Edgar Filing: INNOVO GROUP INC

As filed with the Securities and Exchange Commission on December 22, 2003
Registration No. 333-108430

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Innovo Group Inc.
(Exact Name of Registrant as Specified in Its Charter)

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Delaware 11-2928178
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

5804 East Slauson Avenue
Commerce, California 90040
(323) 725-5516
(Name, address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)

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Samuel J. Furrow, Jr.
Chief Executive Officer
Innovo Group Inc.
5804 East Slauson Avenue
Commerce, California 90040
(323) 725-5516 (Name,
Address and Telephone Number,
including Area Code, of Agent For Service)

Copies to:
Paul A. Belvin, Esq.
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 887-4000

Approximate date of commencement of proposed sale to the public: From time
to time as determined by the selling stockholders.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

CALCULATION OF REGISTRATION FEE
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Title of Securities To Be Registered Proposed Proposed Amount of
Amount To Be Maximum Offering Maximum Aggregate Registration
Registered Price Per Share Offering Price Fee
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Common Stock, $.10 par value 2,805,451 $ 5.28 (1) $ 14,812,781.28 (1) $ 1,198.35 (1)

Common Stock, $.10 par value 2,110,040 (2) $4.465 (3) $ 9,421,328.60 (3) $ 762.19 (3)

Common Stock, $.10 par value 3,903,500 (4) $3.395 (5) $13,252,382.50 (5) $ 1,072.12 (5)
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, based on the average of the bid
and asked prices for the common stock of Innovo Group Inc. on the Nasdaq
SmallCap Market on August 28, 2003.

(2) Amendment No. 1 filed on October 28, 2003 added 1,838,040 shares not
included on the Registration Statement on Form S-3 filed on August 29,
2003.

(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, based on the average of the bid
and asked prices for the common stock of Innovo Group Inc. on the Nasdaq
SmallCap Market on October 27, 2003.

(4) This Amendment No. 2 adds 3,903,500 shares not included on Amendment No.
1.

(5) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, based on the average of the bid
and asked prices for the common stock of Innovo Group Inc. on the Nasdaq
SmallCap Market on December 19, 2003.

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until this registration statement shall become effective
on such date as the Commission, acting pursuant to Section 8(a), may determine.

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DECEMBER 22, 2003

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

INNOVO GROUP INC.
5804 EAST Slauson Avenue
Commerce, California 90040
(323) 725-5516

Common Stock

8,818,991 Shares Offered by Selling Stockholders

YOU SHOULD READ THIS PROSPECTUS CAREFULLY BEFORE YOU INVEST.

* This prospectus registers for resale up to 8,818,991 shares of our
common stock which may be offered from time by the selling
stockholders identified in the section entitled "Selling
Securityholders" on pages 16 - 25 of this prospectus.

* The selling stockholders may also offer additional shares of common
stock acquired as a result of stock splits, stock dividends or
similar transactions.

* The shares will be sold by the respective selling stockholders in
one or more sales through the Nasdaq SmallCap Market, any other
market on which our common stock is traded at the time of the sale,
or in individually negotiated transactions.

* Innovo will not receive any proceeds from the sale of these shares.

* Our common stock is traded on the Nasdaq SmallCap Market under the
symbol INNO.

* On December 19, 2003, the last sale price of our common stock on the
Nasdaq SmallCap Market was $3.21. You should obtain a current market
price quotation before you buy any of the offered shares.

Our principal executive offices are located at 5804 East Slauson Avenue,
Commerce, California 90040. Our telephone number is (323) 725-5516.

The securities offered by this prospectus involve a high degree of risk. You
should carefully consider the factors described under the heading "Risk Factors"
beginning on page 5 of this prospectus.

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Neither the Securities and Exchange Commission ("SEC") nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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The date of this prospectus is December 22, 2003.

TABLE OF CONTENTS

Page

WHERE YOU CAN FIND MORE INFORMATION............................................2
FORWARD-LOOKING STATEMENTS.....................................................3
OUR COMPANY....................................................................3
RISK FACTORS...................................................................5
USE OF PROCEEDS...............................................................15
DIVIDEND POLICY...............................................................15
SELLING SECURITYHOLDERS.......................................................16
PLAN OF DISTRIBUTION..........................................................25
DESCRIPTION OF SECURITIES.....................................................26
ENGAGEMENT OF RESEARCH FIRM...................................................28
LEGAL MATTERS.................................................................28
EXPERTS.......................................................................28
CAUTIONARY STATEMENTS.........................................................28

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In connection with this offering, no person is authorized to give any
information or to make any representations not contained or incorporated by
reference in this prospectus. If information is given or representations are
made, you may not rely on that information or representations as having been
authorized by us. This prospectus is neither an offer to sell nor a solicitation
of an offer to buy any securities other than those registered by this
prospectus, nor is it an offer to sell or a solicitation of an offer to buy
securities where an offer or solicitation would be unlawful. You may not imply
from the delivery of this prospectus, nor from any sale made under this
prospectus, that our affairs are unchanged since the date of this prospectus or
that the information contained in this prospectus is correct as of any time
after the date of this prospectus. The information in this prospectus speaks
only as of the date of this prospectus unless the information specifically
indicates that another date applies.

We are not making any representation to any purchaser of the common stock
regarding the legality of an investment in the common stock by such purchaser
under any legal investment or similar laws or regulations. You should not
consider any information in this prospectus to be legal, business or tax advice.
You should consult your own attorney, business advisor and tax advisor for
legal, business and tax advice regarding an investment in the common stock.

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iii

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SUMMARY

As used in this prospectus, unless the context otherwise requires, "we,"
"us," "our" or "Innovo" refers to Innovo Group Inc. and its subsidiaries. The
following summary is not complete and does not contain all of the information
that may be important to you. We encourage you to read the entire prospectus and
the documents incorporated by reference in this prospectus.

The Offering

Issuer.................................... Innovo Group Inc.

Common stock offered by the selling
stockholders.............................. 8,818,991

Common stock outstanding before and after
the offering.............................. 25,764,850

Use of Proceeds........................... We will not receive any proceeds from this offering.

Registration Rights....................... We have agreed to use all reasonable efforts to keep the shelf
registration statement, of which this prospectus forms a part,
effective until the earlier of:

o the first anniversary of the declaration by the
Securities and Exchange Commission that the shelf
registration statement is effective;

o the sale of all of the shares of common stock covered by
the shelf registration statement; and

o the expiration of the holding period applicable to the
shares of common stock held by non-affiliates of Innovo
under Rule 144(k) of the Securities Act, or any
successor provision, subject to certain exceptions.

Trading................................... Our common stock is traded on the Nasdaq SmallCap Market under
the symbol "INNO."

Risk Factors.............................. See "Risk Factors" and the other information in this prospectus for
a discussion of the factors you should carefully consider before
deciding to invest in our common stock.

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, DC 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Our Securities and Exchange Commission filings are
also available to the public from the Securities and Exchange Commission's
website at "http://www.sec.gov."

We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission to register the offering of the shares of common stock
offered pursuant to this prospectus. This prospectus is part of that
registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
common stock, you may refer to the registration statement and its exhibits and
schedules as well as the documents described below. You can review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.

This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.

The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus. This means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be an important part of
this prospectus, and information that we file with the Securities and Exchange
Commission at a later date will automatically update or supersede this
information. We incorporate by reference the following documents as well as any
future filing we will make with the Securities and Exchange Commission (File No.
0-18926) under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:

1. Our annual report on Form 10-K for the fiscal year ended November
30, 2002, as amended by a Form 10-K/A filing filed on March 27, 2003
and a Form 10-K/A filing filed on December 9, 2003;

2. Our Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 24, 2003;

3. Our Quarterly Report on Form 10-Q for the three months ended March
1, 2003;

4. Our Current Report on Form 8-K filed with the SEC on March 17, 2003;

5. Our Current Report on Form 8-K filed with the SEC on April 15, 2003;

6. Our Quarterly Report on Form 10-Q for the six months ended May 31,
2003;

7. Our Current Report on Form 8-K filed with the SEC on August 1, 2003;

8. Our Current Report on Form 8-K/A filed with the SEC on September 30,
2003;

9. Our Current Report on Form 8-K/A filed with the SEC on October 17,
2003;

10. Our Quarterly Report on Form 10-Q for the nine months ended August
30, 2003, as amended by a Form 10-Q/A filing filed on October 17,
2003; and

11. Our Current Report on Form 8-K filed with the SEC on December 2,
2003

You may request a copy of these filings, at no cost, by writing to or
calling Donna Drewrey, Innovo Group Inc., 2633 Kingston Pike, Suite 100,
Knoxville, Tennessee 37919, telephone 865-546-1110.

FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference in this
prospectus contain both historical and forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements. These
forward-looking statements include, but are not limited to, statements regarding
the following: growth opportunities and increasing market share, earnings
estimates, future financial performance and other matters. Although we believe
that the expectations contained in these forward-looking statements are
reasonable, you cannot be assured that these expectations will prove correct.

The words "anticipate," "believe," "estimate," "expect," "intend," "will"
and similar expressions, as they relate to us, are intended to identify
forward-looking statements. Similarly, statements that describe our objectives,
plans and goals are or may be forward-looking statements. These forward-looking
statements are not based on historical facts, but rather reflect our current
views with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should our underlying assumptions prove incorrect,
actual results may vary materially from those described in this prospectus as
anticipated, believed, estimated, expected or intended. Whether actual results
will conform with expectations and predictions is subject to a number of risks
and uncertainties, including, but not limited to, those described in "Risk
Factors."

You should carefully review all information, including the information
included in the section entitled "Risk Factors" and the financial statements and
the notes to the financial statements and related disclosures incorporated by
reference in this prospectus. We do not assume any responsibility for updating
forward-looking information contained in this prospectus.

OUR COMPANY

Our principal business activity involves the design, development and
worldwide marketing of high quality consumer products for the apparel and
accessory markets. As discussed below, we do not manufacture any apparel or
accessory products but outsource the manufacturing to third parties. We sell our
products to over 1,000 different retail, distributors and private label
customers around the world. Retail customers and distributors purchase finished
goods directly from us. Retail customers then sell the product through their
retail stores and distributors sell our products to retailers in the
international market place. Private label customers outsource the production and
sourcing of their private label products to us and then sell through their own
distribution channels. Private label customers are generally retail chains who
desire to sell apparel and accessory products under their own brand name. We
work with our private label customers to create their own brand image by custom
designing products. In creating a unique brand, our private label customers may
provide samples to us or may select styles already available in our showrooms.
We believe we have established a reputation among these private label buyers for
the ability to arrange for the manufacture of apparel and accessory products on
a reliable, expeditious and cost-effective basis.

