IVDN 10-Q
Innovative Designs Inc (IVDN)
A UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13l OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from _______ to ________.
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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.
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Innovative Designs, Inc.
Index
Form 10-Q for the Quarter Ended January 31, 2024
| Part I -- Financial Information | Page No. | |
| Item 1. | Condensed Financial Statements (Unaudited) | |
| Condensed Balance Sheets as of January 31, 2024 (Unaudited) And October 31, 2023 | 5 | |
| Condensed Statements of Operations for the Three Month Periods Ended January 31, 2024 and 2023 (Unaudited) | 7 | |
| Condensed Statements of Changes in Stockholders’ Equity as of January 31, 2024 (Unaudited) and October 31, 2023 | 8 | |
| Condensed Statements of Cash Flows for the Three Month Periods Ended January 31, 2024 and 2023 (Unaudited) | 9 | |
| Notes to the Condensed Financial Statements | 10 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
| Part II -- Other Information | ||
| Items | 1, 2, 3, 4, 4T and 5. | 17 |
| Item 6. | Exhibits | 19 |
2
INNOVATIVE DESIGNS, INC.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
JANUARY 31, 2024
3
TABLE OF CONTENTS
4
| CONDENSED BALANCE SHEETS |
| JANUARY 31, 2024 (UNAUDITED) AND OCTOBER 31, 2023 |
| January 31, 2024 | October 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid rent | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT, net | ||||||||
| OTHER ASSETS: | ||||||||
| Deposits on inventory | | |||||||
| Advance to employees | ||||||||
| Deposits on equipment | ||||||||
| Total other assets | ||||||||
| TOTAL | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
5
| CONDENSED BALANCE SHEETS |
| JANUARY 31, 2024 (UNAUDITED) AND OCTOBER 31, 2023 |
| January 31, 2024 | October 31, 2023 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | |||||||
| Current portion of notes payable | ||||||||
| Accrued interest of stockholder loans | ||||||||
| Current portion of stockholder loans | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES, | ||||||||
| Long-term portion of notes payable | ||||||||
| Total long-term liabilities | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Common stock, $ par value, shares authorized, and and issued and outstanding | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| TOTAL | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
6
INNOVATIVE DESIGNS, INC.
| CONDENSED STATEMENTS OF OPERATIONS | ||||||||
| THREE MONTHS ENDED JANUARY 31, 2024 AND 2023 (UNAUDITED) | ||||||||
| Three Months Ended January 31, | ||||||||
| 2024 | 2023 | |||||||
| REVENUES, net | $ | |||||||
| OPERATING EXPENSES: | ||||||||
| Cost of sales | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Miscellaneous income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Depreciation | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| PER SHARE INFORMATION - UNDILUTED: | ||||||||
| Net income (loss) per common share | ( | ) | ( | ) | ||||
| Weighted average number of common shares outstanding | ||||||||
| PER SHARE INFORMATION - DILUTED: | ||||||||
| Net income (loss) per common share | ( | ) | ( | ) | ||||
| Weighted average number of common shares outstanding | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
7
INNOVATIVE DESIGNS, INC.
| CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| THREE MONTHS ENDED JANUARY 31, 2024 AND 2023 (UNAUDITED) |
| Common Stock | Common Stock To Be | Additional Paid-In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Issued | Capital | Deficit | Total | |||||||||||||||||||
| Balance at October 31, 2023 | ( | ) | ||||||||||||||||||||||
| Sale of stock | ||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2024 | ( | ) | ||||||||||||||||||||||
| Balance at October 31, 2022 | ( | ) | ||||||||||||||||||||||
| Sale of stock | ||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2023 | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
8
INNOVATIVE DESIGNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2024 AND 2023 (UNAUDITED)
| Three Months Ended January 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Common stock issued for services | ||||||||
| Depreciation | ||||||||
| Gain on sale of asset | ( | ) | ||||||
| (Increase) decrease from changes in: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid rent | ( | ) | ||||||
| Deposits on inventory | ( | ) | ||||||
| Advances to employees | ( | ) | ||||||
| Increase (decrease) from changes in: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued interest expense | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Deposits on equipment | ||||||||
| Proceeds from sale of equipment | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of stock | ||||||||
| Payments on shareholder advances | ( | ) | ( | ) | ||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF YEAR | ||||||||
| CASH, END OF THE PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash financing activities - common stock issued for services | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
9
INNOVATIVE
DESIGNS, INC.
