Orange 21 Inc., the parent of Spy Optic, reported sales decreased 6% in the quarter ended Sept. 30, to $8.2 million from $8.8 million a year ago.

Consolidated net loss decreased to $0.9 million for the three months ended September 30, 2010 from $1.1 million for the three months ended September 30, 2009. The three months ended September 30, 2010 included approximately $0.4 million in additional direct operating expenses related to the addition of the Margaritaville(TM) and Melodies by MJB(TM) eyewear brands for which there were minimal sales during the period. There were no such expenses during the comparable period in 2009.

“We experienced a challenging quarter given the lack of sun in Southern California this summer, which negatively affected our net sales,” commented Stone Douglass, the Company's Chief Executive Officer. “Gross margins increased to 47% for the three months ended September 30, 2010 from 33% during the comparable period in 2009, aided by more effective sourcing in Asia as well as improved operations and a more favorable Euro to U.S. Dollar exchange rate on purchases from LEM, our manufacturing subsidiary in Italy. We are especially pleased that these results were achieved even though we had substantial direct and indirect additional operating costs related to our two newest brands, Margaritaville(TM) and Melodies by MJB(TM), for which there have been minimal sales during this period. Our Melodies by MJB(TM) line began to sell in stores and online at www.melodiesbymjb.com during September and was promoted in cities that Mary J. Blige was touring. We expect our Margaritaville(TM) line to launch the later part of November in select stores and online at www.margaritavilleeyewear.com.”

                       ORANGE 21 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
—————— ——————
2010 2009 2010 2009
——– ——– ——– ——–
(Unaudited) (Unaudited)
Net sales $ 8,224 $ 8,776 $ 26,020 $ 25,313
Cost of sales 4,353 5,915 12,918 14,635
——– ——– ——– ——–
Gross profit 3,871 2,861 13,102 10,678
Operating expenses:
Sales and marketing 2,268 1,781 6,537 5,463
General and administrative 1,812 1,655 5,667 5,838
Shipping and warehousing 235 255 802 765
Research and development 375 292 1,186 803
——– ——– ——– ——–
Total operating expenses 4,690 3,983 14,192 12,869
——– ——– ——– ——–
Loss from operations (819) (1,122) (1,090) (2,191)
Other income (expense):
Interest expense (160) (70) (397) (235)
Foreign currency transaction gain 85 110 76 293
Other income (expense) 20 (3) 84 (1)
——– ——– ——– ——–
Total other income (expense) (55) 37 (237) 57
——– ——– ——– ——–
Loss before provision for income
taxes (874) (1,085) (1,327) (2,134)
Income tax provision 58 51 134 60
——– ——– ——– ——–
Net loss $ (932) $ (1,136) $ (1,461) $ (2,194)
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Net loss per share of Common Stock
Basic $ (0.08) $ (0.10) $ (0.12) $ (0.19)
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Diluted $ (0.08) $ (0.10) $ (0.12) $ (0.19)
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