INNOVATIVE DESIGNS, INC.
A UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORMFORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13l OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended JulyJanuary 31, 20212022
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)
InIndicatedicate 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 ☐
1
INNOVATIVE DESIGNS, INC.
Indicate by check mark whetherwhether 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,March 7, 2022, there were shares of the Registrant’s common stock, par value $.0001 per share, outstanding.
Transitional Small Business Disclosure Format: YES ☐ NO ☒
2
INNOVATIVE DESIGNS, INC.
Innovative Designs, Inc.
Index
Form 10-Q for the Quarter Ended JulyJanuary 31, 20212022
3
| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| July 31, 2021 | October 31, 2020 | January 31, 2022 | October 31, 2021 | ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash | $ | 326,932 | $ | 48,009 | $ | 289,925 | $ | 480,451 | ||||||||
| Accounts receivable - net of allowance for doubtful accounts of $5,860 | 3,056 | 19,900 | 9,483 | 1,201 | ||||||||||||
| Inventory - net of obsolete inventory reserve of $75,468 | 550,964 | 576,785 | 548,274 | 542,588 | ||||||||||||
| Current portion of right of use asset | 40,404 | 38,775 | ||||||||||||||
| Right of use asset - operating lease | 30,931 | 40,962 | ||||||||||||||
| Total current assets | 921,356 | 683,469 | 878,613 | 1,065,202 | ||||||||||||
| PROPERTY AND EQUIPMENT - NET | 40,206 | 65,187 | 7,077 | 7,450 | ||||||||||||
| OTHER ASSETS | ||||||||||||||||
| Inventory on consignment | 1,625 | 1,625 | 1,625 | 1,625 | ||||||||||||
| Deposits on inventory | 57,330 | 57,330 | 30,000 | — | ||||||||||||
| Advance to employees | 8,200 | 8,200 | 8,200 | 8,200 | ||||||||||||
| Right of use asset, net of current portion | 10,452 | 40,962 | ||||||||||||||
| Deposits on equipment | 600,000 | 600,000 | 600,000 | 600,000 | ||||||||||||
| Total other assets | 677,607 | 708,117 | 639,825 | 609,825 | ||||||||||||
| TOTAL ASSETS | $ | 1,639,169 | $ | 1,456,773 | $ | 1,525,515 | $ | 1,682,477 | ||||||||
The accompanying notes are an integral part of these condensed financial statements
4
| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| 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, $ par value, shares authorized | — | |||||||
| Common stock, $ par value, shares authorized, and and 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 | ||||
| January 31, 2022 | October 31, 2021 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 238,339 | $ | 228,667 | ||||
| Current portion of notes payable | 18,628 | 18,628 | ||||||
| Accrued interest expense | 39,747 | 43,136 | ||||||
| Due to stockholders | 178,631 | 188,632 | ||||||
| Operating lease liability | 30,931 | 40,962 | ||||||
| Accrued expenses | 9,529 | 25,037 | ||||||
| Total current liabilities | 515,805 | 545,062 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term portion of due to stockholders | 66,667 | 133,332 | ||||||
| Long-term portion of notes payable | 71,722 | 71,722 | ||||||
| Total long-term liabilities | 138,389 | 205,054 | ||||||
| TOTAL LIABILITIES | 654,194 | 750,116 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized | 0 | 0 | ||||||
| Common stock, $ par value, shares authorized, and and issued and outstanding | 3,372 | 3,333 | ||||||
| Additional paid-in capital | 11,110,079 | 11,039,118 | ||||||
| Accumulated deficit | -10,242,130 | -10,110,090 | ||||||
| Total stockholders' equity | 871,321 | 932,361 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,525,515 | $ | 1,682,477 | ||||
The accompanying notes are an integral part of these condensed financial statements
5
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF OPERATIONS |
