Innovative Designs Inc 10-Q for FY2022 Q1
Innovative Designs Inc (IVDN)
About this 10-Q
Innovative Designs Inc filed this 10-Q on March 15, 2022, covering the quarter ended January 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended January 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $62.4K
- up 55.9% from $40.02K a year earlier
- Net loss
- $132.04K
- compared with a net loss of $35.97K a year earlier
- Diluted EPS
- -$0.00
- compared with -$0.00 a year earlier
INNOVATIVE DESIGNS, INC.
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 ________.
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of Principal Executive Offices, Zip Code)
(
(Issuer’s Phone Number Including Area Code)
N/A
(Former Name or Former Address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). ☒ NO ☐
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INNOVATIVE DESIGNS, INC.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.
(Check One)
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller reporting company |
(Do not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐
As of March 7, 2022, there were shares of the Registrant’s common stock, par value $.0001 per share, outstanding.
Transitional Small Business Disclosure Format: YES ☐ NO ☒
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INNOVATIVE DESIGNS, INC.
Innovative Designs, Inc.
Index
Form 10-Q for the Quarter Ended January 31, 2022
| Page No. | ||
| Part I -- | Financial Information | |
| Item 1. | Condensed Financial Statements (Unaudited) | |
| Condensed Balance Sheets as of January 31, 2022 (Unaudited) | 4 | |
| And October 31, 2021, (Audited) | ||
| Condensed Statements of Operations for the Three | 6 | |
| Month Periods Ended January 31, 2022 and 2021 (Unaudited) | ||
| Condensed Statements of Changes in Stockholders’ Equity | 7 | |
| as of January 31, 2022 (Unaudited) and October 31, 2021, | ||
| (Audited) | ||
| Condensed Statements of Cash Flows for the Three Month | 8 | |
| Periods Ended January 31, 2022 and 2021 (Unaudited) | ||
| Notes to the Condensed Financial Statements | 9 - 14 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition | 15 |
| and Results of Operations | ||
| Part II -- | Other Information | 18 |
| Items 1, 2, 3, 4 and 4T. | ||
| Item 6. | Exhibits | 19 |
3
| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| JANUARY 31, 2022 (UNAUDITED) AND OCTOBER 31, 2021 |
| January 31, 2022 | October 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net of allowance for doubtful accounts of $ | ||||||||
| Inventory - net of obsolete inventory reserve of $ | ||||||||
| Right of use asset - operating lease | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT - NET | ||||||||
| OTHER ASSETS | ||||||||
| Inventory on consignment | ||||||||
| Deposits on inventory | ||||||||
| Advance to employees | ||||||||
| Deposits on equipment | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements
4
| INNOVATIVE DESIGNS, INC. |
| CONDENSED BALANCE SHEETS |
| JANUARY 31, 2022 (UNAUDITED) AND OCTOBER 31, 2021 |
| January 31, 2022 | October 31, 2021 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Current portion of notes payable | ||||||||
| Accrued interest expense | ||||||||
| Due to stockholders | ||||||||
| Operating lease liability | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term portion of due to stockholders | ||||||||
| Long-term portion of notes payable | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Common stock, $ par value, shares authorized, and and issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | - | - | ||||||
| Total stockholders' equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements
5
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF OPERATIONS |
| THREE MONTHS PERIODS ENDED JANURARY 31, 2022 AND 2021 (UNAUDITED) |
| Three Months Ended January 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUES - NET | $ | $ | ||||||
| OPERATING EXPENSES: | ||||||||
| Cost of sales | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( |
) | ( |
) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous income (expense) | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Total other income (expense) | ( |
) | ||||||
| NET LOSS | $ | ( |
) | $ | ( |
) | ||
| PER SHARE INFORMATION - BASIC | ||||||||
| Net Loss Per Common Share | $ | ( |
) | $ | ( |
) | ||
| Weighted Average Number of Common Shares Outstanding | ||||||||
| PER SHARE INFORMATION - DILUTED | ||||||||
| Net Loss Per Common Share | $ | ( |
) | $ | ( |
) | ||
| Weighted Average Number of Common Shares Outstanding | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
6
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| THREE MONTHS PERIODS ENDED JANUARY 31, 2022 AND 2021 (UNAUDITED) |
| Common Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | To be Issued | Capital | Deficit | Total | |||||||||||||||||||
