<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended May 31,1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-18926
INNOVO GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2928178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been the subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding as of July 1, 1998
----- ------------------------------
Common stock, par
value of $.01 per share 44,726,442 shares
<PAGE> 2
INNOVO GROUP INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets as of
February 28, 1998 and November 30, 1997 3
Condensed consolidated statements of operations
for the three months ended February 28, 1998
and February 28, 1997 4
Condensed consolidated statements of cash flows
for the three months ended February 28, 1998
and February 28, 1997 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INNOVO GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's except for share data)
(Unaudited)
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 593 $ 469
Accounts receivable 2,134 895
Inventories 1,700 1,582
Prepaid expenses 457 398
------- -------
TOTAL CURRENT ASSETS 4,884 3,344
PROPERTY AND EQUIPMENT, net 4,896 5,071
OTHER ASSETS 713 753
------- -------
$ 10,493 $ 9,168
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes payable $ 1,866 $ 1,131
Current maturities of long-term debt 196 211
Accounts payable 1,793 1,412
Accrued expenses 1,218 769
------- -------
TOTAL CURRENT LIABILITIES 5,073 3,523
LONG-TERM DEBT, less current
maturities 2,470 1,854
-------
TOTAL LIABILITIES 7,543 5,377
------- -------
STOCKHOLDERS' EQUITY
Common stock $.01 par; shares authorized
70,000,000; issued 44,846,133 shares in
1998 and 44,596,133 shares in 1997 448 446
Additional paid-in capital 28,581 28,429
Promissory Note - Officer (703) (703)
Deficit (22,950) (21,955)
Treasury stock, 119,691 shares (2,426) (2,426)
------- -------
TOTAL STOCKHOLDERS' EQUITY 2,950 3,791
------- -------
$ 10,493 $ 9,168
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
INNOVO GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's except per share information)
<TABLE>
<CAPTION>
Three months ended Six Months Ended
------------------------------ ----------------------------
May 31, May 31 May 31, May 31,
1998 1997 1998 1997
---------- --------- --------- --------
<S> <C> <C> <C> <C>
NET SALES $ 1,915 $ 2,112 $ 4,158 $ 4,332
COST OF SALES 1,272 1,384 2,647 2,842
------- ------- ------- -------
Gross Profit 643 728 1,511 1,490
OPERATING EXPENSES
Selling, general and
administrative 1,001 1,092 2,076 2,150
Depreciation and amortization 111 116 227 227
------- ------- ------- -------
Income (loss) from operations (469) (480) (792) (887)
INTEREST EXPENSE (123) (191) (226) (375)
OTHER INCOME - Net 12 32 23 166
------- ------- -------
Income (loss) before income
taxes (benefit) (580) (639) (995) (1,096)
INCOME TAXES (BENEFIT): -- -- -- --
------- ------- ------- -------
NET INCOME (LOSS) $ (580) $ (639) $ (995) $(1,096)
------- -------
EARNINGS (LOSS) PER SHARE: $ (.01) $ (.02) $ (.02) $ (.04)
------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING 44,726 28,894 44,646 28,639
------- ------- ------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
INNOVO GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
May 31, May 31,
1998 1997
----------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(1,162) $ (662)
------- -------
CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES:
Capital expenditures (52) (54)
------- -------
Net cash provided by (used in)
investing activities (52) (54)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 63
Additions to notes payable 1,624 727
Repayments of notes payable (885) (49)
Additions to long-term debt 650 96
Repayments of long-term debt (51) (147)
------ -------
Net cash provided by (used in)
financing activities 1,338 690
------ -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 124 (26)
CASH AND EQUIVALENTS, (beginning
of period) 469 31
------ -------
CASH AND EQUIVALENTS, (end of period) $ 593 $ 5
------ -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Innovo Group Inc. ("Innovo Group") and its wholly-owned subsidiaries
(collectively "the Company"). The condensed consolidated financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements and
the notes thereto should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended November 30, 1997.
