<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 12, 1996
----------------------
INNOVO GROUP INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-18926 11-2928178
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.)
27 North Main Street, Springfield, Tennessee 37172
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 384-0100
--------------------------
Not Applicable
------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Contents
--------
Page
----
Item 2: Acquisition or Disposition of Assets. . . . . . . 3
Item 7: Financial Statements and Exhibits. . . . . . . . 3
Signatures. . . . . . . . . . . . . . . . . . . 5
Index to Financial Statements. . . . . . . . . . . .F-1
2
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 12, 1996, Innovo Group Inc. ("the Company") acquired
100% of the outstanding common stock of Thimble Square, Inc. ("Thimble Square")
for an aggregate of $1.1 million, paid by the issuance of shares of the
restricted common stock of the Company. In a concurrent transaction, Thimble
Square acquired from its stockholders a plant it had previously leased from them
in exchange for (a) $300,000 paid by the issuance of shares of the restricted
common stock of Innovo Group, and (b) the issuance by Thimble Square of $200,000
of unsecured notes payable due, without interest, on August 31, 1996 (with
certain prepayments required in the event of certain refinancings or asset sales
by Thimble Square). The Company also issued 95,686 shares in payment of a
finder's fee related to the acquisition. The purchase price is subject to
downward adjustment based on the results of certain appraisals of Thimble
Square's plant and equipment, which are expected to by completed by July 15,
1996.
A total of 2,843,784 shares of the Company's common stock were
issued to effect the acquisition. However, at the time of the acquisition
Thimble Square owned 1,080,000 shares of the Company's common stock as a result
of the January, 1996 manufacturing agreement between the companies (see Note 5
of Notes to Condensed Consolidated Financial Statements included in the
Company's Quarterly Report on Form 10-Q for the quarter ended February 29,
1996). As a result of the acquisition, Innovo Group reacquired, and retired,
those shares, and the net increase in the number of shares of Innovo Group
common stock outstanding was 1,763,784 shares.
Thimble Square manufactures and markets ladies' ready-to-wear
at home, sleep and lounge wear from plants in Pembroke and Baxley, Georgia. Its
products are sold to mail order companies, retailers and through mail order
distribution. Thimble Square also provides "sew-only" manufacturing for other
distributors of private-label sleep and lounge wear; in those instances, the
customer provides the raw materials, and Thimble Square manufactures the
products to the distributor's specifications. Thimble Square's sales for its
fiscal year ended December 31, 1995 were approximately $3 million.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements for Business Acquired.
The index to financial statements appears at page F-1.
(b) Pro forma financial information
The index to financial statements appears at page F-1.
3
<PAGE>
(c) Exhibits.
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ ------------------------------------------------------
10.1 Merger Agreement dated April 12, 1996 by and among Innovo
Group Inc. and TS Acquisition, Inc. and Thimble Square,
Inc. and the Stock- holders of Thimble Square, Inc.*
10.2 Property Acquisition Agreement dated April 12, 1996 by and
among Innovo Group Inc., TS Acquisition, Inc. and Philip
Schwartz and Lee Schwartz*
21 Subsidiaries of the registrant*
* - filed with the initial report on Form 8-K filed on April 29, 1996.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INNOVO GROUP INC.
(Registrant)
Date: July 3, 1996 By /s/ Patricia Anderson-Lasko
---------------------------
Patricia Anderson-Lasko
Chairman/President/CEO
5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INNOVO GROUP INC.
Form 8-K
Thimble Square, Inc.
- --------------------
Report of Independent Certified Public Accountants......................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Operations.......................................... F-4
Combined Statements of Stockholders' Equity................................ F-5
Combined Statements of Cash Flows.......................................... F-6
Notes to Combined Financial Statements..................................... F-7
Innovo Group Inc. Pro Forma Condensed Consolidated Financial Statements
- -----------------------------------------------------------------------
(Unaudited)
- -----------
Introduction ..............................................................F-16
Pro Forma Condensed Consolidated Balance Sheet as of February 29, 1996.....F-17
Pro Forma Condensed Consolidated Statements of Operations
For the year ended October 31, 1995...............................F-18
For the three months ended February 29, 1996......................F-19
Notes to Pro Forma Condensed Consolidated Financial Statements.............F-20
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Innovo Group Inc.
We have audited the accompanying combined balance sheets of Thimble
Square, Inc. as of December 31, 1995 and 1994, and the related combined
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Thimble Square, Inc. as of December 31, 1995 and 1994, and the combined results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
June 20, 1996
F-2
<PAGE>
Thimble Square, Inc.
