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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/14/22 Innovative Designs Inc. 10-Q 7/31/22 52:2.4M Electro Filings LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 605K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 18K
3: EX-32.1 Certification -- §906 - SOA'02 HTML 15K
9: R1 Cover HTML 62K
10: R2 Condensed Balance Sheets (Unaudited) HTML 125K
11: R3 Condensed Balance Sheets (Unaudited) HTML 33K
(Parenthetical)
12: R4 Condensed Statements of Operations (Unaudited) HTML 81K
13: R5 Condensed Statements of Changes in Stockholders' HTML 62K
Equity (Unaudited)
14: R6 Condensed Statements of Cash Flows (Unaudited) HTML 92K
15: R7 Basis of Presentation HTML 18K
16: R8 Right of Use Assets and Lease Liabilities HTML 18K
17: R9 Going Concern HTML 19K
18: R10 Accounts Receivable HTML 18K
19: R11 Inventory HTML 18K
20: R12 Earnings Per Share HTML 19K
21: R13 Income Taxes HTML 21K
22: R14 Shipping and Handling Costs HTML 18K
23: R15 Common Stock HTML 26K
24: R16 Deposits on Equipment HTML 20K
25: R17 Right of Use Assets HTML 26K
26: R18 Right of Use Lease Liability HTML 27K
27: R19 Segment Information HTML 51K
28: R20 Legal Proceedings HTML 20K
29: R21 Subsequent Events HTML 19K
30: R22 Right of Use Assets (Tables) HTML 23K
31: R23 Right of Use Lease Liability (Tables) HTML 28K
32: R24 Segment Information (Tables) HTML 46K
33: R25 Going Concern (Details Narrative) HTML 33K
34: R26 Accounts Receivable (Details Narrative) HTML 17K
35: R27 Inventory (Details Narrative) HTML 17K
36: R28 Earnings Per Share (Details Narrative) HTML 17K
37: R29 Shipping and Handling Costs (Details Narrative) HTML 16K
38: R30 Common Stock (Details Narrative) HTML 37K
39: R31 Deposits on Equipment (Details Narrative) HTML 28K
40: R32 Right of Use Assets (Details) HTML 22K
41: R33 Right of Use Assets (Details 1) HTML 16K
42: R34 Right of Use Assets (Details Narrative) HTML 21K
43: R35 Right of Use Lease Liability (Details) HTML 23K
44: R36 Right of Use Lease Liability (Details 1) HTML 19K
45: R37 Segment Information (Details) HTML 27K
46: R38 Legal Proceedings (Details Narrative) HTML 16K
47: R39 Subsequent Events (Details Narrative) HTML 18K
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A UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13l OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended i July 31, 2022
OR
| i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from _______ to ________.
Commission File Number: i 000-51791
(Exact Name of Registrant as Specified in its Charter)
| i Delaware | i 03-0465528 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
i Pittsburgh, i Pennsylvania i 15223
(Address of Principal Executive Offices, Zip Code)
(Issuer’s Phone Number Including Area Code)
N/A
(Former Name or Former Address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.
(Check One)
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| i Non-accelerated Filer ☐ | Smaller reporting company i ☒ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ i NO ☒
As of September 14, 2022, there were shares of the Registrant’s common stock, par value $.0001 per share, outstanding.
Transitional Small Business Disclosure Format: YES ☐ NO ☒
C:
Innovative Designs, Inc.