In the opinion of the management of the Company, the accompanying
unaudited condensed consolidated financial statements contain all necessary
adjustments to present fairly the financial position, the results of operations
and cash flows for the periods reported. All adjustments are of a normal
recurring nature.
The results of operations for the above periods are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
------------ ------------
(000's)
<S> <C> <C>
Finished goods $ 79 $ 680
Work-in-process 335 246
Raw materials 602 692
Inventory reserve (36) (36)
------- -------
Total $ 1,700 $ 1,582
------- -------
</TABLE>
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<PAGE> 7
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
NOTE 3: NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
----------- -----------
(000's)
<S> <C> <C>
Accounts receivable
factoring facility $ 603 $ 504
Bank credit facilities 991 273
NPI International loan 251 251
Other 21 103
------- -------
$ 1,866 $ 1,131
------- -------
</TABLE>
During April 1998 the Company entered into a term loan agreement for
$650,000 with Commerce Capital Corp. The loan is secured by an assignment of a
shareholder note. The origination fee for the loan included 100,000 warrants
exercisable at $.01 with a final maturity of April 1, 2003. The maturity of the
loan is March 31, 2002 at a rate of 13.5%.
NOTE 4: STOCKHOLDERS' EQUITY
In January 1998 the Company issued 100,000 shares of common stock in
payment of a consulting contract for marketing services. The services will be
rendered through November 1999.
In February 1998 the Company issued 150,000 shares of its common stock
to two employees, one of which was a former director of the Company, as payment
of $54,000 of indebtedness due the employees and as full payment for the
remaining terms of their employment contracts which continue through April
1999.
In March 1998, the directors awarded to a member of the Corporation's
Board, Mr. Samuel J Furrow, a non-qualified share option to purchase 1,000,000
shares of the Company's Common Stock as an equity incentive to become & remain
as a member of the Board of Directors. The grant of these options is at a
purchase price of .475 per share until March 31, 2003. The option becomes
exercisable by Furrow with respect to 20,834 shares during each of the first 48
calendar months which Furrow continues to serve as a Board member up to a
maximum of 1,000,000 shares.
The Company has adopted the provisions of SFAS No. 128, Earnings Per
Share, which is effective for fiscal years ending after December 15, 1997.
Basic earnings per share is calculated based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share
includes the dilutive effect of common stock equivalents. Diluted earnings
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<PAGE> 8
per share has not been presented because the impact of the assumed exercise of
the Company's stock options and warrants would have been anti-dilutive. The
assumed exercise of the Company's options and warrants may have a dilutive
effect in the future.
The changes in common stock, additional paid-in capital, and treasury
stock during the first quarter of fiscal 1998 were as follows:
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<PAGE> 9
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
NOTE 4: STOCKHOLDERS' EQUITY (concluded)
<TABLE>
<CAPTION>
Additional Promissory
Common Stock paid-in Note Treasury Stock
Shares Amount capital Officer Shares Amount
------ ------ ---------- ---------- -----------------------
(000's) (000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1997 44,596,133 $ 446 $28,429 $ (703) (119,691) $(2,426)
Issuance of common stock
Extinguishment of debt
and related fees 250,000 2 152
---------- ----- ------- ------ -------- -------
Balance, February 28, 1998 44,846,133 $ 448 $28,581 $ (703) (119,691) $(2,426)
</TABLE>
NOTE 5: CONTINGENCIES
In December 1991, a former employee filed suit against the Company and
others alleging breach of his employment agreement and conversion of his
interest in certain property rights of the Company. The complaint, as amended,
sought compensation damages of at least $13.5 million. In August, 1994 the trial
court granted the Company's motion for partial summary judgment and directed
verdicts with respect to certain of the former employee's claims, including
those concerning his ownership of an interest in the "E.A.R.T.H." trademark, or
the existence of a partnership with the Company to jointly own the trademark,
and the state court jury returned findings in favor of the Company on the
remainder of the plaintiff's claim concerning the trademark as well as his
claims for wrongful termination of employment. However, the jury awarded the
plaintiff approximately $700,000, of which $50,000 was assessed against Innovo
Group and $650,000 was assessed against Innovo, including pre-judgment interest
and attorney's fees, on the theory that he was entitled to have received certain
