IVDN 10-K
Innovative Designs Inc (IVDN)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Annual
report under section 13 or 15(d) of the Securities Act of 1934. For the fiscal year ended
|
| Transition report under section 13 or 15(d) of the Securities Act of 1934. For the Transition period from _______ to ________. |
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |
| (Zip Code) | ||
| (Address of Principal Executive Offices) |
(Registrant’s telephone number including area code)
Securities to be registered pursuant
to Section 12(b) of the Exchange Act:
________________
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
________________
Securities registered or to be registered
pursuant to Section 12(g) of the Exchange Act:
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐Yes
☒
1
Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or Section 15 (d) of the Act.
☐Yes
☒
Check
whether the issuer (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 past 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.
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 for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulation S-K (sec. 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check One)
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | |
Emerging
reporting 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
☐
The issuer’s revenues for its most recent fiscal year were $ 1,362,538
The aggregate market value of the voting and non-voting
stock held by non-affiliates of the registrant computed by reference to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal
quarter was $
The number of shares of the registrant’s common stock outstanding on February 17, 2025 was
Transitional Small Business Disclosure Format: Yes ☐ No ☒
2
ITEM 1. DESCRIPTION OF BUSINESS.
The Company was incorporated in the State of Delaware on June 25, 2002. We operate in two separate business segments: a house wrap for the building construction industry and cold weather clothing. Both of our segment lines use products made from Insultex, which is a low-density polyethylene semi-crystalline, closed cell foam in which the cells are totally evacuated. with buoyancy, scent block, and thermal resistant properties. We have a license agreement directly with the owner of the Insultex technology. In December 2015, we took delivery of equipment capable of producing Insultex. Given the time and cost of bringing the equipment into production mode and our current financial condition until we are able to begin manufacturing Insultex, we will continue to operate under the license agreement for the manufacture of Insultex used in our products.
Other companies are free to purchase Insultex from us assuming that it is a company within the distribution jurisdiction that we have, which is worldwide with the exception of Korea and Japan. Other than Korea and Japan, we are the sole worldwide supplier/distributor of the Insultex material.
We offer the following products containing Insultex:
| ● | House Wrap: Our house wrap product is designed for the home building construction industry. This product, made from Insultex provides barrier protection plus moisture vapor transmission and approximately R-3 and R-6 value insulation. We no longer manufacture the R-3 product line and are only selling it from our inventory. House Wrap is a multi-ply weatherization membrane that provides a protective layer under a building’s outer covering that resists water and air infiltration, preventing mold and mildew buildup that could cause structural rotting. What differentiates Insultex from its competition is the fact that it offers an R-Value, the term used to measure thermal resistance, and is most commonly used when referring to the insulating qualities of a building structure, thus increasing energy efficiency. We are currently working on developing a House Wrap product line for the commercial building construction industry. |
| ● | In December 2016, we temporarily suspended any advertising of our House Wrap product line. We took this action as a result of a lawsuit brought by the Federal Trade Commission (‘FTC”). On September 24, 2020, a judgment was entered in favor of the Company against the FTC as to all claims by the FTC. The judgment was upheld on appeal by the FTC on July 22, 2021. In March of 2021, we resumed advertising for our House Wrap products. We also sell a tape that is designed to be used with the House Wrap. |
| ● | Floating Swimwear: Product under our product name “Swimeez”. Our swimwear is designed to be a swim aid. The interior lining of our swimwear product is made from INSULTEX, which enhances floatability. This product was discontinued during 2010 and we are only selling from our existing inventory. |
| ● | Hunting Apparel Line: Our hunting apparel provides almost total block from odors provided by the INSULTEX material. This product was discontinued during 2010 and we are only selling from our existing inventory. |
| ● | Arctic Armor Line: The Arctic Armor line, introduced in April of 2006, consists of a jacket, bib and gloves. The suit contains 3 layers of INSULTEX for uncompromised warmth and provides the user with guaranteed buoyancy. The gloves contain a single layer of INSULTEX and are windproof, waterproof and good to sub-zero temperatures as are the jacket and bibs. We are currently only selling from our existing inventory. |
| ● | Insultex Material: We sell Insultex material in bulk to non-competing customers. |
We also offer a product that helps restore the waterproof character of the outer side of our Arctic Armor clothing. In addition, we offer cold weather headgear and base insulation clothing product.
We no longer manufacture our apparel products containing Insultex. We only sell from our existing inventory..
3
For financial information regarding each segment, please see Note 10 of the Notes to Financial Statements appearing elsewhere in this Report.
The Insultex License and Manufacturing Agreement
Under the terms of the agreement between us and the Ketut Group, Ketut Group agrees to promptly deliver to Innovative Designs, Inc. within twenty-eight (28) days of receiving an order, all Insultex ordered by us. Under the terms of the agreement, we are required to pay a fixed amount per meter of Insultex. This fixed amount will not change under the agreement for a period of ten (10) years after the date of the agreement was signed, which was April 1, 2006. The agreement provides that after the ten (10) year period, the price of the Insultex shall be adjusted for a subsequent ten (10) year term, no more than twelve percent (12%) for the subsequent ten (10) year period. We order Insultex from time to time as needed and are not required to purchase any minimum amount of Insultex during the term of the agreement, and we are not required to make any minimum annual payment. However, should we place an order; any quantity ordered must be a minimum of 100,000 yards of Insultex. We are not required to pay any part of any sublicense fee that we receive from third party sub-licensees, and we are not required to pay any fees to the Ketut Group. This agreement will be in full legal force and effect for an initial term of ten (10) years from the date of its execution. We have the option to renew this agreement for up to three (3) successive terms of ten (10) years each by giving notice of our intention to so renew not less than ninety (90) days prior to the expiration of the then-current term. The Company has exercised the first ten-year renewal option. We purchased the equipment capable of producing Insultex from the Ketut Group.
COLD WEATHER CLOTHING PRODUCTS
Arctic Armor Line
Our Arctic Armor line products are intended for use by the following consumer groups that are in the Company’s target market for these products: We are currently only selling these products form our existing inventory.
● Ice fisherman
● Snowmobilers
● Utility workers
● Oil/gas pipeline workers
● Railroad workers
● Construction workers
● Ski resort workers; and
● Police and First Responders.
Website and Retailers
We sell both wholesale and retail products on our web site. Our web site, located at www.idigear.com, contains information on our products, technical information on Insultex insulation, e-commerce capabilities with “shopping cart”, wholesaler information and order forms, company contact information, and links to retailers that carry our products. We have obtained the services of The Hive Agency who assists us in designing and continually developing our website. Our products are offered and sold by retailers, distributors and through our web site in all states and Canada. Except for products sold through our web site, others who purchase our products do so at wholesale prices which they plan to sell at their retail prices or use within their industry.