| THREE MONTHS PERIODS ENDED JANURARY 31, 2022 AND |
| Three Months Ended July 31, | Nine Months Ended July 31, | Three Months Ended January 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
| REVENUES - NET | $ | 110,475 | $ | 90,814 | $ | 176,388 | $ | 174,048 | $ | 62,400 | $ | 40,017 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||
| Cost of sales | 50,712 | 42,965 | 78,352 | 78,664 | 32,346 | 18,635 | ||||||||||||||||||
| Selling, general and administrative expenses | 66,845 | 99,681 | 275,998 | 271,838 | 150,618 | 81,210 | ||||||||||||||||||
| Total Operating Expenses | 117,557 | 142,646 | 354,350 | 350,502 | 182,964 | 99,845 | ||||||||||||||||||
| LOSS FROM OPERATIONS | (7,082 | ) | (51,832 | ) | (177,962 | ) | (176,454 | ) | (120,564 | ) | (59,828 | ) | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||
| Miscellaneous income (expense) | 33,652 | — | 62,475 | 833 | 0 | 28,823 | ||||||||||||||||||
| Interest expense | (13,417 | ) | (2,173 | ) | (30,810 | ) | (9,668 | ) | (11,476 | ) | (4,960 | ) | ||||||||||||
| Total other income (expense) | 20,235 | (2,173 | ) | 31,665 | (8,835 | ) | (11,476 | ) | 23,863 | |||||||||||||||
| NET INCOME (LOSS) | $ | 13,153 | $ | (54,005 | ) | $ | (146,297 | ) | $ | (185,289 | ) | |||||||||||||
| NET LOSS | $ | (132,040 | ) | $ | (35,965 | ) | ||||||||||||||||||
| PER SHARE INFORMATION-UNDILUTED | ||||||||||||||||||||||||
| Net Income (Loss) Per Common Share | $ | 0.000 | $ | (0.002 | ) | $ | (0.005 | ) | $ | (0.006 | ) | |||||||||||||
| PER SHARE INFORMATION - BASIC | ||||||||||||||||||||||||
| Net Loss Per Common Share | $ | (0.004 | ) | $ | (0.001 | ) | ||||||||||||||||||
| Weighted Average Number of Common Shares Outstanding | 32,216,560 | 31,054,060 | 31,776,560 | 30,686,451 | 33,510,560 | 31,261,560 | ||||||||||||||||||
| PER SHARE INFORMATION-FULLY DILUTED | ||||||||||||||||||||||||
| Net Income (Loss) Per Common Share | $ | 0.000 | $ | (0.002 | ) | $ | (0.005 | ) | $ | (0.006 | ) | |||||||||||||
| PER SHARE INFORMATION - DILUTED | ||||||||||||||||||||||||
| Net Loss Per Common Share | $ | (0.004 | ) | $ | (0.001 | ) | ||||||||||||||||||
| Weighted Average Number of Common Shares Outstanding | 32,229,060 | 31,054,060 | 31,789,060 | 30,686,451 | 34,884,560 | 31,381,560 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
6
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| THREE MONTHS PERIODS ENDED JANUARY 31, 2022 AND |
| 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 | |||||||||||||||||
| Common Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | To be Issued | Capital | Deficit | Total | |||||||||||||||||||
| Balance at October 31, 2021 | 33,315,560 | $ | 3,333 | $ | — | $ | 11,039,118 | $ | (10,110,090 | ) | $ | 932,361 | ||||||||||||
| Sale of stock | 340,000 | 34 | — | 60,966 | — | 61,000 | ||||||||||||||||||
| Shares issued for services | 50,000 | 5 | 9,995 | 10,000 | ||||||||||||||||||||
| Net loss | — | — | — | — | (132,040 | ) | (132,040 | ) | ||||||||||||||||
| Balance at January 31, 2022 | 33,705,560 | 3,372 | — | 11,110,079 | (10,242,130 | ) | 871,321 | |||||||||||||||||
| 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 | |||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
7
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CASH FLOWS |
| THREE |
| For the Three Month Periods | ||||||||||||||||
| Nine Months Ended July 31, | Ended | |||||||||||||||
| 2021 | 2020 | January 31, 2022 | January 31, 2021 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (146,297 | ) | $ | (185,289 | ) | $ | (132,040 | ) | (35,965 | ) | |||||
| 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 | — | 10,000 | 25,000 | ||||||||||||
| Depreciation | 24,981 | 24,981 | 373 | 8,327 | ||||||||||||
