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

SPY(R) Inc. Total Company First Half Net Sales Reported as $17.4 Million

CARLSBAD, CA -- (Marketwired) -- 08/06/14 -- 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     Six Months Ended
                                        June 30,             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)
                                 =========  =========  =========  =========

CONTACTS:
Maddy Isbell
PR Manager
760-804-8420
Fax: 760-804-8442
http://investor.spyoptic.com

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