A UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13l OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended April 30, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from _______ to ________.
Commission File Number: 000-51791
INNOVATIVE DESIGNS, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 03-0465528 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
124 Cherry Street
Pittsburgh, Pennsylvania 15223
(Address of Principal Executive Offices, Zip Code)
(412) 799-0350
(Issuer’s Phone Number Including Area Code)
N/A
(Former Name or Former Address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| YES | ☐ | NO | ☒ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.
(Check One)
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Non-accelerated Filer ☐ | Smaller reporting company ☒ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
As of June 14, 2022, there were 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 April 30, 2022
| Part I -- Financial Information | Page No. | |
| Item 1. | Condensed Financial Statements (Unaudited) | |
| Condensed Balance Sheets as of April 30, 2022 (Unaudited) And October 31, 2021 | 3 | |
| Condensed Statements of Operations for the Six Month Periods Ended April 30, 2022 and 2021 (Unaudited) | 5 | |
| Condensed Statements of Changes in Stockholders’ Equity as of April 30, 2022 (Unaudited) and October 31, 2021 | 6 | |
| Condensed Statements of Cash Flows for the Six Month Periods Ended April 30, 2022 and 2021 (Unaudited) | 7 | |
| Notes to the Condensed Financial Statements | 8-13 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14-16 |
| Part II -- Other Information | ||
| Items 1, 2, 3, 4, 4T and 5. | 17-18 | |
| Item 6. | Exhibits | 19 |
2
| INNOVATIVE DESIGNS, INC. | ||||||||
| CONDENSED BALANCE SHEETS | ||||||||
| APRIL 30, 2022 (UNAUDITED) AND OCTOBER 31, 2021 | ||||||||
| April 30, 2022 | October 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 219,767 | $ | 480,451 | ||||
| Accounts receivable - net of allowance for doubtful accounts of $5,860 | 7,975 | 1,201 | ||||||
| Inventory - net of obsolete inventory reserve of $75,468 | 562,333 | 542,588 | ||||||
| Current portion of right of use asset | 20,762 | 40,962 | ||||||
| Total current assets | 810,837 | 1,065,202 | ||||||
| PROPERTY AND EQUIPMENT - NET | 6,705 | 7,450 | ||||||
| OTHER ASSETS | ||||||||
| Inventory on consignment | 1,625 | 1,625 | ||||||
| Deposits on inventory | 30,000 | |||||||
| Advance to employees | 8,200 | 8,200 | ||||||
| Deposits on equipment | 600,000 | 600,000 | ||||||
| Total other assets | 639,825 | 609,825 | ||||||
| TOTAL ASSETS | $ | 1,457,367 | $ | 1,682,477 | ||||
The accompanying notes are an integral part of these condensed financial statements.
3
| INNOVATIVE DESIGNS, INC. | ||||||||
| CONDENSED BALANCE SHEETS | ||||||||
| APRIL 30, 2022 (UNAUDITED) AND OCTOBER 31, 2021 | ||||||||
| April 30, 2022 | October 31, 2021 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 252,441 | $ | 228,667 | ||||
| Current portion of notes payable | 18,628 | 18,628 | ||||||
| Current portion of lease liability | 20,762 | 40,962 | ||||||
| Accrued interest expense | 47,059 | 43,136 | ||||||
| Due to stockholders | 175,631 | 188,632 | ||||||
| Accrued expenses | 6,934 | 25,037 | ||||||
| Total current liabilities | 521,455 | 545,062 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term portion of due to stockholders | 66,667 | 133,332 | ||||||
| Long-term portion of notes payable | 73,540 | 71,722 | ||||||
| Total long-term liabilities | 140,207 | 205,054 | ||||||
| TOTAL LIABILITIES | 661,662 | 750,116 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized | — | — | ||||||
| Common stock, $ par value, shares authorized, and and issued and outstanding | 3,454 | 3,333 | ||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | 11,310,197 | 11,039,118 | ||||||
| Accumulated deficit | (10,517,946 | ) | (10,110,090 | ) | ||||
| Total stockholders' equity | 795,705 | 932,361 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,457,367 | $ | 1,682,477 | ||||
The accompanying notes are an integral part of these condensed financial statements.