Index
Form 10-Q for the Quarter Ended July 31, 2018
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ITEM 1. CONDENSED FINANCIAL STATEMENTS
| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| JULY 31, 2022 (UNAUDITED) AND OCTOBER 31, 2021 |
| July 31, 2022 | October 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | i 159,510 | $ | i 480,451 | ||||
| Accounts receivable - net of allowance for doubtful accounts of $ i i 5,860 / | i 9,613 | i 1,201 | ||||||
| Inventory - net of obsolete inventory reserve of $ i i 75,468 / | i 531,484 | i 542,588 | ||||||
| Current portion of right of use asset | i 10,452 | i 40,962 | ||||||
| Receivable due | i 260,000 | i — | ||||||
| Total current assets | i 971,059 | i 1,065,202 | ||||||
| PROPERTY AND EQUIPMENT - NET | i 6,332 | i 7,450 | ||||||
| OTHER ASSETS | ||||||||
| Inventory on consignment | i 1,625 | i 1,625 | ||||||
| Deposits on inventory | i 40,000 | i — | ||||||
| Advance to employees | i 8,200 | i 8,200 | ||||||
| Deposits on equipment | i 607,370 | i 600,000 | ||||||
| Total other assets | i 657,195 | i 609,825 | ||||||
| TOTAL ASSETS | $ | i 1,634,586 | $ | i 1,682,477 | ||||
| The accompanying notes are an integral part of these condensed financial statements. |
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| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| JULY 31, 2022 (UNAUDITED) AND OCTOBER 31, 2021 |
| July 31, 2022 | October 31, 2021 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | i 294,306 | $ | i 228,667 | ||||
| Current portion of notes payable | i 18,628 | i 18,628 | ||||||
| Current portion of lease liability | i 10,452 | i 40,962 | ||||||
| Accrued interest expense | i 40,496 | i 43,136 | ||||||
| Due to stockholders | i 119,630 | i 188,632 | ||||||
| Accrued expenses | i 5,223 | i 25,037 | ||||||
| Total current liabilities | i 488,735 | i 545,062 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term portion of due to stockholders | i 66,667 | i 133,332 | ||||||
| Long-term portion of notes payable | i 71,122 | i 71,722 | ||||||
| Total long-term liabilities | i 137,789 | i 205,054 | ||||||
| TOTAL LIABILITIES | i 626,524 | i 750,116 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized | i — | |||||||
| Common stock, $ par value, shares authorized, and and issued and outstanding | i 3,454 | i 3,333 | ||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | i 11,310,197 | i 11,039,118 | ||||||
| Accumulated deficit | ( i 10,305,589 | ) | ( i 10,110,090 | ) | ||||
| Total stockholders' equity | i 1,008,062 | i 932,361 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | i 1,634,586 | $ | i 1,682,477 | ||||
| The accompanying notes are an integral part of these condensed financial statements. |
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2
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF OPERATIONS |
| THREE AND NINE MONTHS ENDED JULY 31, 2022 AND 2021 (UNAUDITED) |
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES - NET | $ | i 135,048 | $ | i 110,475 | $ | i 235,164 | $ | i 176,388 | ||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Cost of sales | i 56,224 | i 50,712 | i 109,884 | i 78,352 | ||||||||||||
| Selling, general and administrative expenses | i 115,757 | i 66,845 | i 546,330 | i 275,998 | ||||||||||||
| Total Operating Expenses | i 171,981 | i 117,557 | i 656,214 | i 354,350 | ||||||||||||
| LOSS FROM OPERATIONS | ( i 36,933 | ) | ( i 7,082 | ) | ( i 421,050 | ) | ( i 177,962 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Miscellaneous income (expense) | i 260,000 | i 33,652 | i 260,000 | i 62,475 | ||||||||||||
| Interest expense | ( i 10,710 | ) | ( i 13,417 | ) | ( i 34,450 | ) | ( i 30,810 | ) | ||||||||
| Total other income (expense) | i 249,290 | i 20,235 | i 225,550 | i 31,665 | ||||||||||||
| NET (LOSS) INCOME | $ | i 212,357 | $ | i 13,153 | $ | ( i 195,500 | ) | $ | ( i 146,297 | ) | ||||||
| PER SHARE INFORMATION - UNDILUTED | ||||||||||||||||
| Net Loss Per Common Share | $ | i 0.006 | $ | i 0.000 | $ | ( i 0.006 | ) | $ | ( i 0.005 | ) | ||||||
| Weighted Average Number of Common Shares Outstanding | i 33,845,560 | i 32,216,560 | i 33,845,560 | i 31,776,560 | ||||||||||||
| PER SHARE INFORMATION - DILUTED | ||||||||||||||||
| Net Loss Per Common Share | $ | i 0.006 | $ | i 0.000 | $ | ( i 0.006 | ) | $ | ( i 0.005 | ) | ||||||
| Weighted Average Number of Common Shares Outstanding | i 34,902,893 | i 32,229,060 | i 34,902,893 | i 31,789,060 | ||||||||||||
| The accompanying notes are an integral part of these condensed financial statements. |
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3
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| THREE AND NINE MONTHS ENDED JULY 31, 2022 AND 2021 (UNAUDITED) |