| Amortization of right of use asset | 28,881 | 26,841 | 10,031 | 9,495 | ||||||||||||
| (Increase) decrease from changes in: | ||||||||||||||||
| Accounts receivable | 16,844 | 5,780 | (8,282 | ) | (8,698 | ) | ||||||||||
| Inventory | 25,821 | 15,493 | (5,686 | ) | 14,777 | |||||||||||
| Deposits on inventory | (30,000 | ) | 0 | |||||||||||||
| Increase (decrease) from changes in: | ||||||||||||||||
| Accounts payable | (68,534 | ) | (30,094 | ) | 9,672 | (36,500 | ) | |||||||||
| Unearned revenue | 2,000 | — | ||||||||||||||
| Lease liability | (10,031 | ) | (9,495 | ) | ||||||||||||
| Accrued interest expense | (11,420 | ) | (3,490 | ) | (3,389 | ) | (3,840 | ) | ||||||||
| Accrued expenses | — | 3,637 | (15,508 | ) | 0 | |||||||||||
| Net cash used in operating activities | (61,724 | ) | (146,690 | ) | (174,860 | ) | (36,899 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
| Net cash used in investing activities | — | — | 0 | 0 | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from sale of stock | 155,000 | 158,500 | 61,000 | 0 | ||||||||||||
| Proceeds (forgivness) from loans | (33,652 | ) | 33,652 | |||||||||||||
| Proceeds from shareholder advances | 250,000 | 57,984 | ||||||||||||||
| Payments on lease liability | (28,881 | ) | (30,843 | ) | ||||||||||||
| Proceeds from stockholder advances | 0 | 200,000 | ||||||||||||||
| Payments on stockholder advances | (76,666 | ) | 0 | |||||||||||||
| Payments on notes payable | (1,820 | ) | (7,456 | ) | 0 | (1,819 | ) | |||||||||
| Net cash provided by financing activities | 340,647 | 211,837 | (15,666 | ) | 198,181 | |||||||||||
| Net increase in cash | 278,923 | 65,147 | ||||||||||||||
| Net change in cash | (190,526 | ) | 161,282 | |||||||||||||
| CASH, BEGINNING OF YEAR | 48,009 | 34,525 | ||||||||||||||
| CASH, BEGINNING OF PERIOD | 480,451 | 48,009 | ||||||||||||||
| CASH, END OF THE PERIOD | $ | 326,932 | $ | 99,672 | $ | 289,925 | $ | 209,291 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid for interest | $ | 39,100 | $ | 9,668 | ||||||||||||
| Cash paid during period for interest | $ | 14,865 | $ | 9,800 | ||||||||||||
| Cash paid for taxes | $ | — | $ | — | ||||||||||||
| Cash paid during period for taxes | $ | 0 | $ | 0 | ||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
8
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (Unaudited)
| NOTE 1. | BASIS OF PRESENTATION |
In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly Innovative Designs, Inc.’s financial position as of JulyJanuary 31, 2021,2022, the changes therein for the three and nine month periods then ended and the results of operations for the three and nine month periods ended July 31, 2021January, 2022 and 2020.2021.
The condensed 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, 2020.2021. The results of operations for the three and nine month periods ended July 31,January, 2022 and 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 condensed financial statementstatements for additional disclosure on leasesleases.
| NOTE 3. | GOING CONCERN |
These condensed 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 ($146,297132,040) and a negative cash flow from operations of ($61,724174,860) for the ninethree month period ended JulyJanuary 31, 2021.2022. In addition, the Company has an accumulated deficit of ($9,876,32510,242,130). 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 condensed financial statements. These condensed 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 AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
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 JulyJanuary 31, 20212022 and October 31, 2020.2021, respectively. Management has applied an allowance on all balances in excess of 90 days.