4
| INNOVATIVE DESIGNS, INC. | ||||||||||||||||
| CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
| THREE AND SIX MONTHS ENDED APRIL 30, 2022 AND 2021 (UNAUDITED) | ||||||||||||||||
| Three Months Ended April 30, | Six Months Ended April 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES - NET | $ | 37,717 | $ | 25,896 | $ | 100,116 | $ | 65,913 | ||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Cost of sales | 21,314 | 9,006 | 53,659 | 27,641 | ||||||||||||
| Selling, general and administrative expenses | 279,955 | 127,943 | 430,574 | 209,153 | ||||||||||||
| Total Operating Expenses | 301,269 | 136,949 | 484,233 | 236,794 | ||||||||||||
| LOSS FROM OPERATIONS | (263,552 | ) | (111,053 | ) | (384,117 | ) | (170,881 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Miscellaneous income (expense) | — | — | — | 28,823 | ||||||||||||
| Interest expense | (12,264 | ) | (12,432 | ) | (23,740 | ) | (17,392 | ) | ||||||||
| Total other income (expense) | (12,264 | ) | (12,432 | ) | (23,740 | ) | 11,431 | |||||||||
| NET LOSS | $ | (275,816 | ) | $ | (123,485 | ) | $ | (407,857 | ) | $ | (159,450 | ) | ||||
| PER SHARE INFORMATION - UNDILUTED | ||||||||||||||||
| Net Loss Per Common Share | $ | (0.008 | ) | $ | (0.004 | ) | $ | (0.012 | ) | $ | (0.005 | ) | ||||
| Weighted Average Number of Common Shares Outstanding | 33,845,560 | 31,704,732 | 33,845,560 | 31,654,727 | ||||||||||||
| PER SHARE INFORMATION - DILUTED | ||||||||||||||||
| Net Loss Per Common Share | $ | (0.008 | ) | $ | (0.004 | ) | $ | (0.012 | ) | $ | (0.005 | ) | ||||
| Weighted Average Number of Common Shares Outstanding | 34,902,893 | 32,232,893 | 34,902,893 | 32,232,893 | ||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
5
| INNOVATIVE DESIGNS, INC. | ||||||||||||||||||||||||
| CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
| THREE AND SIX MONTHS ENDED APRIL 30, 2022 AND 2021 (UNAUDITED) | ||||||||||||||||||||||||
Common Stock | Common Stock To be | Additional Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | Issued | Capital | Deficit | Total | |||||||||||||||||||
| Balance at October 31, 2021 | 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 | ||||||||||||||||||
| Sale of stock | 120,000 | 12 | 25,188 | 25,200 | ||||||||||||||||||||
| Shares issued for services | 700,000 | 70 | 174,930 | 175,000 | ||||||||||||||||||||
| Net loss | — | (275,816 | ) | (275,816 | ) | |||||||||||||||||||
| Balance at April 30, 2022 | 34,525,560 | $ | 3,454 | $ | $ | 11,310,197 | $ | (10,517,946 | ) | $ | 795,705 | |||||||||||||
| Balance at October 31, 2020 | 31,211,560 | $ | 3,123 | $ | $ | 10,574,828 | $ | (9,730,028 | ) | $ | 847,923 | |||||||||||||
| Sale of stock | — | |||||||||||||||||||||||
| Shares issued for services | 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 | 280,000 | 28 | 69,972 | 70,000 | ||||||||||||||||||||
| Shares issued for services | 500,000 | 50 | 63,950 | 64,000 | ||||||||||||||||||||
| Net loss | — | (123,485 | ) | (123,485 | ) | |||||||||||||||||||
| Balance at April 30, 2021 | 32,091,560 | $ | 3,211 | $ | $ | 10,733,740 | $ | (9,889,478 | ) | $ | 847,473 | |||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
6
| INNOVATIVE DESIGNS, INC. | ||||||||
| CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
| SIX MONTHS ENDED APRIL 30, 2022 AND 2021 (UNAUDITED) | ||||||||
| Six Months Ended April 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (407,857 | ) | $ | (159,450 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for doubtful accounts | — | — | ||||||
| Common stock issued for services | 185,000 | 89,000 | ||||||
| Depreciation | 745 | 16,654 | ||||||
| Amortization of right of use asset | 20,200 | 19,122 | ||||||
| (Increase) decrease from changes in: | ||||||||
| Accounts receivable | (6,774 | ) | 15,134 | |||||
| Inventory | (19,745 | ) | 2,660 | |||||
| Deposits on inventory | (30,000 | ) | — | |||||
| Increase (decrease) from changes in: | ||||||||
| Accounts payable and accrued expenses | 5,672 | (60,558 | ) | |||||
| Accrued interest expense | 3,923 | 1,270 | ||||||
| Net cash used in operating activities | (248,836 | ) | (76,168 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Net cash used in investing activities | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of stock | 86,200 | 70,000 | ||||||
| Proceeds from shareholder advances | — | 200,000 | ||||||
| Payments on shareholder advances | (79,666 | ) | — | |||||
| Payments on lease liability | (20,200 | ) | (19,122 | ) | ||||
| Proceeds on notes payable | 1,818 | — | ||||||
| Payments on notes payable | — | (1,820 | ) | |||||