| Common Stock | Common Stock To be | Additional Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | Issued | Capital | Deficit | Total | |||||||||||||||||||
| Balance at October 31, 2021 | i 33,315,560 | $ | i 3,333 | $ | — | $ | i 11,039,118 | $ | ( i 10,110,090 | ) | $ | i 932,361 | ||||||||||||
| Sale of stock | i 340,000 | i 34 | — | i 60,966 | — | i 61,000 | ||||||||||||||||||
| Shares issued for services | i 50,000 | i 5 | i 9,995 | i 10,000 | ||||||||||||||||||||
| Net loss | — | — | — | — | ( i 132,040 | ) | ( i 132,040 | ) | ||||||||||||||||
| Balance at January 31, 2022 | i 33,705,560 | i 3,372 | — | i 11,110,079 | ( i 10,242,130 | ) | i 871,321 | |||||||||||||||||
| Sale of stock | i 120,000 | i 12 | i 25,188 | i 25,200 | ||||||||||||||||||||
| Shares issued for services | i 700,000 | i 70 | i 174,930 | i 175,000 | ||||||||||||||||||||
| Net loss | — | ( i 275,816 | ) | ( i 275,816 | ) | |||||||||||||||||||
| Balance at April 30, 2022 | i 34,525,560 | i 3,454 | — | i 11,310,197 | ( i 10,517,946 | ) | i 795,705 | |||||||||||||||||
| Sale of stock | — | — | — | — | — | |||||||||||||||||||
| Shares issued for services | — | — | — | — | — | |||||||||||||||||||
| Net income | — | i 212,357 | i 212,357 | |||||||||||||||||||||
| Balance at July 31, 2022 | i 34,525,560 | $ | i 3,454 | $ | — | $ | i 11,310,197 | $ | ( i 10,305,589 | ) | $ | i 1,008,062 | ||||||||||||
| Balance at October 31, 2020 | i 31,211,560 | $ | i 3,123 | $ | — | $ | i 10,574,828 | $ | ( i 9,730,028 | ) | $ | i 847,923 | ||||||||||||
| Sale of stock | — | — | — | — | — | — | ||||||||||||||||||
| Shares issued for services | i 100,000 | i 10 | — | i 24,990 | — | i 25,000 | ||||||||||||||||||
| Net loss | — | — | — | — | ( i 35,965 | ) | ( i 35,965 | ) | ||||||||||||||||
| Balance at January 31, 2021 | i 31,311,560 | i 3,133 | — | i 10,599,818 | ( i 9,765,993 | ) | i 836,958 | |||||||||||||||||
| Sale of stock | i 280,000 | i 28 | i 69,972 | — | i 70,000 | |||||||||||||||||||
| Shares issued for services | i 500,000 | i 50 | i 63,950 | i 64,000 | ||||||||||||||||||||
| Net loss | — | — | — | — | ( i 123,485 | ) | ( i 123,485 | ) | ||||||||||||||||
| Balance at April 30, 2021 | i 32,091,560 | i 3,211 | — | i 10,733,740 | ( i 9,889,478 | ) | i 847,473 | |||||||||||||||||
| Sale of stock | i 240,000 | i 24 | i 59,976 | i 60,000 | ||||||||||||||||||||
| Shares issued for services | i 10,000 | i 1 | i 1,999 | i 2,000 | ||||||||||||||||||||
| Net Income | — | i 13,153 | i 13,153 | |||||||||||||||||||||
| Balance at July 31, 2021 | i 32,341,560 | $ | i 3,236 | $ | — | $ | i 10,795,715 | $ | ( i 9,876,325 | ) | $ | i 922,626 | ||||||||||||
| The accompanying notes are an integral part of these condensed financial statements. |
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4
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CASH FLOWS |
| NINE MONTHS ENDED JULY 31, 2022 AND 2021 (UNAUDITED) |
| Nine Months Ended July 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( i 195,500 | ) | $ | ( i 146,297 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for doubtful accounts | i — | i — | ||||||
| Common stock issued for services | i 185,000 | i 66,000 | ||||||
| Depreciation | i 1,118 | i 24,981 | ||||||
| Amortization of right of use asset | i 30,510 | i 28,881 | ||||||
| (Increase) decrease from changes in: | ||||||||
| Accounts receivable | ( i 8,412 | ) | i 16,844 | |||||
| Inventory | i 11,104 | i 25,821 | ||||||
| Deposits on inventory | ( i 40,000 | ) | i — | |||||
| Receivable due | ( i 260,000 | ) | ||||||
| Increase (decrease) from changes in: | ||||||||
| Accounts payable and accrued expenses | i 45,826 | ( i 66,534 | ) | |||||
| Accrued interest expense | ( i 2,640 | ) | ( i 11,420 | ) | ||||
| Net cash used in operating activities | ( i 232,994 | ) | ( i 61,724 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Increase in deposit on Equipment | ( i 7,370 | ) | i — | |||||
| Net cash used in investing activities | ( i 7,370 | ) | i — | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of stock | i 86,200 | i 155,000 | ||||||
| Forgivness from loans | i — | ( i 33,652 | ) | |||||
| Proceeds from shareholder advances | i — | i 250,000 | ||||||
| Payments on shareholder advances | ( i 135,667 | ) | i — | |||||
| Payments on lease liability | ( i 30,510 | ) | ( i 28,881 | ) | ||||
| Proceeds on notes payable | i 1,818 | i — | ||||||
| Payments on notes payable | ( i 2,418 | ) | ( i 1,820 | ) | ||||
| Net cash provided by financing activities | ( i 80,577 | ) | i 340,647 | |||||
| Net change in cash | ( i 320,941 | ) | i 278,923 | |||||
| CASH, BEGINNING OF YEAR | i 480,451 | i 48,009 | ||||||
| CASH, END OF THE PERIOD | $ | i 159,510 | $ | i 326,932 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | i 37,090 | $ | i 39,100 | ||||