4
Sales
We sell our products online, to distributors and through independent sales agents and agencies. Once we have made contact with a potential sales agency or solo agent, we evaluate their existing accounts, the capacity and potential for them to effectively push our products. We also look at their current product lines through the sales channel. Our primary market area is the outdoor industry which includes all activity done in cold weather. These activities include recreational such as hunting, ice fishing, snowmobiling, and industries such as oil and gas, utilities and construction. Once we agree to bring on an independent sales agent or agency, we enter into a standard agreement.
A typical sales representative agreement will have a term of one year with the right of either party to terminate upon thirty days written notice. We do not provide any free samples of our products and all sales expenses are the sole obligation of the sales agent.
Certain retailers buy directly from us. We have no verbal or written agreements with them. These retailers purchase our products strictly on a purchase order basis.
Swimeez Products
We distribute our Swimeez products through our web site.
Hunting Apparel Line
We distribute our hunting apparel through our web site.
Arctic Armor Line
We distribute the Arctic Armor Line through our web site, to retailers and to distributors across the United States and Canada. These products are also marketed to utility companies, oil/gas pipeline workers, railroad workers, police and first responders, and to construction workers.
HOUSE WRAP
House Wrap
In early January 2008, we announced that we had completed our research and development effort on a new use for Insultex as a house wrap for the home building construction industry. This house wrap provides barrier protection plus moisture vapor transmission and the feature of approximately R-3 and R-6 value insulation. The Insultex House Wrap was designed to specifically add enhanced insulating characteristics. In addition, the House Wrap is priced competitively with existing house wraps that do not provide any insulation. The development efforts were conducted by our own personnel and an outside consultant. In December 2016, we temporarily suspended any advertising for our House Wrap product line as we were in litigation with the Federal Trade Commission (“FTC”). The litigation has concluded as to the matters set forth in the FTC complaint and in March 2021, we resumed advertising for our House Wrap products.
Insultex House Wrap
During our last fiscal year, the following customers each accounted for more than ten percent of our total sales of our House Wrap product, A-Team Building Supplies, LLC (10.3%), and Built Link Solutions (77%).
Competition
Many companies offer a type of house wrap, some with insulating properties. These companies have large operations and are well financed. Some of the larger companies are DuPont, and Kimberly Clark. The Company expects to face intense competition with others who have much greater resources in the building construction supply industry.
Our marketing program consists of the following:
5
MARKETING COMPONENT
Website Development and Internet Marketing
We contract with marketing consultants to:
(a) increase visitation to our website.
(b) link with other established websites.
(c) issue press releases to on-line publications.
(d) conduct banner advertising.
(e) develop arrangements with online retailers that purchase our products on a wholesale basis.
Sales Representatives
Our Vice President of sales and marketing works to:
(a) sell our merchandise to retail chain stores.
(b) initiate relationships with local and national recreational organizations; and
(c) provide support to our distributor representatives
Contract with Manufacturer
We utilize the services of sales agencies to represent our products in the United States and Canada.
Design and Develop
We presently use our own staff for services related to literature, displays, develop brochures, point-of-sale displays, mailers, media materials, and literature and sales tools for our sales representatives and manufacturer representatives. At such time as we have sufficient funding, we intend to contract out some of these services. We no longer manufacture the R-3 House Wrap.
Establish Wholesale
We are and continue to develop relationships or distribution relationships with retail points for our products to retail chain outlets and mass merchandisers to sell our products. We currently have two domestic distributors.. Each distributor has a certain territory. Our domestic distributors collectively cover the following jurisdictions: Texas, Oklahoma, Louisiana, North and South Dakota, Minnesota, Iowa, Michigan, Ohio, Pennsylvania, New York, West Virginia, Maryland, Colorado, Illinois, Maine, New Hampshire, New Jersey, Oregon, Vermont, Washington, Wisconsin, New Mexico and Virginia.
We ship wholesale product orders by United Parcel Service or trucking companies. Retail orders from our website are shipped United Parcel Ground Service or Federal Express overnight. The costs of shipping our finished goods are paid by our customers. We have not instituted any formal arrangements or agreements with United Parcel Service, Federal Express or trucking companies, and we do not intend to do so.
Any apparel inventory we maintain is stored at our warehousing facility. Our warehouse facility has the capacity to hold 250,000 units of finished products in inventory. Our House Wrap inventory is stored in our facility and in the facility that manufactures it.
6
In 2004, we were granted a trademark for our name “idigear” with the United States Patent and Trademark Office.
In 2007, we were granted the mark “Insultex” by the United States Patent and Trademark Office.
In 2011, we were granted a trademark for “Insultex House Wrap” by the United States Patent and Trademark Office.
The Company has rights under a U.S Patent titled “Composite Fabric Material and Apparel Made Therefrom” which issued April 30, 2013.
The Company has rights under a U.S. Paten titled “Composite Materials” which issued February 21, 2017, published on September 5, 2013.
The Company caused to have filed a utility patent application on December 18, 2009, titled “Composite House Wrap” which claimed priority to provisional patent application titled “Composite House Wrap” on December 18, 2008. A patent application was published on June 24, 2010. Although no patent issued from this original disclosure, this publication prevents third parties from patenting concepts obvious over these original teaching of the Company.
The Company caused to have filed a utility patent application on May 31, 2017, titled “Process for Forming Closed Cell Expanded Low density Polyethylene Foam and Products Formed Thereby”, published January 24, 2018. The Company then caused to have filed a utility patent application on July 31, 2020, which application was published February 11, 2021. In January 2023, the U.S Patent and Trademark Office issue a Notice of Allowance and a patent shall issue in due course.
Additional patent application on other property concepts are also being planned.
Our production costs are limited to the invoices we receive for Insultex from Ketut Group and our House Wrap product from the manufacturer.
Although we are not aware of the need for any government approval of our principal products, we may be subject to such approvals in the future.
United States and foreign regulations may subject us to increased regulation costs, and possibly fines or restrictions on conducting our business. We are subject, directly or indirectly, to governmental regulations pertaining to the following government agencies:
United States Customs Service
We are required to pay a 6.5% importation duty to the United States Customs Service on all imported products. We import Insultex from Indonesia from the Ketut Group, in accordance with our agreement with the Ketut Group.
