UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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 (IRS Employer Identification No.)
incorporation or organization)
1808 North Cherry Street, Knoxville, Tennessee 37917
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (423) 546-1110
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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 subject to such filing
requirements for the past 90 days. Yes X No ___
As of September 28, 1999, 6,299,032 shares of common stock were outstanding.
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of August 31, 1999 and
November 30, 1998 3
Condensed Consolidated Statements of Operations for the three months
ended August 31, 1999 and 1998 4
Condensed Consolidated Statements of Operations for the nine months
ended August 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended August 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 9
INNOVO GROUP INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except for share data)
8/31/99 11/30/98
----------- ----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 86 $ 1,078
Accounts receivable net of allowance 5,673 708
Inventories, net 1,595 1,101
Prepaid expenses 384 267
----- -----
TOTAL CURRENT ASSETS 7,738 3,154
PROPERTY, PLANT and EQUIPMENT, net 3,739 4,037
OTHER ASSETS 105 41
------ -----
TOTAL ASSETS $ 11,582 $ 7,232
====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,928 $ 914
Current maturities of long-term debt 256 270
Accounts payable 1,813 1,139
Accrued expenses 1,522 906
----- -----
TOTAL CURRENT LIABILITIES 6,519 3,229
LONG-TERM DEBT, less current maturities 2,003 2,234
OTHER 5 47
----- -----
TOTAL LIABILITIES 8,527 5,510
----- -----
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.10 par - shares
Authorized 15,000,000
Issued 6,299,032 in 1999, 5,387,113 in 1998 629 538
Additional paid-in capital 31,540 30,282
Promissory note - officer (703) (703)
Deficit (25,985) (25,969)
Treasury stock (2,426) (2,426)
------- -------
TOTAL STOCKHOLDERS' EQUITY 3,055 1,722
------- -------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 11,582 $ 7,232
======= =======
See accompanying notes to consolidated condensed financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(000's except per share data)
(unaudited)
Three Months Ended
8/31/99 8/31/98
------- -------
NET SALES $7,389 $2,294
COST OF GOODS SOLD 4,130 1,346
----- -----
Gross profit 3,259 948
OPERATING EXPENSES
Selling, general and administrative 2,011 1,019
Depreciation and amortization 62 66
----- -----
2,073 1,085
INCOME (LOSS) FROM OPERATIONS 1,186 (137)
INTEREST EXPENSE (139) (139)
OTHER INCOME (EXPENSE), net 35 94
----- -----
INCOME (LOSS) BEFORE INCOME TAXES 1,082 (182)
INCOME TAXES (BENEFIT) -- --
----- -----
INCOME (LOSS) FROM CONTINUING
OPERATIONS 1,082 (182)
DISCONTINUED OPERATIONS
Results from Thimble Square operations (40) (133)
Loss on Disposal of Thimble Square -- (1,122)
----- -----
NET INCOME (LOSS) $1,042 $(1,437)
----- -----
----- -----
INCOME (LOSS) PER SHARE:
Continuing operations $0.17 $(0.04)
Discontinued operations $(0.01) $(0.28)
Net income (loss) $0.17 $(0.32)
WEIGHTED AVERAGE SHARES OUTSTANDING 6,299 4,476
See accompanying notes to consolidated condensed financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(000's except per share data)
(unaudited)
Nine Months Ended
8/31/99 8/31/98
------ ------
NET SALES $9,481 $5,822
COST OF GOODS SOLD 5,445 3,542
----- -----
Gross profit 4,036 2,280
OPERATING EXPENSES
Selling, general and administrative 3,682 2,857
Depreciation and amortization 185 208
----- -----
3,867 3,065
INCOME (LOSS) FROM OPERATIONS 169 (785)
INTEREST EXPENSE (332) (324)
OTHER INCOME (EXPENSE), net 148 117
----- -----
LOSS BEFORE INCOME TAXES (15) (992)
INCOME TAXES (BENEFIT) -- --
----- -----
LOSS FROM CONTINUING
OPERATIONS (15) (992)
DISCONTINUED OPERATIONS
Results from Thimble Square operations (1) (318)
Loss on Disposal of Thimble Square -- (1,122)
----- -----
NET LOSS $ (16) $(2,432)
===== =======
LOSS PER SHARE:
Continuing operations $(0.00) $(0.22)
Discontinued operations $(0.00) $(0.32)
Net loss $(0.00) $(0.54)
WEIGHTED AVERAGE SHARES OUTSTANDING 5,879 4,470
See accompanying notes to consolidated condensed financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(000's except per share data)