We operate our consumer products business through three wholly-owned,
operating subsidiaries,

Innovo, Inc. ("Innovo"), Joe's Jeans, Inc. ("Joe's"), and Innovo Azteca Apparel,
Inc. ("IAA"). We no longer manufacture any apparel or accessory products. All of
our products are currently manufactured by independent contractors located in
Los Angeles, Mexico and the Far East, including, Hong Kong, China, Korea,
Vietnam and India. The products are then distributed out of warehouse facilities
located in Los Angeles or directly from the factory to the customer. During
fiscal 2002, approximately 23% of our apparel and accessory products were
manufactured outside of North America. The rest of our accessory and apparel
products during fiscal 2002 were manufactured in the United States
(approximately 24%) and Mexico (approximately 53%). In the nine months ended
August 30, 2003, approximately 19% of our apparel and accessory products were
manufactured outside of North America. The rest of our accessory and apparel
products in the nine months ended August 30, 2003 were manufactured in the
United States (approximately 14%) and Mexico (approximately 66%). All of our
products manufactured in Mexico, are manufactured by Azteca Productions
International, Inc. ("Azteca") or its affiliates, as discussed below. Azteca is
controlled by significant shareholders of the Company, Hubert Guez and Paul
Guez.

Our operations are comprised of two reportable segments: apparel and
accessory, with the operations of our Joe's and IAA subsidiaries representing
the apparel segment and Innovo conducting business in the accessory segment.
Segment revenues are generated from the sale of consumer products by Joe's, IAA
and Innovo. The Company's corporate activities are represented by the operations
of Innovo Group Inc., the parent company, and its real estate operations are
conducted through our Leaseall Management, Inc. and Innovo Realty, Inc.
subsidiaries. Our real estate operations do not currently require a substantial
allocation of our resources and is not a significant part of management's daily
operational functions, and thus, our real estate operations are not currently
defined as a distinct operating segment but are classified as "other" along with
our other corporate activities.

All of our products manufactured in Mexico are currently being
manufactured by Azteca and/or its affiliates. In the summer of 2000, we entered
into a group of transactions with Azteca and its affiliates and principals.
Pursuant to the terms of these transactions, Azteca's principals, through an
affiliated company named Commerce Investment Group, LLC ("CIG"), purchased from
the Company common stock and warrants which resulted in CIG and its affiliates
owning approximately 25% of our outstanding common stock with the potential to
acquire additional common stock through the exercise of the issued warrants.

Additionally, as part of these transactions, we entered into a supply
agreement with Azteca and a distribution agreement with Apparel Distribution
Services ("ADS"), an Azteca affiliate. As contemplated under the agreements, we
agreed to purchase its accessory craft products, which primarily consists of
denim totebags and aprons, from Azteca and to have ADS distribute all of our
accessory products out of ADS's Los Angeles, CA distribution facility.

In July 2003, we entered into another supply agreement with an Azteca
affiliate, AZT International SA de CV, a Mexico corporation ("AZT"). Pursuant to
this agreement, we purchase certain products, particularly the products to be
sold by our Blue Concepts division acquired on July 17, 2003 from AZT. In
addition, we have verbal agreements with Azteca and/or its affiliates regarding
the supply and distribution of other apparel products, including certain denim
products for our Fetish(R) and Shago(R) branded accessory and apparel lines. We
rent warehouse space in Los Angeles from Azteca.

The strategic partnership entered into with CIG allowed us to close our
domestic manufacturing and distribution facilities and to move forward with our
goal of diversifying our product mix and offerings to include apparel products
as opposed to only accessory products. We obtained this objective with the
creation of the Joe's and Joe's Jeans brand in February 2001, which was created
to design and market high-end denim apparel products.

The strategic partnership created with CIG allowed us to quickly enter the
denim apparel market and to

grow its accessory craft business. During fiscal 2001 and 2002, a vast majority
of our apparel products sold were denim products which we purchased from, and
other services provided by, CIG or its affiliates. The combined accessory, craft
and denim apparel products purchased from and other services provided by CIG or
its affiliates during fiscal 2001 and 2002 were approximately $5.7 million and
16.0 million respectively or 90% and 80%, respectively of our manufacturing and
distribution costs for such periods. In the nine months ended August 30, 2003,
we purchased approximately $23.2 million of accessory, craft and denim apparel
products from and other services provided by CIG or its affiliates, or 66% of
our manufacturing and distribution costs for such period.

During the nine months ended August 30, 2003, we significantly diversified
our apparel products to include a broader array of apparel products including,
but not limited to, non-denim products. These non-denim products, along with
certain denim products, are purchased from third party independent suppliers,
including CIG and/or its affiliates. While we now use additional suppliers to
meet our needs, we intend to continue to take advantage of CIG's expertise with
denim products so long as we believe it is in our best interest.

Our headquarters and principal executive offices are located at 5804 East
Slauson Avenue, Commerce, CA 90040 and its telephone number at this location is
(323) 725-5516. We also have operational offices and/or showrooms in Los
Angeles, New York, Knoxville, Tokyo and Hong Kong and third party showrooms in
New York, Los Angeles and Paris. Although we maintain a website at
www.innovogroup.com, we do not intend that the information available through our
website be incorporated into this prospectus. For additional information about
Innovo and our businesses, see "Where You Can Find More Information."

RISK FACTORS

Before you invest in our common stock by purchasing shares from a selling
stockholder named in this Prospectus, you should be aware that there are various
risks involved in investing in our common stock. We have described below all of
the risks which we deem material to your investment decision. You should
consider carefully these risk factors, together with all of the other
information included in this prospectus and in the periodic reports we have
filed with the Securities and Exchange Commission under the Securities Exchange
Act of 1934, before you decide to purchase any shares of our common stock.
Additional risks that we do not yet know of or that we currently think are
immaterial may also impair our business operations.

The following risk factors relate to our Common Stock:

The 8,818,991 shares of our common stock registered for resale by this
prospectus may adversely affect the market price of our common stock.

As of December 19, 2003, 25,764,850 shares of our common stock were issued
and outstanding. This prospectus registers for resale 8,818,991 shares, or
32.40% of our outstanding common stock (this amount includes 1,445,998 shares of
common stock which may be issued upon exercise of warrants held by the selling
stockholders).

We are unable to predict the effect that sales into the market of
8,818,991 shares may have on the then prevailing market price of our common
stock. On December 19, 2003, the last reported sale price of our common stock on
the Nasdaq SmallCap Market was $3.21. During the four weeks prior to December
16, 2003, the average daily trading volume of our common stock was 81,710
shares. It is likely that market sales of the 8,818,991 shares offered for
resale pursuant to this prospectus (or the potential for those sales even if
they do not actually occur) may have the effect of depressing the market price
of our common stock. As a result, the potential resale and possible fluctuations
in trading volume of such a substantial amount of our stock may affect the share
price negatively beyond our control.

We do not anticipate paying dividends on our common stock in the foreseeable
future.

We have not paid any dividends nor do we anticipate paying any dividends
on the common stock in the foreseeable future. We intend to retain earnings, if
any, to fund our operations and develop and expand our business.

We have a substantial number of authorized preferred and common shares available
for future issuance that could cause dilution of stockholder interests and
adversely impact the rights of holders of our common stock.

We have a total of 40,000,000 authorized shares of common stock and
5,000,000 authorized shares of "blank check" preferred stock. As of December 19,
2003, we had 14,235,150 shares of common stock and 4,806,000 shares of preferred
stock available for issuance. In 2003, we raised $18,904,080 through the sale of
6,235,648 shares of our common stock and 916,833 shares of common stock purchase
warrants in private placement transactions. We expect to continue to seek
financing which could result in the issuance of additional shares of our capital
stock and/or rights to acquire additional shares of our capital stock. Those
additional issuances of capital stock would result in a reduction of your
percentage interest in us. Furthermore, the book value per share of common stock
may be reduced. This reduction would occur if the exercise price of the options
or warrants or the conversion ratio of the preferred stock were lower than the
book value per share of common stock at the time of such exercise or conversion.

The addition of a substantial number of shares of common stock into the
market or by the registration of any other of our securities under the
Securities Act may significantly and negatively affect the prevailing market
price for the common stock. The future sales of shares of common stock issuable
upon the exercise of outstanding warrants and options may have a depressive
effect on the market price of the common stock, as such warrants and options
would be more likely to be exercised at a time when the price of the common
stock is in excess of the applicable exercise price.

Our board of directors has the power to establish the dividend rates,
preferential payments on any liquidation, voting rights, redemption and
conversion terms and privileges for any series of preferred stock. The sale or
issuance of any shares of preferred stock having rights superior to those of the
common stock may result in a decrease in the value or market price of the common
stock. The issuance of preferred stock could have the effect of delaying,
deferring or preventing a change of ownership without further vote or action by
the stockholders and may adversely affect the voting and other rights of the
holders of common stock.

We are controlled by our management and other related parties.

As of December 19, 2003, our executive officers and directors beneficially
owned approximately 25% of our outstanding securities. Furthermore, in
connection with investments made by (1) Commerce Investment Group, LLC and other
investors affiliated with Hubert Guez and Paul Guez (collectively, the "Commerce
Group") and (2) Mr. Joseph Mizrachi in 2000 each of the Commerce Group and Mr.
Mizrachi have the right to designate three individuals and one individual
respectively, for election to the board of directors. If any of the Commerce
Group or Mizrachi designated directors are elected, then the Board shall appoint
at least one Commerce and/or Mizrachi designated director to each of its
Committees. Based on the Schedule 13D/A filed by Messrs. Simon Mizrachi and
Joseph Mizrachi on October 30, 2003, and the Schedule 13D/A filed by Hubert Guez
and Paul Guez on December 18, 2003, the Mizrachi's and Guez's beneficially owned
approximately 1% and 15% of our shares, respectively. Effective February 21,
2003, the Mizrachi's ceased to be the beneficial owners of more than 5% of our
securities.