| Cash paid for taxes | $ | i — | $ | i — | ||||
| The accompanying notes are an integral part of these condensed financial statements. |
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5
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
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| NOTE 1. | BASIS OF PRESENTATION |
In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly Innovative Designs, Inc.’s financial position as of July 31, 2022, the changes therein for the three and nine month periods then ended and the results of operations for the three and nine month periods ended July 31, 2022 and 2021.
The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. For additional information, reference is made to the Innovative Designs, Inc.’s annual report on Form 10-K for the fiscal year ended October 31, 2021. The results of operations for the three and nine month periods ended July 31, 2022 and 2021 are not necessarily indicative of operating results for the full year.
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| NOTE 2. | RIGHT OF USE ASSETS AND LEASE LIABILITIES |
During the quarter ended April 30, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must be recorded a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the lease term (referred to at the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. This election requires the lessee to recognize lease expense on a straight-line basis over the lease term. The right of use assets and corresponding right of use liabilities have been recorded using the present value of the leases. See Notes 11 and 12 within the financial statement for additional disclosure on leases
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| NOTE 3. | GOING CONCERN |
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company had a net loss of ($ i 195,500) and a negative cash flow from operations of ($ i 232,994) for the nine month period ended July 31, 2022. In addition, the Company has an accumulated deficit of ($ i 10,305,589). Management’s plans include cash receipts through sales, sales of Company stock, and borrowings from private parties. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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| NOTE 4. | ACCOUNTS RECEIVABLE |
Management evaluates its receivables on a quarterly basis to assess the validity of remaining receivables. Management has determined that there is significant doubt regarding the receivable balance over 90 days of $ i i 5,860 / as of the July 31, 2022 and October 31, 2021. Management has applied an allowance on all balances in excess of 90 days.
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
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| NOTE 5. | INVENTORY |
Inventory consists principally of purchased apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis. The Company has decided to discontinue the manufacturing of its hunting and swimming line of apparel. The Company has booked a reserve against apparel inventory at July 31, 2022 and October 31, 2021 of $ i i 75,468 / . Management has determined that no allowance is currently necessary on their House Wrap Inventory. Management will continue to evaluate its obsolete inventory reserve throughout the year and make adjustments as needed.
/ i| NOTE 6. | EARNINGS PER SHARE |
The Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 260 “Earnings per Share”. Basic earnings (loss) per share is calculated by dividing income (loss) by the weighted average number of common shares outstanding for the period. During the periods presented, the Company only has common stock outstanding. In 2021, the Company issued a convertible debt instrument and has subsequently retired this debt in May of 2022. In addition, the Company also has stock warrants of i 994,000 and i 860,000 as of July 31, 2022 and 2021, respectively. The Company has calculated diluted earnings per share utilizing the outstanding stock warrants and convertible debt.
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| NOTE 7. | INCOME TAXES |
The Company accounts for income taxes in accordance with ASC Topic 740 "Income Taxes", which requires an asset and liability approach for financial reporting purposes.
Deferred income taxes are provided for differences between the tax bases of assets and liabilities and the financial reporting amounts at the end of the period, and for net operating loss and tax credit carryforwards available to offset future taxable income. Changes in enacted tax rates or laws result in adjustments to recorded deferred tax assets and liabilities in the periods in which the tax laws are enacted or tax rates are changed. The Company will continue to evaluate its income tax obligation throughout the year and will record a tax provision when it is necessary.
