Orange 21, parent company to Spy Optics, announced that net sales for the second quarter ended June 30, 2005 were $10.4 million compared to $7.6 million in 2004, an increase of 36%. Gross margins declined 590 basis points during the quarter to 54.0%. Operating margins as a percentage of sales declined 190 basis points to 5.2%. However, net income for the quarter rolled back into the black to $362,000, or four cents per diluted share, versus a net loss of approximately $84,000, or two cents per diluted share, last year.

Geographically, California continues to be the company’s largest market with 53% of domestic revenues compared to 54% for the similar period last year. Spy Optics opened approximately 300 new doors in Q2, of which 37% were in the Eastern region of the U.S. International sales grew by 88% and represented 26% of the company’s revenue versus 20% in Q2 of 2004. The largest international market continues to be Canada, which represented 46% of the International revenue in the quarter, compared to 50% in Q2 of 2004.

Orange 21 has also entered into a deal that provides the option to acquire one of its key vendors, LEM, which manufactures a large percentage of the company’s sunglasses and goggles. Over the past few months, ORNG management has launched several initiatives with LEM, to reduce manufacturing, QC, and logistics costs, which should have a long-term positive impact on margins. The company has recently made a deposit to LEM, which is expected to be refundable if they do not complete a transaction.

Orange 21’s management remains comfortable with its previous annual revenue guidance of 25% to 30% growth and the current annual consensus EPS estimate of 16 cents per share.