Combined Balance Sheets
-----------------------
(000's, except for share data)
December 31,
------------
1995 1994
---- ----
ASSETS
- ------
CURRENT:
Cash and cash equivalents $ 6 $ 18
Accounts receivable 12 173
Inventories (Note 3) 253 349
Due from stockholders (Note 4) 39 47
Other 12 -
------ ------
Total current assets 322 587
PROPERTY AND EQUIPMENT, net (Note 3) 529 575
------ ------
$ 851 $ 1,162
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 2) 118 105
Current maturities of long-term debt
and capital lease obligation (Note 3) 62 51
Accounts payable 207 353
Accrued expenses 99 106
------ ------
Total current liabilities 486 615
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION, less current maturities (Note 3) 562 624
DUE TO STOCKHOLDER 64 55
------ ------
TOTAL LIABILITIES 1,112 1,294
------ ------
STOCKHOLDERS' EQUITY (Note 4)
Common stock, $100 par - shares
authorized 10,000, issued and
outstanding 866 86 86
Additional paid-in capital 124 114
Retained earnings (471) (332)
------ ------
TOTAL STOCKHOLDERS' EQUITY (261) (132)
------ ------
$ 851 $ 1,162
====== ======
See accompanying notes to combined financial statements.
F-3
<PAGE>
Thimble Square, Inc.
Combined Statements of Operations
---------------------------------
(000's)
Year ended
December 31,
--------------------
1995 1994
---- ----
NET SALES $ 3,046 $ 3,772
COST OF GOODS SOLD 2,505 3,109
------ ------
Gross profit 541 663
OPERATING EXPENSES
Selling, general and administrative 517 635
Depreciation and amortization 65 31
------ ------
Income (loss) from operations (41) (3)
INTEREST EXPENSE 111 101
OTHER INCOME 9 1
------ ------
Income (loss) before income taxes (benefit) (143) (103)
INCOME TAXES (BENEFIT) (4) 10
------ ------
NET INCOME (LOSS) $ (139) $ (113)
====== ======
See accompanying notes to combined financial statements.
F-4
<PAGE>
Thimble Square, Inc.
Combined Statements of Stockholders' Equity
Years ended December 31, 1994 and 1995
--------------------------------------
(000's except for share amounts)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 866 $ 86 $ 114 $ (219)
Net income (loss) - - - (113)
----- ---- ------ ------
Balance, December 31, 1994 866 86 114 (332)
Capital contribution (Note 4) - - 10 -
Net income (loss) - - - (139)
------- -------- ------- ------
Balance, December 31, 1995 866 $ 86 $ 124 $ (471)
===== ==== ===== =====
See accompanying notes to combined financial statements.
</TABLE>
F-5
<PAGE>
Thimble Square, Inc.
Combined Statements of Cash Flows
---------------------------------
(000's)
<TABLE>
<CAPTION>
Year ended
December 31,
------------
1995 1994
------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (139) $ (113)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 65 31
Other 10 -
Changes in assets and liabilities:
Accounts receivable 161 (98)
Inventories 96 155
Due from stockholders 8 (13)
Accounts payable (146) 34
Accrued expenses (7) 30
Due to stockholder 9 -
Other (12) -
------ -------
Cash provided by (used in) operating activities 45 26
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19) (49)
------ ------
Cash provided by (used in) investing activities (19) (49)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (62) (13)
Borrowings on notes payable 75 69
Repayments of long-term debt (51) (52)
------ ------
Cash provided by (used in) financing activities (38) 4
------ ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (12) (19)
CASH AND CASH EQUIVALENTS, at beginning of year 18 37
----- ------
CASH AND CASH EQUIVALENTS, at end of year $ 6 $ 18
====== ======
See accompanying notes to combined financial statements.
</TABLE>
F-6
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
---------------------
As discussed elsewhere herein, on April 12, 1996, Innovo Group inc.
("Innovo") acquired 100% of the outstanding common stock of Thimble Square, Inc.
("the Company") and, in a concurrent transaction, the Company acquired from its
stockholders a plant that it had previously leased from them. The accompanying
combined financial statements have been prepared as if the Company had owned the
plant for all periods presented. The plant (and depreciation expense thereon)
and related mortgage debt, recorded at the stockholder/owners' historical cost,
have been combined with the accounts of the Company. The lease transaction
between the Company and the stockholder/owners has been eliminated in
combination.