| Balance at October 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Sale of stock | ||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2022 | ( | ) | ||||||||||||||||||||||
| Balance at October 31, 2020 | ( | ) | ||||||||||||||||||||||
| Sale of stock | ||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at January 31, 2021 | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
7
| INNOVATIVE DESIGNS, INC. |
| CONDENSED STATEMENTS OF CASH FLOWS |
| THREE MONTHS ENDED JANUARY 31, 2022 AND 2021 (UNAUDITED) |
| For the Three Month Periods | ||||||||
| Ended | ||||||||
| January 31, 2022 | January 31, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | ( |
) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Common stock issued for services | ||||||||
| Depreciation | ||||||||
| Amortization of right of use asset | ||||||||
| (Increase) decrease from changes in: | ||||||||
| Accounts receivable | ( |
) | ( |
) | ||||
| Inventory | ( |
) | ||||||
| Deposits on inventory | ( |
) | ||||||
| Increase (decrease) from changes in: | ||||||||
| Accounts payable | ( |
) | ||||||
| Lease liability | ( |
) | ( |
) | ||||
| Accrued interest expense | ( |
) | ( |
) | ||||
| Accrued expenses | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Net cash used in investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of stock | ||||||||
| Proceeds from stockholder advances | ||||||||
| Payments on stockholder advances | ( |
) | ||||||
| Payments on notes payable | ( |
) | ||||||
| Net cash provided by financing activities | ( |
) | ||||||
| Net change in cash | ( |
) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF THE PERIOD | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during period for interest | $ | $ | ||||||
| Cash paid during period for taxes | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
8
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 1. | BASIS OF PRESENTATION |
In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly Innovative Designs, Inc.’s financial position as of January 31, 2022, the changes therein for the three periods then ended and the results of operations for the three periods ended January, 2022 and 2021.
The condensed financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. For additional information, reference is made to the Innovative Designs, Inc.’s annual report on Form 10-K for the fiscal year ended October 31, 2021. The results of operations for the three periods ended January, 2022 and 2021 are not necessarily indicative of operating results for the full year.
| NOTE 2. | RIGHT OF USE ASSETS AND LEASE LIABILITIES |
During the quarter ended April 30, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must be recorded a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the lease term (referred to at the right of use asset) for all leases, regardless of whether they are designated as finance or operating leases. This election requires the lessee to recognize lease expense on a straight-line basis over the lease term. The right of use assets and corresponding right of use liabilities have been recorded using the present value of the leases. See Notes 11 and 12 within the condensed financial statements for additional disclosure on leases.
| NOTE 3. | GOING CONCERN |
These condensed financial statements have
been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. The Company had a net loss of ($
| NOTE 4. | ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Management evaluates its receivables on a
quarterly basis to assess the validity of remaining receivables. Management has determined that there is significant doubt regarding the
receivable balance over 90 days of $
9
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 5. | INVENTORY |
Inventory consists principally of purchased
apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at the lower of cost or net realizable value
on a first-in, first-out basis. The Company has discontinued the manufacturing of its hunting and swimming line of apparel. The Company
has booked a reserve against apparel inventory at January 31, 2022 and October 31, 2021 of $
| NOTE 6. | EARNINGS PER SHARE |
The Company calculates net income (loss)
per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”)
Topic 260 ”Earnings per Share”. Basic earnings (loss) per share is calculated by dividing income (loss) by the
weighted average number of common shares outstanding for the period. During the periods presented, the Company only has common stock outstanding.
In 2021, the Company issued a convertible debt instrument. In addition, the Company also has stock warrants of
| NOTE 7. | INCOME TAXES |
The Company accounts for income taxes in accordance with ASC Topic 740 ”Income Taxes”, which requires an asset and liability approach for financial reporting purposes.