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| NOTE 8. | SHIPPING AND HANDLING COSTS |
The Company pays shipping and handling costs on behalf of customers for purchased apparel merchandise. These costs are billed back to the customer through the billing invoice. The shipping and handling costs associated with merchandise ordered by the Company are included as part of inventory as these costs are allocated across the merchandise received. With House Wrap orders, the customer pays the shipping cost. The shipping and handling costs associated with customer orders was approximately $ i 21,199 and $ i 6,400 for the nine month periods ended July 31, 2022 and 2021, respectively.
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
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| NOTE 9. | COMMON STOCK |
During the nine month period ended July 31, 2022, the Company sold shares of common stock to seven investors for total proceeds of $ i 86,200 and issued shares to eight investors for services. The stock was issued between $ and $ per share.
During the nine month period ended July 31, 2021, the Company sold shares of common stock to twelve investors for total proceeds of $ i 130,000 and issued shares to nine investors for services. The stock was issued between $ and $ per share.
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| NOTE 10. | DEPOSITS ON EQUIPMENT |
On July 12, 2015 the Company reached an agreement with Ketut Jaya to purchase the machinery and equipment utilized to produce the INSULTEX material. i The purchase price is $700,000 which was to be paid in four installments. The first installment of $300,000 was to be paid at the execution of the agreement. The second installment of $200,000 was to be paid when the machinery and equipment is ready to be shipped to the United States. The third installment of $100,000 is to be paid once the machinery and equipment is producing INSULTEX, and the fourth and final installment of $100,000 is to be made after the first commercial production run of INSULTEX is completed. As of April 30, 2020, the Company has made payments of $ i 500,000 in accordance with the agreement and made a $ i 100,000 pre-payment as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $ i 17,000 of additional expenses related to shipping, site improvements and installation of the equipment. Due to various environmental regulations that must be met and other costs to assemble the machine the Company expects to incur costs in excess of the current deposit agreement. Management of the Company currently cannot reasonably estimate the costs. During the six month period ended April 30, 2019 Management decided to sell the machine. The shipping and other purchase costs associated with the purchase of the machine that were originally capitalized as part of the machine cost that were written off. The total loss on impairment for the six month period ended April 30, 2019 was $ i 17,000. In July 2021, management has decided that it is no longer selling this equipment and is moving forward with plans of putting it in service in the future.
In May of 2022, the Company made an additional deposit of $ i 7,320 for a new testing machine.
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| NOTE 11. | RIGHT OF USE ASSETS |
The Company entered into a month to month verbal lease at the time the Company was formed that is classified as right of use asset and lease liability. The lease for the Company’s office space is estimated to be through October 2022. In accordance with ASU 2016-02, the Company calculated the present value of the leases using the average commercial real estate interest rate of i 5.50% at the commencement of the office lease. Applying the commercial rate, the Company calculated the present value of $ i 150,496 for the office lease as of April 30, 2020.
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
| NOTE 11. | RIGHT OF USE ASSETS (CONTINUED) |
As of July 31, 2022, the right of use assets associated with future operating lease is as follows:
i
| Right of use assets associated with future operating leases | ||||
| Total present value of right of use asset under lease agreement | $ | i 150,496 | ||
| Amortization of right of use asset – operating lease | ( i 140,044 | ) | ||
| Total right of use asset – operating lease as of July 31, 2022 | $ | i 10,452 | ||
| Less current portion due within one year | i 10,452 | |||
| Long-term right of use asset – operating lease | $ | - i 0- |
Total amortization expense related to the right of use assets under the verbal lease agreement was $ i 30,510 and $ i 28,881 for the nine month periods ended July 31, 2022 and 2021, respectively.
Future amortization of the right of use asset as of July 31, 2022 is as follows:
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| Future amortization of right of use assets | |||||
| 2022 | $ | i 10,452 |
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| NOTE 12. | RIGHT OF USE LEASE LIABILITY |
As disclosed in Note 11, the Company entered into a verbal lease for office space prior to the quarter ended July 31, 2022 that is classified as a right of use asset and lease liability.
As of July 31, 2022, the lease liability associated with future payments due under the verbal lease is as follows:
i
| Schedule of future minimum lease payments | ||||
| Total future minimum lease payments | $ | i 150,496 | ||
| Principal payments made as of the period ended July 31, 2022 | ( i 140,044 | ) | ||
| Total operating lease liability as of July 31, 2022 | i 10,452 | |||
| Less current portion due within one year | i 10,452 | |||
| Long-term operating lease liability | $ | - i 0- |
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
Total maturities of lease liability as of July 31, 2022 are as follows:
i
| Schedule of maturities of lease liabilities | |||||||||||||
| Total future minimum lease payments | Present value discount | Operating lease liability | |||||||||||
| 2022 | $ | i 10,500 | $ | i 48 | $ | i 10,452 | |||||||
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| NOTE 13. | SEGMENT INFORMATION |
We have organized our operations into two segments. We rely on an internal management reporting process that provides segment information for purposes of making financial decisions and allocating resources.