(b) Nature and Risks of Business
----------------------------
The Company manufactures and markets ladies' ready-to-wear at home,
sleep and lounge wear. Its products are sold to mail order companies, retailers
and through mail order distribution. The Company also provides "sew-only"
manufacturing for other distributors of private-label sleep and lounge wear; in
those instances, the customer provides the raw materials, and the Company
manufactures the products to the customer's specifications.
The Company operates in a single industry segment. During 1995 and
1994, one sew-only customer accounted for 57% and 28%, respectively, of the
Company's net sales. One customer for the Company's products accounted for 18%
of sales in 1995, and two customers accounted for 30% and 15% of net sales in
1994. The loss of any of these customers could have a material adverse effect on
the Company.
In selling its products the Company grants credit to apparel retailers
and mail order distributors, and to other apparel distributors which utilize the
Company for sew-only services. Accounts receivable resulting from sales of the
Company's products are generally assigned to a commercial factor pursuant to a
factoring agreement under which the factor generally accepts all credit risks.
Such assignments are accounted for as the sale of the accounts receivable.
Proceeds from the sale of accounts receivable under the agreement were
$1,301,000 and $2,597,000 in 1995 and 1994, respectively. Accounts receivable
from sew-only services, and from certain sales of the Company's products, are
not factored. Due to the concentration of sew-only sales to one customer, credit
risks for related accounts receivable is concentrated.
The Company conducts its operations from plants in Pembroke and Baxley,
Georgia. To date the Company has not experienced difficulties in obtaining
needed labor.
F-7
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
(d) Inventories
-----------
Inventories are stated at the lower of cost, as determined by the
first-in, first-out method, or market.
Inventories consisted of the following:
December 31,
------------
1995 1994
---- ----
(000's)
Finished goods $ 60 $ 84
Work-in-process 42 83
Raw materials 102 114
Supplies 49 68
---- ----
$ 253 $ 349
==== ====
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided in
amounts sufficient to allocate the costs of the depreciable asset to operations
over their estimated useful lives using the straight line method.
The Company leases one of its plants under a lease that contains a
bargain purchase option and which is therefore accounted for as a capital lease.
The asset and related lease obligation were recorded at the present value of the
minimum lease payments, including the purchase option, discounted at 10% per
annum. Depreciation of the asset is provided over its estimated useful life.
On sale or retirement, the asset cost and related accumulated
depreciation or amortization are removed from accounts, and any related gain or
loss is included in the determination of income.
F-8
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment consisted of the following:
December 31,
------------
1995 1994
---- ----
(000's)
Building, land and
improvements $ 575 $ 575
Machinery and equipment 363 342
Furniture and fixtures 19 21
Transportation equipment 22 22
---- ----
979 960
Less accumulated depreciation
and amortization (450) (385)
---- ----
Net property and equipment $ 529 $ 575
==== ====
(f) Revenue Recognition
-------------------
Revenues on the sale of the Company's products are recognized when the
Company ships products to its customers. Revenues for sew-only services are
recognized when the manufacturing of the customer's product is complete.
(g) Income Taxes
------------
The Company provides for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under that
standard, deferred income taxes are provided for temporary differences arising
from differences between financial statement and income tax basis of assets and
liabilities.
(h) Statement of Cash Flows
-----------------------
Cash and cash equivalents are generally comprised of highly liquid
instruments with original maturities of three months or less.
F-9
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
--------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
Supplemental cash flow information is as follows:
Year ended
December 31,
------------
1995 1994
---- ----
(000's)
Cash paid for interest 105 $ 105
Cash paid for income taxes - 1
During fiscal 1994 the Company acquired equipment for long-term debt of
$24,000.
(i) New Accounting Pronouncements
-----------------------------
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," is effective for financial statements
for fiscal years beginning after December 15, 1995. The new standard establishes
new guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, and certain identifiable intangible assets and
goodwill, should be recognized and how impairment losses should be measured. The
Company does not expect adoption to have a material effect on its financial
position or results of operations.
SFAS No. 123 "Accounting for Stock-Based Compensation" is effective for
specific transactions entered into after December 15, 1995, while the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. The new standard establishes a fair
value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments. The Company does not expect adoption to have a
material effect on its financial position or results of operations.
