				72
Other long-term assets					44				63
		Total assets		$	14,053			$	14,357
Liabilities and Stockholders' Deficit
Current liabilities
	Lines of credit			$	2,703			$	4,024
	Current portion of capital leases				71				77
	Current portion of notes payable				16				16
	Accounts payable				3,467				1,302
	Accrued expenses and other liabilities				2,866				3,069
		Total current liabilities			9,123				8,488
Capital leases, less current portion					57				92
Notes payable, less current portion					8				16
Notes payable to stockholders					21,597				21,452
		Total liabilities			30,785				30,048
Stockholders' deficit
	Preferred stock: par value $0.0001; 5,000,000 authorized; none issued				-				-
	Common stock: par value $0.0001; 100,000,000 shares authorized; 13,350,876 and 13,184,876 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively				1				1
	Additional paid-in capital				45,780				45,331
	Accumulated other comprehensive income				514				520
	Accumulated deficit				(63,027	)			(61,543	)
		Total stockholders' deficit			(16,732	)			(15,691	)
		Total liabilities and stockholders' deficit		$	14,053			$	14,357

SPY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Thousands, except per share amounts)
				Three Months Ended  June 30,								Six Months Ended June 30,
				2014				2013				2014				2013
				(Unaudited)								(Unaudited)
Net sales				$	8,183			$	9,995			$	17,376			$	19,002
Cost of sales					3,641				4,718				8,053				9,125
	Gross profit				4,542				5,277				9,323				9,877
Operating expenses:
	Sales and marketing				2,726				2,950				5,646				5,804
	General and administrative				1,387				1,789				2,871				3,236
	Shipping and warehousing				132				89				272				258
	Research and development				196				122				349				223
		Total operating expenses			4,441				4,950				9,138				9,521
	Income (Loss) from operations				101				327				185				356
Other income (expense):
	Interest expense				(751	)			(752	)			(1,509	)			(1,484	)
	Foreign currency transaction gain (loss)				69				(144	)			2				(162	)
	Other (expense)				(161	)			(5	)			(159	)			(5	)
		Total other expense			(843	)			(901	)			(1,666	)			(1,651	)
	Loss before provision for income taxes				(742	)			(574	)			(1,481	)			(1,295	)
Income tax provision					--				--				3				--
Net loss				$	(742	)		$	(574	)		$	(1,484	)		$	(1,295	)
Net loss per share of Common Stock
		Basic		$	(.06	)		$	(.04	)		$	(.11	)		$	(.10	)
		Diluted		$	(.06	)		$	(.04	)		$	(.11	)		$	(.10	)
Shares used in computing net loss per share of Common Stock
		Basic			13,343				13,135				13,285				13,125
		Diluted			13,343				13,135				13,285				13,125
Other comprehensive income (loss)
	Foreign currency translation adjustment			$	(93	)		$	(84	)		$	(187	)		$	93
	Unrealized gain (loss) on foreign currency exposure of net investment in foreign operations				88				96				180				(98	)
		Total other comprehensive income (loss)			(5	)			12				(7	)			(5	)
Comprehensive loss				$	(747	)		$	(562	)		$	(1,491	)		$	(1,300	)