employment benefits, including employee stock awards, during, and after, the
term of his employment. The Company appealed the jury's award, and in August,
1996 (as revised in an amended October, 1996 opinion), the appeals court
reversed approximately $350,000 of the initial judgment as not supported by the
evidence or improper as a matter of law. As a result, the judgment, including
post-judgment interest through August, 1996, has been reduced to $420,000. In
addition, the appeals court ruled that the trial court erred in not submitting
to the jury the question of the Company's counterclaim of breach of fiduciary
duty by Tedesco, ruling that the trial record indicated that there was evidence
of such breach and damages therefrom. The appeals court remanded the case to the
trial court for trial on the Company's claim of breach of fiduciary duty by
Tedesco. The trial was completed in April 1998 and the jury found Tedesco did
knowingly breach his fudiciary duty and awarded in favor of the Company
$125,000. The Company will be entitled to offset these damages awarded against
the amended appeals decision. In connection, the Company had pledged 200,000
shares of its unissued common stock which has been issued to Tedesco as partial
payment against the total award. The
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<PAGE> 10
final amount of loss to the Company, including interest and attorney fees as of
May 31, 1998, is approx. $185,000 which has been provided for in the financial
statements.
NOTE 5: CONTINGENCIES (Cont.)
In May, 1996, a foreign manufacturer that had previously supplied
imported products to NASCO Products filed suit against NASCO Products asserting
that it is owed approximately $300,000 in excess of the amount presently
recorded by NASCO Products. NASCO Products and the supplier had previously
reached an agreement on the balance owed (which is the balance recorded), as
well as an arrangement under which the schedule for NASCO Products' payments
reducing the balance would be based on future purchases from that supplier of
products distributed internationally by NP International. The Company has
denied the supplier's claims, and has asserted affirmative defenses, including
the supplier's late shipment of the original products, and the supplier's
refusal to accept and fill NP International orders on terms contained in the
agreement. NASCO Products sold its operations in July, 1995, and that company
currently has no operations or unencumbered assets. No provisions for the
additional amount sought has been recorded in the consolidated financial
statements.
-10-
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The sales for the first half of fiscal 1998 were $4,158,000 as compared
to $4,332,000 for the same period in 1997 representing a decrease of $174,000.
Lower sales by Innovo and Thimble Square accounted for the $174,000 decrease in
sales for the comparable period a year ago. Sales for NP International and
Innovo were $3,528,000 for the first six months of 1998 as compared to
$3,540,000 for the same period in 1997. Thimble Squares sales during the first
six months of 1998 were $630,000 as compared to $823,000 for the first six
months of 1997 representing a decrease of 23%.
Sales for the second quarter of 1998 were $1,915,000 as compared to
$2,112,000 for the same period in 1997, the decrease of $197,000 in sales
resulted from Innovo, Inc. Sales for NP International and Innovo were
$1,568,000 for the second quarter of 1998 as compared to $1,770,000 for the
same period in 1997 reflecting a decrease in sales of 11.4%. Thimble Squares
sales during the second quarter of 1998 were $347,000 as compared to
$348,000 for the second quarter of 1997.
The decrease in Innovo's sales resulted principally from the
cancellation of a domestic sports licensed program which was in effect in 1997
but fell to cut banks in the buying budget of the retailer in 1998. It is
anticipated that this program will be reinstated in 1999. Due to a buyer change
at another major retailer Innovo lost additional sales of a canvas craft
program anticipated in 1998. The Company's current level of sales with this
retailer is increasing and is anticipated to reach sales levels in 1999 equal
to those projected for 1998. The total sales decrease for these two programs
was in excess of $550,000. NP International sales for the first six months of
1998 were $1,035,000 compared to $495,000 for the same period in 1997 resulting
in a 109% increase. The sales increase primarily due to increased sales of
Warner Brothers licensed products and it's sales in Germany. Additionally,
during the second quarter of 1998 the Company designed & began manufacturing
products specifically designed for the souvenir market. The souvenir line is
for a major retailer & totaled $135,000 initial orders. The program was
initiated at the request of a major retailer but the Company anticipates that
this souvenir line could result in overall sales increases. The Company is
adding this retailer to its electronic order system (EDI).