9
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (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 discontinuediscontinued the sellingmanufacturing of its hunting and swimming line of apparel. The Company has booked a reserve against apparel inventory at JulyJanuary 31, 20212022 and October 31, 20202021 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,During the periods presented, the Company only has common stock outstanding. In 2021, the Company issued a convertible promissory note on May 6,debt instrument. In addition, the Company also has stock warrants of 1,254,000 and 240,000 as of January 31, 2022 and 2021, therefore, fullyrespectively. The Company has calculated diluted shares are presented inearnings per share utilizing the Condensed Statements of income.outstanding stock warrants and convertible debt.
| 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 $6,4008,647 and $4,4003,007 for the ninethree month periods ended JulyJanuary 31, 20212022 and 2020,2021, respectively.
10
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (Unaudited)
| NOTE 9. | COMMON STOCK |
During the ninethree month period ended JulyJanuary 31, 2021,2022, the Company issuedsold shares of common stock to five investors for total proceeds of $221,00061,000. and issued 50,000 shares to one investor for services. The stock was issued between $ and $ per share.
During the ninethree month period ended JulyJanuary 31, 2020,2021, the Company issuedsold shares of common stock to one investors for total proceeds of $158,50025,000. The stock was issued betweenfor $ and $ 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$700,000 which was to be paid in four installments. The first installment of $300,000$300,000 was to be paid at the execution of the agreement. The second installment of $200,000$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$100,000 is to be paid once the machinery and equipment is producing INSULTEX, and the fourth and final installment of $100,000$100,000 is to be made after the first commercial production run of INSULTEX is completedcompleted.. As of April 30, 2020, the 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 – OPERATING LEASE |
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, 2019.2020.
11
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (Unaudited)
| NOTE 11. | RIGHT OF USE ASSETS – OPERATING LEASE (CONTINUED) |
As of JulyJanuary 31, 2021,2022, the right of use assets associated with future operating lease is as follows:
| Right of use assets associated with future operating leases | ||||
| 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 |
| Right of use assets associated with future operating leases | ||||
| Total present value of right of use asset under lease agreement | $ | 150,496 | ||
| Amortization of right of use asset – operating lease | (119,565 | ) | ||
| Total right of use asset – operating lease as of January 31, 2022 | $ | 30,931 | ||
| Less current portion due within one year | 30,931 | |||
| Long-term right of use asset – operating lease | $ | -0- |
Total amortization expense related to the right of use assets under the verbal lease agreement was $28,88110,031 and $26,8419,495 for the ninethree month periods ended JulyJanuary 31, 20212022 and 2020,2021, respectively.
Future amortization of the right of use asset as of JulyJanuary 31, 20212022 is as follows:
| Future amortization of right of use assets | |||||||||
| 2021 | $ | 40,404 | |||||||
| 2022 | 10,452 | $ | 30,931 | ||||||
| Right of use assets | $ | 50,856 | |||||||
| NOTE 12. |
As disclosed in Note 11, the Company entered into a verbal lease for office space prior to the quarter ended JulyJanuary 31, 20212020 that is classified as a right of use asset and lease liability.