Deferred income taxes are provided for differences between the tax bases of assets and liabilities and the financial reporting amounts at the end of the period, and for net operating loss and tax credit carryforwards available to offset future taxable income. Changes in enacted tax rates or laws result in adjustments to recorded deferred tax assets and liabilities in the periods in which the tax laws are enacted or tax rates are changed. The Company will continue to evaluate its income tax obligation throughout the year and will record a tax provision when it is necessary.
| NOTE 8. | SHIPPING AND HANDLING COSTS |
The Company pays shipping and handling costs
on behalf of customers for purchased apparel merchandise. These costs are billed back to the customer through the billing invoice. The
shipping and handling costs associated with merchandise ordered by the Company are included as part of inventory as these costs are allocated
across the merchandise received. With House Wrap orders, the customer pays the shipping cost. The shipping and handling costs associated
with customer orders was approximately $
10
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 9. | COMMON STOCK |
During the three month period ended January
31, 2022, the Company sold shares of common stock to five investors for total proceeds of $
During the three month period ended January
31, 2021, the Company sold shares of common stock to one investors for total proceeds of $
| NOTE 10. | DEPOSITS ON EQUIPMENT |
On July 12, 2015 the Company reached an agreement
with Ketut Jaya to purchase the machinery and equipment utilized to produce the INSULTEX material.
| NOTE 11. | RIGHT OF USE ASSETS – OPERATING LEASE |
The Company entered into a month to month
verbal lease at the time the Company was formed that is classified as right of use asset and lease liability. The lease for the Company’s
office space is estimated to be through June 2022. In accordance with ASU 2016-02, the Company calculated the present value of the leases
using the average commercial real estate interest rate of
11
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 11. | RIGHT OF USE ASSETS – OPERATING LEASE (CONTINUED) |
As of January 31, 2022, the right of use assets associated with future operating lease is as follows:
| Right of use assets associated with future operating leases | ||||
| Total present value of right of use asset under lease agreement | $ | |||
| Amortization of right of use asset – operating lease | ( | ) | ||
| Total right of use asset – operating lease as of January 31, 2022 | $ | |||
| Less current portion due within one year | ||||
| Long-term right of use asset – operating lease | $ | - |
Total amortization expense related to the
right of use assets under the verbal lease agreement was $
Future amortization of the right of use asset as of January 31, 2022 is as follows:
| Future amortization of right of use assets | ||||
| 2022 | $ |
| NOTE 12. | OPERATING LEASE LIABILITY |
As disclosed in Note 11, the Company entered into a verbal lease for office space prior to the quarter ended January 31, 2020 that is classified as a right of use asset and lease liability.
As of January 31, 2022, the lease liability associated with future payments due under the verbal lease is as follows:
| Schedule of future minimum lease payments | ||||
| Total future minimum lease payments | $ | |||
| Principal payments made as of the period ended January 31, 2022 | ( | ) | ||
| Total operating lease liability as of January 31, 2022 | ||||
| Less current portion due within one year | ||||
| Long-term operating lease liability | $ | - |
12
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 12. |
OPERATING LEASE LIABILITY- (CONTINUED) |
Total maturities of lease liability as of January 31, 2022 are as follows:
| Schedule of maturities of lease liabilities | |||||||||||||
| Total future minimum lease payments | Present value discount | Operating lease liability | |||||||||||
| 2022 | $ | $ | $ | ||||||||||
| NOTE 13. | SEGMENT INFORMATION |
We have organized our operations
into
The following tables present our business segment information for the three month periods ended January 31, 2022 and 2021:
| Schedule of business segment information | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Apparel | $ | $ | ||||||
| House Wrap | ||||||||
| Total Revenues | $ | $ | ||||||
| Assets:tc | ||||||||
| Apparel | $ | $ | ||||||
| House Wrap | ||||||||
| Total | $ | $ | ||||||
| Depreciation: | ||||||||
| Apparel | $ | - | ||||||
| House Wrap | ||||||||
| Total | $ | $ | ||||||
13
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January 31, 2022 and 2021 (Unaudited)
| NOTE 14. |
LEGAL PROCEEDINGS
|
On November 4, 2016, the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, Case number 16-1669. In the complaint, the FTC alleges that, among other matters, the Company did not have substantiation of claims made by the Company regarding the R value and energy efficiency of its INSULTEX House Wrap products. The complaint asks as to redress a rescission of revenue the Company received from the sale of House Wrap and a permanent injunction. On September 24, 2020, a judgment was entered in favor of the Company as to all claims set forth in the FTC complaint. It was further ordered that as there were no remaining claims in the action the case shall be marked as closed.