| Net cash provided by financing activities | (11,848 | ) | 249,058 | |||||
| Net change in cash | (260,684 | ) | 172,890 | |||||
| CASH, BEGINNING OF YEAR | 480,451 | 48,009 | ||||||
| CASH, END OF THE PERIOD | $ | 219,767 | $ | 220,899 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 19,817 | $ | 14,300 | ||||
| Cash paid for taxes | $ | — | $ | — | ||||
The accompanying notes are an integral part of these condensed financial statements.
7
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (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 April 30, 2022, the changes therein for the three and six month periods then ended and the results of operations for the three and six month periods ended April 30, 2022 and 2021.
The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. For additional information, reference is made to the Innovative Designs, Inc.’s annual report on Form 10-K for the fiscal year ended October 31, 2021. The results of operations for the three and six month periods ended April 30, 2022 and 2021 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 ($407,857) and a negative cash flow from operations of ($248,836) for the six month period ended April 30, 2022. In addition, the Company has an accumulated deficit of ($10,517,946). Management’s plans include cash receipts through sales, sales of Company stock, and borrowings from private parties. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| NOTE 4. | ACCOUNTS RECEIVABLE |
Management evaluates its receivables on a quarterly basis to assess the validity of remaining receivables. Management has determined that there is significant doubt regarding the receivable balance over 90 days of $5,860 as of the April 30, 2022 and October 31, 2021. Management has applied an allowance on all balances in excess of 90 days.
8
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (Unaudited)
| NOTE 5. | INVENTORY |
Inventory consists principally of purchased apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis. The Company has decided to discontinue the manufacturing of its Artic Armor, hunting and swimming line of apparel. The Company has booked a reserve against apparel inventory at April 30, 2022 and October 31, 2021 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. In 2021, the Company issued a convertible debt instrument. In addition, the Company also has stock warrants of 994,000 and 620,000 as of April 30, 2022 and 2021, respectively. The Company has calculated diluted earnings per share utilizing the 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 $13,390 and $6,300 for the six month periods ended April 30, 2022 and 2021, respectively.
9
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (Unaudited)
| NOTE 9. | COMMON STOCK |
During the six month period ended April 30, 2022, the Company sold shares of common stock to seven investors for total proceeds of $86,200 and issued shares to eight individuals for services. The stock was issued between $ and $ per share.
During the six month period ended April 30, 2021, the Company sold shares of common stock to six investors for total proceeds of $70,000 and issued to eight individuals for services. The stock was issued between $ 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 which was to be paid in four installments. The first installment of $300,000 was to be paid at the execution of the agreement. The second installment of $200,000 was to be paid when the machinery and equipment is ready to be shipped to the United States. The third installment of $100,000 is to be paid once the machinery and equipment is producing INSULTEX, and the fourth and final installment of $100,000 is to be made after the first commercial production run of INSULTEX is completed. As of April 30, 2020, the Company has made payments of $500,000 in accordance with the agreement and made a $100,000 pre-payment as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $17,000 of additional expenses related to shipping, site improvements and installation of the equipment. 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.
| NOTE 11. | RIGHT OF USE ASSETS |
The Company entered into a month to month verbal lease at the time the Company was formed that is classified as right of use asset and lease liability. The lease for the Company’s office space is estimated to be through June 2022. In accordance with ASU 2016-02, the Company calculated the present value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office lease. Applying the commercial rate, the Company calculated the present value of $150,496 for the office lease as of April 30, 2020.