NOTES TO FINANCIAL STATEMENTS
| 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 (the “Company”) financial position as of January 31, 2024, the changes therein for the three month periods then ended and the results of operations for the three month periods ended January 31, 2024 and 2023.
The condensed financial statements included in the Form 10-Q (the “Form”) 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 Company’s annual report on Form 10-K for the fiscal year ended October 31, 2023. The results of operations for the three month periods ended January 31, 2024 and 2023 are not necessarily indicative of operating results for the full year.
| 2. | 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 ($
| 3. | ACCOUNTS RECEIVABLE |
Accounts receivable are reported at
their net realizable value. The Company 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. There were
| 4. | OPENING AND CLOSING BALANCE OF RECEIVABLES |
The
opening balance of accounts receivable was $
| 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 as of January 31, 2024 and October 31, 2023 of $
| 6. | WARRANTIES |
The Company provides a ten-year limited warranty covering defects in workmanship. These warranties are included in the contract and do not provide customers with a service in addition to assurance of compliance with agreed-upon specifications. The Company does not consider these assurance-type warranties to be separate performance obligations.
10
INNOVATIVE DESIGNS,
INC.
NOTES TO FINANCIAL STATEMENTS
Management has determined that no warranty reserve is currently necessary on the Company’s products. Management will continue to evaluate the need for a warranty reserve throughout the year and make adjustments as needed.
| 7. | NOTES PAYABLE |
During
December 2023, the Company entered into a convertible promissory note in the amount of $
During
2005, the Company entered into an agreement with the U.S. Small Business Association. The note is payable in monthly installments of
$
| 8. | STOCKHOLDER LOANS |
Stockholder
loans to the Company, including accrued interest totaled $
| 9. | REVENUES |
Revenues are measured based on the amount of consideration specified in a contract with a customer. The Company recognizes revenue when and as performance obligations (i.e., obligations to transfer goods and/or services) are satisfied, which generally occurs with the transfer of control of the goods or services to the customer.
To determine proper revenue recognition, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether a combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment, and the decision to combine contracts or separate a combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. Contracts are considered to contain a single performance obligation if the promise to transfer individual goods or services is not separately identifiable from other promises in the contracts.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
| 10. | EARNINGS PER SHARE |
The
Company calculates net 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
| 11. | INCOME TAXES |
The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes”, which requires an asset and liability approach for financial reporting purposes.
11
INNOVATIVE DESIGNS,
INC.
NOTES TO FINANCIAL STATEMENTS
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.
| 12. | 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. | COMMON STOCK |
During
the three month period ended January 31, 2024, the Company sold shares of common stock to eight investors for total proceeds
of $
During
the three month period ended January 31, 2023, the Company sold shares of common stock to one investor for total proceeds of
$
| 14. | 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 $
During
the fiscal year ended October 31, 2022, the Company made deposits on a separate piece of equipment of $
Total
overall deposits on equipment as of January 31, 2024 and 2023 were $
12
INNOVATIVE DESIGNS,
INC.
NOTES TO FINANCIAL STATEMENTS
| 15. | LEASE |
FASB
ASC Topic
842, “Leases”, establishes a right of use (“ROU”) model that requires a lessee to recognize a ROU asset
and lease liability on the condensed balance sheets. ROU assets and lease liabilities are recognized at the commencement date based on
the present value of lease payments over the lease term. ROU assets are reduced each period by an amount equal to the difference between
the lease expense and the amount of interest expense on the lease liability, using the effective
interest method. The Company used the average commercial real estate interest rate of
| 16. | SEGMENT INFORMATION |
The Company has organized operations into two segments based on an internal management reporting process that provides segment information for purposes of making financial decisions and allocating resources.