United States Department of Labor’s Occupational Safety and Health Administration
Because our sub-manufacturers manufacture our completed products, we and our sub-manufacturers will be subject to the regulations of the United States Department of Labor’s Occupational Safety and Health Administration.
We are not aware of any governmental regulations that will affect the Internet aspects of our business. However, due to increasing usage of the Internet, a number of laws and regulations may be adopted relating to the Internet covering user privacy, pricing, and characteristics and quality of products and services. Furthermore, the growth and development of Internet commerce may prompt more stringent consumer protection laws imposing additional burdens on those companies’ conducting business over the Internet. The adoption of any additional laws or regulations may decrease the growth of the Internet, which, in turn, could decrease the demand for Internet services and increase the cost of doing business on the Internet. These factors may have an adverse effect on our business, results of operations, and financial condition.
7
Moreover, the interpretation of sales tax, libel, and personal privacy laws applied to Internet commerce is uncertain and unresolved. We may be required to qualify to do business as a foreign corporation in each such state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Any such existing or new legislation or regulation, including state sales tax, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations and financial condition.
We currently have no costs associated with compliance with environmental regulations. Because we do not manufacture our products, but rather they are manufactured by our sub-manufacturers, we do not anticipate any costs associated with environmental compliance. Moreover, the delivery and distribution of our products will not involve substantial discharge of environmental pollutants. However, there can be no assurance that we will not incur such costs in the future.
We estimate that all of our revenues will be from the sale of our products. We will sell our products at prices above our original cost to produce our products. We expect our product prices to be lower than network marketing companies, but higher compared with retail establishments that directly manufacture their own products.
We currently have a total of two full time employees. We hire part-time personnel as needed.
We have no collective bargaining or employment agreements.
Reports and Other Information to Shareholders
We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission’s public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Our filings are also available to the public from commercial document retrieval services and the Internet worldwide website maintained by the Securities and Exchange Commission at www.sec.gov.
ITEM 1A RISK FACTORS.
Lack of Sufficient Operating Funds-Going Concern
With unprecedented sales, the company is concerned about possible cash flow issues going forward. This problem exists due to the current payment terms with their manufacturers versus account payable terms that are issued to accounts. The company is attempting to negotiate better terms with its manufacturers in an attempt to avoid purchase order financing or obtaining a commercial loan.
Competition
The markets served by the Company are highly competitive. Competitive pricing pressure could result in loss of customers or decreased profit margins. Competition by product type includes the following:
The markets for our products are increasingly competitive. Our competitors have substantially longer operating histories, greater brand name and company name recognition, larger customer bases and greater financial, operating, and technical resources than us. Because we are financially and operationally smaller than our competitors, we may encounter difficulties in capturing market share. Our competitors are able to conduct extensive marketing campaigns and create more attractive pricing of their target markets than we are.
8
Some of our biggest competitors for our House Wrap product line are;
● Dupont
● Kimberly Clark.
Some of our biggest competitors in the Arctic Armor™ line are:
● Ice Clam Corporation
● Vexilar
● Mustang Survival
● Frabill
● Stryker
We compete in the following ways:
A. Emphasize the Advantages of our Products.
Arctic Armor Line
We emphasize the following characteristics and advantages of ourArctic Armor line products:
● light weight
● waterproof
● windproof
● sub-zero protection
● buoyancy
Insultex provides a scent barrier which we had a permeation test performed on at the Texas Research Institute Austin, Inc. The product was subjected to gas stimulant for an eight-hour period. The product was tested for permeation of the gas every three minutes for the duration of the test with almost no detection of the gas throughout the test. The testing was based upon accepted industry practices as well as the test method used.
HOUSE WRAP
Our House Wrap product
| ● | Utilize our web site to promote, market, and sell our products to consumers. |
| ● | Utilize professional sales representatives, distributors and manufacturer representatives to sell our products to established retailers, contractors and end users. |
9
Our products have the following disadvantages in comparison to the products of our competitors:
| ● | Lack of brand name recognition or recognition of the properties of Insultex and its advantages. We, as well as our products, have little brand name recognition compared to our competitors. And we may encounter difficulties in establishing product recognition. Also, although our products have insulation properties, the material “down” has a widespread and established reputation as being the superior insulation in the market, while the properties and advantages of Insultex has little public recognition. |
Cyclicality
The Company’s Arctic Armor apparel sales fluctuate based on temperature and weather conditions. Our products are suitable primarily for cold weather conditions. This will have a cyclical effect on sales. It also makes our revenues totally dependent on cold weather for this product line. For the fiscal year ended October 31, 2023, our cold weather products accounted for approximately 10% of our total revenue. Sales of the company’s Insultex House Wrap may fluctuate during the colder months as builders and contractors attain less business. Sales in the typically warmer states will see no changes.
Material Acquisition
The Company has only one supplier of Insultex, the special material which is manufactured within the apparel of our cold weather products and our House Wrap product. Additionally, we have one manufacturer that produces the apparel on behalf of the Company, located in Indonesia. Currently, we are only selling apparel from our inventory. Any delays in getting Insultex will adversely affect our revenue stream. Once we have our own equipment operating, we will be able to produce Insultex. We intend to use such Insultex for our House Wrap product.at the present time.
Geographic Concentration
Most of the Company’s sales for its cold weather clothing products to retailers are concentrated in colder climates of the United States and Canada.
Management
The Company is dependent on the management of Joseph Riccelli Jr, our Chief Executive Officer. The loss of Mr. Riccelli Jr’s services could have a negative effect on the performance and growth of the Company for some period of time.
Penny Stock Considerations
Our shares are “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 as equity securities with a price of less than $5.00. Our shares may be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or “accredited investor” must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth, exclusive of one’s residence, in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
| ● | Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; |
10
| ● | Disclose commissions payable to the broker-dealer and its registered representatives and current bid and offer quotations for the securities; |
| ● | Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and |
| ● | Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account. |
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our stock, which may affect the ability of shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities if our securities become publicly traded. In addition, the liquidity of our securities may be adversely affected, with a corresponding decrease in the price of our securities.
ITEM 1B Unresolved Staff Comments.
None.
ITEM 1C Cybersecurity
We do not maintain any information systems that would be subject to a cybersecurity threat. Our credit card processing is outsourced to a third party that uses a double authentication protocol.
ITEM 2. PROPERTIES.
