On June 28, 2012, our wholly owned subsidiary, Spy Optic, Inc., a California corporation ("SPY North America"), entered into a second amended and restated promissory note (the "Second Amended and Restated Costa Brava Note") with Costa Brava Partnership III, L.P. ("Costa Brava"). The Second Amended and Restated Costa Brava Note amended and restated the $6.0 million promissory note issued by Spy North America (fka Orange 21 North America Inc.) on December 19, 2011 (the "December 2011 Costa Brava $6 Million Note") to Costa Brava and which evidenced a $6.0 million line of credit committed by Costa Brava. Costa Brava is an entity that as of June 28, 2012 beneficially owned approximately 48.4%, or 52.1% on an as converted basis, of our outstanding common stock. Mr. Seth Hamot, Chairman of our Board of Directors, is the President and sole member of the sole general partner of Costa Brava.

The terms of the Second Amended and Restated Costa Brava Note differ from the terms of the December 2011 Costa Brava $6 Million Note in the following material respects:

• The principal amount of the line of credit was increased by $1 million, from $6 million to $7 million.

• SPY North America must prepay $1 million of the principal amount outstanding under the line of credit within five business days of our proposed sale of equity (preferred stock, common stock, warrants to purchase common stock, or any combination thereof) with proceeds to us of at least $4 million prior to payment of any transaction expenses. The amount so paid will reduce dollar-for-dollar Costa Brava's commitment to make advances under the line of credit. We expect to sell such amount of equity by August 31, 2012.

The other material terms of the December 2011 Costa Brava $6 Million Note were not changed by the Second Amended and Restated Costa Brava Note, including the maturity date (June 21, 2013) and the ability of Spy North America, in its discretion, to pay the monthly interest payments on the amount outstanding under the line of credit in kind as an addition to the outstanding principal amount due, rather than in cash. Spy North America has borrowed all $7 million available under the line of credit as of June 29, 2012, and all amounts owing thereunder are subordinated to the amounts owed by SPY North America under its loan and security agreement with BFI Business Finance pursuant to the terms of a debt subordination agreement between Costa Brava and BFI.

The foregoing summary of the terms of the Second Amended and Restated Costa Brava Note is qualified in its entirety by reference to such promissory note, a copy of which is attached as an exhibit to this report and incorporated herein by reference.

The information provided in response to Item 1.01 of this report is incorporated by reference into this Item 2.03.

(d) Exhibits

Exhibit No.                                  Description

10.1              Second Amended and Restated $7.0 Million Promissory Note dated
                  June 28, 2012 between Spy Optic Inc., a California corporation,
                  and Costa Brava Partnership III, L.P.