UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period endedJanuaryJuly 31, 2020

 

☐ 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
incorporation or organization)		 (I.R.S. Employer
Identification No.)

 

124 Cherry Street, Pittsburgh, Pennsylvania 15223
(Address of principal executive offices) (Zip Code)

 

(412) 799-0350

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has fled all reports required to be filed by Section 13 or 15(d) of the Securities 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 fling requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐Accelerated filer  ☐
Non-accelerated filer  ☐Smaller reporting company  ☒
 Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of April 30,September 16, 2020 there were 30,716,56031,116,560 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 JanuaryJuly 31, 2020

 

  Page No.
Part I -- Financial Information 
   
Item 1.Condensed Financial Statements (Unaudited)
   
 Condensed Balance Sheets as of JanuaryJuly 31, 2020 (Unaudited) and October 31, 20191 - 2
   
 Condensed Statements of Operations for the Three and Nine Month Periods Ended JanuaryJuly 31, 2020 and 2019 (Unaudited)3
   
 Condensed Statements of Changes in Stockholders’ Equity as of JanuaryJuly 31, 2020 (Unaudited) and October 31, 20194
   
 Condensed Statements of Cash Flows for the ThreeNine Month Periods Ended JanuaryJuly 31, 2020 and 2019 (Unaudited)5
   
 Notes to the Condensed Financial Statements6 – 11
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations12 – 1415
   
Part II -- Other Information 
   
Items 1, 2, 3, and 4T.15 – 16
   
Item 6.Exhibits17 – 18

 

i

 

 

ITEM 1.CONDENSED FINANCIAL STATEMENTS

INNOVATIVE DESIGNS, INC.

CONDENSED BALANCE SHEETS

JanuaryJULY 31, 2020 (Unaudited) and OctoberAND OCTOBER 31, 2019 (UNAUDITED)

 

ASSETS

 2020 2019  July 31,
2020		 October 31,
2019		 
     
ASSETS
CURRENT ASSETS             
Cash $71,824  $34,525  $99,672  $34,525 
Accounts receivable - net of allowance for doubtful accounts of $6,407 and $10,409 as of January 31, 2020 and October 31, 2019, respectively  815   5,948 
Inventory - net of obsolete inventory reserve of $75,468 as of July 31, 2019 and October 31, 2018, respectively  616,330   636,459 
Accounts receivable - net of allowance for doubtful accounts of $5,860 and $10,409  4,717   5,948 
Inventory - net of obsolete inventory reserve of $75,468  620,966   636,459 
Inventory on consignment  1,625   1,625   1,625   1,625 
Deposits on inventory  57,330   57,330   57,330   57,330 
Current portion of right of use asset  37,042   36,537   38,052   36,537 
Prepaid expenses  10,018   10,018   10,018   10,018 
Total current assets  794,984   782,442   832,380   782,442 
                
PROPERTY AND EQUIPMENT - NET  90,168   98,495   73,514   98,495 
                
OTHER ASSETS                
Advance to employees  8,200   8,200   8,200   8,200 
Right of use asset, net of current portion  69,921   79,373   51,017   79,373 
Assets held for sale  600,000   600,000   600,000   600,000 
        
Total other assets  678,121   687,573   659,217   687,573 
                
TOTAL ASSETS $1,563,273  $1,568,510  $1,565,111  $1,568,510 

 

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

 

- 1 -

 

 

INNOVATIVE DESIGNS, INC.