We lease warehouse space for our inventory and raw materials at 124 Cherry Street, Etna, Pennsylvania. We also use this space as our principal executive offices. This facility encompasses 13,000 square feet of storage space on the first floor and 2,000 square feet for our sales department offices located on the second floor. We have entered into a verbal agreement with the owner of the building, and we pay $3,500 per month for the space. This facility is composed of: (a) warehouse and storage areas including four (4) shipping bays and a distribution area consisting of square footage to store upward of 250,000 finished goods products; and (b) four (4) offices, one (1) conference room, with presentation area and sample display and (2) bathrooms totaling approximately 2,000 square feet located on the second floor. Mr. Frank Riccelli is the uncle to our Chief Executive Officer and the owner of the property. The condition of our leased property is good and suitable for our needs.
ITEM 3. LEGAL PROCEEDINGS.
See Note 15 of the Notes to Financial Statement appearing elsewhere in this Report.
ITEM 4.
11
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our Common Stock is traded on the OTCQB tier under the symbol IVDN. As of February 17, 2025, we had 263 holders of record of our common stock (not including beneficial holders of stock held in street names).
We have one class of stock outstanding. We have no shares of our preferred stock outstanding.
Dividends
We have not declared any cash dividends on our stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, under SEC regulations, we are not required to furnish selected financial data.
Item 7. 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 appearing elsewhere in this report.
Disclosure Regarding Forward-Looking Statements
Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute “forward-looking statements” within the meaning of the federal securities laws. When used in this report, the words “believes,” “expects,” “estimates,” “intends,” and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, intentions, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. Examples of such statements in this report include descriptions of our plans and strategies with respect to developing certain market opportunities, and our overall business plan. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected we believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligations to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.
Background
Innovative Designs, Inc. (hereafter referred to as the “Company”, “we” or “our”) produces and sells a house wrap product using Insultex a material with thermal resistance and buoyancy properties. We also offer a cold weather product line called “Artic Armor” which also uses Insultex. We no longer produce any Artic Armor products. We are only selling from our existing inventory. We obtain Insultex through a license agreement with the owner and manufacturer of the material. In December 2015, we took delivery of equipment capable of producing our own Insultex. At such time as we have sufficient funding, we intend to put the equipment into production and use the Insultex from this equipment in the production of our House Wrap product and for the sale of Insultex to others.
12
Results of Operations
Comparison of the fiscal year ended October 31, 2024, with the fiscal year ended October 31, 2023.
The following table shows a comparison of the results of operations between the fiscal years ended October 31, 2024, and October 31, 2023:
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| Ended | % | Ended | % | Increase | ||||||||||||||||||||
| 10/31/2024 | of sales | 10/31/2023 | of sales | (Decrease) | % Change | |||||||||||||||||||
| REVENUE - NET | 1,382,734 | 347,763 | 1,034,971 | 297.61 | % | |||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 753,723 | 54.5 | % | 167,788 | 48.2 | % | 585,935 | 349.21 | % | |||||||||||||||
| Selling and G&A expenses | 490,838 | 35.5 | % | 464,065 | 133.4 | % | 26,773 | 5.77 | % | |||||||||||||||
| Total Operating Expenses | 1,244,561 | 90.0 | % | 631,853 | 181.7 | % | 612,708 | 96.97 | % | |||||||||||||||
| Income (loss) from operations | 138,173 | 10.0 | % | (284,090 | ) | -81.7 | % | 422,263 | 148.6 | % | ||||||||||||||
| Other income (expenses) | ||||||||||||||||||||||||
| Gain (loss) on sale of equipment | — | — | 7,519 | 2.2 | % | (7,519 | ) | -100.0 | % | |||||||||||||||
| Interest expense | (36,272 | ) | -2.6 | % | (24,807 | ) | -7.1 | % | (9,478 | ) | 38.2 | % | ||||||||||||
| Depreciation | (4,977 | ) | -0.4 | % | — | 0.0 | % | (4,977 | ) | 100.0 | % | |||||||||||||
| Total other income (expense) | (41,249 | ) | -3.0 | % | (17,288 | ) | -5.0 | % | (14,455 | ) | 83.6 | % | ||||||||||||
| Net income (loss) | 96,923 | 7.0 | % | (301,378 | ) | -86.7 | % | 398,302 | 132.2 | % | ||||||||||||||
| Weight average common shares outstanding - undiluted | 37,276,150 | 35,478,572 | ||||||||||||||||||||||
| Income (loss) per common share - undiluted | 0.002 | (0.010 | ) | |||||||||||||||||||||
Results of Operations
Revenues for the fiscal year ended October 31, 2024, were $1,382,734 compared to revenues of $347,763 for the comparable period ending October 31, 2023. House Wrap product revenue totaled $1,324,127 for the period compared to $312,983 for fiscal year ended October 31, 2023. All of the remaining revenues were derived from our Arctic Armor and related product lines which totaled $51,602 for the period compared to revenues of $34,780 for the fiscal year ended October 31, 2023. Revenues are net of returns and discounts. We continue to work on rebuilding our House Wrap product line brand.
Cost of goods sold for the fiscal year ended October 31, 2024, was $753,723, compared to $167,788 for the fiscal year ended October 31, 2023. The increase of $585,935 was due to the significant increase of the sales.
Selling, general and administrative expenses increased from $464,065 in fiscal year ended October 31, 2023, $490,838 in the fiscal year ended October 31, 2024. This increase reflects was also due to the increase of sales with more activities, specifically reflected in the professional fees of $86,557, payroll expenses of $147,906, shipping and storage of $61,124, etc.
13
During the fiscal year ended October 31, 2024, we funded our operations from revenues and the private sales of our common stock and the stock issuance for services which helped the cash flows. We received a total of $115,920 from the sale of stock. We will continue to fund our operations from revenues, private borrowings and the sale of our common stock until we are able to produce sales sufficient to cover our cost structure or to secure commercial lending arrangements.
On July 12, 2015, the Company reached an agreement with Ketut Jaya to purchase machinery and equipment utilized to produce the INSULTEX material. The purchase price is $700,000 and to be made in four installments. The first installment of $300,000 is to be made at the execution of the agreement. The second installment of $200,000 is to be made when the machinery and equipment is ready to be shipped to the United States. The third installment of $100,000 is to be made 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 October 31, 2016, the Company has made payments of $600,000. In addition to the final payments, the Company will have to have the equipment and machines installed and ensure that the machine can be operated in compliance with environmental regulations. The Company has not made an estimate of the costs required for bringing the machine into compliance, but it is considered to be substantial. Given the expected time and cost of bringing the equipment into production mode and our current financial condition we are unable to estimate when we will be able to do so.