(unaudited)
Nine Months Ended
8/31/99 8/31/98
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Operating Activities of Discontinued Operations $ (11) $ 294
Operating Activities of Continuing Operations (3,987) (1,876)
----- -----
Cash Used by Operating Activities (3,998) (1,582)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Dispositions of Property, Plant & Equipment 176 - -
Capital Expenditures (132) (52)
----- -----
Cash Provided (Used) by Investing Activities 44 (52)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to Notes Payable 2,206 2,285
Repayments on Notes Payable (192) (885)
Repayments of Long-Term Debt (245) (189)
Additions to Long-Term Debt - - 650
Proceeds from Issuance of Common Stock 1,193 10
----- -----
Cash Provided by Financing Activities 2,962 1,871
----- -----
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (992) 237
CASH AND CASH EQUIVALENTS, at beginning of period 1,078 469
----- -----
CASH AND CASH EQUIVALENTS, at end of period $ 86 $ 706
===== =====
See accompanying notes to consolidated condensed financial statements
INNOVO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The accompanying condensed consolidated financial statements include the
accounts of Innovo Group Inc. ("Innovo Group") and its wholly owned subsidiaries
(collectively the "Company"). All significant intercompany transactions and
balances have been eliminated. 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, 1998.
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.
The results of operations for the periods noted in this document are not
necessarily indicative of the results expected for the full year.
NOTE 2 - INVENTORY
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market.
Inventories consisted of the following:
August 31, November 30,
1999 1998
--------- -----------
(000's) (000's)
Finished goods $ 317 $ 766
Work-in-process 18 18
Raw materials 1,364 353
----- -----
1,699 1,137
Less inventory reserve (104) (36)
----- -----
$ 1,595 $ 1,101
----- -----
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following:
August 31, November 30,
1999 1998
--------- -----------
(000's) (000's)
Accounts receivable factoring facility $ 2,579 $ 439
Bank credit facility 349 349
Other - - 126
----- -----
$ 2,928 $ 914
As of November 30, 1998, Thimble Square had a note payable to a bank secured by
the Pembroke, Georgia facility. This loan bore interest at the rate of 2.75
points over the prime rate per annum. The loan balance of approximately
$126,000 was paid off when the Pembroke facility was sold in December 1998.
During February 1999, the Company obtained an extension on the credit facility
with First Independent Bank of Gallatin. This facility expires in February 2000
and bears interest at the rate of 11.75% per annum.
On June 22, 1999 the Company signed a short term promissory note to an officer
of the Company for $192,000. This note bore interest at 8.5% and expired on
August 31, 1999. The proceeds from this note were used to purchase goods from
the Orient to fill orders that were currently placed with the Company. This
note was repaid during the third quarter.
On July 20, 1999 the Company signed an accounts receivable factoring facility
with Riviera Finance. This agreement provides financing for invoices
not factored by the Company's existing factoring agreement with First American
National Bank. The agreement with Riviera Finance provides for factoring on
75% of the qualified receivables up to $1,000,000. This agreement calls for
a 1% fee on every invoice funded in addition to a 2% monthly fee based on
the average daily account balance. This agreement has a minimum monthly fee of
0.5% of the account limit. This agreement expires on July 19, 2000.
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following:
August 31, November 30,
1999 1998
--------- -----------
(000'S) (000'S)
First mortgage loan $ 710 $ 754
Non-recourse first mortgage on
Florida property 714 727
Thimble Square SBA loan - - 179
Capital lease obligation 185 194
Bank promissory note secured by receivable
from an officer of the Company 650 650
----- -----
Total long-term debt 2,259 2,504
Less current maturities (256) (270)
----- -----
$2,003 $ 2,234
The Thimble Square SBA loan was repaid in conjunction with the December 1998
sale of a manufacturing facility in Pembroke, Georgia.
