Net sales for the third quarter of 2006 were $32.9 million, an increase of $10.0 million from $22.9 million in the third quarter of 2005. $17.0 million of this increase in sales resulted from Cygne's acquisition of the private label denim business of Innovo Group, Inc. ("Innovo Group") on May 12, 2006. This increase in sales was partially offset by decreased non-denim and branded denim sales. Gross profit for the third quarter of 2006 increased to $6.4 million compared to $5.3 million for the prior year period. Gross margins decreased to 19.3% compared to 23.1% in the prior year period as a result of lower gross margins on sales stemming from the Innovo Group acquisition. Net income for the third quarter ended October 31, 2006 was $765,000 or $0.03 on a basic and diluted per share basis, compared to a net loss of $520,000 or $0.02 on a basic and diluted per share basis in the comparable prior period in 2005.
On December 18, 2006, Cygne issued restated financial statements for the fiscal year ended January 31, 2006 and for the fiscal quarters ended April 30, 2006 and July 31, 2006 to reflect the correction of an error related to income tax expense and related deferred taxes payable and a reclass of factor advances on the balance sheets and statements of cash flows. The net loss for the three months ended October 31, 2005 has been increased from $128,000 to $520,000 to reflect the deferred tax provision of $392,000.
Net sales for the nine months ended October 31, 2006 were $99.0 million, an increase of $66.4 million from $32.6 million in the nine months ended October 31, 2005. $75.9 million of this increase in sales resulted from Cygne's acquisition of the branded and private label denim business of Diversified Apparel Resources LLC ("DAR") on July 31, 2005 and its acquisition of Innovo Group. The increase in sales was partially offset by decreased non-denim sales. Gross profit for the nine months ended October 31, 2006 increased to $21.3 million compared to $6.2 million for the prior year period. Gross margins increased to 21.5% compared to 19.1% in the prior year period as a result of higher gross margins on sales stemming from the acquisition of product primarily sourced through a supply agreement with DAR for the nine months ended October 31, 2006. Net income for the nine months ended October 31, 2006 was $1,779,000 or $0.07 on a basic and diluted per share basis, compared to a net loss of $1,137,000 or $0.07 on a basic and diluted per share basis in the comparable prior period in 2005.
On December 18, 2006, Cygne issued restated financial statements for the fiscal year ended January 31, 2006 and for the fiscal quarters ended April 30, 2006 and July 31, 2006 to reflect the correction of an error related to income tax expense and related deferred taxes payable and a reclass of factor advances on the balance sheets and statements of cash flows. The net loss for the nine months ended October 31, 2005 has been increased from $745,000 to $1,137,000 to reflect the deferred tax provision of $392,000.
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