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, 2000
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)
2633 Kingston Pike, Suite 100, Knoxville, Tennessee 37919
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (865) 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
requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 duringthe 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 October 1, 2000, 10,091,261 shares of common stock were outstanding.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNOVO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000's except for share data)
8/31/00 11/30/99
------- --------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ --
Accounts receivable, net of allowance of $172,000
in 2000 and $153,000 in 1999 2,268 1,161
Inventories 3,021 1,968
Prepaid expenses & other current assets 40 3
------ ------
TOTAL CURRENT ASSETS 5,329 3,132
PROPERTY, PLANT and EQUIPMENT, net 2,923 3,042
OTHER ASSETS -- 48
------ ------
TOTAL ASSETS $ 8,252 $ 6,222
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,377 $ 959
Current maturities of long-term debt 80 75
Accounts payable 511 623
Accrued expenses 1,081 856
------ ------
TOTAL CURRENT LIABILITIES 3,049 2,513
LONG-TERM DEBT, less current maturities 1,273 1,979
------ ------
TOTAL LIABILITIES 4,322 4,492
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.10 par - shares
Authorized 15,000,000
Outstanding 10,091,261 in 2000 and 6,299,032
in 1999 1,009 629
Additional paid-in capital 35,213 31,540
Promissory note - officer (703) (703)
Deficit (29,163) (27,310)
Treasury stock (2,426) (2,426)
------ ------
TOTAL STOCKHOLDERS' EQUITY 3,930 1,730
------ ------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 8,252 $ 6,222
------ ------
------ ------
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
8/31/00 8/31/99
------- -------
NET SALES $ 3,579 $ 7,389
COST OF GOODS SOLD 2,441 4,130
------- -------
Gross profit 1,138 3,259
------- -------
OPERATING EXPENSES
Selling, general and administrative 1,321 2,011
Depreciation and amortization 58 62
------- -------
1,379 2,073
------- -------
LOSS FROM OPERATIONS (241) 1,186
INTEREST EXPENSE (55) (139)
OTHER INCOME (EXPENSE), net 8 35
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (288) 1,082
INCOME TAXES (BENEFIT) -- --
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (288) 1,082
DISCONTINUED OPERATIONS
Results from Thimble Square operations -- (40)
------- -------
NET INCOME (LOSS) $ (288) $ 1,042
------- -------
------- -------
NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.04) $ 0.17
Discontinued operations $ 0.00 $ (0.01)
Net income (loss) $ (0.04) $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING 7,970 6,299
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
8/31/00 8/31/99
------- -------
NET SALES $ 5,492 $ 9,481
COST OF GOODS SOLD 3,765 5,445
------- -------
Gross profit 1,727 4,036
------- -------
OPERATING EXPENSES
Selling, general and administrative 3,230 3,682
Depreciation and amortization 204 185
------- -------
3,434 3,867
------- -------
INCOME (LOSS) FROM OPERATIONS (1,707) 169
INTEREST EXPENSE (173) (332)
OTHER INCOME (EXPENSE), net 27 148
------- -------
LOSS BEFORE INCOME TAXES (1,853) (15)
INCOME TAXES (BENEFIT) -- --
------- -------
LOSS FROM CONTINUING OPERATIONS (1,853) (15)
DISCONTINUED OPERATIONS
Results from Thimble Square operations -- (1)
------- -------
NET LOSS $ (1,853) $ (16)
------- -------
------- -------
NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.24) $ (0.00)
Discontinued operations $ (0.00) $ (0.00)
Net loss $ (0.24) $ (0.00)
WEIGHTED AVERAGE SHARES OUTSTANDING 7,566 5,879
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
8/31/00 8/31/99
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Operating Activities of Discontinued Operations $ -- $ (11)
Operating Activities of Continuing Operations (3,438) (3,987)
------- -------
Cash Used by Operating Activities (3,438) (3,998)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Dispositions of Property, Plant & Equipment -- 176
Capital Expenditures 90 (132)
------- -------
Cash Provided (Used) by Investing Activities 90 44
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to Notes Payable (55) 2,206
Repayments on Notes Payable (192)
Repayments of Long -Term Debt (650) (245)
Proceeds from Issuance of Common Stock 4,058 1,193
------- -------
Cash Provided by Financing Activities 3,348 2,962
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS -- (992)
CASH AND CASH EQUIVALENTS, at beginning of period -- 1,078
CASH AND CASH EQUIVALENTS, at end of period $ -- $ 86
------- -------
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, 1999.