NOTE 5 - STOCKHOLDERS' EQUITY
On December 14, 1998, the Company registered and issued 45,000 shares on an S-8
filing as payment for legal consulting services. This stock was issued for
$91,564. In May, the Company issued 45,919 to a former officer of the Company
for future services valued at $64,074.
During February and May of 1999, the Company issued 200,000 shares to certain
officers of the company for consideration of $350,000.
During the second quarter of 1999, the Company sold 621,000 shares in private
placement transactions for consideration of $842,750. The stock was sold at
prices ranging from $1.00 per share to $1.65 per share.
NOTE 6 - SUBSEQUENT EVENTS
On September 2, 1999, the Company settled a lawsuit with a vendor for $20,000.
The lawsuit stated that the Company breached a contract to purchased goods
valued at $15,000 per month. The original judgment in this case was $119,372.
On September 3, 1999, the Company issued a non-qualified option to purchase
7,500 shares of common stock at $2.00 per share to an employee. This option
expires on September 3, 2001 and calls for a vesting period of six months from
the date of issuance. This option may only be exercised upon written
notification to the Company of the shares exercised.
During October 1999, the Company entered into a tentative agreement with Pannoy
Enterprises Corporation ("Pannoy") for a $200,000 settlement of a suit brought
against Nasco Products, Inc. (NASCO Products) in May of 1996. That suit
(Pannoy Enterprises Corporation v. NASCO Products, Inc., Case No. 12948, in the
Chancery Court for Robertson County, Tennessee) stated that Pannoy, a foreign
manufacturer that had previously supplied imported products to NASCO Products,
was owed approximately $470,000. The Company contended that NASCO Products and
the supplier had previously reached an agreement on the balance owed, as well as
an arrangement under which the schedule for NASCO Products' payments reducing
the balance would be based on future purchases by NASCO Products. The Company
denied the supplier's claims, and asserted affirmative defenses, including the
supplier's late shipment of the original products, the supplier's refusal to
accept and fill NASCO Products' orders on agreed terms, and the supplier's
agreement to a lesser balance owed and a payment arrangement. NASCO Products
sold its operations in July 1995, and has no ongoing business operations. As of
August 31, 1999, the Company had accrued $170,000 for the settlement of this
suit. The adjustment of the balance paid will be made in the fourth quarter of
1999.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the Statement of Operations for the three months
and nine months ended August 31, 1999 and 1998.
Three Months Ended Nine Months Ended
8/31/99 8/31/98 8/31/99 8/31/98
------ ------ ------ ------
Net Sales $7,389 $2,294 $9,481 $5,822
Costs of Goods Sold 4,130 1,346 5,445 3,542
----- ----- ----- -----
Gross Profit 3,259 948 4,036 2,280
Selling, General & Administrative 2,011 1,019 3,682 2,857
Depreciation & Amortization 62 66 185 208
----- ----- ----- -----
Income (Loss) from Operations 1,186 (137) 169 (785)
Interest Expense (139) (139) (332) (324)
Other Income (Expense) 35 94 148 117
----- ----- ----- -----
Income (Loss) Before Income Taxes 1,082 (182) (15) (992)
Income Taxes -- -- -- --
Income (Loss) from Continuing
Operations 1,082 (182) (15) (992)
----- ----- ----- -----
Discontinued Operations (40) (1,255) (1) (1,440)
----- ----- ----- -----
Net Income (Loss) $1,042 $(1,437) $ (16) $(2,432)
====== ======== ======= ========
Comparison of the Three Months Ended August 31, 1999 to the Three Months Ended
August 31, 1998
Net Sales for the quarter ended August 31 increased $5,095,000 or 222.1% from
$2,294,000 in 1998 to $7,389,000 in 1999. This increase in sales was primarily
caused by a $2,500,000 promotional order from a national car rental company, the
increased demand of the company's clear backpacks and sports bags and the timing
of the company's back to school sales.
The company's clear line of backpacks and sports bags added approximately
$1,700,000 in revenue during the third quarter of 1999.
Historically, the company ships back to school orders from May to August.
During 1999, the back to school products were delayed in their arrival from the
Orient until late May and early June. Due to the late arrival, the back to
school orders were shipped during the third quarter.
The gross margin percentage increased approximately three percentage points from
41.3% in 1998 to 44.1% in 1999 due primarily to improved sourcing of finished
goods from the Orient.