We also must purchase new quality control testing equipment for use in testing Insultex. The testing equipment is finished, and we are in discussions with the vendor regarding certain charges. Once we take delivery of the equipment 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.
During the period we paid $10,396 on our loans. Short Term: We funded our operations with revenues from sales, private sales of our common stock and from a legal settlement.
The Company intends to repay these debt obligations with funds it generates from revenues, from the possible sale of its securities, either debt or equity, from advances from our stockholders or others. Because we cannot currently access commercial lending facilities, should we not be able to continue to obtain funding from these sources should our revenues decrease, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods. The Company continues to pay its creditors when payments are due.
Long Term: The Company will continue to fund operations from revenues, borrowings and the possible sale of its securities. Should we not be able to continue to rely on these sources our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company under SEC Regulation, we are not required to provide this information.
Item 8. Financial Statements and Supplementary Data
14
INNOVATIVE DESIGNS, INC.
FINANCIAL STATEMENTS
Fiscal Years Ended October 31, 2024 and 2023
Table of Contents
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Shareholders of
Innovative Designs, Inc
Opinion on the Financial Statements:
We have audited the accompanying balance sheets Innovative Designs, Inc (the Company), for the fiscal period ended October 31, 2024 and 2023, the corresponding statement of operations, statement of changes in stockholders' equity and cash flow statement, for the period ended October 31, 2024 and 2023, and the related notes to the financial statements (collectively the Financial Statements). In our option, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2024 and 2023, and the results of its operations, changes in stockholders’ equity and its cash flows for periods ended October 31, 2024 and 2023, in conformity with accounting principles in relation to Generally Accepted Accounting Principles in the United States of America (USGAAP).
Basis for the issuance of opinion:
The Company's management is responsible for the preparation and fair presentation of the financial statements in accordance with Generally Accepted Accounting Principles in the United States of America. This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements so that they are free from material misstatements, whether due to fraud or error, selecting appropriate accounting policies and making such estimates as are reasonable in the circumstances.
The auditor’s responsibility is to express an opinión on the financial statements base don the Audit conducted. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Except as referred to in subparagraphs (a) and (b), we conduct our review in accordance with generally accepted accounting principles in the United States of America. These standards require us to comply with ethical requirements and to plan and execute the audit in such a way that we can obtain reasonable assurance that the financial statements are free from material misstatement. Auditing includes, based on selective testing, examination of the evidence supporting the figures and disclosures in the financial statements; the evaluation of Generally Accepted Accounting Principles in the United States of America and the significant estimates made by management. It also includes the evaluation of the presentation of the financial statements in general. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
Critical Audit Matter Description
Due to the results of cumulative losses and the risk of dependency regarding the concentration of sales in two customers, the Company evaluates it ability to continue as a going concern and has a plan in place to be able to conclude that it will be able to continue as a going concern for one year from the issuance date of the financial statements.
How the Critical Audit Matter Was Addressed in the Audit
Our procedures included an evaluation of management’s plans to continue as a going concern and a conclusion as to whether management’s plans appear reasonable and achievable.
We have served as the Company's auditor since 2024
February 19, 2025
F-2
INNOVATIVE DESIGNS, INC.
BALANCE SHEETS
| October 31, 2024 | October 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Total Current Assets | ||||||||
| PROPERTY AND EQUIPMENT | ||||||||
| OTHER ASSETS | ||||||||
| Advance to employees | ||||||||
| Deposits on equipment | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Current portion of notes payable | ||||||||
| Accrued interest | ||||||||
| Shareholder’s loans | ||||||||
| Accrued expenses | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities | ||||||||
| Long-term portion of note payable | ||||||||
| Long-term portion of shareholder’s loans | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, par value $; shares authorized | ||||||||
| Common stock, par value $; shares authorized, and shares issued and outstanding as of October 31, 2024 and 2023, respectively | ||||||||
| Additional Paid-In-Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ equity | ||||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-3
INNOVATIVE DESIGNS, INC.
STATEMENTS OF OPERATIONS
| For the years ended October 31, | ||||||||
| 2024 | 2023 | |||||||
| REVENUES, net | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Cost of sales | ||||||||
| Selling, general and administrative expenses | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| OTHER INCOME (EXPENSES) | ||||||||
| Gain (loss) on sale of property and equipment | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET INCOME (LOSS) | $ | ( | ) | |||||
| PER SHARE INFORMATION: UNDILUTED | ||||||||
| Net income (loss) per common share | $ | $ | ( | ) | ||||
| Weighted average number of common shares | ||||||||
| PER SHARE INFORMATION: DILUTED | ||||||||
| Net income (loss) per common share | $ | $ | ( | ) | ||||
| Weighted average number of common shares | ||||||||
The accompanying notes are an integral part of these financial statements.
F-4
INNOVATIVE DESIGNS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Additional Paid-In- Capital | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||
| Balance, October 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Sale of stock | ||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, October 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Sale of stock | ||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||
| Net income (loss) | — | |||||||||||||||||||
| Balance, October 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
INNOVATIVE DESIGNS, INC.
STATEMENTS OF CASH FLOWS
| For the years ended October 31, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Stock payment for services | ||||||||
| Depreciation | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| (Increase) decrease from changes in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Deposit in inventory | ||||||||
| Increase (decrease) from changes in: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in Operating Activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of Equipment | ( | ) | ( | ) | ||||
| Deposits on equipment | ( | ) | ||||||
| Proceeds from sale of equipment | ||||||||
| Advances to employees | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of stock | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on stockholder loans | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Net cash provided by Financing Activities | ||||||||
| Net cash increase (decrease) for period | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| SUPPLEMENTAL | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Noncash Investing and Financing Information | ||||||||
| Stock issued for services | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-6
NOTE 1. NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Innovative Designs, Inc. (the “Company”), which was incorporated in the State of Delaware on June 25, 2002, markets cold weather recreational and industrial clothing products, as well as house wrap, which are made from INSULTEX, a low-density foamed polyethylene, a material with buoyancy, scent block, and thermal resistant properties. The Company’s clothing and house wrap is offered and sold by retailers, distributors, and companies throughout the United States and Canada.
The Company operates two reportable segments: apparel and house wrap. The apparel segment offers a wide variety of extreme cold weather apparel and related items. The house wrap segment offers the INSULTEX house wrap which has an R-value of 3 and an R-value of 6, as well as the Company’s seam tape.
Basis of Accounting
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, (GAAP).
