PXFG Phoenix Footwear Group Inc (PK)

Phoenix Footwear Group, Inc. (OTCMarkets.com: PXFG) today reported results for the Second quarter ended June 30, 2012. Phoenix also announced today the details of a New Credit Facility entered into as of July 30, 2012

Second Quarter and First Six Months of 2012

• Consolidated net loss from continuing operations for the second quarter declined to $470,000 or $0.06 per share compared to a net loss of $535,000 or $0.07 per share during the second quarter of fiscal 2011.
• Net sales from continuing operations for the second quarter decreased $56,000 or 1.7% to $3.15 million compared to $3.2 million for the second quarter of fiscal 2011.
• Consolidated net loss from continuing operations for the first six months of fiscal 2012 narrowed to $209,000 or $0.03 per share compared to a net loss of $1.0 million or $0.12 per share for the first six months of fiscal 2011.
• Net sales from continuing operations for the first six months increased 10.3% to $8.9 million.
• Cash provided by operating activities from continuing operations was $253,000 compared to cash used in operating activities of $724,000 for the first six months of fiscal 2011.
• On July 30, 2012, the Company entered into a new $7.25 million three-year Loan and Security Agreement with AloStar Bank of Commerce replacing its former $5.25 million credit facility with Gibraltar Business Capital and Westran Industrial Loan Co. Concurrent with the execution of the new credit facility, the Company entered into a subordinated $700,000 three-year term note with Gibraltar Business Capital and completed the sale of a $350,000 of subordinated secured 1% convertible note. The new credit facility effectively expands the Company’s working capital while substantially lowering its borrowing costs.

For the quarter ended June 30, 2012, net sales declined to $3.15 million or 1.7% from $3.2 million when compared to the second quarter of fiscal 2011. Net sales for the first six months of fiscal 2012 increased $828,000 or 10.3% to $8.9 million compared to $8.0 million for the first six months of fiscal 2011. For the first six months of fiscal 2012, the Company experienced improving unit sales volumes in most all of its channels of distribution, as well as an increase in the average net unit selling price.

Gross margins for the second quarter of 2012 declined slightly to 36.2% compared to 36.5% for the second quarter of fiscal 2011. For the first six months of fiscal 2012, gross margins improved 110 basis points to 37.0% compared to 35.9% in 2011. The improved gross margin for the period resulted from an increase in the average net unit selling price on a higher unit volume during the first six months of fiscal 2012 that was partly offset by an increase in the average net cost per unit.

Operating expenses continued to decrease in the second quarter and first six months of fiscal 2012 when compared to the same periods of the prior year, primarily due to reductions in legal, public company, rent and other operating expenses associated with the restructuring of the Company’s operations that was largely completed during the first quarter of fiscal 2011.

Selling, general and administrative expenses or SG&A, totaled $1.4 million and $3.1 million for the second quarter and first six months of fiscal 2012, compared to $1.5 million and $3.5 million for the second quarter and first six months of fiscal 2011. SG&A as a percentage of net sales for the second quarter and first six months of fiscal 2012 was 45.2% and 35.3% compared to 47.5% and 44.0% for the second quarter and first six months of fiscal 2011.

The Company reported a net operating loss from continuing operations of $470,000 or $0.06 per share for the second quarter, compared to a net operating loss from continuing operations of $535,000 or $0.07 per share for the same period of the prior year.

For the first six months of fiscal 2012, the Company reported a net operating loss from continuing operations of $209,000 or $0.03 per share, compared to a net operating loss from continuing operations of $1.0 million or $0.12 per share for the first six months of fiscal 2011.

Earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from continuing operations for the first six months of fiscal 2012 was $233,000 compared to a negative EBITDA of $541,000 for the first six months of fiscal 2011.

BANK REFINANCING

On July 30, 2012, the Company entered into a new three-year Loan and Security Agreement (the “AloStar Loan Agreement”) with AloStar Bank of Commerce, an Alabama bank (“AloStar”) that provides for up to $7.25 million in borrowing capacity consisting of a secured first lien revolving credit facility of up to $7.0 million with an initial per annum interest rate of 7.5% and a secured first lien term loan of $250,000 with an initial per annum interest rate of 8.5%, replacing the previous Loan and Security Agreement with Gibraltar Business Capital (“Gibraltar”) and Westran Industrial Loan Co. (“Westran”), that provided for up to $5.25 million in borrowing capacity consisting of a revolving credit facility of $4.75 million at a per annum interest rate of 11.25% and a term loan of $1.5 million with a per annum interest rate of 16.0%. The new AloStar Loan Agreement provides the Company with additional working capital at significantly reduced interest rates.

Concurrently with the execution of the AloStar Loan Agreement, and as a condition thereof, the Company also entered into a subordinated Loan and Security Agreement with Gibraltar Business Capital, LLC (“Gibraltar”) for a three-year $700,000 term loan with a per annum interest rate of 18.0% (the “Gibraltar Subordinated Loan Agreement”).

As an additional condition to the financing, the Company also concurrently completed the sale of $350,000 of a subordinated secured 1% convertible note (the “2012 Note,” and collectively with the 2011 Notes, the “Greenwood Notes”) to MGPLA LP (the “2012 Investor,” and together with the 2011 Investors, the “Greenwood Investors”), an affiliate of the 2011 Investors, with a conversion rate of $0.23 per share convertible into 1,521,739 shares of the Company’s common stock. As a result of the issuance of the 2012 Note at a lower conversion price than the 2011 Notes, the conversion price of the 2011 Notes were adjusted from $0.334 to $0.23 per share.

