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A UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13l OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended July 31, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from _______ to ________.

 

Commission File Number: 000-51791

 

INNOVATIVE DESIGNS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 03-0465528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

124 Cherry Street

Pittsburgh, Pennsylvania 15223

(Address of Principal Executive Offices, Zip Code)

 

(412) 799-0350

(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.

 

  YES ☒ NO ☐

 

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 ☐
   
Non-accelerated Filer ☐ Smaller reporting company ☒

 

(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 ☐ NO ☒

 

As of September 23, 2021, there were 32,741,560 shares of the Registrant’s common stock, par value $.0001 per share, outstanding.

 

Transitional Small Business Disclosure Format: YES ☐ NO ☒

 

 
 

 

Innovative Designs, Inc.

 

Index

 

Form 10-Q for the Quarter Ended July 31, 2021

 

  Part I -- Financial Information Page No.
     
Item 1. Condensed Financial Statements (Unaudited)  
     
  Condensed Balance Sheets as of July 31, 2021 (Unaudited) And October 31, 2020 1
     
  Condensed Statements of Operations for the Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited) 3
     
  Condensed Statements of Changes in Stockholders’ Equity as of July 31, 2021 (Unaudited) and October 31, 2020 4
     
  Condensed Statements of Cash Flows for the Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited) 5
     
  Notes to the Condensed Financial Statements 6 - 11
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 - 13
     
  Part II -- Other Information  
     
Items 1, 2, 3, 4, 4T and 5. 15 - 16
     
Item 6. Exhibits 17

 

 
 

 

INNOVATIVE DESIGNS, INC.
CONDENSED BALANCE SHEETS
JULY 31, 2021 (UNAUDITED) AND OCTOBER 31, 2020

 

                 
    July 31, 2021   October 31, 2020
ASSETS
CURRENT ASSETS                
Cash   $ 326,932     $ 48,009  
Accounts receivable - net of allowance for doubtful accounts of $5,860     3,056       19,900  
Inventory - net of obsolete inventory reserve of $75,468     550,964       576,785  
Current portion of right of use asset     40,404       38,775  
Total current assets     921,356       683,469  
                 
PROPERTY AND EQUIPMENT - NET     40,206       65,187  
                 
OTHER ASSETS                
Inventory on consignment     1,625       1,625  
Deposits on inventory     57,330       57,330  
Advance to employees     8,200       8,200  
Right of use asset, net of current portion     10,452       40,962  
Deposits on equipment     600,000       600,000  
Total other assets     677,607       708,117  
                 
TOTAL ASSETS   $ 1,639,169     $ 1,456,773  

 

The accompanying notes are an integral part of these condensed financial statements.

 

- 1 -
 

 

INNOVATIVE DESIGNS, INC.
CONDENSED BALANCE SHEETS
JULY 31, 2021 (UNAUDITED) AND OCTOBER 31, 2020

 

    July 31, 2021   October 31, 2020
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES                
Accounts payable   $ 202,257     $ 270,792  
Current portion of notes payable     18,628       18,628  
Unearned revenue     2,000       —  
Current portion of lease liability     40,404       38,775  
Accrued interest expense     4,327       15,747  
Due to shareholders     352,200       102,200  
Accrued expenses     14,553       14,553  
Total current liabilities     634,369       460,695  
                 
LONG-TERM LIABILITIES                
Long-term portion of notes payable     71,722       107,193  
Lease liability, net of current portion     10,452       40,962  
Total long-term liabilities     82,174       148,155  
                 
TOTAL LIABILITIES     716,543       608,850  
                 
STOCKHOLDERS’ EQUITY                
Preferred stock, $0.0001 par value, 25,000,000 shares authorized             —  
Common stock, $0.0001 par value, 100,800,000 shares authorized, and 32,341,560 and 31,211,560 issued and outstanding     3,236       3,123  
Common stock to be issued                
Additional paid-in capital     10,795,715       10,574,828  
Accumulated deficit     (9,876,325 )     (9,730,028 )
Total stockholders’ equity     922,626       847,923  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,639,169     $ 1,456,773  

  

The accompanying notes are an integral part of these condensed financial statements.

