Press Release:
SPY Inc. Reports Financial Results for the Quarter Ended March 31, 2012
CARLSBAD, CA, May 10, 2012 (MARKETWIRE via COMTEX) –SPY Inc. (OTCBB: XSPY) today announced financial results for the quarter ended March 31, 2012.
Total net sales increased by $1.4 million, or 22%, to $8.1 million for the quarter ended March 31, 2012, compared with total net sales of $6.7 million for the quarter ended March 31, 2011.
Sales of our core SPY(R) brand products increased by $1.3 million, or 22%, to $7.9 million for the quarter ended March 31, 2012, compared with core SPY(R) brand sales of $6.5 million during the quarter ended March 31, 2011. Other sales were $0.3 million during the quarter ended March 31, 2012 consisting of closeout sales of substantially all of the remaining inventory value of licensed brand products which are no longer a focus of the Company, compared with licensed brand product sales of $0.2 million during the quarter ended March 31, 2011.
“We are very pleased with the significant growth SPY(R) generated in our first quarter of 2012, particularly since our first quarter is usually a seasonally weak quarter,” said Michael Marckx, President and CEO. “During the last twelve months we have taken steps to bolster SPY’s position in the market in order to position us for continued growth, including new marketing initiatives, strategic product offerings and investments in sales and marketing related to our core SPY(R) brand. It is nice to see our renewed focus on the core SPY(R) brand and our distinctive point-of-view and positioning in the market reflected in continued positive sales growth trends for our SPY(R) brand.”
We incurred a net loss of $2.6 million during the quarter ended March 31, 2012, compared to a net loss of $1.6 million during the quarter ended March 31, 2011. Despite these net losses, the negative cash flow from operations of $0.4 million and $0.6 million during the quarters ended March 31, 2012 and 2011, as reported in the Consolidated Statements of Cash Flows in our Forms 10-Q in the respective periods, was significantly less than the net loss in each period primarily due to (i) significant levels of non-cash expenses of $0.8 million and $0.4 million, respectively, and (ii) cash generated from our working capital of $1.5 million and $0.5 million, respectively. The working capital improvements during the quarter ended March 31, 2012 were primarily due to the increase in accounts payable and accrued liabilities associated with the timing of inventory purchases, whereas working capital improvements during the quarter ended March 31, 2011 were primarily due to reduced accounts receivable.
The results of the quarter ended March 31, 2012 included the impact of a higher gross margin dollar contribution primarily attributable to higher sales of SPY(R) brand products, compared to the quarter ended March 31, 2011. Gross margin as a percent of sales was lower during the quarter ended March 31, 2012, primarily due to the impact of closeout sales of licensed brands during the quarter at selling prices that approximated the previously written down inventory value, while sales of licensed brands were sold at relatively normal levels of gross margin during the quarter ended March 31, 2011.
Operating expenses increased during the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011 primarily due to actions engaged to support several company-wide strategic objectives. Sales and marketing expenses increased by $0.8 million, an increase that primarily related to the renewed focus on our SPY(R) brand positioning, which involved increasing headcount in both the sales and marketing functions and expanding our sales support and marketing activities. General and administrative expenses increased by $0.3 million primarily due to increased ongoing payroll-related and stock compensation costs, most of which related to the restructuring of management that took place subsequent to the first quarter of 2011, general corporate matters and legal and other professional service fees. Interest expense increased during the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011 due to the increased level of outstanding borrowings; however, most of the interest expense in 2012 was paid in kind by adding it to the balance of the outstanding borrowings, and therefore was a non-cash expense.
The results of our operations during the quarter ended March 31, 2012 and 2011 are more fully discussed in our Form 10-Q for the quarter ended March 31, 2012.
SPY Inc.: We design, market and distribute premium products for hard core participants in action sports, motorsports, snow sports, cycling and multi-sports markets, which embrace their attendant lifestyle subcultures, crossing over into more mainstream fashion, music and entertainment markets. We believe a principal strength is our ability to create distinctive products for active people within the youthful demographics of these subcultures. Our principal products — sunglasses, goggles and prescription frames — are marketed under the SPY(R) brand. During 2011 and 2010, we also designed, manufactured and sold eyewear under the O’Neill(R), Melodies by MJB(R) and Margaritaville(R) brands and in 2011, we decided to cease any new purchase orders of additional inventory for these licensed eyewear brands and do not expect any significant sales from these brands in the future.