F-10
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
--------------------------------------------------
NOTE 2 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
------------
1995 1994
---- ----
(000's)
Unsecured notes payable with
interest at 11% per annum,
due May, 1996 $ 50 $ 25
Notes payable, due, with
interest at 3% over the
prime rate, May, 1996,
guaranteed by the Company's
stockholders 25 25
Other 43 55
---- ----
$ 118 $ 105
==== ====
The fair values of the notes payable do not differ materially from
their recorded amounts.
NOTE 3 - LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease consist of the following:
December 31,
------------
1995 1994
---- ----
(000's)
Small Business Administration
loan, bearing interest at
2.75% over the prime rate,
payable in installments
through 2004 $ 217 $ 235
First mortgage loan bearing
interest at 2% over the prime
rate, payable in installments
through May, 1998, final
maturity May, 1998 162 183
F-11
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
--------------------------------------------------
NOTE 3 - LONG-TERM DEBT AND CAPITAL LEASE (concluded)
December 31,
------------
1995 1994
---- ----
(000's)
Equipment loan, bearing
interest at 12%, payable
in installments through
September, 1997 16 25
Capital lease obligation,
interest imputed at 10% per
annum 229 231
Other - 1
---- -----
624 675
Less current maturities 62 51
---- -----
Long-term debt and capital
lease, less current maturities $ 562 $624
==== ====
Essentially all inventory, plant and equipment is pledged to secure one
or more components of long-term debt. The Company's Small Business
Administration loan is collateralized by a second lien on the Company's Pembroke
plant and certain machinery and equipment. The Company's stockholders have
personally guaranteed the Small Business Administration and first mortgage
loans.
Aggregate principal maturities of long-term debt and the capital lease
are as follows:
Year ending December 31, Amount
------------------------ ------
(000's)
1996 $ 62
1997 69
1998 148
1999 43
2000 198
Thereafter 104
The fair values of long-term debt and the capital lease do not differ
materially from their recorded amounts.
F-12
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
--------------------------------------------------
NOTE 4 - TRANSACTIONS WITH STOCKHOLDERS
The balance due from stockholders results from cash and expense
advances, and does not bear interest. In March, 1996, the balance was settled
when the Company repurchased from a stockholder 266 shares of common stock at
the stockholder's original cost.
Due to stockholder represents unrepaid cash advances to the Company,
which bear interest at the rate of 10% per annum.
During fiscal 1995 certain officer/stockholders deferred their receipt
of portions of their compensation. The deferred amounts remained unpaid at April
12, 1996 when the Company was acquired by Innovo. At that time the
officer/stockholders forgave the unpaid amounts. Compensation expense, and an
off setting capital contribution, has been recorded for these amounts.
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes was as follows:
Year ended
December 31,
------------
1995 1994
---- ----
(000's)
Current
Federal $ (4) $ 10
State - -
Deferred
Federal - -
State - -
---- ----
$ (4) $ 10
==== ====
Deferred tax assets and liabilities result from the following
differences between the financial reporting and income tax basis of assets and
liabilities.
F-13
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (continued)
--------------------------------------------------
NOTE 5 - INCOME TAXES (concluded)
December 31,
------------
1995 1994
---- ----
(000's)
Deferred tax asset (liability)
Accounts receivable $ 6 $ 4
Inventory 61 100
Property and equipment (23) (26)
Capital lease (8) (4)
Accounts payable and accrued expenses 12 51
----- -----
Net deferred tax asset before valuation
allowance 48 125
Valuation allowance (48) (125)
----- -----
Net deferred tax asset $ - $ -
===== =====
The provision benefit for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal income
tax rate to pre-tax income as a result of the following:
Year ended
December 31,
------------
1995 1994
---- ----
(000's)
Tax computed at the statutory
rate $ (57) $ (41)
State income tax - -
Change in valuation allowance 43 44
Other 10 7
----- -----
$ (4) $ 10
===== =====
NOTE 6 - SUBSEQUENT EVENT
In January, 1996, the Company and Innovo executed an agreement pursuant
to which the Company agreed to provide Innovo with $400,000 of sew-only
services, between February, 1996 and July, 1997, in exchange for 1,200,000
shares of Innovo common stock. The Company transferred 120,000 of such shares to
a third party as payment of a finder's fee on the agreement.
F-14
<PAGE>
Thimble Square, Inc.
Notes to Combined Financial Statements (concluded)
NOTE 6 - SUBSEQUENT EVENT (concluded)
As of April 12, 1996, the date on which Innovo acquired the Company, no
services had been performed. The 1,080,000 shares of Innovo common stock owned
by the Company at the time of its acquisition were subsequently transferred to
Innovo, which cancelled the shares.
