The parent company of Spy Optics had to rid itself of excess inventory in 2006, adding $3 million in costs and causing its gross margin to shrink to 41 percent, as compared to 49 percent in 2005. The net loss for the year was $7.3 million, compared with a loss of $1.7 million the year before. Sales grew by 10.0 percent to $42.4 million, but excluding the turnover of LEM, the Italian production company recently acquired, they fell by 1.8 percent.

After six months at the helm of Orange 21, Mark Simo, co-chairman and chief executive, said the results reflected the decision to stop marketing ?unproductive inventory,? which was ?a result of off-brand designs and production over the past two years.? Warning that the turnaround is not yet complete, Simo said the strategy put in place will lead to stability in 2007 and growth in 2008. The company will strive to simplify its business.

Since he came on board, Orange 21 has dramatically reduced SKUs, eliminating off-brand fashion lines. It has also eliminated most of its former apparel business. Internationally, the focus of expansion has been sifted to Spy's core European markets. Production efficiencies at LEM have been improved. Production schedules have been changed to ensure the availability of key styles as the company heads up into the peak season. A new credit facility has been arranged.

Like at the end of the 3rd quarter, the company said it will not be providing any guidance on future sales and profitability, but rather told investors that it would ?monitor its progress in the coming quarter and keep you apprised.? Orange 21 said the reason for this is that its focus is on developing long-term stability and value, and that it is not the right time to be involved in the external guidance process.