Selling, General and Administrative costs increased by $992,000 from the third
quarter of 1998 to the third quarter of 1999. This increase is the result of
commissions and royalties associated with the increase in sales.
Depreciation and Amortization expenses remained largely unchanged due to the
lack of equipment purchases during 1998 and 1999.
Interest expense for the three months ended August 31, 1998 and 1999 was
essentially unchanged due to the lack of significant changes in financing from
1998 to 1999.
Other Income decreased $59,000 from the three month period ended August 31, 1998
to the three month period ended August 31, 1999. This decrease was caused by a
reduction of royalty income from Licenses that were sold in 1994.
Comparison of the Nine Months Ended August 31, 1999 to the Nine Months Ended
August 31, 1998
Net Sales for the nine months ended August 31 increased $3,659,000 from
$5,822,000 in 1998 to $9,481,000 in 1999. This increase is the direct result
of a $2,500,000 sale to a national car rental company and the popularity of
the company's clear backpack and sports bags.
The company's gross margin percentage increased approximately three basis points
from the nine months ended August 31, 1998 to August 31, 1999. This increase
resulted from improved purchasing from the Orient for the back to school buying
season.
Selling, General and Administrative costs increased by $825,000 or 28.9% from
1998 to 1999 due to increased royalties and commissions from the increased sales
and the additional freight costs incurred in importing product from the Orient.
Depreciation and Amortization expenses decreased $23,000 or 11.1% from the nine
months ended August 31, 1998 to the nine months ended August 31, 1999 due to the
lack of significant purchases of fixed assets during 1998 and 1999.
Depreciation expense should slowly decrease over time as the Company's equipment
continues to age.
Interest expense for the nine months ended August 31, 1998 and 1999 was
essentially unchanged due to the lack of significant changes in financing from
1998 to 1999.
Other Income increased $31,000 from the nine month period ended August 31, 1998
to the nine month period ended August 31, 1999. This increase is primarily the
result of adjustments to state income and federal payroll taxes payable during
the second quarter of 1999. The accruals were adjusted to actual after the
returns were prepared. The tax adjustments were offset by a reduction in the
royalty receipts from licenses that were sold in 1994.
Liquidity and Capital Resources
Innovo Group is a holding company and its principal assets are the common stock
of the operating subsidiaries. As a result, to satisfy its obligations Innovo
Group is dependent on cash obtained from the operating subsidiaries, either
as loans, repayments of loans made by Innovo Group to the subsidiary, or
distributions, or on the proceeds from the issuance of debt or equity securities
by Innovo Group.
Cash flows from operations were a negative $3,998,000 for the nine months ended
August 31, 1999. The primary reasons for the negative cash flow was the
$16,000 of net loss recorded for the nine months ended August 31, 1999 and
increases in accounts receivable (4,965,000), inventory (494,000) and prepaid
expenses (117,000). The increased assets were offset by increases in accounts
payable (766,000) and accrued liabilities (616,000).
The Company's principal credit facility for working capital is its December 1997
factoring agreement with First American National Bank ("First American"). Under
this facility, First American advances up to 90% of approved invoices. There is
no established limit on the facility. First American charges Innovo 1% for the
first 15 days an invoice is outstanding and .05% per day thereafter until paid,
up to a maximum of 6%. The facility is secured by a first position on accounts
receivable and inventory and personal guarantees of certain members of the Board
of Directors and management. Prior to the agreement with First American, the
Company factored its receivables with another lender. The facility can be
terminated upon thirty days written notice by either party.
On July 20, 1999 the Company signed an accounts receivable factoring facility
with Riviera Finance. This agreement was signed to provide financing for
invoices not factored by the company's existing factoring agreement with First
American National Bank. The agreement with Riviera Finance provides for
factoring on 75% of the qualified receivables up to $1,000,000. This agreement
calls for a 1% fee on every invoice funded in addition to a 2% monthly fee based
on the average daily account balance. This agreement has a minimum monthly fee
of 0.5% of the account limit. This agreement expires on July 19, 2000.