F-15
<PAGE>
Innovo Group Inc. and Subsidiaries
Condensed Consolidated Pro Forma Financial Statements
(unaudited)
Introduction
The accompanying unaudited pro forma condensed consolidated financial
statements are presented to illustrate the effect on the Company's historical
financial position and results of operations of the consummation of the
acquisition of Thimble Square. The unaudited pro forma condensed consolidated
balance sheet has been prepared as if the acquisition had been consummated on
February 29, 1996 and utilizes the Company's February 29, 1996 balance sheet and
Thimble Square's March 31, 1996 balance sheet. The unaudited pro forma condensed
consolidated statements of operations have been prepared as if the acquisition
had been consummated on November 1, 1994. The pro forma statement of operations
for the year ended October 31, 1995 combines the Company's statement of
operations for that period with Thimble Square's statement of operations for the
year ended December 31, 1995. The pro forma statement of operations for the
three months ended February 29, 1996 combines the Company's statement of
operations for that period with Thimble Square's statement of operations for the
three months ended March 31, 1996. The following pro forma financial information
reflects management's current estimate of the allocation of the purchase price,
which may be revised based on the results of the appraisals discussed under Item
2 above.
The accompanying unaudited pro forma condensed consolidated financial
statements have been prepared for illustrative purposes only and are not
necessarily indicative of the Company's future financial position or results of
operations. Among other things, the unaudited pro forma condensed consolidated
statement of operations reflects adjustments only for (i) the effects of certain
employment contracts with certain key employees of Thimble Square and (ii) the
increase in depreciation and amortization resulting from recording Thimble
Square's assets at estimated fair value. Not reflected in the pro forma results
of continuing operations are additional cost savings that the Company believes
can be achieved through changes to Thimble Square's manufacturing operations,
and through the use of Thimble Square's facilities to manufacture Innovo's
products during periods of peak production. Additionally, the Company plans to
use Innovo's existing marketing and sales functions to market Thimble Square's
products through the Company's existing network of marketing organizations and
sales representatives, and to the mass merchant customers with which the Company
has existing relationships. Thimble Square previously has not made significant
use of outside sales representatives, or had significant sales to Innovo's
customers, and has instead relied principally on the marketing and sales efforts
of its own personnel. While there can be no assurance, the Company believes that
these new marketing and sales efforts could, over time, generate increases in
Thimble Square's sales.
F-16
<PAGE>
Innovo Group Inc.
Pro Forma Condensed Consolidated Balance Sheet
February 29, 1996
(unaudited)
(000's)
<TABLE>
<CAPTION>
Innovo Thimble Pro Forma Pro
Group Square Adjustments Forma
----- ------ ----------- -----
ASSETS
- ------
Current
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 38 $ 3 $ 41
Accounts receivable 1,354 27 1,381
Inventories 1,242 178 1,420
Prepaid expenses 482 12 494
------ ------ ------
Total current assets 3,116 220 3,336
Property and equipment, net 3,556 519 1,331 [B] 5,406
Other Assets 830 400 (400) [A] 1,185
906 [B]
(551) [C]
------ ------- -------
$ 7,502 $ 1,139 $ 9,927
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable $ 1,410 $ 117 200 [B] $ 1,727
Subordinated notes payable 185 - 185
Current maturities of long-term debt 168 64 232
Accounts payable 853 216 1,069
Accrued expenses 1,258 109 200 [B] 1,567
Deferred revenue - 400 (400) [A] -
-------- ------ --------
Total current liabilities 3,874 906 4,780
Long-term debt 2,154 546 2,700
Other - 75 75
-------- ------ ------
Total liabilities 6,028 1,527 7,555
------ ------ ------
Class 3 Trust 236 - 236
------ ------- ------
Stockholders' equity
Common stock 85 - 28 [B] 102
(11) [C]
Stock subscription 118 - 118
Additional paid in capital 21,174 - 1,421 [B] 22,055
(540) [C]
Deficit (17,713) - (17,713)
Treasury stock (2,426) - (2,426)
Net assets of Thimble Square - (388) 388 [B] -
-------- ------- -------
Total stockholders' equity 1,238 (388) 2,136
------ ------- ------
$ 7,502 $ 1,139 $ 9,927
====== ====== ======
See notes to pro forma condensed consolidated financial statements
</TABLE>
F-17
<PAGE>
Innovo Group Inc.