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 the 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
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market. The Company's Inventory increased significantly
in the period ending August 31, 2000 as a result of the purchase of finished
goods and raw materials from Commerce Investment Group, LLC. The inventory
purchased from Commerce was paid for with the funds the Company received through
the issuance of common stock to Commerce.
Inventories consisted of the following:
August 31, November 30,
2000 1999
---------- ------------
(000's) (000's)
Finished goods $ 3,036 $ 1,510
Work-in-process 28 28
Raw materials 120 534
------- -------
3,184 2,072
Less inventory reserve (164) (104)
------- -------
$ 3,021 $ 1,968
------- -------
------- -------
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following:
August 31, November 30,
2000 1999
--------- -----------
(000's) (000's)
Accounts receivable factoring facility $ 1,127 $ 510
Bank credit facility -- 349
Other 250 100
------ ------
$ 1,377 $ 959
------ ------
------ ------
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following:
August 31, November 30,
2000 1999
---------- ------------
(000's) (000's)
First mortgage loan $ 687 $ 714
Non-recourse first mortgage on
Florida property 666 690
Bank promissory note secured by receivable
from an officer of the Company -- 650
----- -----
Total long-term debt 1,353 2,054
Less current maturities (80) (75)
----- -----
$ 1,273 $ 1,979
----- -----
----- -----
NOTE 5 - STOCKHOLDERS' EQUITY
On August 11, 2000, the Company issued 1,363,637 shares of Common Stock to
Commerce Investment Group, LLC ("Commerce") for $1.5 million in cash (a price
of $1.10 per share), with the proceeds being used by the Company to purchase
finished goods and services from Commerce and its affiliates. The issued shares
have been subsequently registered pursuant to an S-3 registration statement.
On August 11, 2000, the Company's CEO and COO (the "Furrow Group"), who are
both members of the Company's Board of Directors, converted $1 million of
outstanding Company debt owed to third parties that they had previously assumed
and converted $500,000 of Company debt that was owed to the Furrow Group for
1,363,637 shares of Commons Stock, or $1.10 per share, and warrants to purchase
1,500,000 shares of Common Stock that have a three-year term and an exercise
price of $2.10 per share. The warrants are subject to shareholder approval.
The issued shares have been subsequently registered pursuant to an S-3
registration statement.
Upon shareholder approval and satisfaction of other conditions, the Company
plans to sell an additional 1.5 million shares of Common Stock and warrants to
purchase an additional 3.3 million shares to the Commerce Group (the "Purchase
Warrants") for $1,500,000. The Purchase Warrants will have an exercise price of
$2.10 per share. Three million of the Purchase Warrants will have a term of
three years and the remaining 300,000 will vest over two years and expire 3
years from the last vesting. The proceeds will be used by the Company to
purchase additional finished goods and services from the Commerce Group and its
affiliates.
The Company entered into a binding letter agreement on August 8, 2000 with
Third Millennium Properties, Inc., JAML, LLC and Innovation, LLC (the "Letter
Agreement") providing for the sale of shares and warrants to purchase 1,700,000
shares to the Mizrachi Group for $1.7 million. The number of shares that the
Mizrachi Group will purchase will be equal to $1,700,000 divided by the lesser
of $1.00 and 80% of the average closing bid price for the Common Stock over
the 10 days prior to day of the sale closing. The Mizrachi Warrants will have
a term of 36 months and be exercisable at a price of $2.00 per share. The first
$850,000 of the purchase price and one-half of the Mizrachi Shares and Mizrachi
Warrants will be delivered at closing (the "Initial Closing"), which is to occur
as soon as is practicable after shareholder approval, and the remaining $850,000
and shares and warrants will be delivered within 30 days after the Initial
Closing.
Pursuant to an exception granted to the Company by Nasdaq, the Company is
required to raise its net tangible asset level to $5 million before October 31,
2000. The Company believes that upon shareholder approval and the completion of
the proposed transactions above, the Company will be able to file the required
documentation with the SEC reflecting a net tangible asset level of $5 million.
In the event the Company is deemed to have met the terms of the exception, it
shall continue to be listed on The Nasdaq SmallCap Market. The Company believes
that it can meet these conditions, however, there can be no assurance that it
will do so. If at some future date the Company's securities should cease to be
listed on The Nasdaq SmallCap Market, they may continue to be listed on the OTC-
Bulletin Board. For the duration of the exception, the Company's Nasdaq symbol
will be INNOC.