Fiscal Year End
The Company’s year-end is October 31.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
Estimated Uncollectible Accounts
Management evaluates its receivables
on a quarterly basis to assess the validity of remaining receivables. Management has determined that there is a significant doubt regarding
the receivable balance of $
Accounts Receivable
The opening balance of accounts receivable
was $
Inventory
Inventory consists primarily of finished goods. Inventory is stated at the lower of cost or net realizable value and is valued based on first-in first-out. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
During the fiscal year ended October
31, 2010, the Company discontinued its hunting and swimming lines of apparel. Therefore, a reserve of $
F-7
Deposits on Inventory
The
Company has one manufacturer located in Indonesia that produces the apparel on behalf of the Company. The Company sends deposits to
the manufacturer for future production of the apparel based on approved purchase orders between the Company and the manufacturer.
Once finished, purchase orders are received by the Company and the deposits associated with the purchase orders are transferred into
inventory. As of October 31, 2024, the Company made the deposits of $
Property and equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
| Equipment, Furniture and fixtures |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statements of operations. The cost of maintenance and repairs is charged to the statements of operations as incurred, whereas significant renewals and betterments are capitalized.
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 deposits made were $
Impairment of Long-lived Assets.
Management considers the valuation and depreciation of property and equipment. Management considers both the current and future levels of undiscounted cash flow generated by the Company and the continuing value of property and equipment to determine when and if an impairment has occurred. Any write-downs due to impairment are charged to operations at the time the impairment is identified. No such write-downs due to impairment have been recorded for the fiscal years ended October 31, 2024 and 2023.
Fair Value of Financial Instruments
ASC 820 Fair Value Measurements and Disclosures establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.
F-8
These tiers include:
| Level 1: | defined as observable inputs such as quoted prices in active markets; |
| Level 2: | defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and |
| Level 3: | defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
The carrying value of the Company’s cash, other current assets, accounts payable, accrued expenses and advances from related parties approximates its fair value due to their short-term maturity
Income Taxes
The Company accounts for its income taxes in accordance with ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
Revenue Recognition
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.
Concentration of Credit Risk
The Company maintains its cash balances
with a financial institution which management believes to be of high credit quality. The accounts are insured by the Federal Deposit Insurance
Company (“FDIC”) up to $
Shipping and Handling
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 $
F-9
Warrants
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.
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
The Company accounts for share-based compensation awards in accordance with ASC 718, “Compensation - Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.
The Company calculates net loss per
share in accordance with FASB ASC Topic 260 ”Earnings Per Share”. Basic earnings (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding for the fiscal year. During the fiscal years
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
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended October 31, 2024 that are of significance or potential significance to the Company.
NOTE 2. 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 very limited net income of $
NOTE 3. 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 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
F-10
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
| October 31, 2024 | October 31, 2023 | |||||||
| Equipment | $ | $ | ||||||
| Container | ||||||||
| Automobile | ||||||||
| Total | ||||||||
| Accumulated depreciation | ||||||||
| $ | $ | |||||||
For the years ended October
31, 2024 and 2023, the Company recognized depreciation expense in the amount of $
NOTE 5. NOTE PAYABLE
In July 2005, the Company was approved
for a low interest promissory note from the U.S. Small Business Administration in the amount of $
As of October 31, 2024 and 2023, the note payable had the following balances:
| 2024 | 2023 | |||||||
| U.S. Small Business Administration | ||||||||
| Less current portion | ||||||||
| Long-tem portion of note payable | ||||||||
| Years Ending October 31, | Amount | |||||
| 2025 | ||||||
| 2026 | ||||||
| 2027 | ||||||
| Total | ||||||
F-11
NOTE 6. STOCKHOLDER LOAN
ROBERTA RICCELLI
In February 2012, the Company
entered into a loan agreement with Robert Riccelli for $
CORINTHIAN DEVELOPMENT
In
January 2013, the Company entered into a loan agreement with Corinthian Development for $
LAWRENCE FRASER
In December 2020, the Company
entered into a loan agreement with Lawrence Fraser for $
Waxman Foundation
In December 2023,
the Company entered into a loan agreement with Waxman Foundation for $
As of October 31, 2024 and 2023, the shareholder loans had the following balances:
| 2024 | 2023 | |||||||
| Roberta Riccelli | $ | $ | ||||||
| Corinthian Development | ||||||||
| Lawrence Fraser | ||||||||
| Waxman Foundation | ||||||||
| $ | $ | |||||||
| Years Ending October 31, | Amount | |||||
| 2025 | ||||||
| Total | ||||||
NOTE 7. OTHER INCOME (EXPENSES)
For the year ended October 31, 2024, the Company incurred
interest expenses of ($
F-12
NOTE 8. EXCLUSIVE LICENSING AND MANUFACTURING AGREEMENT
On
April 16, 2006, the Company entered into an exclusive licensing and manufacturing agreement with the Ketut Group, with an effective date
of April 1, 2006, whereby the Company acquired an
NOTE 9. CONCENTRATION
Revenues from two customers were approximately
The Company only has one supplier of INSULTEX, the special material which is manufactured for the Company. Additionally, the Company only has one manufacturer in Massachusetts that produces house wrap on behalf of the Company.
This poses a concentration risk on both the customer and supplier side.
NOTE 10. INCOME TAXES
In
prior years, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition,
no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. For the 2023 tax year, fiscal
year ended October 31, 2024, the Company had net operating loss carryforwards of approximately $
Deferred income taxes reflect the net tax effect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as tax benefits of net operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities relate to the following:
| As of October 31, 2024 | As of October 31, 2023 | |||||||
| Net operating loss carryforward | $ | $ | ||||||
| Effective tax rate (Fed: | % | % | ||||||
| Deferred tax assets | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred asset | $ | $ | ||||||
F-13
NOTE 11. COMMITMENTS
The
Company leases its executive offices/warehouse space from Frank Riccelli, a stockholder and brother of Joseph Riccelli, Sr., the Company’s
consultant, for $
NOTE 12. SEGMENT INFORMATION
The Company has organized operations into two segments as discussed in Note 1 to the financial statements, 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 fiscal years ended October 31, 2024 and 2023:
| Revenue | 2024 | 2023 | ||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total revenue | $ | $ | ||||||
| Capital expenditures | ||||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total Assets | $ | $ | ||||||
| Depreciation | ||||||||
| Apparel | $ | $ | ||||||
| House wrap | ||||||||
| Total depreciation | $ | $ | ||||||
NOTE 13. COMMON STOCK
During the fiscal
year ended October 31, 2023, the Company sold shares of common stock to sixteen investors for total proceeds of $
During the fiscal year ended October 31, 2022, the Company
sold shares of common stock to seven investors for total proceeds of $
During the year ended October 31, 2024, the Company sold shares
of common stock to eight investors for total proceeds of $
F-14
NOTE 14. RELATED PARTY TRANSACTIONS
The Company has entered into various loan agreements with related parties. These agreements are classified as stockholder loans as described in Note 6 to the financial statements.