On November 23, 2020, the Company was informed that the FTC had filed a notice of appeal in regard to the case. The appeal is from the District Court’s September 24, 2020, Order granting the Company’s Motion for Judgment on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) and subsequent Judgment in favor of the Company and from the District Court’s February 14, 2020, striking Dr. David Yarbrough’s expert testimony made on behalf of the FTC. The FTC filed its appeal and on March 24, 2021, the Company filed its answer.
On July 22, 2021, the Registrant was informed that the United States Court of Appeals for the Third District affirmed the District Court’s ruling in favor of the Registrant. The ruling was in connection with the Federal Trade Commission complaint filed against the Registrant in November 2016, alleging, among other matters, that the Registrant did not have substantiation for claims made by the Registrant regarding the R-value and energy efficiency of its INSULTIX House Wrap products.
In November 2021, in connection with the FTC litigation, the Company filed an application for attorney fees, expenses and cost in the U.S. District Court for the Western District of Pennsylvania, Case No.2:16-cv-01669-NBF. The Company is seeking from the FTC all attorney’s fees, expenses and costs the Company incurred and/or will incur in connection with the litigation. The matter is proceeding to mediation.
| NOTE 15. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through March 15, 2022, which is the date the condensed financial statements were available to be issued. The Company identified the below subsequent event.
On February 11, 2022, the Company issued
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 Condensed Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding future results of operation, made in this Quarterly Report on Form 10-Q are forward-looking statements. We use words such as expects, believes, intends, and similar expressions to identify forward-looking statements. Forward looking-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, our ability to sell out HouseWrap product line, our inability to secure sufficient funding to maintain and/or expand our current level of operations and the seasonality of our cold weather product line. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The Company undertakes no obligation to publicity update or revise any forward-looking statement, whether as a result of new information, future events or otherwise except as required by law.
Background
Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We market and sell clothing products such as outdoor apparel, and cold weather gear called “Arctic Armor” that are made from Insultex, a material with buoyancy, scent block and thermal resistant properties. We also market our House Wrap product line which is a building material with thermal qualities. House Wrap is also made from Insultex. We obtain Insultex through a license agreement with the owner and manufacturer of the material. Since our formation we have devoted our efforts to:
| ● | Completing the development, design and prototypes of our products, |
| ● | Obtaining retail stores or sales agents to offer and sell our products, |
| ● | Developing our website to sell more of our products. |
15
INNOVATIVE DESIGNS, INC.
Results of Operations
Comparison of the Three Month Period Ended January 31, 2022 with the Three Month Period Ended January 31, 2021.
