The difference between Spy brand sales and total company sales in 2012 was due to discontinued licensed brand products, which will have no sales in the future. Discontinued licensed brand sales were less than $50,000 in the first quarter of 2013, compared with sales of $0.3 million in the first quarter of 2012.
"We are especially happy to have achieved our 8th consecutive quarter of year over year growth of Spy brand products with our strong Spy brand sales growth of 14 percent for the first quarter of 2013 over the first quarter of 2012," said Michael Marckx, President and CEO. "This is very encouraging for our efforts during the remainder of 2013, as our most important product, the Spy Happy Lens, which is the most innovative product Spy has ever launched, was a significant part of our first quarter success. Moving forward, our Happy Lens Collection is expanding to include a growing list of new styles and will be featured in our Rx and Performance Collections, which will further leverage this innovation in new ways.
Spy designs eyewear for intense action sports, motorsports, snow sports, cycling and multi-sports.
"On top of our successful Happy Lens launch," Marckx continued, "we are even more enthralled with the combination of things we accomplished this quarter: solid sales growth, improved gross margins, lower operating expenses, positive cash flow from operations and a break even income from operations. We believe this solid first quarter of the year helps to position us well for the balance of 2013."
Income from operations improved by $2.2 million to $29,000 in the first quarter of 2013, compared to a loss from operations of $2.2 million in the first quarter of 2012. The $2.2 million improvement was partially due to the increase in sales combined with a 450 basis point improvement in gross profit as a percent of sales, which generated $0.8 million in additional gross profit contribution. Additionally, total operating expenses in the first quarter of 2013 were lower by $1.4 million, compared to the first quarter of 2012, primarily a result of the restructure actions taken in the third quarter of 2012. Cash flow generated by operating activities was $1.5 million in the first quarter of 2013, compared to negative $0.4 million in the first quarter of 2012, or an improvement of more than $1.9 million.
The net loss improved by $1.9 million to $0.7 million in the first quarter of 2013, compared to a net loss of $2.6 million in the first quarter of 2012, primarily due to the reduction in our loss from operations to become breakeven, partially offset by higher interest expense due to the increased level of indebtedness. Interest expense included in the net losses is primarily "paid in kind" by being added to the outstanding principal balance rather than being paid in cash.
In May 2013, the company amended subordinated long-term debt arrangements, which in aggregate totaled $19.6 million at March 31, 2013. These long-term debt arrangements are due to Costa Brava III, LLP ($18.0 million) and Harlingwood (Alpha) LLC ($1.6 million), entities that as of March 31, 2013 owned approximately 48.3 percent and 5.4 percent of common stock, respectively. The fundamental amendments were: (i) to extend the maturity date of each of these debt arrangements from April 1, 2014 to April 1, 2015, and (ii) the line of credit commitment (excluding paid in kind interest being added to the principal rather than paid in cash) from Costa Brava was reduced from $10.0 million to $9.0 million.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
||||||||||
| (Thousands, except per share amounts) | ||||||||||
| Three Months Ended March 31, | ||||||||||
| 2013 | 2012 | |||||||||
| (Unaudited) | ||||||||||
| Net sales | $ | 9,008 | $ | 8,145 | ||||||
| Cost of sales | 4,407 | 4,354 | ||||||||
| Gross profit | 4,601 | 3,791 | ||||||||
| Operating expenses: | ||||||||||
| Sales and marketing | 2,854 | 3,629 | ||||||||
| General and administrative | 1,447 | 1,996 | ||||||||
| Shipping and warehousing | 169 | 188 | ||||||||
| Research and development | 102 | 137 | ||||||||
| Total operating expenses | 4,572 | 5,950 | ||||||||
| Income (Loss) from operations | 29 | (2,159 | ) | |||||||
| Other income (expense): | ||||||||||
| Interest expense | (732 | ) | (505 | ) | ||||||
| Foreign currency transaction gain (loss) | (18 | ) | 56 | |||||||
| Total other expense | (750 | ) | (449 | ) | ||||||
| Loss before provision for income taxes | (721 | ) | (2,608 | ) | ||||||
| Income tax provision | - | - | ||||||||
| Net loss | $ | (721 | ) | $ | (2,608 | ) | ||||
| Net loss per share of Common Stock | ||||||||||
| Basic | $ | (0.05 | ) | $ | (0.20 | ) | ||||
| Diluted | $ | (0.05 | ) | $ | (0.20 | ) | ||||
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