As of JulyJanuary 31, 2021,2022, the lease liability associated with future payments due under the verbal lease is as follows:
| Schedule of future minimum lease payments | ||||||||
| Total future minimum lease payments | $ | 115,500 | $ | 150,496 | ||||
| Less present value discount | 64,644 | |||||||
| Principal payments made as of the period ended January 31, 2022 | (119,565 | ) | ||||||
| Total right of use lease liability as of April 30, 2021 | 50,856 | |||||||
| Total operating lease liability as of January 31, 2022 | 30,931 | |||||||
| Less current portion due within one year | 40,404 | 30,931 | ||||||
| Long-term right of use liability | $ | 10,452 | ||||||
| Long-term operating lease liability | $ | -0- | ||||||
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (Unaudited)
| NOTE 12. | OPERATING LEASE LIABILITY- (CONTINUED) |
Total maturities of lease liability as of JulyJanuary 31, 20212022 are as follows:
| Schedule of maturities of lease liabilities | |||||||||||||
| 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 | ||||||||
| Schedule of maturities of lease liabilities | |||||||||||||
| Total future minimum lease payments | Present value discount | Operating lease liability | |||||||||||
| 2022 | $ | 31,500 | $ | 569 | $ | 30,931 | |||||||
| NOTE 13. | SEGMENT INFORMATION |
We have organized our operations into two 2 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 ninethree month periods ended JulyJanuary 31, 20212022 and 2020:2021:
| Schedule of business segment information | ||||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Apparel | $ | 49,675 | $ | 52,396 | $ | 45,272 | $ | 33,937 | ||||||||
| House Wrap | 126,713 | 121,652 | 17,128 | 6,080 | ||||||||||||
| Total Revenues | $ | 176,388 | $ | 174,048 | $ | 62,400 | $ | 40,017 | ||||||||
| Assets: | ||||||||||||||||
| Assets:tc | ||||||||||||||||
| Apparel | $ | 135,542 | $ | 454,286 | $ | 134,245 | $ | 140,857 | ||||||||
| House Wrap | 1,503,627 | 1,110,825 | 1,391,270 | 1,453,297 | ||||||||||||
| Total | $ | 1,639,169 | $ | 1,565,111 | $ | 1,525,515 | $ | 1,594,154 | ||||||||
| Depreciation: | ||||||||||||||||
| Apparel | $ | 7,116 | $ | 7,116 | $ | -0- | 2,372 | |||||||||
| House Wrap | 17,865 | 17,865 | 373 | 5,955 | ||||||||||||
| Total | $ | 24,981 | $ | 24,981 | $ | 373 | $ | 8,327 | ||||||||
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INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Nine Month Periods Ended JulyJanuary 31, 20212022 and 20202021 (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.
On May 6,In November 2021, in connection with the FTC litigation, the Company issued a convertible promissory notefiled an application for attorney fees, expenses and cost in the principal amountU.S. District Court for the Western District of $50,000.Pennsylvania, Case No.2:16-cv-01669-NBF. The term ofCompany is seeking from the note is one year. The interest rate is 8% per year. The principal amount of the noteFTC all attorney’s fees, expenses 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 eventcosts the Company should subdivide incurred and/or combine its Common Stock.will incur in connection with the litigation. The Company, at its option, may prepay the note in whole or in part upon 15 days written notice.matter is proceeding to mediation.
| NOTE | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through March 15, 2022, which is the date the condensed financial statements were available to be issued. The Company identified the below subsequent event.
On February 11, 2022, the Company issued 60,000 shares of stock to an investor that exercised a stock warrant.
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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 Condensed Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.2021.
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, 2020.2021. The Company undertakes no obligation to publicity update or revise any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law.
Background
Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We market and sell clothing products such as outdoor apparel, and cold weather gear called “Arctic Armor” that are made from INSULTEX,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 INSULTEXInsultex 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 JulyJanuary 31, 20212022 with the Three Month Period Ended JulyJanuary 31, 2020.2021.