Because of their stock ownership and/or positions with us, these persons
have been and will continue to

be in a position to greatly influence the election of directors and thus control
our affairs. Additionally, our by-laws limit the ability of stockholders to call
a meeting of the stockholders. These by-law provisions could have the effect of
discouraging a takeover of us, and therefore may adversely affect the market
price and liquidity of our securities. We are also subject to a Delaware statute
regulating business combinations that may hinder or delay a change in control.
The anti-takeover provisions of the Delaware statute may adversely affect the
market price and liquidity of our securities.

Our common stock price is extremely volatile and may decrease rapidly.

The trading price and volume of our common stock has historically been
subject to wide fluctuation in response to variations in actual or anticipated
operating results, announcements of new product lines or by us or our
competitors, and general conditions in the apparel and accessories industries.
In the 52 week period prior to December 2003, the closing price of our
common stock has ranged from $2.33 - $7.80. In addition, stock markets generally
have experienced extreme price and volume trading volatility in recent years.
This volatility has had a substantial effect on the market prices of securities
of many companies for reasons frequently unrelated to the operating performance
of the specific companies. These broad market fluctuations may significantly and
negatively affect the market price of our common stock.

If we cannot meet the Nasdaq SmallCap Market maintenance requirements and Nasdaq
Rules, Nasdaq may delist our common stock which could negatively affect the
price of the common stock and your ability to sell the common stock.

In the future, we may not be able to meet the listing maintenance
requirements of the Nasdaq SmallCap Market and Nasdaq rules, which require,
among other things, minimum net tangible assets of $2 million, a minimum bid
price for our common stock of $1.00, and stockholder approval prior to the
issuance of securities in connection with a transaction involving the sale or
issuance of common stock equal to 20 percent or more of a company's outstanding
common stock before the issuance for less than the greater of book or market
value of the stock. If we are unable to satisfy the Nasdaq criteria for
maintaining listing, our common stock would be subject to delisting. Trading, if
any, of our common stock 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 our common
stock.

If Nasdaq delists our common stock you would need to comply with the penny stock
regulations which could make it more difficult to sell your common stock.

In the event that our securities are not listed on the Nasdaq SmallCap
Market, trading of the common stock would be conducted in the "pink sheets" or
through the NASD's Electronic Bulletin Board and covered by Rule 15g-9 under the
Securities Exchange Act of 1934. Under such rule, broker/dealers who recommend
these securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
subscriber and receive the subscriber's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.

The Securities and Exchange Commission adopted regulations that generally
define a penny stock as any equity security that has a market price of less than
$5.00 per share, with certain exceptions. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. If our common stock were considered a penny stock, the
ability of broker/dealers to sell our common stock and the ability of our
stockholders to sell their securities in the secondary market would be limited.
As a result, the market liquidity for our common stock would be severely and
adversely affected. We cannot assure you that trading in our securities will not
be subject to these or other regulations in the future which would negatively
affect the market

for such securities.

THE FOLLOWING RISK FACTORS RELATE TO OUR OPERATIONS:

Due to our negative cash flows we could be required to cut back or stop
operations if we are unable to raise or obtain needed funding.

Our ability to continue operations will depend on our positive cash flow,
if any, from future operations and on our ability to raise additional funds
through equity or debt financing. Through the nine months ended August 30, 2003,
we have raised $9,914,079 through the sale of 3,238,981 shares of our common
stock and 317,500 shares of common stock purchase warrants in private placement
transactions and had an outstanding loan balance of $5,757,000 with CIT Group,
Inc., with whom we have entered into financing agreements. These sources of
financing are used to fund our continuing operations and for working capital. As
of August 30, 2003, we had $6,649,000 of factored receivables with CIT. While we
had no liability with CIT as of August 30, 2003 due to the amount of factored
receivables, our financial position may change such that there may be the need
for us to continue to raise needed funds through a mix of equity and debt
financing to fund its operations and working capital. Equity financing will
usually result in existing stockholders becoming "diluted." A high degree of
dilutions can make it difficult for the price of our common stock to rise
rapidly, among other things. Dilution also lessens a stockholder's voting power.

We do not know if we will be able to continue to raise additional funding
or if such funding will be available on favorable terms. We could be required to
cut back or stop operations if we are unable to raise or obtain needed funding.

Our cash requirements to run our business have been and will continue to be
significant.

Since 1997, our negative operating cash flow and losses from continuing
operations have been as follows:

Negative (positive) Cash Flow
from Operating Losses (Income)
Activities of from Continuing
Nine months ended: Continuing Operations Operations

August 30, 2003 $7,615,000 $1,987,000

Fiscal year ended:

December 1, 2002 ($1,504,000) ($ 572,000)
December 1, 2001 $ 632,000 $ 618,000
November 30, 2000 $4,598,000 $5,056,000
November 30, 1999 $2,124,000 $1,340,000
November 30, 1998 $1,238,000 $2,267,000
November 30, 1997 $1,339,000 $1,729,000

Since fiscal 1996, we have experienced positive cash flow from our
operating activities only in fiscal 2002. As of August 30, 2003, we had an
accumulated deficit of approximately $36,032,000.

Although we have undertaken numerous measures to increase sales and
operate more efficiently, we may experience further losses and negative cash
flows. We can give you no assurance that we will in fact operate profitably in
the future.

We must expand sales of our existing products and successfully introduce new
products that respond to constantly changing fashion trends and consumer demands
to increase revenues and attain profitability.

Our success will depend on our ability to expand sales of our current
products to new and existing customers, as well as the development or
acquisition of new product designs and the acquisition of new licenses that
appeal to a broad range of consumers. We have little control over the demand for
our existing products, and we cannot assure you that the new products we
introduce will be successfully received by consumers. For example, in the past
year, we have acquired licenses to design and market apparel and accessory
products for the recording artists and actors known as "Lil' Bow Wow" and "Eve".
We have spent considerable resources to develop each of these brands. We
believe, but there can be no assurance, that there will be demand for products
associated with "Lil' Bow Wow" and "Eve".

Any failure on our part to anticipate, identify and respond effectively to
changing consumer demands and fashion trends could adversely affect the
acceptance of our products and leave us with a substantial amount of unsold
inventory or missed opportunities. If that occurs, we may be forced to rely on
markdowns or promotional sales to dispose of excess, slow-moving inventory,
which may negatively affect our ability to achieve profitability. At the same
time, our focus on tight management of inventory may result, from time to time,
in our not having an adequate supply of products to meet consumer demand and may
cause us to lose sales.

A substantial portion of our net sales and gross profit is derived from a small
number of large customers.

Our ten largest customers accounted for approximately 52% and 68% of our
gross sales during fiscal 2002 and for the nine months ended August 2003,
respectively. We do not enter into long-term agreements with any of our
customers. Instead, we enter into a number of individual purchase order
commitments with our customers. A decision by the controlling owner of a group
of stores or any other significant customer, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease the amount of
merchandise purchased from us, or to change their manner of doing business with
us, could have a material adverse effect on our financial condition and results
of operations.

We are dependent on certain contractual relationships to generate revenues.

Our sales are dependent to a significant degree upon the contractual
relationships we can establish with licensors to exploit, on a generally
non-exclusive basis, proprietary rights in well-known logos, marks and
characters. Although we believe we will continue to meet all of our material
obligations under such license agreements, there can be no assurance that such
licensing rights will continue or will be available for renewal on favorable
terms. Failure to obtain new licenses or extensions on current licenses or to
sell such products, for any reason, could have a significant negative impact on
our business. In fiscal 2002 and for the nine months ended August 30, 2003,
$13,244,000 (or 43%) and $13,040,000 (or 27%) of our gross revenues were
generated from licensed apparel and accessory products.

We are primarily dependent upon revenues from a certain number of
licenses, namely licenses to produce the Joe's Jeans(R) , Bongo(R), Fetish(R)
and Shago(R) accessory and apparel products. For the nine months ending August
30, 2003, we recorded $1,429,000 in sales of products under our Shago(R)
license. Our first product line to ship under the Shago(R) license was delivered
to retailers during August 2003, making the fall product line our first line
under the Shago(R) license. During that same period, we recorded $1,946,000 and
$9,665,000 in sales of product under our Bongo(R) license and Joe's Jeans(R)
license, respectively. During the same period ending August 30, 2003, we have
not shipped any product under our license with Fetish(R), as the first shipments
were expected to ship beginning after the nine month period ending August 30,
2003 ended.

Our license agreement under the Fetish(R) mark commenced on February 13,
2003 and continues

through July 31, 2006. We may elect to renew the Fetish License Agreement for an
additional three-year term, subject to certain obligations that we must meet
regarding minimum sales and other monetary obligations. We entered into the
license agreement for the Shago(R) product line on October 15, 2002, which runs
for a period of forty-two months, with us a right of first refusal with respect
to renewal of the Shago(R) license. Our license for the Bongo(R) product began
March 26, 2001 and was effective through March 31, 2003. We entered into an
amendment on April 1, 2003 to extend the license through March 31, 2007. We also
have the right to exercise an additional renewal period should we elect to do so
in the future. Our license for Joe's Jeans(R) began in February 2001, and runs
for a ten-year period, with an option for two addition ten-year renewal periods.

We are currently dependent on supply and distribution arrangements with Commerce
Investment Group and its related entities to generate a substantial portion of
our revenues.

During 2000, we entered into supply and distribution arrangements with
Commerce Investment Group, LLC ("CIG") and affiliated entities (collectively,
the "Commerce Group"). Under the terms of the arrangements, the Commerce Group
purchased our equity securities and we became obligated to manufacture and
distribute all of our craft products with the Commerce Group for a two-year
period, with an automatic renewal for an additional two-year term. In 2002, we
renewed these arrangements for another two years. In July 2003, we entered into
another supply agreement with an Azteca affiliate, AZT International SA de CV, a
Mexico corporation ("AZT"). Pursuant to this agreement, we purchase certain
products, particularly the products to be sold by us under our Blue Concepts
division acquired on July 17, 2003 from AZT. In addition, we have verbal
agreements with Azteca and/or its affiliates regarding the supply and
distribution of other apparel products, including certain denim products for our
Fetish(R) and Shago(R) branded accessory and apparel lines. We rent warehouse
space in Los Angeles from Azteca. The loss of our supply and distribution
arrangements with the Commerce Group could adversely affect the our current
supply and distribution responsibilities, primarily because if we, due to
unforeseen circumstances that may occur in the future, are unable to utilize the
services for manufacturing, warehouse and distribution provided by the Commerce
Group, such inability may adversely affect our operations until we are able to
secure manufacturing, warehousing and distribution arrangements with other
suppliers that could provide the magnitude of services to us that the Commerce
Group currently provide.