CONDENSED BALANCE SHEETS (CONTINUED)

JanuaryJULY 31, 2020 (Unaudited) and OctoberAND OCTOBER 31, 2019 (UNAUDITED)

 

  July 31,
2020		  October 31,
2019		 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES        
Accounts payable $357,444  $387,538 
Current portion of notes payable  52,280   19,168 
Accrued interest expense  15,747   19,237 
Due to shareholders  154,084   96,100 
Current portion of lease liability  38,052   36,537 
Accrued expenses  14,553   10,916 
Total current liabilities  632,160   569,496 
         
LONG-TERM LIABILITIES        
Long-term portion of notes payable  73,980   80,896 
Lease liability, net of current portion  47,015   79,373 
Total long-term liabilities  120,995   160,269 
         
TOTAL LIABILITIES  753,155   729,765 
         
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 31,116,560 and 30,116,560 issued and outstanding  3,113   3,013 
Common stock to be issued  -   - 
Additional paid-in capital  10,562,838   10,404,438 
Accumulated deficit  (9,753,995)  (9,568,706)
Total stockholders' equity  811,956   838,745 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,565,111  $1,568,510 

LIABILITIES AND STOCKHOLDERS' EQUITY

  2020  2019 
       
CURRENT LIABILITIES      
Accounts payable $389,998  $387,538 
Current portion of notes payable  18,628   19,168 
Accrued interest expense  15,747   19,237 
Due to shareholders  125,200   96,100 
Current portion of right of use lease liability  37,042   36,537 
Accrued expenses  10,916   10,916 
Total current liabilities  597,531   569,496 
         
LONG-TERM LIABILITIES        
Long-term portion of notes payable  76,966   80,896 
Right of use lease liability, net of current portion  69,921   79,373 
Total long-term liabilities  146,887   160,269 
         
TOTAL LIABILITIES  744,418   729,765 
         
STOCKHOLDERS' EQUITY        
Common stock, $0.0001 par value, 100,800,000 shares authorized, and 30,416,560 and 30,116,560 issued and outstanding as of January 31, 2020 and October 31, 2019  3,043   3,013 
Additional paid-in capital  10,453,408   10,404,438 
Accumulated deficit  (9,637,596)  (9,568,706)
Total stockholders' equity  818,855   838,745 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,563,273  $1,568,510 

 

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

 

- 2 -

 

 

INNOVATIVE DESIGNS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three Month Periods Ended JanuaryTHREE AND NINE MONTHS ENDED JULY 31, 2020 andAND 2019 (Unaudited)(UNAUDITED)

 

 Three Month Periods Ended January 31,  Three Months Ended July 31, Nine Months Ended July 31, 
 2020 2019  2020 2019 2020 2019 
              
REVENUES - NET $47,426 $109,344  $90,814  $34,149  $174,048  $188,736 
                     
OPERATING EXPENSES:                     
Cost of sales 20,388 66,204   42,965   52,415   78,664   109,969 
Selling, general and administrative expenses  91,545  270,904   99,681   127,604   271,838   567,709 
  111,933  337,108 
Total Operating Expenses  142,646   180,019   350,502   677,678 
                     
LOSS FROM OPERATIONS  (64,507)  (227,764)  (51,832)  (145,870)  (176,454)  (488,942)
                     
OTHER INCOME (EXPENSE)                     
Miscellaneous income (expense) 833 (686)  -   -   833   2,399 
Impairment loss on assets held for sale - (17,000)  -   -   -   (17,000)
Interest expense  (5,216)  (4,918)  (2,173)  (8,351)  (9,668)  (10,628)
Total other income (expense)  (4,383)  (22,604)  (2,173)  (8,351)  (8,835)  (25,229)
                     
NET LOSS $(68,890) $(250,368) $(54,005) $(154,221) $(185,289) $(514,171)
                     
PER SHARE INFORMATION                     
Net Loss Per Common Share $(0.002) $(0.009) $(0.002) $(0.006) $(0.006) $(0.019)
                     
Weighted Average Number of Common Shares Outstanding  30,260,473  27,228,038   31,054,060   27,228,038   30,686,451   26,997,658 

 

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

 

- 3 -

 

 

INNOVATIVE DESIGNS, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

JanuaryNINE MONTHS ENDED JULY 31, 2020 (Unaudited) and October 31,AND 2019 (UNAUDITED)

 