10
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (Unaudited)
| NOTE 11. | RIGHT OF USE ASSETS (CONTINUED) |
As of April 30, 2022, the right of use assets associated with future operating lease is as follows:
| Total present value of right of use asset under lease agreement | $ | 150,496 | |
| Amortization of right of use asset – operating lease | (129,734 | ) | |
| Total right of use asset – operating lease as of April 30, 2022 | $ | 20,762 | |
| Less current portion due within one year | 20,762 | ||
| 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 $20,200 and $19,122 for the six month periods ended April 30, 2022 and 2021, respectively.
Future amortization of the right of use asset as of April 30, 2022 is as follows:
| 2022 | $ | 20,762 |
| 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 April 30, 2022 that is classified as a right of use asset and lease liability.
As of April 30, 2022, the lease liability associated with future payments due under the verbal lease is as follows:
| Total future minimum lease payments | $ | 150,496 | |
| Principal payments made as of the period ended April 30, 2022 | (129,734 | ) | |
| Total operating lease liability as of April 30, 2022 | 20,762 | ||
| Less current portion due within one year | 20,762 | ||
| Long-term operating lease liability | $ | -0- |
11
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (Unaudited)
Total maturities of lease liability as of April 30, 2022 are as follows:
| Total future minimum lease payments | Present value discount | Operating lease liability | ||||||||||||
| 2022 | $ | 21,000 | $ | 238 | $ | 20,762 | ||||||||
| 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 six month periods ended April 30, 2022 and 2021:
12
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three and Six Month Periods Ended April 30, 2022 and 2021 (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.
In November 2021, in connection with the FTC litigation, the Company filed an application for attorney fees, expenses and cost in the U.S. District Court for the Western District of Pennsylvania, Case No.2:16-cv-01669-NBF. The Company is seeking from the FTC all attorney’s fees, expenses and costs the Company incurred and/or will incur in connection with the litigation. The matter was moved to mediation and the parties are working on a proposed resolution.
| NOTE 15. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through June 20, 2022, which is the date financial statements were available to be issued. The Company identified no material subsequent events that require recognition or additional disclosure in these financial statements.
13
INNOVATIVE DESIGNS, INC.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities 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, 2021. The Company undertakes no obligation to publicity update or revise any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law.
Background
Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We market and sell clothing products such as outdoor apparel, and cold weather gear called “Arctic Armor” that are made from INSULTEX, a material with buoyancy, scent block and thermal resistant properties. We also market our House Wrap product line which is a building material with thermal qualities. House Wrap is also made from INSULTEX. We obtain INSULTEX through a license agreement with the owner and manufacturer of the material. Since our formation we have devoted our efforts to:
| ● | Completing the development, design and prototypes of our products, | |
| ● | Obtaining retail stores or sales agents to offer and sell our products, | |
| ● | Developing our website to sell more of our products. |
14
Results of Operations
Comparison of the Three Month Period Ended April 30, 2022 with the Three Month Period Ended April 30, 2021.
The following table shows a comparison of the results of operations between the three month periods ended April 30, 2022 and April 30, 2022:
| Three Month Period Ended | Three Month Period Ended | |||||||||||||||||||||||
| April 30, 2022 | % of Sales | April 30, 2021 | % of Sales | Increase (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | $ | 37,717 | 100 | % | $ | 25,896 | 100 | % | $ | 11,821 | 46 | % | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 21,314 | 57 | % | 9,006 | 35 | % | 12,308 | 137 | % | |||||||||||||||
| Selling, general and administrative expenses | 279,582 | 741 | % | 119,616 | 462 | % | 159,966 | 134 | % | |||||||||||||||
| 300,896 | 798 | % | 128,622 | 497 | % | 172,274 | 134 | % | ||||||||||||||||
| Loss from operations | (263,179 | ) | -698 | % | (102,726 | ) | -397 | % | (160,453 | ) | 156 | % | ||||||||||||
| Other income (expense) | — | 0 | % | — | 0 | % | — | 0 | % | |||||||||||||||
| Other Expense | ||||||||||||||||||||||||
| Interest expense | (12,264 | ) | -33 | % | (12,432 | ) | -48 | % | 168 | -1 | % | |||||||||||||
| Depreciation expense | (373 | ) | -1 | % | (8,327 | ) | -32 | % | 7,954 | -96 | % | |||||||||||||
| Net Loss | $ | (275,816 | ) | -731 | % | $ | (123,485 | ) | -477 | % | $ | (152,331 | ) | 123 | % | |||||||||
Revenues for the three month period ended April 30, 2022, were $37,717 compared to revenues of $25,896 for the three month period ended April 30, 2021. The increase in revenue is attributable to an increase in sales of House Wrap of $30,309. 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 (“SG&A”) were $279,582 for the three months ended April 30, 2022, compared to $119,616 for the three month period ended April 30, 2021. Professional fees for the period ended April 30, 2022, were $36,595 compared to $28,942 for the three month period ended April 30, 2021. Loan repayments were $86,666 for the period and was paid on one loan in accordance with its terms. For the comparable period ended April 30, 2021, loan repayments totaled $10,120. Stock for services costs for the period were $75,000.
