Orange 21 Breaks Even in Q3

Press Release

November 17 2008
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OFFICIAL PRESS RELEASE - Orange 21 Inc. said its net sales fell 8.6% to $12.0 million in the third quarter ended Sept. 30. Still, the marketer of action sports and youth brands managed to earn $6,000 in the quarter compared to a $58,000 loss in the year earlier quarter.

In a bid to conserve cash, the company cut operating expenses by 9.1%, or nearly $600,000, during the quarter. While it whittled down its accounts receivables by 35% to $6.8 millioni, inventory rose 27% to $14.3 million at quarter’s end. The company cut sales and marketing expenses 2% and R&D expenses by 30% during the quarter.

“Since joining the board in August, I have already made multiple trips to Italy to focus on streamlining our manufacturing operations,” said Stone Douglass, the company’s newly appointed CEO. “We expect to announce modifications to our organizational structure in the coming weeks that we believe will result in substantial savings in 2009. In addition, we are beginning to make changes to our production processes that we believe will more fully utilize our manufacturing capacity, thus further reducing our cost of goods sold and G&A expense.”

CFO Jerry Collazo said the company has met with several business partners, including vendors and customers, in an effort to renew and strengthen relationships. ”We are working with our vendors to improve our purchasing terms and are working with our existing manufacturing customers to better understand how we can service their needs and perhaps provide additional manufacturing services,” he said. “Finally, we have commenced a new sales initiative. We are sending our sales managers into the field to visit all of our customers and independent sales representatives regularly in order to better connect with customers and help them to better market and sell our products.”

Douglass said despite these efforts, the company expects to economy to continue pressuring sales and collection.

ORANGE 21 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share amounts)

			Three Months Ended September 30,						Nine Months Ended September 30,
			2008			2007 (As restated)			2008			2007 (As restated)
			(Unaudited)						(Unaudited)

Net sales			$	12,042		$	13,179		$	37,580		$	34,524
Cost of sales				6,129			6,626			19,278			15,968
	Gross profit			5,913			6,553			18,302			18,556
Operating expenses:
	Sales and marketing			3,007			3,066			9,457			12,610
	General and administrative			2,173			2,575			7,309			7,642
	Shipping and warehousing			400			404			1,429			1,211
	Research and development			297			426			930			860
		Total operating expenses		5,877			6,471			19,125			22,323
	Income (loss) from operations			36			82			(823	)		(3,767	)
Other income (expense):
	Interest expense			(161	)		(188	)		(482	)		(402	)
	Foreign currency transaction gain (loss)			191			79			(17	)		(102	)
	Other income (expense)			(7	)		3			26			(44	)
		Total other income (expense)		23			(106	)		(473	)		(548	)
	Income (loss) before expense (benefit) for income taxes			59			(24	)		(1,296	)		(4,315	)
Income tax expense (benefit)				53			34			(178	)		(984	)
Net income (loss)			$	6		$	(58	)	$	(1,118	)	$	(3,331	)
Net income (loss) per share of Common Stock
		Basic	$	0.00		$	(0.01	)	$	(0.14	)	$	(0.41	)
		Diluted	$	0.00		$	(0.01	)	$	(0.14	)	$	(0.41	)