CIG is an entity controlled by Hubert Guez and Paul Guez (the "Guez
Brothers"), who are affiliates of us. Based on a Schedule 13D/A filed by the
Guez Brothers with the SEC on December 18, 2003, the Guez Brothers beneficially
owned approximately 15% of our outstanding common stock.

We outsource a substantial amount of our products to be manufactured to
CIG. In fiscal 2002, we purchased approximately $16 million in goods and
services from CIG or approximately 80% of our manufacturing and distribution
costs. In the nine months ended August 30, 2003, we purchased approximately
$23.2 million in goods and services from CIG or its affiliates, or 66% of our
manufacturing and distribution costs.

Should we, due to unforeseen circumstances that may occur in the future,
be unable to utilize the services for manufacturing, warehouse and distribution
provided by CIG and/or its affiliates, such inability may adversely affect our
operations until we are able to secure manufacturing, warehousing and
distribution agreements with other suppliers that could provide the magnitude of
services to us that CIG and its affiliates currently provide.

The seasonal nature of our business makes management more difficult, severely
reduces cash flow and liquidity during parts of the year and could force us to
curtail operations.

Our business is seasonal. The majority of our marketing and sales
activities take place from late fall to early spring. Our greatest volume of
shipments and sales occur from late spring through the summer, which

coincides with our second and third fiscal quarters. Our cash flow is strongest
in the third and fourth fiscal quarters. Unfavorable economic conditions
affecting retailers during the fall and holiday seasons in any year could have a
material adverse effect on our results of operations for the year. We are likely
to experience periods of negative cash flow throughout each year and a drop-off
in business commencing each December, which could force us to curtail operations
if adequate liquidity is not available. We cannot assure you that the effects of
such seasonality will diminish in the future.

The loss of the services of key personnel could have a material adverse effect
on our business.

Our executive officers have substantial experience and expertise in our
business and have made significant contributions to our growth and success. The
unexpected loss of services of one or more of these individuals could also
adversely affect us. We are currently not protected by a key-man or similar life
insurance covering any of our executive officers, nor do we have written
employment agreements with our Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer or President. If, for example, any one of these
executive officers should leave us, his or her services would likely have a
substantial impact on our ability to operate, on a daily basis because we would
be forced to find and hire similarly experienced personnel to fill one or more
of those positions, and daily operations may suffer temporarily as a result.

Furthermore, with respect to Joe's, while we maintain an employment
agreement with Joe Dahan, its president, should Mr. Dahan, leave Joe's, his
experience, design capabilities, and name recognition in the apparel and
accessory industry could materially adversely affect the operations of Joe's,
since Joe's relies heavily on his capabilities to design, direct and produce
product for the Joe's brand.

Our business could be negatively impacted by the financial instability or
consolidation of our customers.

We sell our product primarily to retail, private label and distribution
companies around the world based on pre-qualified payment terms. Financial
difficulties of a customer could cause us to curtail business with that
customer. We may also assume more credit risk relating to that customer's
receivables. Our inability to collect on our trade accounts receivable from any
one of these customers could have a material adverse effect on our business or
financial condition. More specifically, we are dependent primarily on lines of
credit that we establish from time to time with customers, and should a
substantial number of customers become unable to pay their respective debts as
they become due, we may be unable to collect some or all of the monies owed by
those customers.

Our current practice is to extend terms to a majority of our customers,
which is based on such factors as past credit history with us, reputation of
creditworthiness within our industry, and timelines of payments made to us. A
small percentage of our customers are required to pay by either credit card or
C.O.D., which is also based on such factors as lack of credit history,
reputation (or lack thereof) within our industry and/or prior negative payment
history. For these customers to which we extend credit, typical terms are net 30
to 60 days. Our management exercises professional judgment in determining which
customers shall be extended credit, which is based on industry practices
applicable to our business, financial awareness of the customers with whom we
conduct business, and business experience of our industry. As of August 30,
2003, we had $2,818,000 in accounts receivable from our customers.

Furthermore, in recent years, the retail industry has experienced
consolidation and other ownership changes. Some of our customers, such as The
Warnaco Group, Inc. have operated under the protection of the federal bankruptcy
laws. While to date these changes in the retail industry have not had a material
adverse effect on our business or financial condition, our business could be
materially affected by these changes in the future.

Our business could suffer as a result of manufacturer's inability to produce our
goods on time and to our specifications.

We do not own or operate any manufacturing facilities and therefore depend
upon independent third parties for the manufacture of all of our products. Our
products are manufactured to our specifications by both domestic and
international manufacturers. During fiscal 2002, approximately 24% of our
products were manufactured in the United States and approximately 76% of our
products were manufactured in foreign countries. During the nine months ended
August 2003, approximately 14% of our products were manufactured in the United
States and approximately 86% of our products were manufactured in foreign
countries. The inability of a manufacturer to ship orders of our products in a
timely manner or to meet our quality standards could cause us to miss the
delivery date requirements of our customers for those items, which could result
in cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on our
financial condition and results of operations. Because of the seasonality of our
business, and the apparel and fashion business in particular, the dates on which
customers need and require shipments of products from us are critical, as styles
and consumer tastes change so rapidly in the apparel and fashion business,
particularly from one season to the next. Further, because quality is a leading
factor when customers and retailers accept or reject goods, any decline in
quality by our third-party manufacturers could be detrimental not only to a
particular order, but also to our future relationship with that particular
customer.

Our business could suffer if we need to replace manufacturers.

We compete with other companies for the production capacity of our
manufacturers and import quota capacity. Some of these competitors have greater
financial and other resources than we have, and thus may have an advantage in
the competition for production and import quota capacity. If we experience a
significant increase in demand, or if an existing manufacturer of ours must be
replaced, we may have to expand our third-party manufacturing capacity. We
cannot assure you that this additional capacity will be available when required
on terms that are acceptable to us or similar to existing terms which we have
with our manufacturers, either from a production standpoint or a financial
standpoint. We enter into a number of purchase order commitments each season
specifying a time for delivery, method of payment, design and quality
specifications and other standard industry provisions, but do not have long-term
contracts with any manufacturer. None of the manufacturers we use produces our
products exclusively.

Should we be forced to replace one or more of our manufacturers,
particularly a manufacturer that we may rely upon for a substantial portion of
its production needs, such as CIG and its affiliates, then we may experience an
adverse financial impact, or an adverse operational impact, such as being forced
to pay increased costs for such replacement manufacturing or delays upon
distribution and delivery of our products to our customers, which could cause us
to loose customers or loose revenues because of late shipments.

If a manufacturer of ours fails to use acceptable labor practices, our business
could suffer.

While we require our independent manufacturers to operate in compliance
with applicable laws and regulations, we have no control over the ultimate
actions of our independent manufacturers. While our internal and vendor
operating guidelines promote ethical business practices and our staff
periodically visits and monitors the operations of our independent
manufacturers, we do not control these manufacturers or their labor practices.
The violation of labor or other laws by an independent manufacturer of ours, or
by one of our licensing partners, or the divergence of an independent
manufacturer's or licensing partner's labor practices from those generally
accepted as ethical in the United States, could interrupt, or otherwise disrupt
the shipment of finished products to us or damage our reputation. Any of these,
in turn, could have a material adverse effect on our financial condition and
results of operations. In particular, the laws governing garment manufacturers
in the State of California impose joint liability upon us and our independent
manufacturers for the labor practices of those independent manufacturers. As a
result, should one of our independent manufacturers be found in violation of

state labor laws, we could suffer financial or other unforeseen consequences.

Our trademark and other intellectual property rights may not be adequately
protected outside the United States.

We believe that our trademarks, whether licensed or owned by us, and other
proprietary rights are important to our success and our competitive position. In
the course of our international expansion, we may, however, experience conflict
with various third parties who acquire or claim ownership rights in certain
trademarks. We cannot assure that the actions we have taken to establish and
protect these trademarks and other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others from seeking to
block sales of our products as a violation of the trademarks and proprietary
rights of others. Also, we cannot assure you that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of ours or that we
will be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may not protect
proprietary rights to the same extent as do the laws of the United States.

We cannot assure the successful implementation of our growth strategy.

As part of our growth strategy, we seek to expand our geographic coverage,
strategically acquiring select licensees and enhancing our operations. We may
have difficulty hiring and retaining qualified key employees or otherwise
successfully managing the required expansion of our infrastructure in our
current United States market and other international markets we may enter.
Furthermore, we cannot assure you that we will be able to successfully integrate
the business of any licensee that we acquire into our own business or achieve
any expected cost savings or synergies from such integration.

Our business is exposed to domestic and foreign currency fluctuations.

We generally purchase our products in U.S. dollars. However, we source
most of our products overseas and, as such, the cost of these products may be
affected by changes in the value of the relevant currencies. Changes in currency
exchange rates may also affect the relative prices at which we and our foreign
competitors sell products in the same market. We currently do not hedge our
exposure to changes in foreign currency exchange rates. We cannot assure you
that foreign currency fluctuations will not have a material adverse impact on
our financial condition and results of operations. For example, we are subject
to currency fluctuations in Japan and Hong Kong. In fiscal 2002, our earnings
were negatively impacted by $41,000 due to currency fluctuations in Japan and
Hong Kong. For the nine months ended August 2003, our earnings were positively
impacted by $74,000 due to currency fluctuations in Japan and Hong Kong.

Our ability to conduct business in international markets may be affected by
legal, regulatory, political and economic risks.

Our ability to capitalize on growth in new international markets and to
maintain the current level of operations in our existing international markets
is subject to risks associated with international operations. These include:

- the burdens of complying with a variety of foreign laws and
regulations,

- unexpected changes in regulatory requirements, and

- new tariffs or other barriers to some international markets.

We are also subject to general political and economic risks associated
with conducting international business, including:

- political instability,

- changes in diplomatic and trade relationships, and

- general economic fluctuations in specific countries or markets.