 Common Stock Common Stock To be Additional Paid-in Accumulated   
 Common Stock Number of Shares Common Stock Amount Additional Paid-in Capital Accumulated Deficit Total  Shares Amount Issued Capital Deficit Total 
                        
Balance at October 31, 2019  30,116,560  $3,013  $10,404,438  $(9,568,706) $838,745   30,116,560  $3,013  $-  $10,404,438  $(9,568,706) $838,745 
                                            
Sale of stock  300,000   30   48,970   -   49,000   300,000   30   -   48,970   -   49,000 
                    
Net loss  -   -   -   (68,890)  (68,890)  -   -   -   -   (68,890)  (68,890)
                                            
Balance at January 31, 2020  30,416,560  $3,043  $10,453,408  $(9,637,596) $818,855   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 
                        
                      131,500 
Balance at October 31, 2018  27,789,560  $2,780  $-  $10,106,731  $(8,928,694) $1,180,817 
                        
Sale of stock  360,000   36   -   61,164   -   61,200 
Net loss  -   -   -   -   (250,368)  (250,368)
                        
Balance at January 31, 2019  28,149,560   2,816   -   10,167,895   (9,179,062)  991,649 
                        
Sale of stock  185,000   19   -   20,181   -   20,200 
Net loss  -   -   -   -   (109,582)  (109,582)
                        
Balance at April 30, 2019  28,334,560   2,835   -   10,188,076   (9,288,644)  902,267 
                        
Shares issued for extinquishment of debt  550,000   55   -   54,945   -   55,000 
Sale of stock  417,000   42   -   39,998   -   40,040 
Net loss  -   -   -   -   (154,221)  (154,221)
                        
Balance at July 31, 2019  29,301,560   2,932  $-  $10,283,019  $(9,442,865) $843,086 

 

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

 

- 4 -

 

 

INNOVATIVE DESIGNS, INC.

CONDESNSEDCONDENSED STATEMENTS OF CASH FLOWS

For the Three Month Period Ended JanuaryNINE MONTHS ENDED JULY 31, 2020 andAND 2019 (Unaudited)(UNAUDITED)

  

 For the Three Month Periods Ended 
 January 31,
2020		 January 31,
2019		  Nine Months Ended July 31, 
      2020 2019 
CASH FLOWS FROM OPERATING ACTIVITIES:             
Net loss $(68,890) $(250,368) $(185,289) $(514,171)
Adjustments to reconcile net loss to net cash used in operating activities:                
Allowance for doubtful accounts  (4,163)  1,034   (4,549)  1,089 
Allowance for obsolete inventory      - 
Common stock issued for services      - 
Impairment loss on assets held for sale  -   17,000   -   17,000 
Depreciation  8,327   8,327   24,981   24,710 
Amortization of right of use asset  8,947   -   26,841   22,217 
(Increase) decrease from changes in:                
Accounts receivable  9,296   (33,238)  5,780   12,102 
Other receivable      - 
Inventory  20,129   47,118   15,493   68,127 
Inventory on consignment      - 
Deposits on inventory      - 
Prepaid expenses  -   1,651   -   1,651 
Advance to employees      - 
Increase (decrease) from changes in:                
Accounts payable  2,460   128,440   (30,094)  219,051 
Right of use lease liability  (8,947)  - 
Lease liability      - 
Accrued interest expense  (3,490)  363   (3,490)  (3,387)
Accrued expenses  -   141   3,637   141 
Net cash used in operating activities  (36,331)  (79,532)  (146,690)  (151,470)
                
CASH FLOWS FROM INVESTING ACTIVITIES        
Deposits on equipment      - 
Capital expenditures      - 
Net cash used in investing activities  -   - 
        
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from sale of stock  49,000   61,200   158,500   121,440 
Proceeds from loan  33,652   - 
Proceeds from shareholder advances  39,500   -   57,984   - 
Payments on shareholder advances  (10,400)  (11,000)  -   (9,000)
Payments on lease liability  (30,843)  (22,217)
Payments on notes payable  (4,470)  (5,090)  (7,456)  (14,791)
Net cash provided by financing activities  73,630   45,110   211,837   75,432 
                