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 | Fiscal Year | Fiscal Year | |||||||||||||||||||||||||||||||||||||||||
| Ended | Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE - NET | $ | 110,475 | 100 | % | $ | 90,814 | 100 | % | $ | 19,661 | 22 | % | ||||||||||||||||||||||||||||||||||||
| January 31, | % of | January 31, | % of | Increase | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | Sales | 2021 | Sales | (Decrease) | % Change | |||||||||||||||||||||||||||||||||||||||||||
| REVENUE | $ | 62,400 | 100 | % | $ | 40,017 | 100 | % | $ | 22,383 | 56 | % | ||||||||||||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 50,712 | 46 | % | 42,965 | 47 | % | 7,747 | 18 | % | 32,346 | 52 | % | 18,635 | 47 | % | 13,711 | 74 | % | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 58,518 | 53 | % | 91,354 | 101 | % | (32,836 | ) | -36 | % | ||||||||||||||||||||||||||||||||||||||
| Selling, general and | ||||||||||||||||||||||||||||||||||||||||||||||||
| administrative expenses | 150,245 | 241 | % | 72,883 | 182 | % | 77,362 | 106 | % | |||||||||||||||||||||||||||||||||||||||
| 109,230 | 99 | % | 134,319 | 148 | % | (25,089 | ) | -19 | % | 182,591 | 293 | % | 91,518 | 229 | % | 91,073 | 100 | % | ||||||||||||||||||||||||||||||
| Loss from operations | 1,245 | 1 | % | (43,505 | ) | -48 | % | 44,750 | -103 | % | (120,191 | ) | -193 | % | (51,501 | ) | -129 | % | (68,690 | ) | 133 | % | ||||||||||||||||||||||||||
| Other income (expense) | 33,652 | 30 | % | — | 0 | % | 33,652 | 0 | % | — | 0 | % | 28,823 | 72 | % | (28,823 | ) | 0 | % | |||||||||||||||||||||||||||||
| Other Expense | ||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation expense | (373 | ) | -1 | % | (8,327 | ) | -21 | % | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | (13,417 | ) | -12 | % | (2,173 | ) | -2 | % | (11,244 | ) | 517 | % | (11,476 | ) | -18 | % | (4,960 | ) | -12 | % | (6,516 | ) | 131 | % | ||||||||||||||||||||||||
| Depreciation expense | (8,327 | ) | -8 | % | (8,327 | ) | -9 | % | — | 0 | % | |||||||||||||||||||||||||||||||||||||
| Net Income | $ | 13,153 | 12 | % | $ | (54,005 | ) | -59 | % | $ | 67,158 | -124 | % | |||||||||||||||||||||||||||||||||||
| Net Loss | $ | (132,040 | ) | -212 | % | $ | (35,965 | ) | -90 | % | $ | (96,075 | ) | 267 | % | |||||||||||||||||||||||||||||||||
Revenues for the three month period ended JulyJanuary 31, 20212022 were $110,475$62,400 compared to revenues of $90,814$40,017 for the three month period ended April 30, 2020.January 31, 2021. The increase in revenue is attributable to an increase in our HouseWrap product sale. Substantially allmore sales 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 productproducts sales. .Our net loss for the three-month period ended January 31, 2022, was ($132,040) compared to a net loss of ($35,965) for the comparable period in 2021.
Our selling, general and administrative expenses were $58,519 for the three months ended July 31, 2021 compared to $91,354$150,245 for the three month period ended JulyJanuary 31, 2020. Professional fees for the period ended July 31, 2021, were $12,9302022 compared to $14,390$72,883 for the three month period ended JulyJanuary 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.
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, 2020.2021. Professional fees for the ninethree month period ended JulyJanuary 31, 20212022 were $37,485$40,610 compared to $21,050$24,555 for the ninethree month period ended JulyJanuary 31, 2020.2021. The majorityincrease is partially a result of our professionalmore audit fees relate to the legal fees incurred in connection to the FTC matter. We expect our professional fees to decrease going forward.of approximately $11,000.
Payroll increase by $20,393 from the prior year period as we were not fully operational as a result of the Covid pandemic. Likewise, we were not ordering manufacturing product, which increased by $42,805 during the three months ended January 31, 2022.
For the second quarter we expect revenues to be higher than the first quarter as the construction season begins with warmer weather in many parts of the country. Additionally, we are working on expanding our market presence by bringing on new sales representatives for our HouseWrap product line.