The following tables present our business segment information for the nine month periods ended July 31, 2022 and 2021:
i /
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended July 31, 2022 and 2021 (Unaudited)
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| NOTE 14. | LEGAL PROCEEDINGS |
On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, Case number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company did not have substantiation of claims made by the Company regarding the R value and energy efficiency of its INSULTEX House Wrap products. The complaint asks as to redress a rescission of revenue the Company received from the sale of House Wrap and a permanent injunction. On September 24, 2020, a judgment was entered in favor of the Company as to all claims set forth in the FTC complaint. It was further ordered that as there were no remaining claims in the action the case shall be marked as closed.
On November 23, 2020, the Company was informed that the FTC had filed a notice of appeal in regard to the case. The appeal is from the District Court’s September 24, 2020, Order granting the Company’s Motion for Judgment on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) and subsequent Judgment in favor of the Company and from the District Court’s February 14, 2020, striking Dr. David Yarbrough’s expert testimony made on behalf of the FTC. The FTC filed its appeal and on March 24, 2021, the Company filed its answer.
On July 22, 2021, the Registrant was informed that the United States Court of Appeals for the Third District affirmed the District Court’s ruling in favor of the Registrant. The ruling was in connection with the Federal Trade Commission complaint filed against the Registrant in November 2016, alleging, among other matters, that the Registrant did not have substantiation for claims made by the Registrant regarding the R-value and energy efficiency of its INSULTIX House Wrap products.
In November 2021, in connection with the FTC litigation, the Company filed an application for attorney fees, expenses and cost in the U.S. District Court for the Western District of Pennsylvania, Case No.2:16-cv-01669-NBF. On June 29, 2022, a settlement order was signed by the Court. Pursuant to the Order, the FTC shall pay the Company $ i 260,000 to resolve all such claims. The parties agreed to waive all rights to appeal or otherwise challenge or contest the validity of the Order.
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| NOTE 15. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through September 14, 2022, which is the date financial statements were available to be issued.
On August 30, 2022, the Company received a partial payment of $ i 200,000 from the settlement with the FTC.
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INNOVATIVE DESIGNS, INC.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Reform Act of 1995. All statements other than statements of historical fact, including statements regarding future results of operation, made in this Quarterly Report on Form 10-Q are forward-looking statements. We use words such as expects, believes, intends, and similar expressions to identify forward-looking statements. Forward looking-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, an adverse outcome in our legal matter with the Federal Trade Commission, competition in our cold weather markets, our inability to secure sufficient funding to maintain and/or expand our current level of operations and the seasonality of our cold weather product line. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The Company undertakes no obligation to publicity update or revise any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law.
Background
Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We market and sell clothing products such as outdoor apparel, and cold weather gear called “Arctic Armor” that are made from INSULTEX, a material with buoyancy, scent block and thermal resistant properties. We also market our House Wrap product line which is a building material with thermal qualities. House Wrap is also made from INSULTEX. We obtain INSULTEX through a license agreement with the owner and manufacturer of the material. Since our formation we have devoted our efforts to:
| ● | Completing the development, design and prototypes of our products, | |
| ● | Obtaining distributers, retail stores or sales agents to offer and sell our products, | |
| ● | Developing our website to sell more of our products. |
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INNOVATIVE DESIGNS, INC.
Results of Operations
Comparison of the Three Month Period Ended July 31, 2022, with the Three Month Period Ended July 31, 2021.