We cannot predict whether quotas, duties, taxes, or other similar
restrictions will be imposed by the United States, the European Union, China,
Japan, or other countries upon the import or export of our products in the
future, or what effect any of these actions would have on our business,
financial condition or results of operations. Changes in regulatory,
geopolitical policies and other factors may adversely affect our business in the
future or may require us to modify our current business practices.

We face intense competition in the worldwide apparel and accessory
industry.

We face a variety of competitive challenges from other domestic and
foreign fashion-oriented apparel and accessory producers, some of which may be
significantly larger and more diversified and have greater financial and
marketing resources than we have. We do not currently hold a dominant
competitive position in any market. We compete with our competitors, including
Kellwood, Jones Apparel Group, and VF Corp. primarily on the basis of:

- anticipating and responding to changing consumer demands in a timely
manner,

- maintaining favorable brand recognition,

- developing innovative, high-quality products in sizes, colors and
styles that appeal to consumers,

- appropriately pricing products,

- providing strong and effective marketing support,

- creating an acceptable value proposition for retail customers,

- ensuring product availability and optimizing supply chain
efficiencies with manufacturers and retailers, and

- obtaining sufficient retail floor space and effective presentation
of our products at retail.

A downturn in the economy may affect consumer purchases of discretionary items,
which could adversely affect our sales.

The fashion apparel and accessory industry in which we operate are
cyclical. Many factors affect the level of consumer spending in the apparel,
accessories and craft industries, including, among others:

- general business conditions,

- interest rates,

- the availability of consumer credit,

- taxation, and

- consumer confidence in future economic conditions.

Consumer purchases of discretionary items, including accessory and apparel
products, including our products, may decline during recessionary periods and
also may decline at other times when disposable income is lower. A downturn in
the economies in which we sell our products, whether in the United States or
abroad,

may adversely affect our sales.

Impact of potential future acquisitions.

From time to time, we have pursued, and may continue to pursue,
acquisitions. Most recently, we acquired our Blue Concepts division from Azteca
Production International, Inc., which is owned by our affiliates Mr. Hubert Guez
and Paul Guez. We issued a $21.8 million Convertible Note for the acquisition,
which has increased our long-term debt by over 600%. Additional acquisitions may
result in us becoming substantially more leveraged on a consolidated basis, and
may adversely affect our ability to respond to adverse changes in economic,
business or market conditions.

USE OF PROCEEDS

The net proceeds from the sale of the shares of common stock offered
hereby will be received by the selling stockholders. We will not receive any of
the proceeds from the sale of the shares of common stock offered by the selling
stockholders. We will, however, receive the exercise price with respect to the
warrants to purchase 1,445,998 of our shares when exercised by the selling
stockholders who hold them. If all of the warrants are exercised with exercise
prices paid in cash, we estimate that we would receive total net proceeds of
$4,708,661. The warrant held for the account of Glenn Michael Financial, Inc.
also includes a cashless exercise option, pursuant to which the holder thereof
can exercise the warrant without paying the exercise price in cash. If the
holder elects to use this cashless exercise option, it will receive fewer than
the 100,000 of our shares it would have received if the exercise price were paid
in cash. The number of our shares the holder of the warrant would receive in
connection with a cashless exercise is determined in accordance with a formula
set forth in the warrant. There can be no assurance that we will receive any
payments even if the warrants are exercised. Any proceeds received will be used
for working capital, inventory purchases and other general corporate purposes.

DIVIDEND POLICY

We have never declared or paid a dividend on our common stock. We intend
to retain earnings to finance the growth and development of our business and do
not expect to declare or pay any cash dividends on our common stock in the
foreseeable future. The declaration of dividends is within the discretion of our
board of directors, which will review this dividend policy from time to time.
See "Risk Factors - We Do Not Anticipate Paying Any Dividends on the Common
Stock."

SELLING SECURITYHOLDERS

The table below sets forth information regarding ownership of our common
stock by the selling stockholders on December 19, 2003 and the shares of common
stock to be sold by them under this prospectus. Beneficial ownership is
determined in accordance with SEC rules and includes voting or investment power
with respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. SEC rules require that the number of shares of
common stock outstanding used in calculating the percentage for each listed
person includes the shares of common stock underlying warrants or options held
by such person that are exercisable within 60 days of December 19, 2003. As of
December 19, 2003, 25,764,850 shares of our common stock were outstanding.

We have filed with the SEC, under the Securities Act of 1933, a
registration statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the securities from time to time on the Nasdaq SmallCap
Market or in privately-negotiated transactions and have agreed to prepare and
file such amendments and supplements to the registration statement as may be
necessary to keep the registration statement effective until the earlier of (i)
one year after the date the SEC declares this registration statement on Form S-3
effective, (ii) the date when the selling stockholders may sell all of the
shares of common stock under Rule 144 without volume or other restrictions or
limits, or (iii) the date on which the selling stockholders have sold all of the
shares of common stock.

Securities Owned Prior to Offering Securities Owned After Offering
---------------------------------- -------------------------------
Shares of Number of
Shares of Percent of Common Stock Shares of Percent of
Name of Selling Stockholder Common Stock Common Stock Offered Hereby Common Stock Common Stock
--------------------------- ------------ ------------ -------------- ------------ ------------

Alpha Capital, AG 53,315 (1) * 53,315 0 0%

Michael Alter 17,975 (2) * 16,000 1,975 *

Apogee Fund, L.P. 275,000 (3) 1.07% 275,000 0 0%

Atlas Capital (Q.P.) L.P. 22,000 (4) * 22,000 0 0%

Atlas Capital Management 78,000 (5) * 78,000 0 0%
Master Fund, Ltd.

Azteca Production 700,000 (6) 2.72% 700,000 0 0%
International, Inc.

Madelyn Baggett 12,000 * 10,000 2,000 *

Myron G. Blalock III 45,000 * 45,000 0 0%

Mary Brewington 10,000 * 10,000 0 0%

Bernard C. Byrd, Jr., 30,000 (7) * 30,000 0 0%
TTEE, Bernard C. Byrd
Rev. Trust

John Chapman INDV 13,000 (8) * 10,000 3,000 *

John Chapman PSP 20,000 * 20,000 0 0%

Michelle Collins 5,000 * 5,000 0 0%

Cranshire Capital, L.P. 69,060 (9) * 69,060 0 0%

Crescent International Ltd. 90,090 (10) * 90,090 0 0%

C.S.L. Associates L.P. 60,000 (11) * 60,000 0 0%

Falcon Cable Trust 200,000 (12) * 200,000 0 0%

FlyLine Holdings Ltd. 32,000 (13) * 32,000 0 0%

SEP FBO Arthur Fields - 30,000 * 30,000 0 0%
Pershing LLC Custodian

SEP FBO Dr. Hardy Fields - 40,000 * 40,000 0 0%
Pershing LLC Custodian

Glenn Michael Financial, Inc. 100,000 (14) * 100,000 0 0%

Charles Gibson 37,500 * 20,000 17,500 *

SEP FBO Greg D. Greenberg - 30,000 * 30,000 0 0%
Pershing LLC Custodian

Paul A. Greenberg, M.D., P.A., 45,000 (15) * 45,000 0 0%
TTEE, Paul A. Greenberg M.D.,
P.A. Employee Profit Sharing
Trust

Bill Haak and Johnnie S. 6,000 (16) * 6,000 0 0%
Haak, JTWROS

George J. & Rhonda Harris 15,000 (17) * 5,000 10,000 *

Jack Holt Family Trust 7,000 (18) * 2,000 5,000 *

Mike Holt IRA 8,500 * 4,500 4,000 *

Charles Stephen Houston INDV 10,000 * 10,000 0 0%

Inwood Trust 10,000 (19) * 10,000 0 0%

JD Design, LLC 750,000 (20) 2.83% 750,000 0 0%

Scott Juda 10,000 * 10,000 0 0%

Brian Kuhn 30,000 * 30,000 0 0%

Lakefront Partners, Ltd. 30,030 (21) * 30,030 0 0%

Thomas Laundrie 108,165 (22) * 108,165 0 0%

Robert S. Lane Family Trust 10,000 (23) * 10,000 0 0%

John S. Lemak 60,000 (24) * 60,000 0 0%

Ronald D. Lossett 30,000 * 30,000 0 0%

David Lunceford 25,000 * 10,000 15,000 *

Muller Family Limited 131,800 (25) * 23,000 108,800 *
Partnership

Dean S. Oakey and 18,999 (26) * 18,999 0 0%
Janis A. Oakey, JTWROS

Gail L. Oakey TTEE/Gail L. 100,000 (27) * 100,000 0 0%
Revocable Trust U/A/D/
01/12/2000

Pacific Summit Securities, 17,500 (28) * 17,500 0 0%
Inc.

Steve Parlitsis 16,200 (29) * 16,000 200 *

Pequot Navigator Offshore Fund, 600,000 (30) 2.32% 600,000 0 0%
Inc.

Pequot Navigator Onshore Fund, 232,000 (31) * 132,000 100,000 *
L.P.

Pequot Scout Fund, L.P. 973,000 (32) 3.76% 708,000 265,000 1.03%

Portside Growth and Opportunity 200,000 (33) * 200,000
Fund

Precept Capital Master Fund, G.P. 300,000 (34) 1.16% 300,000 0 0%

Prism Offshore Fund Ltd. 471,024 (35) 1.82% 471,024 0 0%

Prism Partners L.P. 402,174 (36) 1.56% 402,174 0 0%

Prism Partners QP, LP 86,802 (37) * 86,802 0 0%

Proximity Fund LP 156,000 (38) * 156,000 0 0%

Proximity International Ltd. 96,000 (39) * 96,000 0 0%

Proximity Partners LP 144,000 (40) * 144,000 0 0%

Provident Premier Master Fund 300,000 (41) 1.16% 300,000 0 0%
Limited

Gerald Psimer 20,000 * 20,000 0 0%

RAM Trading, Ltd. 368,000 (42) 1.43% 368,000 0 0%

Charles Robbins, Sr. 45,000 (43) * 45,000 0 0%

IRA FBO Katherine U. Sanders - 30,030 (44) * 30,030 0 0%
Pershing LLC Custodian

Sanders Morris Harris, Inc. 300,000 (45) 1.15% 300,000 0 0%

Sanders Opportunity Fund 108,118 (46) * 108,118 0 0%
(Institutional), L.P.