 

- 2 -
 

 

INNOVATIVE DESIGNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JULY 31, 2021 AND 2020 (UNAUDITED)

 

                                 
    Three Months Ended July 31,   Nine Months Ended July 31,
    2021   2020   2021   2020
                 
REVENUES - NET   $ 110,475     $ 90,814     $ 176,388     $ 174,048  
                                 
OPERATING EXPENSES:                                
Cost of sales     50,712       42,965       78,352       78,664  
Selling, general and administrative expenses     66,845       99,681       275,998       271,838  
Total Operating Expenses     117,557       142,646       354,350       350,502  
                                 
LOSS FROM OPERATIONS     (7,082 )     (51,832 )     (177,962 )     (176,454 )
                                 
OTHER INCOME (EXPENSE)                                
Miscellaneous income (expense)     33,652       —       62,475       833  
Interest expense     (13,417 )     (2,173 )     (30,810 )     (9,668 )
Total other income (expense)     20,235       (2,173 )     31,665       (8,835 )
                                 
NET INCOME (LOSS)   $ 13,153     $ (54,005 )   $ (146,297 )   $ (185,289 )
                                 
PER SHARE INFORMATION-UNDILUTED                                
Net Income (Loss) Per Common Share   $ 0.000     $ (0.002 )   $ (0.005 )   $ (0.006 )
                                 
Weighted Average Number of Common Shares Outstanding     32,216,560       31,054,060       31,776,560       30,686,451  
                                 
PER SHARE INFORMATION-FULLY DILUTED                                
Net Income (Loss) Per Common Share   $ 0.000     $ (0.002 )   $ (0.005 )   $ (0.006 )
                                 
Weighted Average Number of Common Shares Outstanding     32,229,060       31,054,060       31,789,060       30,686,451  

 

The accompanying notes are an integral part of these condensed financial statements.

 

- 3 -
 

 

INNOVATIVE DESIGNS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE AND NINE MONTHS ENDED JULY 31, 2021 AND 2020 (UNAUDITED)

 

                                                 
    Common Stock   Common Stock   Additional Paid-in   Accumulated    
    Shares   Amount   To be Issued   Capital   Deficit   Total
                         
Balance at October 31, 2020     31,211,560     $ 3,123       —     $ 10,574,828     $ (9,730,028 )   $ 847,923  
                                                 
Sale of stock     100,000       10       —       24,990       —       25,000  
Net loss     —       —       —       —       (35,965 )     (35,965 )
                                                 
Balance at January 31, 2021     31,311,560       3,133       —       10,599,818       (9,765,993 )     836,958  
                                                 
Sale of stock     780,000       78               133,922               134,000  
Net loss     —       —       —       —       (123,485 )     (123,485 )
                                                 
Balance at April 30, 2021     32,091,560       3,211       —       10,733,740       (9,889,478 )     847,473  
                                                 
Sale of stock     250,000       25               61,975               62,000  
Net income     —       —       —       —       13,153       13,153  
                                                 
Balance at July 31, 2021     32,341,560     $ 3,236     $ —     $ 10,795,715     $ (9,876,325 )   $ 922,626  
                                                 
Balance at October 31, 2019     30,116,560     $ 3,013     $ —     $ 10,404,438     $ (9,568,706 )   $ 838,745  
                                                 
Sale of stock     300,000       30       —       48,970       —       49,000  
Net loss     —       —       —       —       (68,890 )     (68,890 )
                                                 
Balance at January 31, 2020     30,416,560       3,043       —       10,453,408       (9,637,596 )     818,855  
                                                 
Sale of stock     450,000       45       10,000       72,455       —       82,500  
Net loss     —       —       —       —       (62,394 )     (62,394 )
                                                 
Balance at April 30, 2020     30,866,560       3,088       10,000       10,525,863       (9,699,990 )     838,961  
                                                 
Sale of stock     250,000       25       (10,000 )     36,975       —       27,000  
Net loss     —       —       —       —       (54,005 )     (54,005 )
                                                 
Balance at July 31, 2020     31,116,560       3,113       —       10,562,838       (9,753,995 )     811,956  

 

The accompanying notes are an integral part of these condensed financial statements.