| Three Month Period Ended July 31, 2022 | % of Sales | Three Month Period Ended July 31, 2021 | % of Sales | Increase (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | $ | 135,048 | 100 | % | $ | 110,475 | 100 | % | $ | 24,573 | 22 | % | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 56,224 | 42 | % | 50,712 | 46 | % | 5,512 | 11 | % | |||||||||||||||
| Selling, general and administrative expenses | 115,385 | 85 | % | 58,518 | 53 | % | 56,867 | 97 | % | |||||||||||||||
| 171,609 | 127 | % | 109,230 | 99 | % | 62,379 | 57 | % | ||||||||||||||||
| (Loss) Income from operations | (36,561 | ) | -27 | % | 1,245 | 1 | % | (37,806 | ) | -3037 | % | |||||||||||||
| Other income (expense) | 260,000 | 193 | % | 33,652 | 30 | % | 226,348 | 0 | % | |||||||||||||||
| Other Expense | ||||||||||||||||||||||||
| Interest expense | (10,710 | ) | -8 | % | (13,417 | ) | -12 | % | 2,707 | -20 | % | |||||||||||||
| Depreciation expense | (372 | ) | 0 | % | (8,327 | ) | -8 | % | 7,955 | -96 | % | |||||||||||||
| Net (Loss) Income | $ | 212,357 | 157 | % | $ | 13,153 | 12 | % | $ | 199,204 | 1515 | % | ||||||||||||
Revenues for the three month period ended July 31, 2022 were $135,048 compared to revenues of $110,475 for the three month period ended July 31, 2021. The increase in revenue is attributable to more sales of our HouseWrap product line. See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment products sales. Our net loss for the three month period ended July 31, 2022 was ($213,357).
Our selling, general and administrative expenses were $115,385 for the three month period ended July 31, 2022, compared to $58,518 for the three month period ended July 31, 2021. The increase is primarily the result of an increase in payroll as we brought back two employees who had been furloughed as a result of the pandemic.
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INNOVATIVE DESIGNS, INC.
Comparison of the Nine Month Period Ended July 31, 2022, with the Nine Month Period Ended July 31, 2021.
The following table shows a comparison of the results of operations between the nine month periods ended July 31, 2022 and July 31, 2021:
| Nine Month Period Ended July 31, 2022 | % of Sales | Nine Month Period Ended July 31, 2021 | % of Sales | Increase (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | $ | 235,164 | 100 | % | $ | 176,388 | 100 | % | $ | 58,776 | 33 | % | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 109,884 | 47 | % | 78,352 | 44 | % | 31,532 | 40 | % | |||||||||||||||
| Selling, general and administrative expenses | 545,212 | 232 | % | 251,017 | 142 | % | 294,195 | 117 | % | |||||||||||||||
| 655,096 | 279 | % | 329,369 | 187 | % | 325,727 | 99 | % | ||||||||||||||||
| Loss from operations | (419,932 | ) | -179 | % | (152,981 | ) | -87 | % | (266,951 | ) | 174 | % | ||||||||||||
| Other income (expense) | 260,000 | 111 | % | 62,475 | 35 | % | 197,525 | 0 | % | |||||||||||||||
| Other Expense | ||||||||||||||||||||||||
| Interest expense | (34,450 | ) | -15 | % | (30,810 | ) | -17 | % | (3,640 | ) | 12 | % | ||||||||||||
| Depreciation expense | (1,118 | ) | 0 | % | (24,981 | ) | -14 | % | 23,863 | -96 | % | |||||||||||||
| Net Loss | $ | (195,500 | ) | -83 | % | $ | (146,297 | ) | -83 | % | $ | (49,203 | ) | 34 | % | |||||||||
Revenues for the nine month period ended July 31, 2022 were $235,164 compared to revenues of $176,388 for the nine month period ended July 31, 2021. The increase is the result of more sales of our HouseWrap product line. The apparel sales were adversely affected by warm weather. See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment product sales. During the nine month period ended July 31, 2022 House Wrap sales totaled $176,038 in comparison with $126,713 during the nine month period ended July 31, 2021. Our net loss for the nine month period ended July 31, 2022, was ($195,500).
Our selling, general and administrative expenses were $545,212 for the nine months ended July 31, 2022, compared to $251,017 for the nine month period ended July 31, 2021. The increase was a result, in part, by an increase in payroll expenses of approximately $101,000 as we brought back two employees who had been furloughed during the pandemic. we also incurred $50,000 in marketing cost through the issuance of our common stock. Directors’ fees increased by $33,000 as we issued common stock to members of the Board of Directors. Shipping costs increased by $9,000 from the prior nine month period.
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INNOVATIVE DESIGNS, INC.
Liquidity and Capital Resources
During the nine period ended July 31, 2022, we funded our operations from revenues from sales and the sale of our common stock.