Sanders Opportunity Fund, 41,883 (47) * 41,883 0 0%
L.P.

Sandor Capital Master Fund, 90,000 (48) * 90,000 0 0%
L.P.

SF Capital Partners Ltd. 139,920 (49) * 139,920

William A. Solemene 225,000 * 225,000 0 0%

Stonestreet LP 100,080 (50) * 100,080

Linda Storms 10,000 * 9,000 1,000 *

R. Douglas Strickland INDV 10,000 * 10,000 0 0%

R. Douglas Strickland PSP 10,000 * 10,000 0 0%

TCMP3 Capital LLC 15,000 (51) * 15,000 0 0%

AJ Telmos 30,000 * 22,000 8,000 *

Trading Post, Inc. 21,800 (52) * 16,000 5,800 *

Joe and Frances Trout 5,000 (53) * 5,000 0 0%

Truk Opportunity Fund, LLC 10,000 (54) * 10,000 0 0%

Lee Turner 5,000 * 5,000 0 0%

Twin Capital Growth Ltd 30,000 (55) * 30,000 0 0%

Yolande Wallin 6,000 * 6,000 0 0%

Westpark Capital L.P. 50,000 (56) * 50,000 0 0%

James K. Williams IRA 10,000 * 10,000 0 0%

WS Opportunity Fund 96,096 (57) * 96,096 0 0%
International, Ltd.

WS Opportunity Master Fund 204,205 (58) * 204,205 0 0%

Robert J. Zappia 15,000 * 15,000 0 0%
------------- ------------ ----------- --------- ----------

TOTAL 9,366,266 34.41% 8,818,991 547,275 2.12%

* Less than 1% of our outstanding shares.

(1) Konrad Ackerman exercises sole voting and investment control over the
shares held for the account of Alpha Capital, AG.

(2) Includes 16,000 shares issuable upon the exercise of currently
exercisable warrants.

(3) The general partner of Apogee Fund, L.P. is Paradigm Capital
Corporation. Emmett Murphy owns all of the outstanding shares of Paradigm
Capital Corporation. In such capacity, Mr. Murphy exercises voting and
investment control over the shares held for the account of Apogee Fund, L.P.

(4) The general partner of Atlas Capital (Q.P.), L.P. is Atlas Capital
Management, L.P. The general partner of Atlas Capital Management, L.P. is RHA,
Inc., of which Robert H. Alpert is the President. In such capacity, Mr. Alpert
exercises voting and investment control over the shares held for the account of
Atlas Capital (Q.P.), L.P.

(5) All of the outstanding shares of Atlas Capital Management are owned by
Atlas Capital Offshore Fund, the Director of which is Robert S. Alpert, and
Atlas Capital L.P. The general partner of Atlas Capital L.P. is Atlas Capital
Management, L.P. The general partner of Atlas Capital Management, L.P. is RHA,
Inc., of which Robert H. Alpert is the President. In such capacity, Mr. Alpert
exercises voting and investment control over the shares held for the account of
Atlas Capital Management.

(6) In his capacities as sole shareholder and President of Azteca
Production International, Inc., Hubert Guez exercises voting and investment
control over the shares held for the account of Azteca Production International,
Inc.

(7) In his capacity as trustee of the Bernard C. Byrd, Jr. Revocable
Trust, Bernard C. Byrd, Jr. exercises voting and investment control over the
shares held for the account of the Bernard C. Byrd, Jr. Revocable Trust.

(8) These shares are registered in the names of John and Lauren Chapman.

(9) Mitchell P. Kopin, who serves as the President of Downsview Capital,
Inc., the general partner of Cranshire Capital, L.P. In such capacity, Mr. Kopin
exercises sole voting and investment control over the shares held for the
account of Cranshire Capital, L.P.

(10) In their capacities as managers for GreenLight (Switzerland) SA, the
investment advisor to Crescent International Ltd., Mel Craw and Maxi Brezzi
exercise voting and investment control over the shares held for the account of
Crescent International Ltd. Messrs. Craw and Brezzi disclaim beneficial
ownership of such shares.

(11) Includes 10,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the general partner of C.S.L.
Associates L.P., Charles S. Lipson exercises voting and investment control over
the shares held for the account of C.S.L. Associates L.P.

(12) In his capacity as trustee of Falcon Cable Trust, Marc B. Nathanson
exercises voting and investment control over the shares held for the account of
Falcon Cable Trust.

(13) FlyLine Holdings Ltd. is owned by FlyLine Partners, L.P. The general
partner of FlyLine Partners, L.P. is FlyLine Genpar, L.P., of which W. Forrest
Tempel is the general partner. FlyLine Genpar, L.P. is owned by WFT Family
Limited Partnership, which is owned and controlled by W. Forrest Tempel. In such
capacity, Mr. Tempel exercises voting and investment control over the shares
held for the account of FlyLine Holdings Ltd.

(14) Includes 100,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as President of Glenn Michael Financial,
Inc., Glenn Lanaia exercises voting and investment control over the shares held
for the account of Glenn Michael Financial, Inc.

(15) In his capacity as trustee of the Paul A. Greenberg, M.D., P.A.
Employee Profit Sharing Trust, Paul A. Greenberg, M.D., P.A. exercises voting
and investment control over the shares held for the account of Paul A.
Greenberg, M.D., P.A. Employee Profit Sharing Trust.

(16) Bill Haak and Johnnie S. Haak own these shares as joint tenants with
right of survivorship.

(17) Includes 10,000 shares held individually by George J. Harris.

(18) In his capacity as trustee of Jack Holt Family Trust, Michael Holt
exercises voting and investment control over the shares held for the account of
Jack Holt Family Trust.

(19) In his capacity as trustee of Inwood Trust, Jerome Pope exercises
voting and investment control over the shares held for the account of Inwood
Trust. Jerome Pope is a registered representative associated with Capital Wealth
Management, Inc., which is a registered broker-dealer. These shares were
purchased and are held in the ordinary course of business for the separate
account of Inwood Trust.

(20) Includes 250,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacities as sole member and manager of JD Design,
LLC, Joseph Dahan exercises voting and investment control over the shares held
for the account of JD Design, LLC.

(21) In his capacity as President of Lakefront Partners, Ltd, Don A.
Sanders exercises voting and investment control over the shares held for the
account of Lakefront Partners, Ltd. Mr. Sanders is a principal of Sanders Morris
Harris, Inc., which is a registered broker-dealer. These shares were purchased
and are held in the ordinary course of business for the separate account of
Lakefront Partners, Ltd.

(22) Includes 108,165 shares issuable upon the exercise of currently
exerciseable warrants.

(23) In her capacity as trustee of Robert S. Lane Family Trust, Melissa
Campbell exercises voting and control over the Shares held for the account of
Robert S. Lane Family Trust.

(24) John S. Lemak is an affiliate of Williams Financial Group, which is a
registered broker-dealer. These shares were purchased and are held in the
ordinary course of business for the personal account of John S. Lemak.

(25) Includes 23,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as General Partner of Muller Family
Limited Partnership, William Muller exercises voting and investment control over
the shares held for the account of Muller Family Limited Partnership.

(26) Dean S. Oakey and Janis A Oakey own these shares as joint tenants
with right of survivorship. Dean S. Oakey is employed by Sanders Morris Harris,
Inc., which is a registered broker-dealer. These shares were purchased and are
held in the ordinary course of business for the separate account of Mr. and Ms.
Oakey.

(27) Gail L. Oakey exercises voting and investment control over these
shares in her capacity as trustee of Gail L. Oakey Revocable Trust U/A/D/
01/12/2000. Gail L. Oakey is the mother of Dean S. Oakey. Dean S. Oakey is a
member of the NASD and is employed by Sanders Morris Harris, Inc., which is a
registered broker-dealer. These shares were purchased and are held in the
ordinary course of business for the separate account of Gail L. Oakey Revocable
Trust U/A/D/ 01/12/2000.

(28) Includes 17,500 shares issuable upon the exercise of currently
exercisable warrants, which we issued to Pacific Summit Securities, Inc., an
NASD member firm, as underwriting compensation in connection with a private
placement of our shares. In his capacity as the sole shareholder of Pacific
Summit Securities,

Inc., Jim Watts exercises voting and investment control over the shares held for
the account of Pacific Summit Securities, Inc.

(29) Includes 16,000 shares issuable upon the exercise of currently
exercisable warrants.

(30) Includes 100,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the shareholder of Pequot Capital
Management, Inc., which is the investment manager of Pequot Navigator Offshore
Fund, Inc., Andrew J. Samberg exercises voting and investment control over the
shares held for the account of Pequot Navigator Offshore Fund, Inc.

(31) Includes 22,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the shareholder of Pequot Capital
Management, Inc., which is the investment manager of Pequot Navigator Onshore
Fund, L.P., Andrew J. Samberg exercises voting and investment control over the
shares held for the account of Pequot Navigator Onshore Fund, L.P.

(32) Includes 118,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the shareholder of Pequot Capital
Management, Inc., which is the investment manager of Pequot Scout Fund, L.P.,
Andrew J. Samberg exercises voting and investment control over the shares held
for the account of Pequot Scout Fund, L.P.

(33) Includes 33,333 shares issuable upon the exercise of currently
exercisable warrants. The investment advisor to Portside Growth and Opportunity
Fund is Ramius Capital Group, LLC. The managing member of Ramius Capital Group,
LLC is C4S & Co., the managing members of which are Peter Cohen, Morgan Stark,
Thomas Straus and Jeffrey Solomon. In such capacities, Messrs. Cohen, Stark,
Straus and Solomon may be deemed beneficial owners of the shares held for the
account of Portside Growth and Opportunity Fund. Messrs. Cohen, Stark, Straus
and Solomon disclaim beneficial ownership of such shares.

(34) Precept Capital Management, L.P. has the sole voting power with
respect to these securities as agent and attorney-in-fact of Precept Capital
Master Fund, G.P., of which the general partner is Precept Management, LLC. D.
Blair Baker is the President and Chief Executive Officer of Precept Management,
LLC. In such capacity, Mr. Baker exercises voting and investment control over
the shares held for the account of Precept Capital Management, L.P.