Net decrease in cash  37,299   (34,422)
Net increase (decrease) in cash  65,147   (76,038)
                
CASH, BEGINNING OF YEAR  34,525   112,203   34,525   112,203 
                
CASH, END OF THE PERIOD $71,824  $77,781  $99,672  $36,165 
                
Supplemental disclosure of cash flow information:                
Cash paid for interest $8,706  $4,555  $9,668  $6,719 
        
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 JanuaryJuly 31, 2020 and 2019 (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 JanuaryJuly 31, 2020, 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 JanuaryJuly 31, 2020 and 2019.

 

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, 2019. The results of operations for the three and nine month periods ended JanuaryJuly 31, 2020 and 2019 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 $68,890$185,289 and a negative cash flow from operations of $36,331$146,690 for the threenine month period ended JanuaryJuly 31, 2020. In addition, the Company has an accumulated deficit of $9,637,596. Management of the Company has represented that they will be able to continue to support the Company’s$9,753,995. Management’s plans include cash needsreceipts 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 $6,407$5,860 and $10,409 as of the quarter ended JanuaryJuly 31, 2020 and as of the fiscal year ended October 31, 2019, respectively. 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 JanuaryJuly 31, 2020 and 2019 (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. Innovative Designs, Inc. (the “Company”)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 JanuaryJuly 31, 2020 and October 31, 2019 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. During the periods presented, the Company only has common stock outstanding. As a result, diluted earnings per share was not calculated.

 

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 $2,800 and $4,400 for both the threenine month periods ended JanuaryJuly 31, 2020 and 2019, respectively.2019.

 

- 7 -

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three and Nine Month Periods Ended JanuaryJuly 31, 2020 and 2019 (Unaudited)

 

NOTE 9.COMMON STOCK

 

During the threenine month period ended JanuaryJuly 31, 2020, the Company sold 300,0001,000,000 shares of common stock to nine investors for total proceeds of $49,000.$158,500. The stock was issued between $0.15$0.10 and $0.17$0.20 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

 

During the threenine month period ended JanuaryJuly 31, 2019, the Company sold 360,000962,000 shares of common stock to seven investors for total proceeds of $61,200.$121,440. The stock was issued forbetween $0.08 and $0.17 per share. We believe that Section 4(2)Additionally, during the nine month period ended July 31, 2019, 550,000 shares of common stock were issued to one note holder for the Securities Actextinguishment of 1933, as amended,a $50,000 note payable and $5,000 of accrued interest. This stock was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.issued at $0.10 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 JanuaryJuly 31, 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 threesix month period ended January 31,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 threesix month period ended January 31,April 30, 2019 was $17,000.

- 8 -

INNOVATIVE DESIGNS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three Month Periods Ended January 31, 2020 and 2019 (Unaudited)

 

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 JanuaryJuly 31, 2020.

 

- 8 -

INNOVATIVE DESIGNS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three and Nine Month Periods Ended July 31, 2020 and 2019 (Unaudited)

NOTE 11.RIGHT OF USE ASSETS (CONTINUED)

As of JanuaryJuly 31, 2020, 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  $150,496 
        
Amortization of right of use asset  (43,533)  (61,427)
        
Total right of use asset as of January 31, 2020 $106,963 
Total right of use asset as of July 31, 2020 $89,069 
        
Less current portion due within one year  37,042   37,547 
        
Long-term right of use asset $69,921  $51,522 

 

Total amortization expense related to the right of use assets under the verbal lease agreement was $8,825$26,841 and $0 for the threenine month periods ended JanuaryJuly 31, 2020 and 2019, respectively.

 

Future amortization of the right of use asset as of JanuaryJuly 31, 2020 is as follows:

 

2021 $37,042  $38,052 
2022  39,131   49,197 
2023  30,790   10,820 
 $106,963  $89,069 

 

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 JanuaryJuly 31, 2020 that is classified as a right of use asset and lease liability.