 

- 4 -
 

 

INNOVATIVE DESIGNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED JULY 31, 2021 AND 2020 (UNAUDITED)

  

                 
    Nine Months Ended July 31,
    2021   2020
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (146,297 )   $ (185,289 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Allowance for doubtful accounts     —       (4,549 )
Common stock issued for services     66,000       —  
Depreciation     24,981       24,981  
Amortization of right of use asset     28,881       26,841  
(Increase) decrease from changes in:                
Accounts receivable     16,844       5,780  
Inventory     25,821       15,493  
Increase (decrease) from changes in:                
Accounts payable     (68,534 )     (30,094 )
Unearned revenue     2,000       —  
Accrued interest expense     (11,420 )     (3,490 )
Accrued expenses     —       3,637  
Net cash used in operating activities     (61,724 )     (146,690 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Net cash used in investing activities     —       —  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from sale of stock     155,000       158,500  
Proceeds (forgivness) from loans     (33,652 )     33,652  
Proceeds from shareholder advances     250,000       57,984  
Payments on lease liability     (28,881 )     (30,843 )
Payments on notes payable     (1,820 )     (7,456 )
Net cash provided by financing activities     340,647       211,837  
                 
Net increase in cash     278,923       65,147  
                 
CASH, BEGINNING OF YEAR     48,009       34,525  
                 
CASH, END OF THE PERIOD   $ 326,932     $ 99,672  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 39,100     $ 9,668  
                 
Cash paid for taxes   $ —     $ —  

 

The accompanying notes are an integral part of these condensed financial statements.

 

- 5 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

  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, 2021, 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, 2021 and 2020.

 

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, 2020. The results of operations for the three and nine month periods ended July 31, 2021 and 2020 are not necessarily indicative of operating results for the full year.

 

  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

 

  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 ($146,297) and a negative cash flow from operations of ($61,724) for the nine month period ended July 31, 2021. In addition, the Company has an accumulated deficit of ($9,876,325). 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.

 

  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 $5,860 as of the July 31, 2021 and October 31, 2020. Management has applied an allowance on all balances in excess of 90 days.

 

- 6 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

  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 selling of its hunting and swimming line of apparel. The Company has booked a reserve against apparel inventory at July 31, 2021 and October 31, 2020 of $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.

  

  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. As described in Note 15, the Company has issued a convertible promissory note on May 6, 2021, therefore, fully diluted shares are presented in the Condensed Statements of income.

 

  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.

 

  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 $6,400 and $4,400 for the nine month periods ended July 31, 2021 and 2020, respectively.

 

- 7 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

  NOTE 9. COMMON STOCK

 

During the nine month period ended July 31, 2021, the Company issued 1,130,000 shares of common stock to investors for total proceeds of $221,000. The stock was issued between $0.12 and $0.25 per share.

 

During the nine month period ended July 31, 2020, the Company issued 1,000,000 shares of common stock to investors for total proceeds of $158,500. The stock was issued between $0.10 and $0.20 per share.

 

  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. 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 $500,000 in accordance with the agreement and made a $100,000 pre-payment as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $17,000 of additional expenses related to shipping, site improvements and installation of the equipment. Due to various environmental regulations regarding propane emitted from the machine into the air 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 $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.

 

  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 June 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 5.50% at the commencement of the office lease. Applying the commercial rate, the Company calculated the present value of $150,496 for the office lease as of April 30, 2019.

 

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INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

  NOTE 11. RIGHT OF USE ASSETS (CONTINUED)

 

As of July 31, 2021, the right of use assets associated with future operating lease is as follows:

 

       
Total present value of right of use asset under lease agreement   $ 150,496  
         
Amortization of right of use asset     (99,640 )
         
Total right of use asset as of July 31, 2021   $ 50,856  
         
Less current portion due within one year     40,404  
         
Long-term right of use asset   $ 10,452  

 

Total amortization expense related to the right of use assets under the verbal lease agreement was $28,881 and $26,841 for the nine month periods ended July 31, 2021 and 2020, respectively.