Pro Forma Condensed Consolidated
Statement of Continuing Operations
Year Ended October 31, 1995
(unaudited)
(000's except for per share information)
<TABLE>
<CAPTION>
Innovo Thimble Pro Forma Pro
Group Square Adjustments Forma
----- ------ ----------- -----
<S> <C> <C> <C> <C>
Net sales $ 5,276 $ 3,046 $ 8,322
Cost of sales 3,808 2,505 6,313
------ ------ ------
Gross profit 1,468 541 2,009
Operating expenses
Selling, general and administrative 2,728 517 (150) [D] 3,095
Depreciation and amortization 406 65 140 [E] 611
------ ------ ------
Income (loss) from operations (1,666) (41) (1,697)
Interest expense (511) (111) (622)
Other income 2,110 9 2,119
Income tax benefit - 4 (4) [F] -
-------- ------- --------
Income (loss) from continuing operations $ (67) $ (139) $ (200)
====== ====== ======
Income (loss) from
continuing operations per share $ (.03) $ (.04)
====== ======
Weighted average shares outstanding 2,616 5,457
====== ======
See notes to pro forma condensed consolidated financial statements
</TABLE>
F-18
<PAGE>
Innovo Group Inc.
Pro Forma Condensed Consolidated
Statement of Continuing Operations
Three Months Ended February 29, 1996
(unaudited)
(000's except for per share information)
<TABLE>
<CAPTION>
Innovo Thimble Pro Forma Pro
Group Square Adjustments Forma
----- ------ ----------- -----
<S> <C> <C> <C>
Net sales $ 1,319 $ 367 $1,686
Cost of sales 732 285 1,017
---- ---- ------
Gross profit 587 82 669
Operating expenses
Selling, general and administrative 652 160 (44) [D] 768
Depreciation and amortization 90 14 37 [E] 141
----- ------ ------
Income (loss) from operations (155) (92) (240)
Interest expense (121) (24) (145)
Other income 115 - 115
----- ------- ----
Income (loss) from continuing operations $ (161) $ (116) $ (270)
======= ====== ======
Income (loss) from
continuing operations per share $ (.02) $ (.03)
====== ======
Weighted average shares outstanding 6,716 9,372
====== ======
See notes to pro forma condensed consolidated financial statements
</TABLE>
F-19
<PAGE>
Innovo Group Inc.
Notes to Pro Forma Condensed
Consolidated Financial Statements
(unaudited)
Note 1 - Basis of Presentation
Reference is made to the "Introduction" at page F-16.
Note 2 - Pro Forma Adjustments
The pro forma adjustments to the condensed consolidated balance sheet
are as follows:
[A] To eliminate the intercompany balances (a prepaid asset of
Innovo Group, and deferred revenue of Thimble Square)
resulting from the January, 1996 manufacturing agreement.
[B] To reflect the acquisition of Thimble Square and the
allocation of the purchase price on the basis of the fair
values of the assets acquired and the liabilities assumed. The
components of the purchase price and its allocation to the
assets and liabilities of Thimble Square are as follows:
(000's)
-------
Components of purchase price
Innovo Group common stock $ 1,400
Thimble Square notes payable 200
Finder's fee (paid in common stock) 49
Acquisition costs 200
------
$ 1,849
=======
Allocation of purchase price
Net assets of Thimble Square $ (388)
Increase in property and equipment to
fair value 1,331
Increase (decrease) in other assets to
fair value
Innovo Group common stock 191
Other assets (40)
Goodwill 755
-----
906 906
---
$ 1,849
=======
[C] To reflect the Innovo Group common stock owned by Thimble
Square as a reduction of consolidated stockholders' equity
(reflected as a reduction of common stock and paid in capital
because the shares will be transferred to Innovo Group and
retired).
F-20
<PAGE>
Innovo Group Inc.
Notes to Pro Forma Condensed
Consolidated Financial Statements - concluded
(unaudited)
Note 2 - Pro Forma Adjustments (concluded)
The pro forma adjustments to the condensed consolidated statement of
continuing operations are as follows:
[D] To adjust costs and expenses to reflect the termination of
certain personnel and certain fringe benefits, and the changes
in the salaries of other personnel, effected concurrently with
the acquisition.
[E] To adjust depreciation and amortization to reflect the
adjusted bases of Thimble Square's assets. Goodwill resulting
from the acquisition will be amortized over a period of 10
years.
[F] To adjust income tax expense.
F-21
<PAGE>