 

As of JanuaryJuly 31, 2020, the lease liability associated with future payments due under the verbal lease is as follows:

 

Total future minimum lease payments $115,500  $150,496 
        
Less present value discount  8,537   (61,427)
        
Total right of use lease liability as of January 31, 2020  106,963 
Total right of use lease liability as of April 30, 2020  89,069 
        
Less current portion due within one year  37,042   38,052 
        
Long-term right of use liability $69,921  $51,017 

 

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INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three and Nine Month Periods Ended JanuaryJuly 31, 2020 and 2019 (Unaudited)

 

Total maturities of lease liability as of JanuaryJuly 31, 2020 are as follows:

 

 Total future minimum lease payments Present value discount Right of use lease liability  Total future minimum lease payments Present value discount Lease liability 
              
2021 $42,000  $4,958  $37,042  $42,000  $3,948  $38,052 
2022  42,000   2,869   39,131   42,000   1,803   40,197 
2023  31,500   710   30,790   14,000   3,180   10,820 
                        
 $115,500  $8,537  $106,963  $105,000  $8,931  $89,069 

 

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 threenine month periods ended January 31,July, 2020 and 2019:

 

 2020 2019  2020 2019 
          
Revenues:             
Apparel $43,661 $94,219  $52,396  $111,275 
House Wrap  3,765  15,125   121,652   77,461 
Total Revenues $47,426 $109,344  $174,048  $188,736 
             
Assets:             
Apparel $459,131 $434,289  $454,286  $478,365 
House Wrap  1,104,142  1,163,673   1,110,825   1,119,929 
Total $1,563,273 $1,597,962  $1,565,111  $1,598,294 
             
Depreciation:             
Apparel $2,372 $2,372  $7,116  $7,038 
House Wrap  5,955  5,955   17,865   17,672 
Total $8,327 $8,327  $24,981  $24,710 

 

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INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three and Nine Month Periods Ended JanuaryJuly 31, 2020 and 2019 (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, number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company does 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 February 24, 2020, the District Court released an opinion granting the Company’s motion to have the expert testimony of the FTC’s expert witness struck. The Company has filed a Rule 529 (c) motion.

 

The Company continues to strongly denies the allegation and intends to vigorously defend itself. It is the Company’s belief that the complaint is based on improper testing of the INSULTEX products using the wrong type of testing equipment.

 

NOTE 15.SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through, October 22, 2019, which is the date financial statements were available to be issued. The Company identified the below subsequent event.

 

Subsequent to January 31, 2020, the Company sold 450,000 shares of common stock for a total proceed of $72,500. The common stock was issued for between $0.12 and $0.20 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

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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, 2019.

 

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, 2019. 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.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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INNOVATIVE DESIGNS, INC.

 

Results of Operations

 

Comparison of the Three Month Period Ended JanuaryJuly 31, 2020 with the Three Month Period Ended January 31,July, 2019.

 

The following table shows a comparison of the results of operations between the three month periods ended JanuaryJuly 31, 2020 and JanuaryJuly 31, 2019:

  Three Month     Three Month          
  Period Ended     Period Ended          
  January 31,  % of  January 31,  % of  Increase    
  2020  Sales  2019  Sales  (Decrease)  % Change 
                   
REVENUE - NET $47,426   100.00% $109,344   100.00% $(69,024)  -56.63%
                         
OPERATING EXPENSES                        
Cost of sales  20,388   42.99%  66,204   60.55%  (56,636)  -69.20%
Selling, general and administrative expenses  91,545   193.03%  270,904   247.75%  (169,388)  -66.21%
                         
Loss from operations  (64,507)  -136.02%  (227,764)  -208.30%  157,000   -71.68%
                         
OTHER INCOME (EXPENSE)                        
Miscellaneous income (expense)  833   1.76%  (686)  -0.63%  7,776   -221.43%
Impairment loss on  assets held for sale  -   0.00%  (17,000)  -15.55%  17,000   100.00%
Interest expense  (5,216)  -11.00%  (4,918)  -4.50%  (298)  6.06%
                         