The following tables present the Company’s business segment information for the nine month period ended January 31, 2024 and 2023:
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total revenues | $ | $ | ||||||
| Assets: | ||||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total assets | $ | |||||||
| Depreciation: | ||||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total depreciation | $ | $ | ||||||
| 17. | LEGAL PROCEEDINGS |
On November 4, 2016, the Federal Trade Commission (“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 to redress a rescission of revenue the Company received from the sale of the 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.
13
INNOVATIVE DESIGNS,
INC.
NOTES TO FINANCIAL STATEMENTS
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 U.S. 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 FTC 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 INSULTEX 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. On June 29, 2022, a settlement order was signed by
the Court. Pursuant to the Order, the FTC paid the Company $
| 18. | ADOPTED PRONOUNCEMENT |
The requirements of the following FASB statement were adopted for the Company’s condensed financial statements:
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 introduces a new impairment model, the current expected credit loss (“CECL”) model. The model applies to most assets that are measured at amortized cost and requires those assets to be presented at the net amount expected to be collected. In addition, credit losses on available-for-sale debt securities are to be recognized through an allowance account. ASU 2016-13 also expands existing disclosure requirements. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods therein, and requires retrospective application. The Company adopted the new standard effective November 1, 2023, and there were no material changes to the condensed balance sheets, condensed statements of operations, condensed statements of changes in stockholders’ equity, and condensed statements of cash flows as a result of the adoption.
| 19. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through April 26, 2024 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.
14
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, 2023.
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 statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, our ability to sell out HouseWrap product line, our inability to secure sufficient funding to maintain and/or expand our current level of operations. 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, 2023. 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. |
15
INNOVATIVE DESIGNS, INC.
Results of Operations
Comparison of the Three-Month Period Ended January 31, 2024, with the Three Month Period Ended January 31, 2023
| Three Month | Three Month | |||||||||||||||||||||||
| Period Ended | Period Ended | |||||||||||||||||||||||
| 31-Jan | % | 31-Jan | % | Increase | ||||||||||||||||||||
| 2024 | of Sales | 2023 | of Sales | (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | $ | 65,886.00 | $ | 71,647.00 | ($ | 5,761.00 | ) |
| -8.7 | % | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | $ | 34,824.00 | 52.9 | % | $ | 17,010.00 | 23.7 | % | $ | 17,814.00 | 51.2 | % | ||||||||||||
| Selling, general and administrative expenses | $ | 85,682.00 | 130.0 | % | $ | 113,882.00 | 158.9 | % | ($ | 28,200.00 | ) | -32.9 | % | |||||||||||
| Total Operating Expenses | $ | 120,506.00 | $ | 130,892.00 | ||||||||||||||||||||
| Loss from operations | ($ | 54,620.00 | ) | -82.9 | % | ($ | 59,245.00 | ) | -82.7 | % | $ | 4,625.00 | -8.5 | % | ||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Miscellaneous Income (expense) | $ | 0.00 | $ | 7,519.00 | 100.0 | % | ($ | 7,519.00 | ) | 100.0 | % | |||||||||||||
| Interest expense | ($ | 7,608.00 | ) | -11.5 | % | ($ | 6,599.00 | ) | -9.2 | % | ($ | 1,009.00 | ) | 13.3 | % | |||||||||
| Depreciation | ($ | 1,165.00 | ) | ($ | 769.00 | ) | -1.1 | % | ($ | 396.00 | ) | 34.0 | % | |||||||||||
| Total other income (expense) | ($ | 8,773.00 | ) | $ | 151.00 | 0.2 | % | ($ | 8,924.00 | ) | 101.7 | % | ||||||||||||
| Net Loss | ($ | 63,393.00 | ) | -96.2 | % | ($ | 59,094.00 | ) | -82.5 | % | ($ | 4,299.00 | ) | 6.8 | % | |||||||||
Revenues for the three-month period ended January 31, 2024, was $65,886 compared to revenues of $71,647 for the three-month period ended January 31, 2023. The decrease in revenue is primarily attributable to less sales of our cold weather apparel product. We are only selling this product line from our existing inventory which has limited sizes and colors. As a result, the distributors we had for this product line no longer are ordering any of our apparel. See Note 16 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment products sales. Our net loss for the three-month period ended January 31, 2024, was $ 63,394 compared to a net loss of $ 59,094 for the same period in 2023.