In connection with the Company's discontinuance of its apparel manufacturing
operations the Company disposed of its former Thimble Square operations and its
assets. On December 10, 1998, the Company completed the sale of Thimble
Square's Pembroke facility from which it realized net proceeds of approximately
$176,000 which together with available cash was used to pay a $179,000 long-term
mortgage and a $126,000 short term note. The remaining facility of the Thimble
Square operation in Baxley, Georgia was leased to an apparel manufacturing
company during the first half of the year. This building has subsequently
become vacant again and the Company is in the process of determining the proper
course of action in regards to the property. The continuing losses in
discontinued operations on the statement of operations for the third quarter
represents the depreciation and other expenses on this building and other
assets.
In December 1997, the Company had negotiated a line of credit at First
Independent Bank for $350,000 collateralized by equipment and the guarantees
of certain officers. A total of $349,000 had been drawn under this facility
which matured on December 30, 1998. In February 1999, the bank renewed the
facility extending its due date to February 27, 2000.
During the first nine months ended August 31, 1999, the Company received
$1,192,750 for the issuance of 821,000 shares of Common Stock. Of the shares
sold, 200,000 shares were sold to officers of the Company. These shares totaled
$350,000. In addition to the 821,000 shares sold , 90,919 shares were issued
for services rendered. These shares were valued at $155,638.
Based on the foregoing, the Company believes that working capital will be
sufficient to fund operations and required debt reductions during the remainder
of fiscal 1999. The Company believes that any additional capital, to the
extend needed, could be obtained from the sale of equity securities or
short-term working capital loans. 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 constrict its operations.
The Company's business is seasonal. The majority of the marketing and sales
activities take place from late fall to early spring. The greatest volume of
shipments and sales are generally made from late spring through the summer,
which coincides with the Company's second and third fiscal quarters and the
Company's cash flow is strongest in its third and fourth fiscal quarters. Due
to the seasonality of the business, the third quarter results are not
necessarily indicative of the results for the fourth quarter.
Year 2000
The Company uses various types of technology in the operations of its business.
Some of this technology incorporates date identification functions; however,
some of these date identification functions were developed to use only two
digits to identity a year. These date identification functions, if not
corrected, could cause their relating technology to fail or create erroneous
results by or at the year 2000.
The Company has assessed the impact of Year 2000 issues on its information and
non-information technology systems. As part of this process, the Company
retained the services of an independent contractor with experience in analyzing
and addressing Year 2000 issues, from whom the Company purchased $10,000 of
computer equipment. The Company has also retained an additional independent
consultant to assist in the conversion of the Company's existing operating
and accounting systems to a Year 2000 compliant platform.
The Company has also developed a plan to address the impact that Year 2000
issues of its vendors and customers may have on the Company's operations. The
Company is currently finalizing its evaluation of the materiality of its vendor
and customer relationships and has initiated communications with certain of its
significant vendors and customers to identity and minimize disruptions to the
Company's operations and to assist in resolving Year 2000 issues. The Company
expects to have substantially completed its evaluation during the third quarter
of fiscal 1999; however, there can be no assurances that the systems and
products of other companies on which the Company relies will not have an adverse
effect on the Company's business, operations or financial condition. In the
event that completion of the Company's Year 2000 evaluation of its vendors and
customers is not assured by the end of 1999, the Company intends to determine
appropriate contingency plans.
As of August 31, 1999 the Company had incurred approximately $25,000 in costs
related to the Year 2000 issue. The Company believes that additional costs
related to the Year 2000 issue, which are not currently expected to exceed
$50,000, will not be material to the Company's business, operations or financial
condition. All other efforts to date with respect to Year 2000 compliance issues
have involved the time of existing personnel with no identifiable additional
cost to the Company. However, estimates of Year 2000 related costs are based on
numerous assumptions and there is no certainty that estimates will be achieved
and actual costs could be materially greater than anticipated. The Company
anticipates that it will fund its additional Year 2000 costs from current
working capital.
Forward-Looking Statements
This report contains some forward-looking statements made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 which
involve substantial risks and uncertainties including, without limitation,
continued acceptance of the Company's product, product demand, competition,
capital adequacy and the potential inability to raise additional capital if
required. These forward-looking statements can generally be identified by the
use of forward-looking words like "may," "will," "except," "anticipate,"
"intend," "estimate," "continue," "believe" or other similar words. Similarly,
statements that describe our future expectations, objectives and goals or
contain projections of our future results of operations or financial condition
are also forward-looking statements. Our future results, performance or
achievements could differ materially from those expressed or implied in these
forward-looking statements.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is hereby made to Part I, Item 3 of the Company's Annual Report filed
on Form 10-K for the year ended November 30, 1998, which is incorporated herein
by reference.