 

Future amortization of the right of use asset as of July 31, 2021 is as follows:

 

         
2021     $ 40,404  
2022       10,452  
 Right of use assets     $ 50,856  

 

 

  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, 2021 that is classified as a right of use asset and lease liability.

 

As of July 31, 2021, the lease liability associated with future payments due under the verbal lease is as follows:

  

       
Total future minimum lease payments   $ 115,500  
         
Less present value discount     64,644  
         
Total right of use lease liability as of April 30, 2021     50,856  
         
Less current portion due within one year     40,404  
         
Long-term right of use liability   $ 10,452  

 

 

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INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

Total maturities of lease liability as of July 31, 2021 are as follows:

 

                         
    Total future minimum lease payments   Present value discount   Right of use lease liability
             
2021     $ 42,000     $ 1,596     $ 40,404  
2022       10,500       48       10,452  
                           
      $ 52,500     $ 1,644     $ 50,856  

 

 

 

  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, 2021 and 2020:

 

         
    2021   2020
         
Revenues:                
Apparel   $ 49,675     $ 52,396  
House Wrap     126,713       121,652  
Total Revenues   $ 176,388     $ 174,048  
                 
Assets:                
Apparel   $ 135,542     $ 454,286  
House Wrap     1,503,627       1,110,825  
Total   $ 1,639,169     $ 1,565,111  
                 
Depreciation:                
Apparel   $ 7,116     $ 7,116  
House Wrap     17,865       17,865  
Total   $ 24,981     $ 24,981  

 

 

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INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

Three and Nine Month Periods Ended July 31, 2021 and 2020 (Unaudited)

 

  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.

 

  NOTE 15. CONVERTIBLE PROMMISORY NOTE

 

On May 6, 2021, the Company issued a convertible promissory note in the principal amount of $50,000. The term of the note is one year. The interest rate is 8% per year. The principal amount of the note and any accrued but unpaid interest may be converted at any time into shares of the Company’s Common Stock on the basis of one share of Common Stock for each $0.50 in principal amount and any accrued but unpaid interest. The note is subject to adjustment in order to prevent dilution in the event the Company should subdivide or combine its Common Stock. The Company, at its option, may prepay the note in whole or in part upon 15 days written notice.

 

  NOTE 16. SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through, which is the date financial statements were available to be issued. The Company identified the below subsequent event.

 

 

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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, 2020.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation 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, , competition in our cold weather markets, our ability to sell out HouseWrap product line, 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, 2020. 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 retail stores or sales agents to offer and sell our products,
  ● Developing our website to sell more of our products.

 

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Results of Operations

 

Comparison of the Three Month Period Ended July 31, 2021 with the Three Month Period Ended July 31, 2020.

 

The following table shows a comparison of the results of operations between the three month periods ended July 31, 2021 and July 31, 2020:

 

                Three Month Period Ended July 31, 2021         % of Sales         Three Month Period Ended July 31, 2020         % of Sales         Increase (Decrease)         % Change
                         
REVENUE - NET   $ 110,475       100 %   $ 90,814       100 %   $ 19,661       22 %
                                                 
OPERATING EXPENSES                                                
 Cost of sales     50,712       46 %     42,965       47 %     7,747       18 %
 Selling, general and  administrative expenses           58,518               53   %           91,354               101   %           (32,836   )           -36   %
      109,230       99 %     134,319       148 %     (25,089 )     -19 %
                                                 
Loss from operations     1,245       1 %     (43,505 )     -48 %     44,750       -103 %
                                                 
Other income (expense)     33,652       30 %     —       0 %     33,652       0 %
Other Expense                                                
 Interest expense     (13,417 )     -12 %     (2,173 )     -2 %     (11,244 )     517 %
 Depreciation expense     (8,327 )     -8 %     (8,327 )     -9 %     —       0 %
                                                 
Net Income   $ 13,153       12 %   $ (54,005 )     -59 %   $ 67,158       -124 %

 

Revenues for the three month period ended July 31, 2021 were $110,475 compared to revenues of $90,814 for the three month period ended April 30, 2020. The increase in revenue is attributable to an increase in our HouseWrap product sale. Substantially all of our revenue for the period was HouseWrap sale. In warmer months we sell less of our clod weather apparel products. See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment product sales. .

