UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended January 31, 2020

 

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

 

For the transition period from ______________ to ______________

 

Commission File Number: 000-51791

 

INNOVATIVE DESIGNS, INC.

(Exact name of registrant as specified in its charter)

 

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

 

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

 

(412) 799-0350

(Registrant’s telephone number, including area code)

 

N/A

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

 

Indicate by check mark whether the registrant (1) has fled all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such fling requirements for the past 90 days. Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

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

 

As of April 30, 2020 there were 30,716,560 shares of the Registrant’s common stock, par value $.0001 per share, outstanding.

 

Transitional Small Business Disclosure Format: YES ☐ NO ☒

 

 

 

Innovative Designs, Inc.

 

Index

 

Form 10-Q for the Quarter Ended January 31, 2020

 

		Page No.
Part I -- Financial Information
Item 1.	Condensed Financial Statements (Unaudited)
	Condensed Balance Sheets as of January 31, 2020 (Unaudited) and October 31, 2019	1 - 2
	Condensed Statements of Operations for the Three Month Periods Ended January 31, 2020 and 2019 (Unaudited)	3
	Condensed Statements of Changes in Stockholders’ Equity as of January 31, 2020 (Unaudited) and October 31, 2019	4
	Condensed Statements of Cash Flows for the Three Month Periods Ended January 31, 2020 and 2019 (Unaudited)	5
	Notes to the Condensed Financial Statements	6 – 11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12 – 14
Part II -- Other Information
Items 1, 2, 3, and 4T.		15 – 16
Item 6.	Exhibits	17 – 18

 

 

ITEM 1.

CONDENSED FINANCIAL STATEMENTS

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED BALANCE SHEETS

January 31, 2020 (Unaudited) and October 31, 2019

 

ASSETS

 

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

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED BALANCE SHEETS (CONTINUED)

January 31, 2020 (Unaudited) and October 31, 2019

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

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

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED STATEMENTS OF OPERATIONS

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

 

		Three Month Periods Ended January 31,
		2020				2019
REVENUES - NET		$	47,426			$	109,344
OPERATING EXPENSES:
Cost of sales			20,388				66,204
Selling, general and administrative expenses			91,545				270,904
			111,933				337,108
LOSS FROM OPERATIONS			(64,507	)			(227,764	)
OTHER INCOME (EXPENSE)
Miscellaneous income (expense)			833				(686	)
Impairment loss on assets held for sale			-				(17,000	)
Interest expense			(5,216	)			(4,918	)
Total other income (expense)			(4,383)				(22,604	)
NET LOSS		$	(68,890	)		$	(250,368	)
PER SHARE INFORMATION
Net Loss Per Common Share		$	(0.002	)		$	(0.009	)
Weighted Average Number of Common Shares Outstanding			30,260,473				27,228,038

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

January 31, 2020 (Unaudited) and October 31, 2019

 

		Common Stock Number of Shares				Common Stock Amount				Additional Paid-in Capital				Accumulated Deficit				Total
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

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDESNSED STATEMENTS OF CASH FLOWS

For the Three Month Period Ended January 31, 2020 and 2019 (Unaudited)

 

		For the Three Month Periods Ended
		January 31, 2020				January 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(68,890	)		$	(250,368	)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts			(4,163	)			1,034
Impairment loss on assets held for sale			-				17,000
Depreciation			8,327				8,327
Amortization of right of use asset			8,947				-
(Increase) decrease from changes in:
Accounts receivable			9,296				(33,238	)
Inventory			20,129				47,118
Prepaid expenses			-				1,651
Increase (decrease) from changes in:
Accounts payable			2,460				128,440
Right of use lease liability			(8,947	)			-
Accrued interest expense			(3,490	)			363
Accrued expenses			-				141
Net cash used in operating activities			(36,331	)			(79,532	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock			49,000				61,200
Proceeds from shareholder advances			39,500				-
Payments on shareholder advances			(10,400	)			(11,000	)
Payments on notes payable			(4,470	)			(5,090	)
Net cash provided by financing activities			73,630				45,110
Net decrease in cash			37,299				(34,422	)
CASH, BEGINNING OF YEAR			34,525				112,203
CASH, END OF THE PERIOD		$	71,824			$	77,781
Supplemental disclosure of cash flow information:
Cash paid for interest		$	8,706			$	4,555

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

NOTE 1.

