CARLSBAD, Calif.— SPY Inc. (OTCBB: XSPY) reported its financial results for the quarter ended Sept. 30, 2012.

Total net sales increased by $0.7 million, or 8 percent, to $9.9 million for the quarter, compared with total net sales of $9.2 million for the comparable quarter 2011. Total net sales increased by $2.6 million, or 10 percent, to $27.5 million for the nine months ended Sept.30 compared with total net sales of $24.9 million for the nine months in the prior year.

Sales of the company’s “core” SPY brand products increased by $1.4 million, or 17 percent, to $9.8 million for the quarter compared with core SPY brand sales of $8.4 million in Q3 2011. Other sales of approximately $0.1 million consisted of licensed brand products which are no longer a focus of the company, compared with licensed product sales of $0.8 million during the quarter ended Sept. 30, 2011.
Sales of core SPY brand products increased by $3.9 million, or 17 percent, to $27.1 million for the nine months ended Sept.30.

The company incurred a net loss of $1.8 million during the third quarter 2012, which was lower than the net loss of $3.0 million during the prior year’s third quarter, which the company attributed to increased gross margins. Total operating expenses were slightly lower, the company said, citing lower general and administrative expenses due to the level of legal and consulting expenses in 2011 associated with the restructure of management in 2011, offset by increased sales and marketing expenses in 2012 related to its SPY brand products. Operating expenses in the quarter ended Sept. 30 included $0.7 million related to certain restructuring actions which included estimated expenses associated with reducing the number of employees and changing the direct portion of Spy’s European business to a distribution model. breakeven point on an operating basis.

"With strong SPY sales growth of 17 percent for third quarter of 2012 over 2011, building on the huge SPY brand growth rate of 25 percent for the third quarter of 2011 over 2010, we are happy to have achieved our sixth consecutive quarter of year-over-year growth of SPY brand products. We feel this once again demonstrates the strength of our renewed brand positioning and exciting new product collection," said Michael Marckx, president and CEO. "We are especially pleased that we were able to grow our North American snow goggle and sunglass businesses because of such a poor snow season last year that we believe caused many of our retailers to have relatively high inventory levels going into this 2012 fall snow goggle buying season."

In August 2012, the company increased its borrowing capacity by increasing the maximum principal amount available under one of its credit facilities with Costa Brava Partnership III, L.P. by $3.0 million (from $7.0 million to $10.0 million), thereby increasing the aggregate maximum principal amount under all credit facilities from Costa Brava from $14.0 million to $17.0 million (excluding accrued interest which is added to outstanding principal). The company also extended the due dates of both of its credit facilities with Costa Brava to be April 1, 2014. In September 2012, the company borrowed $1.0 million under a convertible debt arrangement with Harlingwood (Alpha), LLC ("Harlingwood"). Costa Brava and Harlingwood are significant shareholders of the company's common stock.