The Company has also entered into a verbal lease agreement as described in Notes 3 and 11 to the financial statements.
NOTE 15. 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.
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
$
NOTE 16. SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855), Subsequent Events, the Company has analyzed its operations subsequent to February 19, 2025 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose.
F-15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
Previously reported.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Management of Innovative Designs, Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer/Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
At the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures and in connection with the audit of our financial statement, he concluded that during the period covered by this report, such disclosure controls and procedures were not effective. This conclusion is based on the identification of the deficiency in internal controls over financial reporting described below. Notwithstanding the deficiency that existed as of October 31,
2024, our Chief Executive Officer/Chief Financial Officer has concluded that the financial statements included in this Annual report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with accounting generally accepted in the United States of America.
Our Chief Executive Officer is also our Chief Financial Officer.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.
15
Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2021. This evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework. Based upon such assessment, our Chief Executive Officer/Chief Financial Officer concluded that our internal controls over financial reporting were not effective as of October 31, 2024. In particular, our controls over financial reporting were not effective in the specific areas described in the paragraphs below.
As of October 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 does not utilize an internal accounting system that captures all the Company’s 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 the lack of timely internal and external financial reporting. |
| ● | The Company’s accounting system is not being utilized to track inventory costs on a FIFO method. This results in either the inventory being carried over or under its cost or net realizable value depending on whether there were price increases or decreases. |
This was due to our limited resources, including the absence of an internal financial staff member with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls.
Management plans to address these matters by among actions, meeting more with its external accountant to ensure that issues such as described above are correct going forward. The Company will also look at hiring an external bookkeeper in order to have a single accounting system.
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.
There have been no significant changes in our internal control over financial reporting during the fiscal year ended October 31, 2024, and 2023, or subsequent to October 31, 2023, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting, except as discussed above.
16
PART III
| Name | Age | Position | Term | |||
| Joseph Riccelli Sr | 75 | Chairman | 1 year | |||
| Joseph A Riccelli Jr | 44 | Chief Executive Officer, Chief Financial Officer, Director | 1 year | |||
| Daniel P. Rains | 73 | Director | 1 year | |||
| Donald V. Garlotta, PhD. | 65 | Director | 1 year | |||
| John Spagnolo Jr | 42 | Director | 1 year |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Our executive officers are elected annually by our board of directors. A majority vote of the directors who are in office is required to fill vacancies on the board. Each director shall be elected for the term of one (1) year and until his successor is elected and qualified, or until his earlier resignation or removal. The directors named below will serve until the next annual meeting of our shareholders or until a successor is elected and has accepted the position.
Our directors and executive officers are as follows:
Name Age Position Term
Mr. Riccelli Sr has been our Chairman of the Board since our inception in June 2002. Mr. Riccelli was the owner of Pittsburgh Foreign and Domestic, a sole proprietor car dealership located in Glenshaw, Pennsylvania. He attended Point Park College located in Pittsburgh, Pennsylvania from 1971 to 1972.
Mr. Riccelli Jr has been with the company since our inception in June 2002. Mr. Riccelli was Vice President of Operations form 2002 till he was named acting CEO on October 3, 2024, and was unanimously elected by the Board of Directors to become CEO and a Board Member on January 10, 2025. He replace the seat left open when Mr. Kolocouris resigned on October 3, 2024. He attended the University of Pittsburgh from 2000 to 2002.
Mr. Rains has been a director since March 2007. Mr. Rains is currently Vice President of business development at McCarl’s, Inc., a mechanical contracting firm. He has held this position for over fifteen years. From 1981 through 1987, Mr. Rains was a professional football player for the Chicago Bears. He is a graduate of the University of Cincinnati. Mr. Rains has been in professional sports and in business for over twenty years. His experience and knowledge of these fields are helpful to the Company. As the Company enters the building construction market with its House Wrap product, Mr. Rains’ experience in that industry will be especially helpful.
Dr. Garlotta has been a director since February 2022. He is currently the Technical Director at Airex Rubber Products Corporation as well as a technical advisor for the Company. Prior to his role at Airex Rubber Products Corporation, he worked at Lowe’s Home Improvement. He earned a Ph.D. in Polymer Science /Plastics Engineering from the University of Massachusetts at Lowell. He also holds a Master of Science Degree in Polymer Science from the University of Massachusetts at Lowell and a Baccalaureate Degree in Polymer Science from Pennsylvania State University.
Dr. Garlotta is an author or co-author of several peer-reviewed publications and patents related to biopolymers. He also has experience developing elastomers, water-soluble polymers, syntactic polymer foams and hands-on experience with extrusion and injection molding of plastics.
17
Mr.Spagnolo Jr. was unanimously elected to the Board of Directors on January 10, 2025 to fill the seat left open after Robert Adams resigned. An accomplished real estate investor and developer. For over 20 years Mr. Spagnolo, Jr. has been successful in building high end homes, residential and commercial properties and other development projects. Most notably, over the course of his career, Mr. Spagnolo, Jr. has nurtured relationships with key contacts at some of the most important companies in the multi-billion dollar homebuilding and construction industry.
Delinquent Section 16(a) Reports.
John Spagnolo Jr filed a Form 3 late.
Audit Committee
We do not have a separate standing Audit Committee. Therefore, our entire Board of Directors acts as the Audit Committee.
Nominating and Compensation Committees
We do not have either a nominating committee or a compensation committee. The basis for the Board of Directors to not have a nominating committee is the fact that our principal stockholder who is also our CEO and Chairman of the Board controls approximately thirty-four percent of the voting stock. And the Company has never held an Annual Meeting of stockholders. New board members are recommended to the Board by the Chairman of the Board.
Board of Directors Meetings
During the last full fiscal year, there were 3 meetings of the Board of Directors.
Code of Ethics
We have not, as yet adopted a code of ethics. We have only one full time executive officer/ chief financial officer who also acts as our principal accounting officer. To date, our operations have been so minimal and our staff so small that we have not considered a formal standard relating to the conduct of our personnel.
ITEM 11. EXECUTIVE COMPENSATION.