Although the Company will continually use its best efforts to maintain its
Nasdaq SmallCap listing, there can be no assurance that it will be able to do
so. If in the future, the Company is unable to satisfy the Nasdaq criteria for
maintaining listing, its securities would be subject to delisting, and trading,
if any, the Company's securities would thereafter be conducted in the over-the-
counter market, in the so-called "pink sheets" or on the National Association of
Securities Dealers, Inc. ("NASD") "Electronic Bulletin Board." As a consequence
of any such delisting, a stockholder would likely find it more difficult to
dispose of, or to obtain accurate quotations as to the prices, of the Common
Stock.
NOTE 6 - SUBSEQUENT EVENTS
In September of 2000 the Company completed the closure of its Knoxville, TN
manufacturing and distribution operations and realigned its manufacturing and
distribution operations in accordance with the terms of the agreement entered
into with Commerce Group, LLC. The Company also relocated its sales and
marketing staff into a smaller office facility located near downtown Knoxville,
TN. The new facility being leased by the Company is owned by an entity in which
the Company's CEO and Chairman is a controlling member. The Company believes
that the relocation will significantly reduce the Company's fixed and variable
overhead expenses.
In ceasing its manufacturing operations, the Company has incurred certain one-
time expenses. These expenses include, but are not limited to, the costs
associated with the liquidation of certain inventories. With the Company moving
its distribution operations to Los Angeles, CA, the Company has concluded that
it is more cost effective to sell certain inventories at a discount as opposed
to incurring the freight costs to ship the inventory cross country. While some
of these expenses are reflected in the current periods results, the Company
anticipates that additional expenses will be recorded in the fourth quarter.
Additionally, the Company has experienced certain production limitations due
to the complications associated with transitioning its manufacturing needs to
Commerce's Mexico production operations. While there can be no guarantee, the
Company believes that upon the completion of the integration process with
Commerce, the Company should be able to meet the production demands of its
current and future customers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Results of Operations
The following table sets forth the Statement of Operations for the three and
nine months ended August 31, 2000 and 1999.
In thousands
Three Months Ended Nine Months Ended
8/31/00 8/31/99 8/31/00 8/31/99
------- ------- ------- -------
Net Sales $ 3,579 $ 7,389 $ 5,492 $ 9,481
Costs of Goods Sold 2,441 4,130 3,765 5,445
------ ------ ------ ------
Gross Profit 1,138 3,259 1,727 4,036
Selling, General & Administrative 1,321 2,011 3,230 3,682
Depreciation & Amortization 58 62 204 185
------ ------ ------ ------
Income (Loss) from Operations (241) 1,186 (1,707) 169
Interest Expense (55) (139) (173) (332)
Other Income (Expense) 8 35 27 148
------ ------ ------ ------
Income (Loss) Before Income Taxes (288) 1,082 (1,853) (15)
Income Taxes -- -- -- --
Income (Loss) from Continuing
Operations (288) 1,082 (1,853) (15)
------ ------ ------ ------
Discontinued Operations -- (40) -- (1)
------ ------- ------ ------
Net Income (Loss) $ (288) $ 1,042 $(1,853) $ (16)
Comparison of the Three Months Ended August 31, 2000 to the Three Months Ended
August 31, 1999
Net Sales for the quarter ended August 31, 2000 decreased $3,810,000 from
$7,389,000 in 1999 to $3,579,000 in 2000. This decrease is primarily the result
of a large $2.5 million premium order that was placed with the Company in 1999
but not repeated in 2000. Nasco Products International, Inc. ("NPII"), the
Company's international subsidiary, also ceased operations due to a lack of
demand for licensed products in the European markets during the second fiscal
quarter. Consequently, the Company's revenues reflect the negative impact of the
closure. Furthermore, the Company had limited production capabilities during
the entire period and until September 2000 due to a labor shortage thus
resulting in the Company not being able to meet some customer demand for its
domestically made products. The Company believes that when fully integrated the
production arrangement with Commerce Investment Group, LLC will allow the
Company to meet customer demand going forward.
The gross margin percentage decreased 12.3 percentage points from 44.1% in
1999 to 31.8% in 2000 due primarily to a product mix in the third quarter of
2000 that generates a lower margin. The Company also chose to liquidate certain
inventories at a discount due to the cost benefits associated with not having to
incur the freight charges to ship the products to Commerce's distribution
facilities in Los Angeles, CA. Furthermore, the $2.5 million specialty order
that was recorded in the third quarter of 1999 had a high gross margin rate of
approximately 50%.
Selling, General and Administrative costs decreased $690,000 or 34.3% from
1999 to 2000 due primarily to a decrease in variable operating expenses,
salaries and commissions. The third quarter of 2000 includes a one-time royalty
charge of $114,000 as a result of the discontinuation of the Company's
international subsidiary NPII and $50,000 of legal settlement expenses.