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INNOVATIVE DESIGNS, INC.
Results of Operations
Comparison of the Six Month Period Ended April 30, 2022 with the Six Month Period Ended April 30, 2021.
| Six Month Period Ended | Six Month Period Ended | |||||||||||||||||||||||
| April 30, 2022 | % of Sales | April 30, 2021 | % of Sales | Increase (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | $ | 100,116 | 100 | % | $ | 65,913 | 100 | % | $ | 34,203 | 52 | % | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 53,659 | 54 | % | 27,641 | 42 | % | 26,018 | 94 | % | |||||||||||||||
| Selling, general and administrative expenses | 429,829 | 429 | % | 192,499 | 292 | % | 237,330 | 123 | % | |||||||||||||||
| 483,488 | 483 | % | 220,140 | 334 | % | 263,348 | 120 | % | ||||||||||||||||
| Loss from operations | (383,372 | ) | -383 | % | (154,227 | ) | -234 | % | (229,145 | ) | 149 | % | ||||||||||||
| Other income (expense) | — | 0 | % | 28,823 | 44 | % | (28,823 | ) | 0 | % | ||||||||||||||
| Other Expense | ||||||||||||||||||||||||
| Interest expense | (23,740 | ) | -24 | % | (17,392 | ) | -26 | % | (6,348 | ) | 36 | % | ||||||||||||
| Depreciation expense | (745 | ) | -1 | % | (16,654 | ) | -25 | % | 15,909 | -96 | % | |||||||||||||
| Net Loss | $ | (407,857 | ) | -407 | % | $ | (159,450 | ) | -242 | % | $ | (248,407 | ) | 156 | % | |||||||||
Revenues for the six month period ended April 30, 2022, were $100,116 compared to revenues of $65,913 for the six month period ended April 30, 2021. The increase in revenue is attributable an increase in our House Wrap products revenue, $47,431 for the period compared to $16,750 for the six month period ended April 30, 2021. See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment products sales.
Revenues for the first part of the third quarter of 2022, are approximately 275% higher than revenues for the second quarter. We expect revenues to continue to increase primarily from sales of our House Wrap product line as we increase our distribution network, get repeat orders from existing distributors and customers and increased sales to contractors and builders.
SG&A expenses were $429,829 for the six month period ended April 30, 2021, compared to $192,499 for the six month period ended April 30, 2021. Professional fees for the six month period ended April 30, 2022, were $40,610 compared to $28,942 for the six month period ended April 30, 2021. Part of our professional fees related to marketing services totaling $12,000. Legal fees for the period totaled $10, 000. Stock for services cost for the six month period were $165,100.
16
INNOVATIVE DESIGNS, INC.
Liquidity and Capital Resources
During the three month period ended April 30, 2022, we funded our operations from revenues from sales and the sale of our stock. We raised $60,000 through the sale of our Common Stock and received $10,200 from the exercise of certain common stock purchase warrants.
