Orange 21 said it will need additional capital during the second quarter of 2011 and in subsequent periods to support its planned operations in 2011 in the wake of worsening losses in the quarter ended March 31.

The company, which makes eyewear for action sports, motorsports snow sports and lifestyle markets, reported net sales of $6.7 million in Q1, down from $8.3 million in the first quarter of 2010. Even after excluding results  from the manufacturing business it divested in the fourth quarter of 2010, sales were off 9.0 percent.

Gross margins improved 590 basis points to 50.9 percent of sales from the year earlier quarter, but operating expenses as a percent of net sales rose three times faster to 70.9 percent. That resulted in the companys operating loss swelling by half to $1.3 million compared to the year earlier quarter.

Orange 21 ended the quarter with a net loss of $1.6 million, or 13 cents per diluted share, compared to 8 cents in the first quarter of 2010.

Inventory was essentially flat at $8.8 million, while accounts receivables fell 18.3 percent to $3.41 million. Orange 21s leading action sports brands include Spy and ONeill.

Orange 21 management has been in preliminary discussions with certain existing investors about the companys future cash needs and warned that additional financing, if available, may result in either dilution of the companys stockholders and additional debt. The companys largest shareholder is its chairman, Seth Hamot, who has loaned the company $7 million since March 2010 through a partnership he controls. Hamot currently owns  43 percent of the companys shares.