Phoenix Footwear Group, Inc. reported a profit of $310,000, or 4 cents a share, in the third quarter compared to a net loss of $2.1 million for the third quarter of fiscal 2008.
A loss from continuing operations during the third quarter of $1.0 million, or 12 cents per share, included in this loss is $303,000 in amortized financing exit fees, $180,000 of payroll related expenses for terminated employees, and $115,000 of financial consulting and other fees. This loss compares to a loss from continuing operations of $1.3 million for the third quarter of fiscal 2008.
Net sales from continuing operations during the third quarter of $5.5 million, down 32% compared to net sales from continuing operations of $8.0 million during the third quarter of fiscal 2008.
Funded bank debt balance of $2.6 million at the close of the third quarter, which is a reduction of $5.4 million from the close of the second fiscal quarter of 2009.
Commenting on the quarter, Rusty Hall, CEO, said, “We are pleased to report a net profit for the quarter and to have begun rebuilding our capital base and balance sheet. During the quarter we closed the divestiture of our belt accessories business that was operated by our wholly-owned subsidiary, Chambers Belt Company, reduced bank debt by 68%, improved our gross margin by 22 percentage points from the second quarter of fiscal 2009, and further reduced SG&A to $2.3 million for the quarter after eliminating certain nonrecurring items. While our net sales for the quarter continued to be impacted by the difficult retail environment, we believe we have made considerable progress on the sales front. Our order backlog for future shipments is 65% above orders at the same time last year and our products are performing well at retail. Given the foundation our team has rebuilt, and based on this backlog, we expect to begin generating profitable organic growth beginning with the upcoming quarter.”
As previously reported on July 9, 2009, we closed the Chambers' asset sale transaction with Tandy Brands Accessories, Inc. The transaction was completed pursuant to an Amended and Restated Asset Purchase Agreement dated July 7, 2009. As part of the purchase price, at closing, Tandy paid $2.6 million for inventory and $500,000 for equipment. In addition to the closing payments, during the 12 months following closing, Tandy is obligated to pay Chambers an earn-out based on a percentage of Tandy's revenues generated from the sale of products formerly sold by the Chambers business. This earn-out is not capped and provides for $2,000,000 in minimum aggregate payments. These payments are to be paid on a monthly basis, except for an initial $430,000 advance payment that was made to Chambers at closing.
Banking Update
On October 15, 2009 the Company and Wells Fargo Bank, National Association entered into a Third Amendment to Forbearance Agreement and Fourth Amendment to Credit and Security Agreement. Under the terms of this Amendment, the existing credit agreement and forbearance agreements were changed by, among other things, decreasing the inventory sublimit in the borrowing base to $2.3 million and providing for daily 1% decreases in the 46% advance rate on eligible inventory after October 26, 2009 and extending the maturity date for the revolving line of credit and the expiration of the forbearance period to November 30, 2009. The time period extensions are subject to the Company's continuing adherence to various conditions. The Amendment requires the Company pay Wells Fargo a $25,000 accommodation fee on December 1, 2009 unless Phoenix Footwear repays the indebtedness in full on or before November 30, 2009.
As of October 14, 2009, the Company had $2.8 million outstanding under the Credit Agreement with remaining availability of $221,000. The Company is engaged in discussions with several different financing sources concerning the refinancing of the revolving line of credit debt on or before November 30, 2009.
The description of the agreements above is qualified in its entirety by reference to the full text of the applicable agreements, copies of which will be attached as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended October 3, 2009.
NYSE Amex Delisting Notice
On October 9, 2009, the Company received a notice from the NYSE Amex LLC (NYSE Amex), indicating that as of its quarter ended July 4, 2009, the Company failed to meet the continued listing standards of the NYSE Amex. Specifically, the letter stated that the Company is not in compliance with Section 1003(a)(ii) of the NYSE Amex Company Guide, with stockholders' equity of less than $4,000,000 and losses from continuing operations and/or net losses in three of its four most recent fiscal years. The letter also stated that the Company must submit a plan to the NYSE Amex by November 9, 2009 addressing how it intends to regain compliance with this continued listing standards by April 11, 2011. The plan must be approved by the NYSE Amex in order for the Company to maintain its listing. The Company intends to submit a plan shortly to the NYSE Amex that responds to this notification. The policy of the NYSE Amex is to make a determination within 45 days of a company's submission of a plan for compliance as to whether the company has made reasonable demonstration in the plan of an ability to regain compliance with the continued listing standards within the requisite time frame. The NYSE Amex may either accept the plan, at which time the Company will be subject to ongoing monitoring for compliance with the plan, or not accept the plan and initiate delisting proceedings. There can be no assurance that the NYSE Amex will accept any plan that the Company submits or that, if it does accept any such plan, the NYSE Amex will not subsequently initiate delisting proceedings as a result of the NYSE Amex's compliance monitoring with respect to that plan or otherwise.