16
INNOVATIVE DESIGNS, INC.
Liquidity and Capital Resources
During the three monththree-month period ended JulyJanuary 31, 2021,2022, we funded our operations from revenues from sales, and the sale of our common stock. During the three month period ended January 31, 2022, sold our common stock totaling $60,000.in private transactions and raised $61,000 from the sales.
We must purchase new quality control testing equipment for our House Wrap product line, which we estimated will cost approximately $100,000. We have not, as yet, received a quote from the vendor. Once the equipment is built it will have to go through a certification process.
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 INSULTEXInsultex products and to purchase equipment needed for the manufacture of the INSULTEXInsultex product. The Company reached an agreement with the manufacturer of the INSULTEXInsultex material to purchase a machine capable of producing the INSULTEXInsultex material. Also included in the proposed agreement will be the propriety formula that creates INSULTEX.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 willintends produce INSULTEXInsultex 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 INSULTEXInsultex would be delayed.
Subsequent to the period we received proceeds of $10,200 upon the exercise of 60,000 warrants at $ .17 per share.
17
INNOVATIVE DESIGNS, INC.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
| ITEM 1. | LEGAL PROCEEDING |
See Legal Proceedings set forth in Part I Item 3Note 14 of the Company’s Annual Report on Form 10-K forNotes to the fiscal year ended October 31, 2020.Condensed Financial Statements appearing elsewhere in this Report.
| ITEM 1A | Risk Factors |
ITEM 1A Risk FactorsAs a smaller reporting company, we are not required to provide the information
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.required by this Item.
INNOVATIVE DESIGNS, INC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| 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, 2020.2021
ITEM 3. Defaults upon Senior Securities
| ITEM 3. | Defaults upon Senior Securities |
None
Item 4 Mine Safety Disclosures
| Item 4 | Mine Safety Disclosures |
Not applicable
ITEM 4T. CONTROLS AND PROCEDURES
| 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 JulyJanuary 31, 2021,2022, our principle executive/financial officer concluded that these controls and procedures were ineffective.ineffective and identified the following specific material weaknesses.
| ● | The Company is not maintaining supporting schedules, or the schedules being maintained are inaccurate to support amounts presented and disclosed in the financial statements. Specific schedules in relation to inventory deposits, inventory reserves, fixed assets, debt balance (and related accrued interest) were not available, or in the case of debt schedules were not accurate and in accordance with the loan documents | |
| ● | The Company’s internal controls policies are ineffective, or not being complied with, to identify errors, in the financial statements. These deficiencies may be considered as “material weaknesses”. | |
| ● | In addition, the Company does not utilize an internal accounting system that captures all Company activity on a timely basis. Certain transactions, such as sales and receivables are maintained in one system and disbursements and accounts payable are maintained manually. On a quarterly basis this information is sent to an external accountant to retroactively enter the information into a general ledger system and then prepare the financial statements. The lack of a single accounting system presents multiple opportunities for errors to occur, and further contributes to a lack of timely internal and external financial reporting. |
This was due to our limited resources, including the absence of an internal financial staff member with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls.
Management plans to address these matters by among actions, meeting more with its external accountant to ensure that issues such as described above are correct going forward. The Company will also restructure its loan recording system to be able to present a more informative report to its external account. Management will also reevaluate its accounting software and will make a determination as to whether to continue to use it or implement another type of program. Either decision will allow all information to be entered into one system which should alleviate the significant deficiency described above.
However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. At this time we do not have the financial resources to employ a financial staffStaff 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
18
None
INNOVATIVE DESIGNS, INC.
ITEM 6. EXHIBITS
| ITEM 6. | EXHIBITS |
| * | 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 |
19
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: | by: | /s/ Joseph Riccelli |
| Joseph Riccelli, Chief Executive Officer | ||
| and Chief Financial Officer |
- 17 -20