Short Term: We will continue to fund our operations from sales and the sale of our securities. We continue to pay our creditors when payments are due. We will require more funds to be able to order the material for our INSULTEX products and to purchase equipment needed for the manufacture of the INSULTEX product. The Company reached an agreement with the manufacturer of the INSULTEX material to purchase a machine capable of producing the INSULTEX material. Also included in the proposed agreement will be the propriety formula that creates INSULTEX. The Company took delivery of the equipment in December 2015. The Company will have to have the machine installed and ensure that it can be operated in compliance with all environmental rules and regulations. The Company has not made an estimate of the cost required for bringing the operation of the machine into compliance with the environmental regulations, but it is considered to be a substantial amount. We are in the permitting stage relating to environmental issues necessary to begin the installation of the equipment. However, given our current limited financial resources we are not devoting the resources needed to complete the permitting process. The Company has currently made deposits of $600,000 on the equipment. The Company has incurred $17,000 of additional expenses related to shipping. The Company will produce INSULTEX under its own brand name. See Note 10 of the Notes to the Condensed Financial Statements. We also must purchase new quality control equipment for our HouseWrap product line. A deposit of $7,320 has been made however, we do not have a full cost estimate from the builder. We have estimated a cost of approximately $100,000.
Long Term: The Company will continue to fund its operations from revenues, borrowings from private parties and the possible sale of our securities. Should we not be able to rely on the private sources for borrowing and /or increased sales, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods and our efforts to produce our own INSULTEX would be delayed.
Subsequent to the period on August 29, 2022, we received approximately $200,000 as partial payment on the amount owed under the settlement agreement with the FTC. See Note 14 of the Notes to the Condensed Financial Statement appearing elsewhere in this Report.
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INNOVATIVE DESIGNS, INC.
| ITEM 1. | LEGAL PROCEEDING |
See Note 14 of the Notes to Financial Statements appearing elsewhere in this Report.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| ITEM 3. | QUANTITATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a smaller reporting company, we are not required to provide the information otherwise required by this Item.
| ITEM 4T. | CONTROLS AND PROCEDURES |
Management has developed and implemented a policy and procedures for reviewing, on a quarterly basis, our disclosure controls and procedures. During the period ended July 31, 2022, our principal executive/financial officer concluded that these controls and procedures were ineffective. At this time, we do not have the financial resources to employ a financial staff with accounting and financial expertise. Once we have the necessary financial resources, we plan to hire and designate an individual responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13(a)-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Until the Company has the financial resources to employ a financial staff with accounting and financial expertise, to be able to properly account for internal financial reporting, errors that may have a material effect on the financial statements have the potential to occur.
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INNOVATIVE DESIGNS, INC.
| ITEM 6. | EXHIBITS |
| *3.1 | Revised Certificate of Incorporation |
| **3.2 | By-Laws |
| 31.1 | Rule 13a - 14a Certification of Chief Executive Officer and Chief Financial Officer |
| 32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
| * | Incorporated by reference to the Company’s Form 10-K filed February 12, 2015 |
| ** | Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003 |
| 99*** | Incorporated by reference to the Company’s Current Report on Form 8-k, filed November 4, 2016 |
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INNOVATIVE DESIGNS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Innovative Designs, Inc. | ||
| Registrant | ||
| Date: September 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli, Chief Executive Officer and Chief Financial Officer | ||
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| Filed on: | 9/14/22 | |||
| 9/13/22 | ||||
| 8/30/22 | ||||
| 8/29/22 | ||||
| For Period end: | 7/31/22 | |||
| 6/29/22 | ||||
| 4/30/22 | 10-Q, NT 10-Q | |||
| 1/31/22 | 10-Q | |||
| 10/31/21 | 10-K, NT 10-K | |||
| 7/31/21 | 10-Q | |||
| 7/22/21 | 8-K | |||
| 4/30/21 | 10-Q | |||
| 3/24/21 | ||||
| 1/31/21 | 10-Q | |||
| 11/23/20 | 8-K | |||
| 10/31/20 | 10-K, NT 10-K | |||
| 9/24/20 | 8-K | |||
| 4/30/20 | 10-Q | |||
| 2/14/20 | ||||
| 4/30/19 | 10-Q, NT 10-Q | |||
| 7/31/18 | 10-Q, NT 10-Q | |||
| 11/4/16 | 8-K | |||
| 7/12/15 | ||||
| 2/12/15 | 10-K | |||
| 3/11/03 | SB-2 | |||
| 6/25/02 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/04/16 Innovative Designs Inc. 8-K:8 11/04/16 1:26K S2 Filings LLC/FA 2/12/15 Innovative Designs Inc. 10-K 10/31/14 58:6.2M Toppan Merrill/FA 3/11/03 Innovative Designs Inc. SB-2 10:348K Edgar Miser Inc./FA |