BASIS OF PRESENTATION

 

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly Innovative Designs, Inc.’s financial position as of January 31, 2020, the changes therein for the three month periods then ended and the results of operations for the three month periods ended January 31, 2020 and 2019.

 

The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. For additional information, reference is made to the Innovative Designs, Inc.’s annual report on Form 10-K for the fiscal year ended October 31, 2019. The results of operations for the three month periods ended January 31, 2020 and 2019 are not necessarily indicative of operating results for the full year.

 

NOTE 2.

RIGHT OF USE ASSETS AND LEASE LIABILITIES

 

During the quarter ended April 30, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must be recorded a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the lease term (referred to at the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. This election requires the lessee to recognize lease expense on a straight-line basis over the lease term. The right of use assets and corresponding right of use liabilities have been recorded using the present value of the leases. See Notes 11 and 12 within the financial statement for additional disclosure on leases

 

NOTE 3.

GOING CONCERN

 

The Company had a net loss of $68,890 and a negative cash flow from operations of $36,331 for the three month period ended January 31, 2020. In addition, the Company has an accumulated deficit of $9,637,596. Management of the Company has represented that they will be able to continue to support the Company’s cash needs through sales, sales of Company stock, and borrowings from private parties.

 

NOTE 4.

ACCOUNTS RECEIVABLE

 

Management evaluates its receivables on a quarterly basis to assess the validity of remaining receivables. Management has determined that there is significant doubt regarding the receivable balance over 90 days of $6,407 and $10,409 as of the quarter ended January 31, 2020 and as of the fiscal year ended October 31, 2019, respectively. Management has applied an allowance on all balances in excess of 90 days.

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

NOTE 5.

INVENTORY

 

Inventory consists principally of purchased apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis. Innovative Designs, Inc. (the “Company”) has decided to discontinue the selling of its hunting and swimming line of apparel. The Company has booked a reserve against apparel inventory at January 31, 2020 and October 31, 2019 of $75,468. Management has determined that no allowance is currently necessary on their House Wrap Inventory. Management will continue to evaluate its obsolete inventory reserve throughout the year and make adjustments as needed.

 

NOTE 6.

EARNINGS PER SHARE

 

The Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 260 “Earnings per Share”. Basic earnings (loss) per share is calculated by dividing income (loss) by the weighted average number of common shares outstanding for the period. During the periods presented, the Company only has common stock outstanding. As a result, diluted earnings per share was not calculated.

 

NOTE 7.

INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC Topic 740 "Income Taxes", which requires an asset and liability approach for financial reporting purposes.

 

Deferred income taxes are provided for differences between the tax bases of assets and liabilities and the financial reporting amounts at the end of the period, and for net operating loss and tax credit carryforwards available to offset future taxable income. Changes in enacted tax rates or laws result in adjustments to recorded deferred tax assets and liabilities in the periods in which the tax laws are enacted or tax rates are changed. The Company will continue to evaluate its income tax obligation throughout the year and will record a tax provision when it is necessary.

 

NOTE 8.

SHIPPING AND HANDLING COSTS

 

The Company pays shipping and handling costs on behalf of customers for purchased apparel merchandise. These costs are billed back to the customer through the billing invoice. The shipping and handling costs associated with merchandise ordered by the Company are included as part of inventory as these costs are allocated across the merchandise received. With House Wrap orders, the customer pays the shipping cost. The shipping and handling costs associated with customer orders was approximately $2,800 and $4,400 for the three month periods ended January 31, 2020 and 2019, respectively.

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

NOTE 9.

COMMON STOCK

 

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

 

During the three month period ended January 31, 2019, the Company sold 360,000 shares of common stock to seven investors for total proceeds of $61,200. The stock was issued for $0.17 per share. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

 

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 January 31, 2020, the Company has made payments of $500,000 in accordance with the agreement and made a $100,000 pre-payment as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $17,000 of additional expenses related to shipping, site improvements and installation of the equipment. Due to various environmental regulations regarding propane emitted from the machine into the air and other costs to assemble the machine the Company expects to incur costs in excess of the current deposit agreement. Management of the Company currently cannot reasonably estimate the costs. During the three month period ended January 31, 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 three month period ended January 31, 2019 was $17,000.

