Some of the woes experienced by the parent of Spy Optics in its first year as a public company had to do with delivery problems and other kinds of troubles outside the USA, but still the American company's sales in Europe rose by 37 percent during the year. Sales grew by 24 percent in Canada, which is still for the moment the largest foreign market for the company, but the management expects Europe to take over the primacy in the near future.

As previously reported, the company's total sales grew by 15 percent last year to $38,568,382, and they are now expected to reach $46-48 million in 2006. Several new accounts were opened in Europe, where the transition to a third-party distribution system helped to speed up deliveries. The sales increases in Europe and Canada were offset by declines in Asia. In Australia, where the company has recently named Marbel Art its new distributor, the company's sales fell by 85 percent in 2005. Orange 21 blamed the decline on the distribution changes and said it expects long-term growth in the region. Dealer network changes are still being made in Japan.

Orange 21 is fairly certain to post another loss this year. As previously reported, the company suffered a net loss of $1,707,996 in 2005 as compared to a profit of $807,304 in 2004. The losses were caused mainly by operational problems that included late deployment of point-of-purchase displays and delayed product deliveries prior to the acquisition of LEM's factory in Italy.

The gross margin declined, mainly because of unfavorable exchange rates, but the acquisition of the factory should raise it in the future. To remedy this problem the company has bought foreign currency contracts but doesn't expect this to help results until the 2nd half of this year.

Additionally, an ongoing litigation dance with Oakley led to more costs. Two of Oakley's three charges against Orange 21 have been dismissed by a U.S. court, but one remains and Orange 21 calls it «without merit.» In the meantime, the company has decided to discontinue its E Eyewear line, which was in question with Oakley. The line was created in conjunction with Dale Earnhardt, a star NASCAR driver, but the company said that it will keep Earnhardt on board and his name will most likely be used in connection with the Spy Optics brand.