Short Term: We will continue to fund our operations from sales and the sale of our securities. We continue to pay our creditors when payments are due. We will require more funds to be able to order the material for our INSULTEX products and to purchase equipment needed for the manufacture of the INSULTEX product. The Company reached an agreement with the manufacturer of the INSULTEX material to purchase a machine capable of producing the INSULTEX material. Also included in the proposed agreement will be the propriety formula that creates INSULTEX. The Company took delivery of the equipment in December 2015. The Company will have to have the machine installed and ensure that it can be operated in compliance with all environmental rules and regulations. It is the Company intentions to have the equipment operational but cannot currently provide a time estimate. Among the factors affecting the time estimate are financial resources available to the Company, finding a suitable facility and bringing technical personal from abroad to install the equipment. The Company has currently made deposits of $600,000 on the equipment. The Company has incurred $17,000 of additional expenses related to shipping. The Company will produce INSULTEX under its own brand name. See Note 10 of the Notes to the Condensed Financial Statements.
We must purchase new quality control testing equipment for our products. The vendor is currently working on the project. We have estimated a cost of approximately $100,000.
Long Term: The Company will continue to fund its operations from revenues, borrowings from private parties and the possible sale of our securities. Should we not be able to rely on the private sources for borrowing and /or increased sales, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods and our efforts to produce our own INSULTEX would be delayed.
PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDING |
See Note 14 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report.
| ITEM 1A | Risk Factors |
See Risk factors set forth in in Part I Item 1A of the Company’s Annual report on Form 10-K for the fiscal year ended October 31, 2020.
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INNOVATIVE DESIGNS, INC.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
See Part II Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020, and the following transactions.
On February 11, 2022, we issued 60,000 shares of our Common Stock upon the exercise of 60,000 common stock purchase warrants and received $10,200 in proceeds.
On March 15, 2022, we sold 60,000 shares of our Common stock to one entity and received $15,000 in proceeds
On March 17, 2022, we issued 200,000 shares of our Common stock to a consultant for services valued at $50,000.
We relied on Section 4(2) of the Securities Act of 1933, as amended and Regulation D, Rule 506 (c)) promulgated thereunder.
| ITEM 3. | Defaults upon Senior Securities |
None
| Item 4 | Mine Safety Disclosures |
Not applicable
| ITEM 4T. | CONTROLS AND PROCEDURES |
Management has developed and implemented a policy and procedures for reviewing, on a quarterly basis, our disclosure controls and procedures. During the period ended April 30, 2022, our principle executive/financial officer concluded that these controls and procedures were ineffective. At this time, we do not have the financial resources to employ a financial staff with accounting and financial expertise. Once we have the necessary financial resources, we plan to hire and designate an individual responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13(a)-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Until the Company has the financial resources to employ a financial staff with accounting and financial expertise, to be able to properly account for internal financial reporting, errors that may have a material effect on the financial statements have the potential to occur.
| ITEM 5. | Other Information |
| None |
18
INNOVATIVE DESIGNS, INC.
| ITEM 6. | EXHIBITS |
| *3.1 | Revised Certificate of Incorporation |
| **3.2 | By-Laws |
| 31.1 | Rule 13a - 14a Certification of Chief Executive Officer |
| 31.2 | Rule 13a-14a Certification of Chief Financial Officer and Principal Accounting Officer |
| 32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
| 31.2 | Section 1350 Certification of Chief Financial Officer and Chief Accounting Officer |
| * | Incorporated by reference to the Company’s Form 10-K filed February 12, 2015 |
| ** | Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003 |
| 99*** | Incorporated by reference to the Company’s Current Report on Form 8-k, filed November 4, 2016 |
19
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: June 17, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli, Chief Executive Officer | ||
| and Chief Financial Officer |
20
EXHIBIT 31.1
INNOVATIVE DESIGNS, INC.
CERTIFICATIONS
I, Joseph Riccelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Innovative Designs, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 17, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
| Chief Executive Officer | ||
EXHIBIT 31.2
INNOVATIVE DESIGNS, INC.
CERTIFICATIONS
I, Joseph Riccelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Innovative Designs, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 17, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
| Chief Financial Officer, Principal Accounting Officer |
EXHIBIT 32.1
SECTION 906 CERTIFICATION
CERTIFICATION REQUIRED BY
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Innovative Designs, Inc. (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: June 17, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
| Chief Executive Officer |
EXHIBIT 32.2
SECTION 906 CERTIFICATION
CERTIFICATION REQUIRED BY
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Innovative Designs, Inc. (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: | June 17, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | |||
| Chief Executive Officer, Chief | |||
| Financial Officer, Principal | |||
| Accounting Officer | |||