Depreciation expenses decreased $4,000 or 6.4% from the third quarter of 1999
to the third quarter of 2000.
Interest expense for the three months ended August 31, 2000 decreased to
$55,000 from $139,000 for the three months ended August 31, 1999 due to the
extinguishment of long term debt throughout the end of 1999 and 2000.
Other income (expense) decreased from income of $35,000 to $8,000 due
primarily to the reduction in the income generated from a note receivable.
Comparison of the Nine Months Ended August 31, 2000 to the Nine Months Ended
August 31, 1999
Net Sales for the nine months ended August 31, 2000 decreased $3,989,000 from
$9,481,000 in 1999 to $5,492,000 in 2000. This decrease is the result of a
large premium order of $2.5 million that was placed with the Company in 1999
but not repeated in 2000, a decrease in sales for the Company's discontinued
international subsidiary, Nasco Products International ("NPII") and domestic
production limitations as a result of a labor shortage.
The gross margin percentage decreased 11.1% percentage points from 42.5% in
1999 to 31.4% in 2000 due primarily to a product mix in the second quarter of
2000 that generates a lower margin, reduced margins associated with the sale of
discounted merchandise and the high gross margin rate of approximately 50% on a
$2.5 million order placed with the Company in 1999 but not repeated in 2000.
Selling, General and Administrative costs decreased $452,000 or 12.2% from
1999 to 2000 due primarily to a reduction in commissions and royalty expense.
For the period, the Company experience a one-time royalty charge of $114,000 as
a result of the closing of NPII, legal settlement expenses of $78,000 and
maintenance and repair expenses of $65,000. The Company believes that its
SG&A will be significantly reduced going forward as a result of a reduction in
management wages, a decrease in rent and utilities and the reduction in
maintenance & repairs, payroll taxes and worker compensation expenses due to
the closing of the Company's manufacturing and distribution operations.
Depreciation expenses increased $19,000 or 9.3% from the first nine months of
1999 to the first nine months of 2000 due to depreciation of new computer
equipment and software that the Company purchased as part of its year 2000
computer conversion.
Interest expense for the nine months ended August 31, 2000 decreased to
$173,000 from $332,000 for the six months ended May 31, 1999 due to the
extinguishment of long term debt through the end of 1999 and 2000.
Other income (expense) decreased from income of $148,000 to $27,000 due
primarily to the reduction in the income generated from a note receivable.
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. The subsidiaries primary sources of liquidity are
cash flows from operations, including credit from vendors and borrowings from
the factoring of accounts receivables.
Cash flows from operations were a negative $3,438,000 for the nine months
ended August 31, 2000. The primary reason was a net losses of $1,853,000 as
well as cash used to fund increases in inventories of $1,053,000 and accounts
receivable $1,107,000.
The Company relied on six primary sources to fund operations in the first nine
months of 2000:
1. An accounts receivable factoring agreement with KBK Financial ("KBK")
2. An accounts receivable factoring agreement with First American National Bank
("First American")
3. An accounts receivable factoring agreement with Riviera Finance ("Riviera")
4. Trade credit with its domestic and international suppliers
5. Borrowings from management and shareholders
6. Equity financing through private placements
The Company's principal credit facility for working capital is its accounts
receivable factoring arrangements. In July of 2000, the Company's accounts
receivable factoring facility with First American was terminated due to First
American's decision to cease its factoring operations. In July, the Company
entered into a factoring facility with KBK. This agreement was signed to
provide financing for invoices not factored by the Company's existing factoring
arrangement with Riviera Finance. The agreement with KBK provides for factoring
on 85% of the qualified receivables up to $5,000,000. The agreement calls for a
2% fee on every invoice funded in addition to a per annum rate equal to KBK's
base rate in effect on the date of the purchase of the invoice plus 2% per
annum. The agreement may be terminated by either party by delivery of written
notice of termination of the agreement to the other party specifying the date of
termination, which shall be at least 30 days after the date such notice is
given. The Company anticipates continued reliance on the accounts receivable
factoring agreements with KBK and Riviera to generate the majority of its
working capital needs.
Previously, the Company has been successful in negotiating extended trade
credit with its largest vendors. In 1998, the Company entered into an
agreement with Sunwaki Industrial Company, Ltd. of Hong Kong to produce the
Company's licensed products for both domestic and international distribution.
Sunwaki has the capability to meet a substantial portion of the Company's need
for such products. In 1999, Sunwaki extended trade credit to Innovo in excess
of $1 million. The Company has been successful in obtaining similar credit
terms with Sunwaki in 2000.
During 2000, the Company has utilized commitments from certain members of
management to provide working capital funding. During the first quarter of
2000, the Company received $712,000 in financing from the Chairman and CEO.