Net loss $(68,890)  -170.86% $(250,368)  -228.97% $181,478   -72.48%
  Three Months Ended July 31,
2020		  % of Sales  Three Months Ended July 31,
2019		  % of Sales  Increase (Decrease)  % Change 
                   
REVENUES – NET $90,814   100.00% $34,149   100.00% $56,665   165.93%
                         
OPERATING EXPENSES:                        
Cost of sales  42,965   47.31%  52,415   153.49%  (9,450)  -18.03%
Selling, general and administrative expenses  99,681   109.76%  127,604   373.67%  (27,923)  -21.88%
                         
LOSS FROM OPERATIONS  (51,832)  -57.07%  (145,870)  -427.16%  94,038   -64.47%
                         
OTHER INCOME (EXPENSE)                        
Interest expense  (2,173)  -2.39%  (8,351)  -24.45%  6,178   -73.98%
                         
NET LOSS $(54,005)  -59.47% $(154,221)  -451.61% $100,216   -64.98%

 

Revenues for the three month period ended JanuaryJuly 31, 2020 were $47,426$90,814 compared to revenues of $109,344$34,149 for the three month period ended JanuaryJuly 31, 2019. The increase in was a result of more sales of our House Wrap product. we voluntarily ceased advertising our House Wrap products as a result of the legal action brought by the Federal Trade Commission (“FTC”). 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 $99,681 for the three months ended July 31, 2020 compared to $ 127,604 for the three month period ended July 31, 2019. The decrease iswas a result , in part, to the fact that we furlough two employees. As a result of having to shut down our operations because of the coronovirus pandemic. 

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INNOVATIVE DESIGNS, INC.

Comparison of the Nine Month Period Ended July 31, 2020 with the Nine Month Period Ended July 31, 2019.

The following table shows a comparison of the results of operations between the six month periods ended July 31, 2020 and July 31, 2019:

  Nine Months Ended July 31, 2020  % of Sales  Nine Months Ended July 31, 2019  % of Sales  Increase (Decrease)  % Change 
                   
REVENUES - NET $174,048   100.00% $188,736   100.00% $(14,688)  -7.78%
                         
OPERATING EXPENSES:                        
Cost of sales  78,664   45.20%  109,969   58.27%  (31,305)  -28.47%
Selling, general and administrative expenses  271,838   156.19%  567,709   300.80%  (295,871)  -52.12%
                         
LOSS FROM OPERATIONS  (176,454)  -101.38%  (488,942)  -259.06%  312,488   -63.91%
                         
OTHER INCOME (EXPENSE)                        
Miscellaneous income (expense)  833   0.48%  2,399   1.27%  (1,566)  -65.28%
Impairment loss on assets held for sale  -   0.00%  (17,000)  -9.01%  17,000   -100.00%
Interest expense  (9,668)  -5.55%  (10,628)  -5.63%  960   -9.03%
                         
NET LOSS $(185,289)  -106.46% $(514,171)  -272.43%  328,882   -63.96%

Revenues for the nine month period ended July 31, 2020 were $174,048 compared to revenues of $188,736 for the nine month period ended July 31, 2019. The decrease was caused, in part, by a decrease in HouseWrap sales by approximately $12,000 and apparelthe mandatory order to close our business on account of approximately $58,000.the coronovirus pandemic.. In December 2016, we voluntarily ceased advertising our House Wrap products as a result of the legal action brought by the Federal Trade Commission (“FTC”). 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 JanuaryJuly 31, 2020 House Wrapour apparel sales totaled $3,765were $52,396 in comparison with $15,125$111,275 during the threenine month period ended JanuaryJuly 31, 2019. Our net loss for the three month period ended January 31, 2020 was ($68,890).