Proceeds from the borrowings made on July 30, 2012, were used to pay in full the outstanding balances of the Loan and Security Agreement owed to its prior lenders, Gibraltar and Westran. As a result, all commitments under the Prior Loan Agreement and related $4.75 million Revolving Credit Note and $1.5 million Term Loan, Intellectual Property Security Agreement, and Pledge Agreement each dated November 3, 2010, were terminated, all borrowings thereunder were repaid, and all liens thereunder were released, in each case effective July 30, 2012.

The terms of the AloStar Loan Agreement, the Gibraltar Subordinated Loan Agreement, and the 2012 Purchase Agreement and related instruments and documents executed on July 30, 2012 were included as Exhibits 10.01 to 10.21 to the Company’s Supplemental Report posted to the OTC Disclosure & News Service on August 4, 2012, and can be accessed by going to www.otcmarkets.com/stock/PXFG/filings.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, specializes in quality comfort women’s and men’s footwear with a design focus on fitting features. Phoenix Footwear designs, develops, markets and sells footwear in a wide range of sizes and widths under the brands Trotters® and SoftWalk®, These brands are primarily sold through department stores, leading specialty and independent retail stores, mail order catalogues and internet retailers and are carried by approximately 677 customers in over 905 retail locations throughout the U.S. Phoenix Footwear has been engaged in the manufacture or importation and sale of quality footwear since 1882.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding Phoenix Footwear’s ability to repay its bank debt in a timely manner, future growth and performance of its individual brands, expected financial performance and condition for fiscal 2012 and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” “exploring,” or similar expressions. Although Phoenix Footwear believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Phoenix Footwear or any other person that the objectives and plans of Phoenix Footwear will be achieved. All forward-looking statements included in this press release speak only as of the date of this press release and are based on Phoenix Footwear's current expectations and projections about future events, based on information available at the time of the release, and Phoenix Footwear expressly disclaims any obligation to release publicly any update or revision to any forward-looking statement contained herein if there are changes in Phoenix Footwear’s expectations or if any events, conditions or circumstances on which any such forward-looking statement is based.

  Phoenix Footwear Group, Inc. Condensed Consolidated Balance Sheets (In thousands)           (Unaudited) June 30, 2012 December 31, 2011 ASSETS   Current assets: Cash and cash equivalents $ 27 $ 41 Accounts receivable, net 1,890 2,020 Inventories, net 5,948 6,733 Other current assets 1,007 1,451 Income taxes receivable   149   146 Total current assets 9,021 10,391   Property, plant and equipment, net 499 556 Other assets   15   51 TOTAL ASSETS $ 9,535 $ 10,998   LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Notes payable, current $ 3,535 $ 3,784 Accounts payable 2,251 3,200 Accrued expenses 854 902 Other current liabilities 193 205 Current liabilities of discontinued operations   167   174 Total current liabilities 7,000 8,265   Convertible notes payable 1,000 1,000 Other non-current liabilities   153   154 Total liabilities 8,153 9,419   Stockholders' equity   1,382   1,579 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 9,535 $ 10,998   Phoenix Footwear Group, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data)             (Unaudited) Three Months Ended   June 30, 2012 July 2, 2011 Net sales $ 3,150 100% $ 3,206 100% Cost of goods sold   2,009   64%   2,037   64%   Gross profit 1,141 36.2% 1,169 36.5%   Operating expenses: Selling, general and administrative expenses 1,426 45% 1,524 48% Goodwill and intangible impairment charges   -   -%   -   0% Total operating expenses   1,426   45%   1,524   48%   Operating income (loss) (285 ) -9% (355 ) -11%   Interest expense, net   185   6%   180   6%   Income (loss) before income taxes and discontinued operations (470 ) -15% (535 ) -17%   Income tax (benefit) expense   -   0%   -   -%   Earnings (loss) from continuing operations (470 ) -15% (535 ) -17%   Earnings (loss) from discontinued operations, net of tax   -   0%   320   10%   Net earnings (loss) $ (470 ) -15% $ (215 ) -7%   Earnings (loss) per share: Basic Continuing operations $ (0.06 ) $ (0.07 ) Discontinued operations   -     0.04   $ (0.06 ) $ (0.03 ) Diluted Continuing operations $ (0.06 ) $ (0.07 ) Discontinued operations   -     0.04   Net earnings (loss) $ (0.06 ) $ (0.03 )   Weighted-average shares outstanding: Basic 8,218 8,178 Diluted 8,218 8,178   Phoenix Footwear Group, Inc. Consolidated Statements of Operations (In thousands, except per share data)             (Unaudited) Six Months Ended   June 30, 2012 July 2, 2011 Net sales $ 8,855 100% $ 8,027 100% Cost of goods sold   5,578   63%   5,147   64%   Gross profit 3,277 37% 2,880 36%   Operating expenses: Selling, general and administrative expenses   3,124   35%   3,532   44% Total operating expenses   3,124   35%   3,532   44%   Operating loss 153 2% (651 ) -8%   Interest expense, net   362   4%   359   4%   Loss before income taxes and discontinued operations (209 ) -2% (1,010 ) -13%   Income tax (benefit) expense   -   0%   -   -%   Earnings (loss) from continuing operations (209 ) -2% (1,010 ) -13%   Earnings (loss) from discontinued operations, net of tax   (1 ) 0%   456   6%   Net earnings (loss) $ (210 ) -2% $ (554 ) -7%       Earnings (loss) per share:   Basic and diluted Continuing operations $ (0.03 ) $ (0.12 ) Discontinued operations   -     0.06   Net earnings (loss) $ (0.03 ) $ (0.07 )   Weighted-average shares outstanding: Basic and diluted 8,198 8,178