During the third quarter of 1999, the Company was notified of an adverse ruling
in the case of Wayne Copelin v. Innovo Group, Inc., et al. Due to the judgment
the Company was required to book a $100,000 liability during the third quarter
to record this judgment.
On Setpember 2, 1999, the Company settled a lawsuit with a vendor for $20,000.
The lawsuit stated that the Company breached a contract to purchase goods valued
at $15,000 per month. The original judgment in this case was $119,372.
During October 1999, the Company entered into a tentative agreement with Pannoy
Enterprises Corporation ("Pannoy") for a $200,000 settlement of a suit brought
against Nasco Products, Inc. (NASCO Products) in May of 1996. That suit
(Pannoy Enterprises Corporation v. NASCO Products, Inc., Case No. 12948, in the
Chancery Court for Robertson County, Tennessee) stated that Pannoy, a foreign
manufacturer that had previously supplied imported products to NASCO Products,
was owed approximately $470,000. The Company contended that NASCO Products and
the supplier had previously reached an agreement on the balance owed, as well as
an arrangement under which the schedule for NASCO Products' payments reducing
the balance would be based on future purchases by NP International. The
Company denied the supplier's claims, and asserted affirmative defenses,
including the supplier's late shipment of the original products, the supplier's
refusal to accept and fill NP International's orders on agreed terms, and the
supplier's agreement to a lesser balance owed and a payment arrangement. NP
International sold its operations in July 1995, and has no ongoing business
operations. As of August 31, 1999, the Company had accrued $170,000 for the
settlement of this suit. The adjustment of the balance paid will be made in the
fourth quarter of 1999.
ITEM 2. CHANGES IN SECURITIES
During the nine months ended August 31, 1999, the Company issued 911,919 shares
of the company in consideration of $1,348,388. These shares were issued for a
combination of cash ($1,192,750) and a reduction of liabilities ($155,638).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule (included only in the electronically
filed version of of this report.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Samuel J. Furrow
--------------------
Samuel J. Furrow
Chairman of the Board and
Chief Executive Officer
October 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
Signature and Title Date
/s/ Samuel J. Furrow Chief Executive Officer October 14, 1999
- --------------------
Samuel J. Furrow
Chairman of the Board,
Chief Executive Officer
and Director
/s/ Bradley T. White Chief Financial Officer October 14, 1999
- --------------------
Bradley T. White
Controller
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 3-MOS 9-MOS
[FISCAL-YEAR-END] NOV-30-1999 NOV-30-1999
[PERIOD-END] AUG-31-1999 AUG-31-1999
[CASH] 86000 86000
[SECURITIES] 0 0
[RECEIVABLES] 5806000 5806000
[ALLOWANCES] (133000) (133000)
[INVENTORY] 1595000 1595000
[CURRENT-ASSETS] 7738000 7738000
[PP&E] 6040000 6040000
[DEPRECIATION] (2301000) (2301000)
[TOTAL-ASSETS] 11582000 11582000
[CURRENT-LIABILITIES] 6263000 6263000
[BONDS] 2259000 2259000
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 629000 629000
[OTHER-SE] 2426000 2426000
[TOTAL-LIABILITY-AND-EQUITY] 11582000 11582000
[SALES] 7389000 9481000
[TOTAL-REVENUES] 7389000 9481000
[CGS] 4130000 5445000
[TOTAL-COSTS] 4130000 5445000
[OTHER-EXPENSES] 2007000 3772000
[LOSS-PROVISION] 66000 95000
[INTEREST-EXPENSE] 139000 332000
[INCOME-PRETAX] 1082000 (15000)
[INCOME-TAX] 0 0
[INCOME-CONTINUING] 1082000 (15000)
[DISCONTINUED] (40000) (1000)
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 1042000 (16000)
[EPS-BASIC] 0.17 0.0
[EPS-DILUTED] 0.17 0.0
</TABLE>
