Updated: Orange 21's challenges continue, new team optimistic

Editor’s note: Orange 21 put out an official earnings press release this afternoon that has quotes from the new managment team expressing optimism about a company turnaround. I attached the release to the bottom of the original story.

Spy Optics parent company Orange 21 recorded sales growth in the quarter ended June 30 (excluding revenue from its former manufacturing arm) but sales did not meet plan in the prior three months and were essentially flat in the first six months of the year, the company said in its recently filed quarterly report.

The company expects to continue to have excess inventory because it cannot cancel orders it previously made with its suppliers and it has minimum order requirements with its former, owned-manufacturing arm, LEM.

Orange 21 said it will need more capital in the next 12 months and will likely need to borrow additional funds under its credit lines.

Here are some other details about the company’s Q2 results. These figures exclude revenue from its former manufacturing subsidiary in the prior period.

Net sales: up 7% to $9 million

Gross profit: up 6% to $4.9 million

Gross margin: down to 54% to 55%

Net loss: $3 million vs. net income of $400,000 in Q2 2010, in part due to a charge for O’Neill and Melodies by MJB because cash flow from sales of those brands were not sufficient to cover the net present value due to the remaining royalty obligations, according to Orange 21’s quarterly report.

Press Release:

Orange 21 Inc. Reports Financial Results for the Three Months Ended June 30, 2011; Announces Investor Conference Call

CARLSBAD, CA, Aug 15, 2011 (MARKETWIRE via COMTEX) —

Orange 21 Inc. (OTCBB: ORNG) today announced financial results for the quarter ended June 30, 2011.

Net sales increased by $0.6 million, or 7%, to $9.0 million for the three months ended June 30, 2011, compared to $8.4 million on a “pro forma” basis for the three months ended June 30, 2010. “Pro forma” numbers exclude the net sales from our LEM, S.r.l. subsidiary that we sold effective December 31, 2010. Net sales for the three months ended June 30, 2010, including the net sales from LEM, were $9.5 million.

The growth achieved in the second quarter of 2011 almost offset a modest net sales decline of $0.1 million for the first six months ending June 30, 2011. Net sales were $15.7 million for the six months ended June 30, 2011, compared to $15.8 million on a “pro forma” basis (excluding the impact of our sale of LEM in December 2010) for the six months ended June 30, 2010. Net sales as reported for the six months ended June 30, 2010, including the net sales from LEM, were $17.8 million.

The 2010 “pro forma” net sales amounts described above exclude the $1.1 million and $2.0 million during the three and six month periods ended June 30, 2010, respectively, of sales products manufactured for third party customers rather than for the Company by its former Italian manufacturing subsidiary, LEM. LEM was sold on December 31, 2010, as such LEM’s operations were not included in the Company’s consolidated results for the three or six month periods ended June 30, 2011. However, LEM sales remain included in our consolidated results for the three and six month periods ended June 30, 2010. Set forth below are “pro forma” financial tables which set forth our operating results for the three and six months ended June 30, 2010 as if we did not own LEM during those periods.

The Company incurred a net loss of $3.0 million for the three months ended June 30, 2011 compared to a net income of $408,000 for the three months ended June 30, 2010. The net loss for the three months ended June 30, 2011 included $2.0 million in other operating expenses primarily because the estimated future cash flows from the sale of certain licensed products would be insufficient to cover the remaining royalty obligations. The net losses for the three months ended June 30, 2011 and 2010, also included $537,000 and $167,000, respectively, in non-cash share-based compensation and warrant expenses.

“We are very pleased with the growth we generated this quarter, especially following the significant decline the Company had last quarter,” said Orange 21 President Michael Marckx. “We are optimistic that we can continue to improve our sales execution and implement growth strategies to enhance our market position as we continue to reshape the organization for ongoing future success. Our new team’s focus on the marketing, product development and sales programs to leverage the core SPY Optic(TM) brand appears to be gaining traction on many fronts. We are particularly enthused by our strong position in snow goggles and we really look forward to the second half of this year.”

Carol Montgomery, Orange 21’s Chief Executive Officer, added: “I am pleased with the improved sales execution and focus of the entire organization, and commend the team for continuing the progress of our turnaround. While much work remains, we are pleased with the success of our second quarter and look forward to ongoing future success during the remainder of the year.”

About Orange 21 Inc.: Orange 21 designs, develops and markets premium products for the action sports, motorsports, snowsports and lifestyle markets under the brands SPY Optic(TM), O’Neill(R) and Margaritaville(R).