The following Executive Compensation Chart highlights the terms of compensation for our Executives.
| Summary Compensation Table | ||||||||||||||||||||||||||||||||||||
| Nonqualified | ||||||||||||||||||||||||||||||||||||
| Option | Non-Equity | Deferred | ||||||||||||||||||||||||||||||||||
| Name and | Stock | Awards | Incentive | Compensation | All Other | |||||||||||||||||||||||||||||||
| Principal | Salary | Bonus | Awards | Compensation | Plan | Earnings | Compensation | Total | ||||||||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| Joseph Riccelli Sr | ||||||||||||||||||||||||||||||||||||
| Chairman, (Retired as CEO Oct.2024) | 2024 | $ | 78,000 | 0 | 0 | 0 | 0 | 0 | $ | 78,000 | ||||||||||||||||||||||||||
| Joseph Riccelli Jr | ||||||||||||||||||||||||||||||||||||
| CEO, Director | 2025 | $ | 115,000 | 0 | 0 | 0 | 0 | 0 | $ | 115,000 | ||||||||||||||||||||||||||
18
There is employment agreements between us and our Chairman Joseph Riccelli Sr. He has been brought on as a consultant to work with our manufacturer of the Insultex insulation because of his close working relationship with Ketut Jaya and his company. There is employment agreements between us and our new CEO Joseph Riccelli Jr.. There are no automobile lease agreements or key man life insurance policies that are to the benefit of our executive officers of February 17, 2025 in which we would make such payments. There are no standard or other arrangements in which our directors are compensated for any services as a director, including any additional amounts payable for committee participation or special assignments. There are no other arrangements in which any of our directors were compensated during our last fiscal year for any service provided as a director.
Other than Mr. Riccelli Jr., who is our CEO, Mr. Riccelli Sr., who is our Chairman and consultant, and Dr. Garlotta who serves as a consultant to the Company we consider the remaining Directors to be independent.
Securities Authorized for Issuance under Equity Compensation Plans.
| Equity Compensation Plan Information | ||||||||||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warranties and rights | Weighted-average exercise price of outstanding options, warranties and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding those reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | $ | 0 | $ | 0.90 | (1) | 400,000 | ||||||
| (1) | Weighted average price was based on market value of the shares on or about the date the service was performed. Market value of the price per share ranged from $1.90 to $0.76 per share over the period of time in which the various services were performed. |
| (2) | All stock that has been issued by the Company out of the equity compensation plan was for the exchange of professional services. were sold for cash. |
Use of Proceeds from Registered Securities
Not Applicable
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the ownership as of February 9, 2024, (a) by each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock, and/or (b) by each of our directors, by all executive officers and our directors and executive officers as a group.
To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in our control.
19
| Security Ownership of Management | ||||||||||||||
| Title of Class | Name and Address | Amount | Nature | Percent | ||||||||||
| Common Stock | Joseph Riccelli | 7,655,000 | Direct | 21.1 | % | |||||||||
| Chairman | (1) | 421,478 | Indirect | |||||||||||
| Common Stock | Joseph A Riccelli Jr. | 50,000 | Direct | * | ||||||||||
| Chief Executive Officer Director | ||||||||||||||
| Common Stock | Daniel P. Rains | 160,000 | Direct | * | ||||||||||
| Director | ||||||||||||||
| Common Stock | Donald V. Garlotta | 190,000 | Direct | * | ||||||||||
| Director | ||||||||||||||
| Common Stock | John Spagnolo Jr. | 10,000 | Direct | * | ||||||||||
| Director | ||||||||||||||
All Directors and Executive Officers as a Group | 8,486,467 | 22.2 | % | |||||||||||
* Represents less than one percent.
| (1) | Represents shares of common stock held in the Gino A. Riccelli Trust. The Trust is for a son of our Chief Financial Officer. Mr. Joseph Riccelli is the trustee of the trust. |
By virtue of his stock ownership or control over our stock, Mr. Riccelli may be deemed to “control” the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Our officers and directors may encounter conflicts of interest between our business objectives and their own interests. We have not formulated a policy for the evolution of such conflicts. Future transactions or arrangements between or among our officers, directors and shareholders, and businesses they control, may result in conflicts of interest, and the conflicts may be resolved in favor of businesses that our officers or directors are affiliated, which may have an adverse effect on our revenues.
Our officers and directors have the following conflicts of interests:
We lease our warehouse and office space from the Uncle of our Chief Executive Officer. We pay $3,500 per month for a total of $42,000 per year.. Dr.Donal Garlotta, a director, serves as a technical advisor to the Company.. During the fiscal year ended October 31, 2024, Dr. Garlotta we issued him 80,000 shares of our restricted common stock .at a price of $ 0.20 per share for services done during the year. We do not have a formal policy regarding related party transactions.
20
Independence of Board Members
The Company has adopted the NASDAQ Listing Rules; Rule 5605 and 5605 (a) (20, for determining the independence of its directors. Directors are deemed independent only if the Board affirmatively determines that the director has no material relationship with the Company directly or as an officer, share owner or partner of an entity that has a relationship with the Company or any other relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
ITEM 14. PRINCIPALACCOUNTANT FEES AND SERVICES.
Our independent principal account for part of fiscal year 2024 was RW Group, LLC for the first quarter. Elkana Amitai CPA for the second and Asesoria Global, S.A for the third quarter and year end audit.
Audit Related Fees
Fiscal year 2023, RW Group, LLC $29,250
Fiscal year 2024. Fees paid to RW Group; LLC were $25,060. Fees paid to Elkana Amitai CPA were $2,500
Tax
Fees
None.
All Other Fees
None.
21
ITEM 15.
22
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INNOVATIVE DESIGNS, INC. | |||
| (Registrant) | |||
| Date: | February 17, 2025 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | |||
| Chief Executive Officer | |||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: | February 17, 2025 | by: | /s/ JosephA Riccelli Jr. |
| Joseph Riccelli | |||
| Chief Executive Officer, | |||
| Chief Financial Officer, Principal | |||
| Accounting Officer, Director | |||
| Date: | February 17, 2025 | By: | /s/ Joseph Riccelli Sr. |
| Joseph Riccelli Sr. Chairman of the Board of Directors | |||
| Date: | February 17, 2025 | By: | * Daniel P. Rains |
| Daniel P. Rains | |||
| Director | |||
| Date: | February 17, 2025 | By; | /s/ Donald V. Garlotta |
| Donald V. Garlotta Director | |||
| Date: | February 17, 2025 | By: | /s/ John Spagnolo Jr. |
| John Spagnolo Jr. Director |
23