Gross profit as a percentage of sales for the first six months ending
May 31, 1998 was 36% compared to 34% for the same period in 1997. The increase
in gross profit is a result of improved product mix and operating efficiencies
created from greater availability of raw goods, consolidation of the operating
facilities at both Innovo and Thimble Square and the redesign of the
manufacturing processes at both locations during the third quarter of 1997.
Additionally, during the second quarter of 1998, the Company announced the
formation of a manufacturing alliance with a factory located in the Orient
which has resulted in lower production costs. The manufacturer also extended a
$500,000 line of credit to NPII and Innovo to allow the production, shipment
and receipt of goods by NPII and Innovo to be completed without usage of the
Company's existing credit facilities. The Company also arranged an unsecured
commitment for $450,000 to be utilized for import letters of credit through
AmSouth Bank of Birmingham, Alabama. This commitment was supported by the
personal guaranties of the CEO, COO, and Treasurer of the Company. The
manufacturer broker, who was the beneficiary of these L/C's, extended 60 day
terms ( from ship date ) to the Company which allowed the Company to receive
and ship the goods prior to payment of the L/C's. This financing arrangement
not only served to enhance cash flow but improved negociating on reduced costs
of certain products sold by NP International and Innovo.
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<PAGE> 12
During the third quarter of 1997 the Company idled satellite plants for
both Innovo and Thimble Square, however, both facilities are still available to
offset production or labor shortages should they occur. The gross profit for
Innovo and NPII for the first six months of 1998 was $1,331,000 as compared to
$1,300,000 for the same period in 1997. The gross profit for Thimble Square for
the six months ending May 31, 1998 was $180,000 as compared to $189,000 for the
same period in 1997. The gross profit for Innovo and NPII for the quarter
ending May 31 ,1998 was $562,000 as compared to $652,000 to the same period in
1997. The gross profit for Thimble Square for the quarter ending May 31, 1998
was $81,000 as compared to $75,000 for the same period in 1997.
Selling, general and administrative expense ( SG&A ) for the first six
months of 1998 was $2,303,000 or 55% of gross sales as compared to $2,377,000,
or the same percentage for the same period for 1997. It is anticipated by
management that the SG&A expenses as a percentage of sales could show
improvement in an environment of increased sales. SG&A for the quarter ending
May 31, 1998 was 58% as compared to the same percentage for the same period for
1997. SG&A for the first six months of 1998 includes increases in royalty
expense (which is consistent with an increase in sales of licenced products),
legal & professional expenses totaling $149,000. These expenses were primarily
realized during the first quarter of 1998.
The loss from operations was $792,000 for the first half of 1998 as
compared to $887,000 for the same period for 1997. The operations loss for the
second quarter of 1998 was $469,000 as compared to $480,000 for the same period
during 1997 showing a 2.29% improvement for the quarter and a 10.7% improvement
for the first six months of 1998 as compared to the same period for 1997.
Operating losses in the first and second quarters of 1998 were consistent with
the seasonally of the Company's business in which, currently, the majority of
sales take place during the second half of the year while the majority of
product development, marketing and all related costs are incurred during the
first half of the year. In fiscal 1997 54% of sales were produced in the
second half of the year. Management continues to focus on the smoothing of the
historic cyclic nature of the Company through prudent and complimentary pursuit
of contra-cyclic acquisitions, mergers and strategic marketing and distribution
alliances.
Interest expense decreased by $149,000 and $68,000 for the six and
three months ended May 31, 1998, respectively, as the primary result of lower
bank charges and interest.
The net loss for the first six months of 1998, ending May 31, 1998 was
$995,000 or $.02 per share as compared to a loss of $1,096,000 or $.04 per
share for the first six months of 1997 showing a 9.2% improvement. The net loss
for the second quarter of 1998, ending May 31, 1998 was $580,000 or $.01 per
share as compared to the net loss of $639,000 or $.02 per share for second
quarter of 1997 showing a 9.2% improvement.