(35) Includes 78,504 shares issuable upon the exercise of currently
exercisable warrants. Delta Partners, LLC serves as investment manager for Prism
Offshore Fund, Ltd. and has sole voting and investment power over the securities
held for the account of Prism Offshore Fund, Ltd. Christopher N. Argyrople and
Charles E. Jobson, as managing members of Delta Partners, LLC, exercise shared
voting and investment power over the shares held for the account of Prism
Offshore Fund, Ltd. Messrs. Agryrople and Jobson disclaim beneficial ownership
of such shares.

(36) Includes 67,029 shares issuable upon the exercise of currently
exercisable warrants. Delta Partners, LLC serves as investment manager for Prism
Partners, L.P. and has sole voting and investment power over the securities held
for the account of Prism Partners, L.P. Christopher N. Argyrople and Charles E.
Jobson, as managing members of Delta Partners, LLC, exercise shared voting and
investment power over the shares held for the account of Prism Partners, L.P.
Messrs. Agryrople and Jobson disclaim beneficial ownership of such shares.

(37) Includes 14,467 shares issuable upon the exercise of currently
exercisable warrants. Delta Partners, LLC serves as investment manager for Prism
Partners QP, LP and has sole voting and investment power over the securities
held for the account of Prism Partners QP, LP. Christopher N. Argyrople and
Charles E. Jobson, as managing members of Delta Partners, LLC, exercise shared
voting and investment power over the

shares held for the account of Prism Partners QP, LP. Messrs. Agryrople and
Jobson disclaim beneficial ownership of such shares.

(38) Includes 26,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the general partner of Proximity Fund
LP, Steve Crosby exercises investment and voting control over the shares held
for the account of Proximity Fund LP.

(39) Includes 16,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the general partner of Proximity
International Ltd., Steve Crosby exercises investment and voting control over
the shares held for the account of Proximity International Ltd.

(40) Includes 24,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the general partner of Proximity
Partners LP, Steve Crosby exercises investment and voting control over the
shares held for the account of Proximity Partners LP.

(41) Includes 50,000 shares issuable upon the exercise of currently
exercisable warrants. In his capacity as the Principal and Chief Investment
Officer of Provident Advisors LLC, the investment advisor to Provident Premier
Master Fund Ltd., Irvin R. Kessler effectively exercises voting and investment
control over the shares held for the account of Provident Premier Master Fund
Ltd. These shares were purchased and are held in the ordinary course of business
for Provident Premier Master Fund Ltd.

(42) Ritchie Capital Management, L.L.C. is the investment advisor to RAM
Trading, Ltd. In his capacity as Vice President of Ritchie Capital Management,
L.L.C., James R. Park exercises voting and investment control over the shares
held for the account of RAM Trading, Ltd.

(43) These shares are jointly owned by Charles H. Robbins, Sr. and Ellen
E. Robbins.

(44) Katherine U. Sanders is the wife of Don A. Sanders. Mr. Sanders is a
principal of Sanders Morris Harris, Inc., which is a registered broker-dealer.
These shares were purchased and are held in the ordinary course of business for
the separate account of Katherine U. Sanders.

(45) Includes 300,000 shares issuable upon the exercise of currently
exercisable warrants, which we issued to Sanders Morris Harris, Inc., an NASD
member firm, as underwriting compensation in connection with a private placement
of our shares. Ben T. Morris serves as President and Chief Executive Officer of
Sanders Morris Harris, Inc. and, in such capacity may be deemed to have sole
voting and investment power over these securities. Sanders Morris Harris, Inc.
is a registered broker/dealer and is a member of the NASD. Sanders Morris
Harris, Inc. is not an underwriter or related person with respect to the
securities being registered pursuant to this registration statement.

(46) In his capacity as Chief Investment Officer of Sanders Opportunity
Fund (Institutional), L.P., Don A. Sanders exercises voting and investment
control over the shares held for the account of Sanders Opportunity Fund
(Institutional), L.P. Mr. Sanders is a principal of Sanders Morris Harris, Inc.,
which is a registered broker-dealer. These shares were purchased and are held in
the ordinary course of business for the separate account of Sanders Opportunity
Fund (Institutional), L.P.

(47) In his capacity as Chief Investment Officer of Sanders Opportunity
Fund, L.P., Don A. Sanders exercises voting and investment control over the
shares held for the account of Sanders Opportunity Fund, L.P. Mr. Sanders is a
principal of Sanders Morris Harris, Inc., which is a registered broker-dealer.
These shares were purchased and are held in the ordinary course of business for
the separate account of Sanders Opportunity Fund, L.P.

(48) In his capacity as the general partner of Sandor Capital Master Fund,
L.P., John S. Lemak exercises voting and investment control over the shares held
for the account of Sandor Capital Master Fund, L.P. Mr. Lemak is an affiliate of
Williams Financial Group, which is a registered broker-dealer. These shares were
purchased and are held in the ordinary course of business for the separate
account of Sandor Capital Master Fund, L.P.

(49) Includes 23,320 shares issuable upon the exercise of currently
exercisable warrants. Michael A. Roth and Brian J. Stark are the founding
members of and direct the management of Staro Asset Management, L.L.C., a
Wisconsin limited liability Company ("Staro"), which acts as investment manager
of and has the sole power to direct the management of SF Capital Partners Ltd.
Though Staro, Messrs. Roth and Stark possess sole voting and dispositive power
over all of the shares held for the account of SF Capital Partners Ltd.

(50) Includes 16,680 shares issuable upon the exercise of currently
exercisable warrants. In their capacities as signing officers of Stonestreet
Corporation, the general partner of Stonestreet LP, Elizabeth Leonard and
Michael Finkelstein exercise investment and voting control over the shares held
for the account of Stonestreet LP.

(51) Steven Slawson and Walter Schenker, as principals of TCMP3 Capital
LLC, the general partner of TCMP3 Partners LLP, exercise voting and investment
control over these shares. Both Mr. Slawson and Mr. Schenker disclaim beneficial
ownership of the shares held for the account of TCMP3 Capital LLC.

(52) Includes 16,000 shares issuable upon the exercise of currently
exercisable warrants. In her capacity as President of Trading Post, Inc.,
Kathleen Belz exercises voting and investment control over the shares held for
the account of Trading Post, Inc. Ms. Belz is the wife of Richard Belz. Mr. Belz
is a principal of Basic Investors, Inc., which is a registered broker-dealer.
These shares were purchased and are held in the ordinary course of business for
the separate account of Trading Post, Inc.

(53) These shares are jointly owned by Joe and Frances Trout.

(54) Michael E. Fein and Stephen E. Saltzstein, as principals of Atoll
Asset Management, LLC, the Managing Member of Truk Opportunity Fund, LLC,
exercise investment and voting control over the shares owned by Truk Opportunity
Fund, LLC. Both Mr. Fein and Mr. Saltzstein disclaim beneficial ownership of the
shares owned by Truk Opportunity Fund, LLC.

(55) In his capacity as the general partner of Twin Capital Growth Ltd.,
Arthur Fields exercises voting and investment control over the shares held for
the account of Twin Capital Growth Ltd.

(56) In his capacity as the general partner of Westpark Capital, L.P.,
Patrick J. Brosnahan exercises voting and investment control over the shares
held for the account of Westpark Capital, L.P.

(57) The agent and attorney-in-fact for WS Opportunity Fund International,
Ltd. is WS Ventures Management, L.P., of which the general partner is WSV
Management, L.L.C. In his capacity as a member of WSV Management, L.L.C.,
Patrick Walker exercises voting and investment control over the shares held for
the account of WS Opportunity Fund International, Ltd. WS Fund International is
an investment partnership, some partners of which are not hot issue eligible.
The WS Fund International makes no allocations of hot issue income to such
ineligible persons.

(58) The agent and attorney-in-fact for WS Opportunity Master Fund is WS
Ventures Management, L.P., of which the general partner is WSV Management,
L.L.C. In his capacity as a member of WSV Management, L.L.C., Patrick Walker
exercises voting and investment control over the shares held for the account of
WS Opportunity Master Fund. WS Master Fund is an investment partnership, some
partners of

which are not hot issue eligible. WS Master Fund makes no allocations of hot
issue income to such ineligible persons.

Except as otherwise disclosed above or in documents incorporated herein by
reference, the selling stockholders, have not within the past three years had
any position, office or other material relationship with us or any of our
predecessors or affiliates. Because the selling stockholders may sell all or
some portion of the shares of common stock beneficially owned by them, only an
estimate (assuming the selling stockholders sell all of the shares offered
hereby) can be given as to the number of shares of common stock that will be
beneficially owned by the selling stockholders after this offering. In addition,
the selling stockholders may have sold, transferred or otherwise disposed of, or
may sell, transfer or otherwise dispose of, at any time or from time to time
since the dates on which they provided the information regarding the shares
beneficially owned by them, all or a portion of the shares beneficially owned by
them in transactions registered under other effective registration

The preceding table has been prepared based upon the information furnished
to us by the selling securityholders. The selling securityholders identified
above may have sold, transferred or otherwise disposed of some or all of their
common stock in transactions exempt from the registration requirements of the
Securities Act since the dates on which they provided the information regarding
the common stock beneficially owned by them. Information concerning the selling
securityholder may change from time to time and, if necessary, we will
supplement this prospectus accordingly.

PLAN OF DISTRIBUTION

The selling stockholders may offer their shares of common stock at various
times in one or more of the following transactions:

o on any U.S. securities exchange on which our common stock may be
listed at the time of such sale;

o in the over-the-counter market;

o in transactions other than on such exchanges or in the
over-the-counter market;

o in connection with short sales; or

o in a combination of any of the above transactions.

The selling stockholders may offer their shares of common stock at
prevailing market prices, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices. The selling stockholders may transfer
shares to discharge indebtedness, as payment for goods or services, or for other
non-cash consideration.

The selling stockholders may use broker-dealers to sell their shares of
common stock. If this occurs, broker-dealers will either receive discounts or
commission from the selling stockholder, or they will receive commissions from
the purchasers of shares of common stock for whom they acted as agents. These
brokers may act as dealers by purchasing any and all of the shares covered by
this prospectus either as agents for others or as principals for their own
accounts and reselling these securities under the prospectus.