Our selling, general and administrative expenses were $85,682 for the three-month period ended January 31, 2024, compared to $113,882 for the three-month period ended January 31, 2023.
Liquidity and Capital Resources
During the three-month period ended January 31, 2024, we funded our operations from revenues from sales, a loan and sale of our common stock.
During the period we raised $131,000 from the sale of our common stock in private placement. On stockholder exercised warrants to purchase common stock and we received $10,000. In December 2023, we also issued a promissory note in the principal amount of $50,000. The term of the note is one year and the interest rate is 6%. We granted a security interest in $100,000 worth of our inventory. The note is convertible at the holder’s option into shares of our common stock at the rate of $.20 per share.
16
INNOVATIVE DESIGNS, INC.
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 the financial resources available to the Company, finding a suitable facility and bringing technical personnel from abroad to install the equipment. The Company has currently made deposits of $637,000 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 14 of the Notes to the Condensed Financial Statements.
The new quality control testing equipment for our House Wrap Product line has been built. We have reached an agreement with the vendor on the final amount owed. The total cost of the equipment was approximately $114,000. We expect to accept delivery of the equipment when our testing lab has secured a new testing facility. Once the equipment is installed it will have to go through a certification process. Once the testing equipment is certified, we intend to begin the process of having Insultex certified by ICC Evaluation Services, LLC (“ICC-ES”). ICC-ES certifies, among other items, building materials and products of which our House Wrap falls under. The reason we need to have ICC-ES certification is that we believe in order to get large orders for House Wrap, ICC-ES certification will be required. The other component part of the House Wrap produced by a third party is ICC-Es certified. Getting ICC-ES certification is costly and time consuming.
Long Term: The Company will continue to fund its operations from revenues, borrowings from private parties and the possible sale of our securities. Should we not be able to rely on the private sources for borrowing and /or increased sales, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods and our efforts to produce our own INSULTEX would be delayed.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
See Legal Proceedings set forth in Part I Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2023.
ITEM 1A Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 1B Climate-Related Disclosure
n/a
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 1, 2023, we sold 100,000 Units each to two investors for total proceed of $46,000. Each Unit consisted of one share of common stock and one warrant to purchase a share of common stock at $.25 per share. The term of the warrants are two years.
On November 28, 2023, we issue 630,000 shares of our common stock to our landlord in payment of back rent valued at $113,400. We also issued 40,000 shares to a director for consulting services at a price of $20 per share.
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INNOVATIVE DESIGNS, INC.
On December 27, 2023, we sold 25,000 Units to one investor and received proceeds of $5,000.
On December 21, 2023, we sold 32,000 Units to one investor and received proceeds of $5,120.
On January 10, 2024, we sold 60,000 Units to one investor and received proceeds of $10,800.
On January 15, 2024, we sold 50,000 Units to one investor and received proceeds of $10,000. We also sold 277,778 Units to one investor and received proceeds of $50,000.
On January 17, 2024, we sold 25,00 Units to one investor and received proceeds of $5,000.
On January 22, 2024, we sold 55,555 Units to one investor and received proceeds of $10,000.
On January 24, 2024, we sold 55,555 Units to one investor and received proceeds of $10,000.
On February 8, 2024, we sold 55,555 Units to one investor and received proceeds of $10,000.
We relied on Section 4 (2) of the Securities Act of 1933, as amended, and regulation D promulgated thereunder as the exemptions from registration for the above transactions.
ITEM 3. Defaults upon Senior Securities
None
Item 4 Mine Safety Disclosures
Not applicable
ITEM 4T. CONTROLS AND PROCEDURES
As of January 31, 2024, our Chief Executive Officer/Chief Financial Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:
| ● | 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.
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.
Item 5. Other Information.
During the quarter ended January 31, 2024, no director or officer, as defined
in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended ( the “Exchange Act”)
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INNOVATIVE DESIGNS, INC.
ITEM 6. EXHIBITS
| *3.1 | Revised Certificate of Incorporation |
| **3.2 | By-Laws |
| 10.0 | Form of convertible note |
| 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 |
| 32.2 | 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 |
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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, 2024 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli, Chief Executive Officer and Chief Financial Officer |
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