 

Our selling, general and administrative expenses were $91,545$271,838 for the threenine months ended JanuaryJuly 31, 2020 compared to $270,904$567,709 for the threenine month period ended JanuaryJuly 31, 2019. The increase was a result of our third party warehouse for inventory charging us $104,000 in relation to storage of inventory. We do not expect our seasonal help expense or advertising and promotional expenses to increase in the current fiscal year ending October 31, 2020. Subsequent toDuring the period we furloughed two of our employees.

 

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INNOVATIVE DESIGNS, INC.

 

Liquidity and Capital Resources

 

During the period ended JanuaryJuly 31, 2020, we funded our operations from revenues from sales and sale of our common stock. During the three month period ended JanuaryJuly 31, 2020, we sold our common stock in private transactions and raised $49,000$37,000 from the sales. If we are not able to either increase our sales revenue or sell more of our common stock during the current quarter, we may not able to support our current cost structure.

 

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. 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 It is the Company’s current plan to sell 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 and other purchase cost which was written off during 2019. 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.

 

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INNOVATIVE DESIGNS, INC.

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDING

On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company does 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 February 24, 2020, the District Court released an opinion granting the Company’s motion to have the expert testimony of the FTC’s expert witness struck. The Company has filed a Rule 529 (c) motion.

The Company continues to strongly denies the allegation and intends to vigorously defend itself. It is the Company’s belief that the complaint is based on improper testing of the INSULTEX products using the wrong type of testing equipment.

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

During the three month period ended January 31, 2020, the Company sold 300,000 shares of common stock to nine investors for total proceeds of $49,000. The stock was issued between $0.15 and $0.17 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

Subsequent to January 31, 2020, the Company sold 450,000 shares of common stock for a total proceed of $72,500. The common stock was issued for between $0.12 and $0.20 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

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.

 

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INNOVATIVE DESIGNS, INC.

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 JanuaryJuly 31, 2020, 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. During the first, second, third and fourth quarter of 2019, the Company was not able to close the books and records in a timely fashion. Consequently, the Company was unable to file its Form 10-Q for the period ended JanuaryJuly 31, 2020 within the timeline established by the SEC and was required to seek an extension for filing the form.

 

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.

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDING

On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company does 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 February 24, 2020, the District Court released an opinion granting the Company’s motion to have the expert testimony of the FTC’s expert witness struck. The Company has filed a Rule 529 (c) motion.

The Company continues to strongly denies the allegation and intends to vigorously defend itself. It is the Company’s belief that the complaint is based on improper testing of the INSULTEX products using the wrong type of testing equipment.

ITEM 1A.RISK FACTORS

In addition to the risk factors included in our Annual report on Form 10-K for the fiscal year ended October 31, 2019, we include the following:

Effect of the Coronavirus Pandemic

The coronavirus pandemic is adversely affecting and is expected to continue to adversely affect our business, financial condition and results of operations. We are unable to predict the extent or nature these effect will have on our business at this time.

 

ITEM 6.2.EXHIBITSUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three month period ended January 31, 2020, the Company sold 300,000 shares of common stock to nine investors for total proceeds of $49,000. The stock was issued between $0.15 and $0.17 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

During the three month period ended April 30, 2020, the Company sold 450,000 shares of common stock for a total proceed of $72,500. The common stock was issued for between $0.12 and $0.20 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

During the three month period ended July 31, 2020, the Company sold 250,000 shares of common stock for a total proceed of $37,000. The common stock was issued for between $0.10 and $0.18 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulagated therunder was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions and the investors were”accredited investors” as that trem is defined under Regulation D. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

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INNOVATIVE DESIGNS, INC.

ITEM 6.EXHIBITS
*3.1Revised Certificate of Incorporation
  
**3.2By-Laws
  
31.1Rule 13a - 14a Certification of Chief Executive Officer and Chief Financial Officer
  
32.1Section 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: April 30,September 21, 2020by:/s/ Joseph Riccelli
 Joseph Riccelli,
 Chief Executive Officer and Chief Financial Officer

 

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