Phoenix Footwear Group, Inc. reported a loss from continuing operations of $1.1 million compared to a loss of $1.0 million for the third quarter of 2009. For the quarter ended Oct. 2, 2010, net sales totaled $4.9 million
compared to $5.5 million in the prior year comparative period. For the
current quarter, Trotters and Softwalk were down 9% and 6%,
respectively.

The net loss was $1.1 million, or 14 cents per share, compared to net earnings of $60,000, or 1 cent per share, for the third quarter of 2009. 

James Riedman, president and chief executive officer, commented, “During the quarter we continued to experience a soft retail marketplace, particularly among our independent retail customers. While we began the quarter with a solid backlog, reorders did not materialize as we anticipated, resulting in lower sales.  Nevertheless, we were able to accomplish several important things during the quarter, which we believe will result in materially better results in 2011.  We have continued to open new retail accounts and secure increases in our Spring 2011 future orders.  Additionally, we have taken further costs out of our business, reducing our projected SG&A for the upcoming year by over $2 million.  Lastly, we put a new and substantially larger credit facility in place to fund our working capital and inventory needs.”

Gross profit was $1.4 million for the quarter, down 27% compared to the prior year's comparable quarter. Gross margin decreased to 29%, a decrease of six percentage points over the third quarter of 2009 and an increase of nine percentage points from the most recent quarter. Selling, general and administrative expenses, or SG&A, totaled $2.4 million, down 10% compared to $2.6 million in the third quarter of 2009.

In the third quarter, our net loss totaled $1.1 million. Operating loss from continuing operations for the quarter totaled $1.1 million compared to an operating loss of $1.0 million in the prior year comparative period. 

Banking Update

On November 3, 2010, the company, together with its subsidiaries, entered into a Loan and Security Agreement with Gibraltar Business Capital, LLC and Westran Industrial Loan Co., LLC, for a three-year revolving credit facility and a three-year term loan, collateralized by substantially all of the assets of the Company and its subsidiaries. The Loan and Security Agreement provides for up to $5.75 million in borrowing capacity consisting of a secured first lien revolving credit facility of up to $4.25 million (subject to a borrowing base as defined in the Loan and Security Agreement) with a three-year maturity and a secured second lien term loan of $1.5 million with a three-year maturity. 

As of November 9, 2010, we had $1.5 million and $2.3 million outstanding under the term loan and the revolving credit facility, respectively, and $1.2 million in available borrowing capacity under the revolving credit facility.

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 2, 2010.

NYSE Amex Delisting Update

On October 26, 2010, Phoenix Footwear filed a preliminary proxy statement with the SEC seeking stockholder approval for a reverse stock split that would allow the company to deregister the company's common stock under the Securities Exchange Act of 1934, as amended, and as a result thereof, terminate its periodic reporting obligations with the Securities and Exchange Commission. The proposed plan is expected to permit the company to forgo many of the expenses associated with operating as a public company, including the substantial costs associated with the compliance and auditing requirements of the Sarbanes-Oxley Act of 2002. The deregistration will be accomplished by a reverse 1:200 stock split of the company's common shares. All shareholders of record owning fewer than 200 shares prior to the reverse stock split would be cashed out by the company at a price of $0.75 per pre-split share. The reverse split will be followed immediately by a 200:1 forward split of the company's common shares, which will return all shareholders owning more than 200 shares to the same number of shares they owned prior to the reverse and forward split transactions. If, after completion of the reverse and forward stock splits, the company has fewer than 300 shareholders of record, the company intends to terminate the registration of its common stock under the Securities Exchange Act of 1934, as amended. If that occurs, the company will be relieved of its requirements to comply with the Sarbanes-Oxley Act of 2002 and to file periodic reports with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q.

Additional Information

The stock split is subject to stockholder approval.  The company expects to call a meeting for January 2011 for approval of the plan.  Subject to SEC review of the preliminary proxy statement, the company will be filing a definitive proxy statement and other relevant documents with the SEC with respect to the planned stock split and deregistration and other matters to be addressed at a special meeting of stockholders.

Phoenix Footwear brands include Trotters, SoftWalk, and H.S. Trask.