Cygne Designs Inc announced results of operations for the third quarter and nine months ended October 31, 2007.
Net sales for the third quarter of 2007 were $22.9 million, a decrease of $10.1 million, or 30.5%, from $33.0 million in the third quarter of 2006. This decrease was primarily attributable to a decrease in sales of our branded jeans and a decrease in sales of the private label division of the Innovo Group Inc that we acquired in May 2006.
Gross profit for the third quarter was $4.2 million, a decrease of $2.2 million from the gross profit of $6.4 million for the third quarter of 2006. Gross margins in the third quarter of 2007 decreased to 18.4% compared to 19.3% in the prior year period in 2006 as a result of the mix of product categories sold.
The decrease in gross profit for the third quarter of 2007 compared to the third quarter of 2006 was primarily caused by a decrease in sales volume. Gross margins for products produced in Mexico by Diversified Apparel, a related party, for Target and American Eagle Outfitters have been guaranteed through a Supply Agreement with Diversified Apparel.
Net income for the third quarter ended October 31, 2007 was $707,000, or $0.02 on a basic and diluted per share basis, compared to net income of $765,000, or $0.03 on a basic and diluted per share basis, in the comparable prior period in 2006.
Net income was positively affected by a $2.2 million gain on extinguishment of debt that we recorded primarily as a result of our exchange of $37 million principal amount of debt for common stock, a warrant and a $15 million convertible note, which exchange was approved by our stockholders in August 2007.