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<PAGE> 13
Liquidity and Capital Resources
Operating cash flows were a negative $1,162,000 for the first half of
fiscal 1998 principally as a result of $1,357,000 increase in accounts
receivable and inventories and offsetting increases in accounts payable and
accrued expenses and the net loss. The net loss was financed primarily from
$692,000 in additional borrowings under bank credit facilities with First
American Bank and First Independent Bank. $121,000 remains available on those
lines at May 31, 1998.
The company's Florida retail property, operated as Good Deal
Mall, was acquired in fiscal 1995, and through August, 1997 the Company was
engaged in readying it to operate as an indoor multivendor open space mall in
which retailers operate from permanent booths. The Good Deal Mall has
approximately 22,000 square feet of rentable space, which can accommodate up to
135 vendor merchants. The property was initially opened in August 31, 1997 with
approximately 32 spaces, representing approximately 24% of the space available
and monthly rentals of approximately $16,000, rented to merchants, generally on
a monthly basis. The property had continued to operate at approximately that
level of occupancy through November, 1997. However, in November, 1997, the
Company decided to engage new management for the Good Deal Mall, and in
connection therewith refine the long-term goals for the property. The Company
has determined that the then existing merchant lessees were not consistent with
its revised plans, and has vacated the space so that merchants consistent with
the revised plans can be attracted. The Company currently anticipates that
these steps should be completed in the third quarter of fiscal 1998, which is
consistent with the seasonality of the Florida retail market.
The Company believes that additional capital, to the extent needed, can
be obtained from the issuance of equity securities. However, there can be no
assurance that this or other financing will be available if needed. The
inability of the Company to be able to fulfill any interim working capital
requirements would force the Company to have to constrict its operations.
During the second quarter of 1998 the Company signed a letter of intent
for the purchase of Wash America , Inc. located in Pulaski, Tennessee. As of
May 31, 1998 the final terms and conditions for the purchase had not been
finalized, however, it is the opinion of management that the purchase could be
completed during the third quarter of 1998. Wash America is a custom dye
company which is currently producing finished goods for Planet Hollywood, Hard
Rock Cafe, NASCAR, Sunbelt Catalogs, Wrangler and Holoubek-Harley Davidson.
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<PAGE> 14
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is hereby made to Part I, Item 3 of Company's Annual Report
on Form 10-K for the year ended November 30, 1997, which is
incorporated herein by reference.
Item 2. CHANGES IN SECURITIES
During the first quarter of fiscal 1998 the Company issued an
aggregate of 250,000 shares of common stock to extinguish $54,000 in
debt and to fund obligations under certain employment and consulting
contracts. See Note 4 of Notes to Condensed Consolidated Financial
Statements.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule (included only in the
electronically filed version of this report.
(b) Reports on Form 8-K.
None
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<PAGE> 15
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.
Dated: July 14, 1998 By /s/ L. E. Smith
----------------------------
L. E. Smith,
Chairman and Chief
Executive Officer
Dated: July 14, 1998 By /s/ J. Eric Hendrickson
----------------------------
J. Eric Hendrickson,
Vice President
and Treasurer
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANIES
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1
<CASH> 573
<SECURITIES> 0
<RECEIVABLES> 2,153
<ALLOWANCES> 19
<INVENTORY> 1,700
<CURRENT-ASSETS> 4,884
<PP&E> 6,853
<DEPRECIATION> 1,957
<TOTAL-ASSETS> 10,493
<CURRENT-LIABILITIES> 5,073
<BONDS> 0
0
0
<COMMON> 448
<OTHER-SE> 2,502
<TOTAL-LIABILITY-AND-EQUITY> 10,493
<SALES> 4,158
<TOTAL-REVENUES> 4,158
<CGS> 2,647
<TOTAL-COSTS> 2,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226
<INCOME-PRETAX> (995)
<INCOME-TAX> 0
<INCOME-CONTINUING> (995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (995)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