Effective March 1, 2000, the Company's Chairman and CEO committed to provide
additional cash funding, as may be required from time to time, of up to
$500,000. These funds will be available to the Company through November 30,
2000 to satisfy any short-term working capital needs. Any funds borrowed under
this arrangement will be secured with a promissory note, will be interest
bearing and typically mature within nine months from issuance. The Company's
net borrowings under this commitment as of August 31, 2000 were $252,000.
The Company believes that pursuant to the completed and proposed equity
transactions and the Company's existing factoring relationships should provide
sufficient working capital to fund operations and required debt reductions
during fiscal 2000. However, due to the seasonality of the Company's business
and negative cash flow during the first nine months of the year, the Company may
be required to obtain additional capital through debt or equity financing. The
Company believes that any additional capital, to the extent 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.
Seasonality
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.
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, 1999, which is incorporated
herein by reference.
ITEM 2. CHANGES IN SECURITIES
During March 2000, the Company sold 350,000 shares of Common stock in a
private placement under Section 4(2) of the Securities Act of 1933 to four
individual investors. The proceeds from this sale were $350,000. Resales of
these shares have been registered with the Securities and Exchange Commission.
On March 14, 2000, the Company sold 40,000 shares of Common Stock in a private
placement under Section 4(2) of the Securities Act of 1933 to a member of the
Board of Directors for consideration of $50,000. Resales of these shares have
been registered with the Securities and Exchange Commission.
On April 5, 2000, the Company sold 102,040 shares of Common Stock in a private
placement under Section 4(2) of the Securities Act of 1933 to an outside
investor for consideration of $0.98 per share and issued 102,040 warrants to the
same investor with a term of 3 years and an exercise price of $2.00. Resales of
these shares and warrants have been registered with the Securities and Exchange
Commission.
On August 11, 2000, the Company issued 1,363,637 shares of Common Stock in a
private placement under Section 4(2) of the Securities Act of 1933 to Commerce
Investment Group, LLC ("Commerce") for $1.5 million in cash (a price of $1.10
per share), with the proceeds being used by the Company to purchase finished
goods and services from Commerce and its affiliates. The resales of the issued
shares have been registered pursuant to an S-3 registration statement.
On August 11, 2000, Company's CEO and COO (the "Furrow Group"), who are both
members of the Company's Board of Directors, converted $1 million of outstanding
ompany debt owed to third parties that they had previously assumed and converted
$500,000 of Company debt that was owed to the Furrow Group for 1,363,637 shares
of Common Stock, or $1.10 per share, and warrants to purchase 1,500,000 shares
of Common Stock that have a three-year term and an exercise price of $2.10 per
share in a private placement under Section 4(2) of the Securities Act of 1933.
The warrants are subject to shareholder approval. Resales of the issued shares
have been registered pursuant to an S-3 registration statement.
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 FORM 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
Current report on form 8-K dated August 11,2000 as amended September 15, 2000
Current report on form 8-K dated September 22, 2000
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.
October 20, 2000 By: /s/ Samuel J. Furrow
-------------------
Samuel J. Furrow
Chairman of the Board and
Chief Executive Officer
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 20, 2000
--------------------
Samuel J. Furrow
Chairman of the Board,
Chief Executive Officer
and Director
/s/ Jay Furrow Acting Chief Financial Officer October 20, 2000
--------------
Jay Furrow
COO
EX-27
[ARTICLE] 5
[PERIOD-TYPE] 3 MOS
[FISCAL-YEAR-END] NOV-30-2000
[PERIOD-END] AUG-31-2000
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 2,440,000
[ALLOWANCES] (172,000)
[INVENTORY] 3,021,000
[CURRENT-ASSETS] 5,329,000
[PP&E] 2,923,000
[TOTAL-ASSETS] 8,252,000
[CURRENT-LIABILITIES] 3,049,000
[BONDS] 1,273,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1,009,000
[OTHER-SE] 35,213,000
[TOTAL-LIABILITIES-AND-EQUITY] 8,252,000
[SALES] 3,579,000
[TOTAL-REVENUES] 3,579,000
[CGS] 2,441,000
[TOTAL-COSTS] 2,441,000
[OTHER-EXPENSES] 1,379,000
[LOSS-PROVISION] 8,000
[INTEREST-EXPENSE] 55,000
[INCOME-PRETAX] (288,000)
[INCOME-TAX] 0
[INCOME-CONTINUING] (288,000)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[NET-INCOME] (288,000)
[EPS-BASIC] (0.04)
[EPS-DILUTED] (0.04)