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

NOTE 11.

RIGHT OF USE ASSETS

 

The Company entered into a month to month verbal lease at the time the Company was formed that is classified as right of use asset and lease liability. The lease for the Company’s office space is estimated to be through June 2022. In accordance with ASU 2016-02, the Company calculated the present value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office lease. Applying the commercial rate, the Company calculated the present value of $150,496 for the office lease as of January 31, 2020.

 

As of January 31, 2020, the right of use assets associated with future operating lease is as follows:

 

Total present value of right of use asset under lease agreement		$	150,496
Amortization of right of use asset			(43,533	)
Total right of use asset as of January 31, 2020		$	106,963
Less current portion due within one year			37,042
Long-term right of use asset		$	69,921

 

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

 

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

 

2021		$	37,042
2022			39,131
2023			30,790
		$	106,963

 

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

 

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

 

Total future minimum lease payments		$	115,500
Less present value discount			8,537
Total right of use lease liability as of January 31, 2020			106,963
Less current portion due within one year			37,042
Long-term right of use liability		$	69,921

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

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

 

		Total future minimum lease payments				Present value discount				Right of use lease liability
2021		$	42,000			$	4,958			$	37,042
2022			42,000				2,869				39,131
2023			31,500				710				30,790
		$	115,500			$	8,537			$	106,963

 

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 three month periods ended January 31, 2020 and 2019:

 

		2020				2019
Revenues:
Apparel		$	43,661			$	94,219
House Wrap			3,765				15,125
Total Revenues		$	47,426			$	109,344
Assets:
Apparel		$	459,131			$	434,289
House Wrap			1,104,142				1,163,673
Total		$	1,563,273			$	1,597,962
Depreciation:
Apparel		$	2,372			$	2,372
House Wrap			5,955				5,955
Total		$	8,327			$	8,327

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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

 

NOTE 14.

LEGAL PROCEEDINGS

 

On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company does not have substantiation of claims made by the Company regarding the R value and energy efficiency of its INSULTEX House Wrap products. The complaint asks as to redress a rescission of revenue the Company received from the sale of House Wrap and a permanent injunction.

 

On February 24, 2020, the District Court released an opinion granting the Company’s motion to have the expert testimony of the FTC’s expert witness struck. The Company has filed a Rule 529 (c) motion.

 

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

 

NOTE 15.

SUBSEQUENT EVENTS

 

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

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Reform Act of 1995. All statements other than statements of historical fact, including statements regarding future results of operation, made in this Quarterly Report on Form 10-Q are forward-looking statements. We use words such as expects, believes, intends, and similar expressions to identify forward-looking statements. Forward looking-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, an adverse outcome in our legal matter with the Federal Trade Commission, competition in our cold weather markets, our inability to secure sufficient funding to maintain and/or expand our current level of operations and the seasonality of our cold weather product line. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019. The Company undertakes no obligation to publicity update or revise any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law.

 

Background

 

Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We market and sell clothing products such as outdoor apparel, and cold weather gear called “Arctic Armor” that are made from INSULTEX, a material with buoyancy, scent block and thermal resistant properties. We also market our House Wrap product line which is a building material with thermal qualities. House Wrap is also made from INSULTEX. 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.

 

 

INNOVATIVE DESIGNS, INC.

 

Results of Operations

 

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

 

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

 

		Three Month								Three Month
		Period Ended								Period Ended
		January 31,				% of				January 31,				% of				Increase
		2020				Sales				2019				Sales				(Decrease)				% Change
REVENUE - NET		$	47,426				100.00	%		$	109,344				100.00	%		$	(69,024	)			-56.63	%
OPERATING EXPENSES
Cost of sales			20,388				42.99	%			66,204				60.55	%			(56,636	)			-69.20	%
Selling, general and administrative expenses			91,545				193.03	%			270,904				247.75	%			(169,388	)			-66.21	%
Loss from operations			(64,507	)			-136.02	%			(227,764	)			-208.30	%			157,000				-71.68	%
OTHER INCOME (EXPENSE)
Miscellaneous income (expense)			833				1.76	%			(686	)			-0.63	%			7,776				-221.43	%
Impairment loss on  assets held for sale			-				0.00	%			(17,000	)			-15.55	%			17,000				100.00	%
Interest expense			(5,216	)			-11.00	%			(4,918	)			-4.50	%			(298	)			6.06	%
Net loss		$	(68,890	)			-170.86	%		$	(250,368	)			-228.97	%		$	181,478				-72.48	%