| Fiscal Year | Fiscal Year | |||||||||||||||||||||||
| Ended | Ended | |||||||||||||||||||||||
| January 31, | % of | January 31, | % of | Increase | ||||||||||||||||||||
| 2022 | Sales | 2021 | Sales | (Decrease) | % Change | |||||||||||||||||||
| REVENUE | $ | 62,400 | 100 | % | $ | 40,017 | 100 | % | $ | 22,383 | 56 | % | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Cost of sales | 32,346 | 52 | % | 18,635 | 47 | % | 13,711 | 74 | % | |||||||||||||||
| Selling, general and | ||||||||||||||||||||||||
| administrative expenses | 150,245 | 241 | % | 72,883 | 182 | % | 77,362 | 106 | % | |||||||||||||||
| 182,591 | 293 | % | 91,518 | 229 | % | 91,073 | 100 | % | ||||||||||||||||
| Loss from operations | (120,191 | ) | -193 | % | (51,501 | ) | -129 | % | (68,690 | ) | 133 | % | ||||||||||||
| Other income (expense) | — | 0 | % | 28,823 | 72 | % | (28,823 | ) | 0 | % | ||||||||||||||
| Other Expense | ||||||||||||||||||||||||
| Depreciation expense | (373 | ) | -1 | % | (8,327 | ) | -21 | % | ||||||||||||||||
| Interest expense | (11,476 | ) | -18 | % | (4,960 | ) | -12 | % | (6,516 | ) | 131 | % | ||||||||||||
| Net Loss | $ | (132,040 | ) | -212 | % | $ | (35,965 | ) | -90 | % | $ | (96,075 | ) | 267 | % | |||||||||
Revenues for the three month period ended January 31, 2022 were $62,400 compared to revenues of $40,017 for the three month period ended January 31, 2021. The increase in revenue is attributable to more sales of our apparel products. See Note 13 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report for a description of our segment products sales. Our net loss for the three-month period ended January 31, 2022, was ($132,040) compared to a net loss of ($35,965) for the comparable period in 2021.
Our selling, general and administrative expenses were $150,245 for the three month period ended January 31, 2022 compared to $72,883 for the three month period ended January 31, 2021. Professional fees for the three month period ended January 31, 2022 were $40,610 compared to $24,555 for the three month period ended January 31, 2021. The increase is partially a result of more audit fees of approximately $11,000.
Payroll increase by $20,393 from the prior year period as we were not fully operational as a result of the Covid pandemic. Likewise, we were not ordering manufacturing product, which increased by $42,805 during the three months ended January 31, 2022.
For the second quarter we expect revenues to be higher than the first quarter as the construction season begins with warmer weather in many parts of the country. Additionally, we are working on expanding our market presence by bringing on new sales representatives for our HouseWrap product line.
16
INNOVATIVE DESIGNS, INC.
Liquidity and Capital Resources
During the three-month period ended January 31, 2022, we funded our operations from revenues from sales, and sale of our common stock. During the three month period ended January 31, 2022, sold our common stock in private transactions and raised $61,000 from the sales.
We must purchase new quality control testing equipment for our House Wrap product line, which we estimated will cost approximately $100,000. We have not, as yet, received a quote from the vendor. Once the equipment is built it will have to go through a certification process.
Short Term: We will continue to fund our operations from sales and the sale of our securities. We continue to pay our creditors when payments are due. We will require more funds to be able to order the material for our Insultex products and to purchase equipment needed for the manufacture of the Insultex product. The Company reached an agreement with the manufacturer of the Insultex material to purchase a machine capable of producing the Insultex material. Also included in the proposed agreement will be the propriety formula that creates Insultex. The Company took delivery of the equipment in December 2015. The Company will have to have the machine installed and ensure that it can be operated in compliance with all environmental rules and regulations. It is the Company intentions to have the equipment operational but cannot currently provide a time estimate. Among the factors affecting the time estimate are financial resources available to the Company, finding a suitable facility and bringing technical personal from abroad to install the equipment. The Company has currently made deposits of $600,000 on the equipment. The Company has incurred $17,000 of additional expenses related to shipping. The Company intends produce Insultex under its own brand name. See Note 10 of the Notes to the Condensed Financial Statements.
Long Term: The Company will continue to fund its operations from revenues, borrowings from private parties and the possible sale of our securities. Should we not be able to rely on the private sources for borrowing and /or increased sales, our operations would be severely affected as we would not be able to fund our purchase orders to our suppliers for finished goods and our efforts to produce our own Insultex would be delayed.
Subsequent to the period we received proceeds of $10,200 upon the exercise of 60,000 warrants at $ .17 per share.