The selling stockholders and any broker-dealers or other persons acting on
the behalf of parties that participate in the distribution of the shares may be
considered underwriters under the Securities Act. As such,

any commissions or profits they receive on the resale of the shares may be
considered underwriting discounts and commissions under the Securities Act.

As of the date of this prospectus, we are not aware of any agreement,
arrangement or understanding between any broker or dealer and any of the selling
stockholders with respect to the offer or sale of the shares under this
prospectus. If we become aware of any agreement, arrangement or understanding,
to the extent required under the Securities Act, we will file a supplemental
prospectus to disclose:

o the name of any of the broker-dealers;

o the number of shares involved;

o the price at which the shares are to be sold;

o the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;

o that the broker-dealers did not conduct any investigation to verify
the information set out in this prospectus, as supplemented; and

o other facts material to the transaction.

Certain of the agreements with the selling stockholders contain reciprocal
indemnification provisions between us and the selling stockholder to indemnify
each other against certain liabilities, including liabilities under the
Securities Act, which may be based upon, among other things, any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact.

DESCRIPTION OF SECURITIES

Common Stock

Pursuant to Innovo's Amended and Restated Certificate of Incorporation, we
are authorized to issue 40 million shares of common stock, $.10 par value per
share. As of December 19, 2003, we had outstanding 25,764,850 validly issued,
fully paid and non-assessable shares of common stock.

Holders of the common stock are entitled to one vote for each share held
of record in each matter properly submitted to such holders for a vote. Subject
to the rights of the holders of any other outstanding series of stock our board
of directors may designate from time to time, holders of common stock are
entitled to receive their pro rata share of (i) any dividends that may be
declared by the board of directors out of assets legally available therefore,
and (ii) any excess assets available upon the liquidation, dissolution, or
winding up of Innovo.

The board of directors may issue the additional shares of common stock, up
to the authorization of 40 million shares, without soliciting additional
stockholder approval. The existence of authorized but unissued shares of the
common stock could tend to discourage or render more difficult the completion of
a hostile merger, tender offer or proxy contest. For example, if in the due
exercise of its fiduciary obligations, the board of directors were to determine
that a takeover proposal was not in the best interest of the company and its
stockholders, the ability to issue additional shares of stock without further
stockholder approval could have the effect of rendering more difficult or costly
the completion of the takeover transaction, by diluting the voting or other
rights of the proposed acquiror or insurgent stockholder group, by creating a
substantial voting block in

hands that might support the position of the board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.

Preferred Stock

Our Amended and Restated Certificate of Incorporation authorizes the
issuance of up to 5 million shares of preferred stock with designations, rights
and preferences determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividends, liquidation, conversion, voting and
other rights that could adversely affect the voting power or other rights of the
holders of common stock. In the event of issuance, the preferred stock could be
used, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of us. As of December 19, 2003, we had
outstanding 4,806,000 validly issued, fully paid and non-assessable shares of
preferred stock.

Certain Provisions Relating to Share Acquisitions

Section 203 of the Delaware General Corporation Law generally prevents a
corporation from entering into certain business combinations with an interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) or its affiliates for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless (i) the transaction is approved by the board of
directors of the corporation prior to such business combination, (ii) the
interested stockholder acquires 85% of the corporation's voting stock in the
same transaction in which it exceeds 15%, or (iii) the business combination is
approved by the board of directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. The Delaware
General Corporation Law provides that a corporation may elect not to be governed
by Section 203. We have made no such election and are therefore governed by
Section 203. Such anti-takeover provision may have an adverse effect on the
market for our securities.

Indemnification and Limitation of Liability

Our Amended and Restated Certificate of Incorporation provides that we
shall indemnify our officers and directors to the fullest extent permitted by
Delaware law, including some instances in which indemnification is otherwise
discretionary under Delaware law. The Amended and Restated Certificate of
Incorporation also provides that, pursuant to Delaware law, our directors shall
not be liable for monetary damages for breach of the director's fiduciary duty
of care to the company and its stockholders. This provision does not eliminate
the duty of care, and, in appropriate circumstances, equitable remedies such as
an injunction or other forms of non-monetary relief would remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the company, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities for environmental laws.

At present, there is no pending litigation or proceeding involving a
director or officer of Innovo as to which indemnification is being sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification by any officer or director.

Transfer and Warrant Agent

The transfer agent for our common stock is North American Transfer Co.,
147 West Merrick Road, Freeport, New York 11520.

ENGAGEMENT OF RESEARCH FIRM

In or about February 2002, we engaged Barrow Street Research, Inc.
("Barrow"), an independent New York City-based research firm to prepare and
issue a basic research report on us to better inform the investing public of our
long term prospects. We paid Barrow $6,000.00 for writing and disseminating its
report, inclusion of the report on Barrow's website for the remainder of 2002,
as well as continued coverage of us by Barrow in 2002, which included a mid-year
update of our prospects. We also engaged Barrow to prepare a business plan for
us. We paid Barrow $13,209.00 for (i) the preparation of the business plan and
(ii) reimbursement of expenses. We did not, at any time, issue our securities to
Barrow as compensation for its services and is not aware of any holdings of our
securities by Barrow or its affiliates. We currently do not have any
relationships, financial or otherwise, with any research firms that publish
reports about us.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for Innovo by Akin Gump Strauss Hauer & Feld LLP, Washington, D.C.

EXPERTS

The consolidated financial statements of the Innovo Group Inc. appearing
in Innovo Group Inc.'s Annual Report (Form 10-K) for the year ended November 30,
2002 and the year ended December 1, 2001 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.

CAUTIONARY STATEMENTS

No person has been authorized to give any information or to make any
representation not contained in this prospectus in connection with this offering
of common stock and, if given or made, no one may rely on such unauthorized
information or representations. This prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than the common
stock to which it relates, or an offer to sell or the solicitation of an offer
to buy such securities in any jurisdiction in which such offer or solicitation
may not be legally made. Neither the delivery of this prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The following table sets forth the estimated costs and expenses of the
sale and distribution of the securities being registered, all of which are being
borne by us.

SEC registration fee $ 3,032.66
Nasdaq fee --
Accounting fees and expenses 5,000.00
Legal fees and expenses 25,000.00
Printing and engraving expenses 500.00
Blue Sky fees and expenses --
Transfer Agent and Registrar fee --
Miscellaneous expenses 500.00
----------
Total $34,032.66

With the exception of the fee payable to the SEC, all of the amounts shown
above are estimates.

Item 15. Indemnification of Directors and Officers

Under Section 145 of the Delaware General Corporation Law, a corporation
may indemnify any of its directors and officers against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding (i) if any such person acted in good faith and in a manner reasonably
believed to be in or not opposed to be the best interests of the corporation,
and (ii) in connection with any criminal action or proceeding if such person had
no reasonable cause to believe such conduct was unlawful. In actions brought by
or in the right of the corporation, however, Section 145 provides that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of such person's duty to the corporation unless, and only to
the extent that, the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in review of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Article Nine of the registrant's Amended and Restated Certificate of
Incorporation requires that the registrant indemnify its directors and officers
for certain liabilities incurred in the performance of their duties on behalf of
the registrant to the fullest extent allowed by Delaware law.

The registrant's Amended and Restated Certificate of Incorporation
relieves the registrant's directors from personal liability to the registrant or
to stockholders for breach of any such director's fiduciary duty as a director
to the fullest extent permitted by the Delaware General Corporation Law. Under
Section 102(b)(7) of the Delaware General Corporation Law, a corporation may
relieve its directors from personal liability to such corporation or its
stockholders for monetary damages fore any breach of their fiduciary duty as
directors except (i) for a breach of the duty of loyalty, (ii) for failure to
act in good faith, (iii) for intentional misconduct or knowing violation of law,
(iv) for willful or negligent violations of certain provisions of the Delaware
General Corporation Law imposing certain requirements with respect to stock
repurchases, redemptions and dividends, or (v) for any transaction from which
the director derived an improper personal benefit.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
company pursuant to the foregoing provisions, the registrant has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

II-29

Item 16. Exhibits

The following exhibits are filed as part of the Registration Statement:

Exhibit
Number Description and Method of Filing
--------------------- -----------------------------------------------------
5 Opinion of Akin Gump Strauss Hauer & Feld LLP

23.1 Consent of Ernst & Young LLP

23.2 Consent of Akin Gump Strauss Hauer & Feld LLP
(included in the opinion filed as Exhibit 5)

24 Power of Attorney*

* Previously filed.

Item 17. Undertakings.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information in the registration statement; and

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item
14 above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer of controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is assured by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the question has been settled
by controlling precedent, submit to a court of

II-30

appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time
it was declared effective.

(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-31

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Innovo Group
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Commerce, California on December 22, 2003.

Innovo Group Inc.

By: /s/ Samuel J. Furrow, Jr.
-------------------------
Samuel J. Furrow, Jr.
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.

Signature Title of Capacities Date
--------- ------------------- ----

* Chairman of the Board and December 22, 2003
-------------------------------------- Director
Samuel J. Furrow, Sr.

* President and Director December 22, 2003
--------------------------------------
Patricia Anderson-Lasko

/s/ Samuel J. Furrow, Jr. Chief Executive Officer, Director and December 22, 2003
-------------------------------------- Principal Executive Officer
Samuel J. Furrow, Jr.

* Director December 22, 2003
--------------------------------------
Dan Page

* Chief Financial Officer, Director, December 22, 2003
-------------------------------------- Principal Financial and Accounting
Marc B. Crossman Officer

* Director December 22, 2003
--------------------------------------
John G. Looney

* Director December 22, 2003
--------------------------------------
Suhail Rizvi

* Director December 22, 2003
--------------------------------------
Kent A. Savage

* Director December 22, 2003
--------------------------------------
Vincent Sanfillipo

II-32

*By: /s/ Samuel J. Furrow, Jr.
-------------------------
Samuel J. Furrow, Jr.
Attorney-in-Fact

II-33

EXHIBIT INDEX

Exhibit
Number Description and Method of Filing
--------------------- -----------------------------------------------------
5 Opinion of Akin Gump Strauss Hauer & Feld LLP

23.1 Consent of Ernst & Young LLP

23.2 Consent of Akin Gump Strauss Hauer & Feld LLP
(included in the opinion filed as Exhibit 5)

24 Power of Attorney*

* Previously filed.