 

Our selling, general and administrative expenses were $58,519 for the three months ended July 31, 2021 compared to $91,354 for the three month period ended July 31, 2020. Professional fees for the period ended July 31, 2021, were $12,930 compared to $14,390 for the three month period ended July 31, 2020. The majority of our professional fees related to the legal fees incurred in connection to the FTC matter. We expect our professional fees to decrease going forward.

 

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INNOVATIVE DESIGNS, INC.

 

Results of Operations

 

Comparison of the Nine Month Period Ended July 31, 2021 with the Nine Month Period Ended July 31, 2020.

 

                Nine Month Period Ended July 31, 2021         % of Sales         Nine Month Period Ended July 31, 2020         % of Sales             Increase (Decrease)         % Change
                         
REVENUE - NET   $ 176,388       100 %   $ 174,048       100 %   $ 2,340       1 %
                                                 
OPERATING EXPENSES                                                
 Cost of sales     78,352       44 %     78,664       45 %     (312 )     0 %
 Selling, general and  administrative expenses           251,017               142   %           246,857               142   %           4,160               2   %
      329,369       187 %     325,521       187 %     3,848       1 %
                                                 
Loss from operations     (152,981 )     -87 %     (151,473 )     -87 %     (1,508 )     1 %
                                                 
Other income (expense)     62,475       35 %     833       0 %     61,642       7400 %
Other Expense                                                
 Interest expense     (30,810 )     -17 %     (9,668 )     -6 %     (21,142 )     219 %
 Depreciation expense     (24,981 )     -14 %     (24,981 )     -14 %     —       0 %
                                                 
Net Loss   $ (146,297 )     -83 %   $ (185,289 )     -106 %   $ 38,992       -21 %

 

Revenues for the nine month period ended July 31, 2021 were $176,388 compared to revenues of $174,048 for the nine month period ended July 31, 2020. The increase in revenue is attributable to HouseWrap sales. HousWrap sales for the nine month period ended July 31, 2021 was $126,713. Compared to sales of $121,652 for the comparable period ended July 31, 2020. We believe our HouseWrap sales continue to be adversely affected by the COVID pandemic as many contractors could not access other building materials on account of supply chain bottlenecks. 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 selling, general and administrative expenses were $251,017 for the nine month period ended July 31, 2021 compared to $246,857 7for the nine month period ended July 31, 2020. Professional fees for the nine month period ended July 31, 2021 were $37,485 compared to $21,050 for the nine month period ended July 31, 2020. The majority of our professional fees relate to the legal fees incurred in connection to the FTC matter. We expect our professional fees to decrease going forward.

 

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INNOVATIVE DESIGNS, INC.

 

Liquidity and Capital Resources

 

During the three month period ended July 31, 2021, we funded our operations from revenues from sales, and the sale of our common stock totaling $60,000.

 

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. It is the Company intentions to have the equipment operational but cannot currently provide a time estimate. Among the factors affecting the time estimate are financial resources available to the Company, finding a suitable facility and bringing technical personal from abroad to install the equipment. 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.

 

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.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDING

 

See Legal Proceedings set forth in Part I Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

 

ITEM 1A Risk Factors

 

See Risk factors set forth in in Part I Item 1A of the Company’s Annual report on Form 10-K for the fiscal year ended October 31, 2020.

 

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INNOVATIVE DESIGNS, INC.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

See Part II Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

 

ITEM 3. Defaults upon Senior Securities

 

None

 

Item 4 Mine Safety Disclosures

 

Not applicable

 

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 three month period ended July 31, 2021, our principle 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.

 

ITEM 5. Other Information

 

None

 

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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
   
31.2 Rule 13a-14a Certification of Chief Financial Officer and Principal Accounting Officer
   
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
   
31.2 Section 1350 Certification of Chief Financial Officer and Chief Accounting 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

 

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 24, 2021 by: /s/ Joseph Riccelli
    Joseph Riccelli, Chief Executive Officer
      and Chief Financial Officer

 

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