 

Revenues for the three month period ended January 31, 2020 were $47,426 compared to revenues of $109,344 for the three month period ended January 31, 2019. The decrease is caused, by a decrease in HouseWrap sales by approximately $12,000 and apparel of approximately $58,000. In December 2016, we voluntarily ceased advertising our House Wrap products as a result of the legal action brought by the Federal Trade Commission (“FTC”). See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment product sales. During the nine month period ended January 31, 2020 House Wrap sales totaled $3,765 in comparison with $15,125 during the three month period ended January 31, 2019. Our net loss for the three month period ended January 31, 2020 was ($68,890).

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

Liquidity and Capital Resources

 

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

 

Short Term: We will continue to fund our operations from sales and the sale of our securities. We continue to pay our creditors when payments are due. The Company reached an agreement with the manufacturer of the INSULTEX material to purchase a machine capable of producing the INSULTEX material. Also included in the proposed agreement will be the propriety formula that creates INSULTEX. The Company took delivery of the equipment in December 2015 It is the Company’s current plan to sell the equipment. The Company has currently made deposits of $600,000 on the equipment. The Company has incurred $17,000 of additional expenses related to shipping and other purchase cost which was written off during 2019. See Note 10 of the Notes to the Condensed Financial Statements.

 

Long Term: The Company will continue to fund its operations from revenues, borrowings from private parties and the possible sale of our securities. Should we not be able to rely on the private sources for borrowing and /or increased sales, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods.

 

 

INNOVATIVE DESIGNS, INC.

 

PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDING

 

On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company does not have substantiation of claims made by the Company regarding the R value and energy efficiency of its INSULTEX House Wrap products. The complaint asks as to redress a rescission of revenue the Company received from the sale of House Wrap and a permanent injunction.

 

On February 24, 2020, the District Court released an opinion granting the Company’s motion to have the expert testimony of the FTC’s expert witness struck. The Company has filed a Rule 529 (c) motion.

 

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

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

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

 

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

 

ITEM 3.

QUANTITATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information otherwise required by this Item.

 

 

INNOVATIVE DESIGNS, INC.

 

ITEM 4T.

CONTROLS AND PROCEDURES

 

Management has developed and implemented a policy and procedures for reviewing, on a quarterly basis, our disclosure controls and procedures. During the period ended January 31, 2020, our principle executive/financial officer concluded that these controls and procedures were ineffective. At this time, we do not have the financial resources to employ a financial staff with accounting and financial expertise. Once we have the necessary financial resources, we plan to hire and designate an individual responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. During the first, second, third and fourth quarter of 2019, the Company was not able to close the books and records in a timely fashion. Consequently, the Company was unable to file its Form 10-Q for the period ended January 31, 2020 within the timeline established by the SEC and was required to seek an extension for filing the form.

 

Changes in Internal Control Over Financial Reporting

 

During the most recent fiscal quarter, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13(a)-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Until the Company has the financial resources to employ a financial staff with accounting and financial expertise, to be able to properly account for internal financial reporting, errors that may have a material effect on the financial statements have the potential to occur.

 

 

INNOVATIVE DESIGNS, INC.

 

ITEM 6.

EXHIBITS

 

*3.1		Revised Certificate of Incorporation
**3.2		By-Laws
31.1		Rule 13a - 14a Certification of Chief Executive Officer and Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
*		Incorporated by reference to the Company’s Form 10-K filed February 12, 2015
**		Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003
99***		Incorporated by reference to the Company’s Current Report on Form 8-k, filed November 4, 2016

 

 

INNOVATIVE DESIGNS, INC.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Innovative Designs, Inc.
	Registrant
Date: April 30, 2020	by:	/s/ Joseph Riccelli
	Joseph Riccelli,
	Chief Executive Officer and Chief Financial Officer