17
INNOVATIVE DESIGNS, INC.
PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDING |
See Note 14 of the Notes to the Condensed Financial Statements appearing elsewhere in this Report.
| ITEM 1A | Risk Factors |
As a smaller reporting company, we are not required to provide the information
required by this Item.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
See Part II Item 5 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021
| ITEM 3. | Defaults upon Senior Securities |
None
| Item 4 | Mine Safety Disclosures |
Not applicable
| ITEM 4T. | CONTROLS AND PROCEDURES |
Management has developed and implemented a policy and procedures for reviewing, on a quarterly basis, our disclosure controls and procedures. During the three month period ended January 31, 2022, our principle executive/financial officer concluded that these controls and procedures were ineffective and identified the following specific material weaknesses.
| ● | The Company is not maintaining supporting schedules, or the schedules being maintained are inaccurate to support amounts presented and disclosed in the financial statements. Specific schedules in relation to inventory deposits, inventory reserves, fixed assets, debt balance (and related accrued interest) were not available, or in the case of debt schedules were not accurate and in accordance with the loan documents | |
| ● | The Company’s internal controls policies are ineffective, or not being complied with, to identify errors, in the financial statements. These deficiencies may be considered as “material weaknesses”. | |
| ● | In addition, the Company does not utilize an internal accounting system that captures all Company activity on a timely basis. Certain transactions, such as sales and receivables are maintained in one system and disbursements and accounts payable are maintained manually. On a quarterly basis this information is sent to an external accountant to retroactively enter the information into a general ledger system and then prepare the financial statements. The lack of a single accounting system presents multiple opportunities for errors to occur, and further contributes to a lack of timely internal and external financial reporting. |
This was due to our limited resources, including the absence of an internal financial staff member with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls.
Management plans to address these matters by among actions, meeting more with its external accountant to ensure that issues such as described above are correct going forward. The Company will also restructure its loan recording system to be able to present a more informative report to its external account. Management will also reevaluate its accounting software and will make a determination as to whether to continue to use it or implement another type of program. Either decision will allow all information to be entered into one system which should alleviate the significant deficiency described above.
However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. At this time we do not have the financial resources to employ a financial Staff with accounting and financial expertise.
Once we have the necessary financial resources, we plan to hire and designate an individual responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13(a)-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Until the Company has the financial resources to employ a financial staff with accounting and financial expertise, to be able to properly account for internal financial reporting, errors that may have a material effect on the financial statements have the potential to occur.
18
INNOVATIVE DESIGNS, INC.
| ITEM 6. | EXHIBITS |
| * | Incorporated by reference to the Company’s Form 10-K filed February 12, 2015 |
| ** | Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003 |
| 99*** | Incorporated by reference to the Company’s Current Report on Form 8-k, filed November 4, 2016 |
19
INNOVATIVE DESIGNS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Innovative Designs, Inc. | ||
| Registrant | ||
| Date: March 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli, Chief Executive Officer | ||
| and Chief Financial Officer |
20
EXHIBIT 31.1
INNOVATIVE DESIGNS, INC.
CERTIFICATIONS
I, Joseph Riccelli, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Innovative Designs, Inc. |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
Chief Executive Officer | ||
EXHIBIT 31.2
INNOVATIVE DESIGNS, INC.
CERTIFICATIONS
I, Joseph Riccelli, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Innovative Designs, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
| Chief Financial Officer, Principal Accounting Officer |
EXHIBIT 32.1
SECTION 906 CERTIFICATION
CERTIFICATION REQUIRED BY
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Innovative Designs, Inc. (the “Company”) on Form 10-Q for the quarterly period ended January 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: | March 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | |||
| Chief Executive Officer, Chief | |||
| Financial Officer, Principal | |||
| Accounting Officer |
EXHIBIT 32.2
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Innovative Designs, Inc. (the “Company”) on Form 10-Q for the quarterly period ended January 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 13, 2022 | by: | /s/ Joseph Riccelli |
| Joseph Riccelli | ||
| Chief Executive Officer |