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Description of Business and Liquidity
9 Months Ended
Sep. 30, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business and Liquidity

 SPY Inc. (the “Company”) designs, markets and distributes premium sunglasses, goggles and prescription frame eyewear.  In 1994, the Company began as a grassroots brand in Southern California with the goal of creating innovative and aesthetically progressive eyewear, and, in doing so, the Company believes it has captured the imagination of the action sports market with authentic, distinctive, performance-driven products under the SPY® brand.  Today, the Company believes the SPY® brand, symbolized by the distinct “cross” logo, is a well recognized eyewear brand in its segment of the action sports industry, with a reputation for its high quality products, style and innovation.

 

 The Company was incorporated as Sports Colors, Inc. in California in August 1992, but had no operations until April 1994, when the Company changed its name to Spy Optic, Inc.  In November 2004, the Company reincorporated in Delaware and changed its name to Orange 21 Inc.  In February 2012, the Company changed its name from Orange 21 Inc. to SPY Inc. to better reflect the focus of its business going forward.

 

 The Company operates through its subsidiaries and currently has one wholly-owned subsidiary incorporated in California, Spy Optic Inc. (“SPY North America”), and one wholly-owned subsidiary incorporated in Italy, Spy Optic Europe S.r.l. S.U. (“SPY Europe”).

 

Capital Resources

 

           The Company incurred significant negative cash flow from operations, operating and net losses, and had significant working capital requirements during and prior to the year ended December 31, 2012.  During the nine months ended September 30, 2013, the Company had positive cash flow from operations principally as a result of a significant reduction in operating expenses and increases in gross profit.   However, the Company anticipates that it will continue to have ongoing cash requirements to finance its seasonal and ongoing working capital needs and net losses.

 

           In order to finance the Company's net losses and working capital requirements, the Company has relied and anticipates that it will continue to rely on SPY North America’s credit line with BFI Business Finance (“ BFI ”) (the “ BFI Line of Credit ”) and its credit facilities with Costa Brava Partnership III, L.P. (“ Costa Brava ”).  In addition, SPY North America has relied on debt and equity financing from Harlingwood (Alpha), LLC (“ Harlingwood ”).  Costa Brava and Harlingwood are related parties.  The total outstanding indebtedness of the Company was $20.8 million and $23.9 million at September 30, 2013 and December 31, 2012 respectively.  (See Note 7 “ Short-Term Debt ”, Note 8  "Long-Term Debt" and Note 11  "Related Party Transactions")

 

The Company believes it will have sufficient cash on hand and cash available under existing credit facilities to enable the Company to meet its operating requirements for at least the next twelve months, if the Company is able to achieve some or a combination of the following factors: (i) achieve its desired sales growth, (ii) continue the improvements in the management of working capital, and (iii) continue to manage and operate the Company at reduced levels of sales, marketing, general and administrative, and other operating expenses.  However, the Company will need to continue to access its existing credit facilities during the next twelve months to support its planned operations and working capital requirements, and intends to (i) continue to borrow, to the extent available, from the BFI Line of Credit, (ii) increase the level of outstanding principal due to Costa Brava by borrowing up to the maximum amount available, including through the ongoing deferral of interest payments which otherwise would have been payable to Costa Brava periodically, provided, in each case, that they remain available and on terms acceptable to the Company, and (iii) if necessary, may need to raise additional capital through debt or equity financings.