UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended January 31, 2014

 

OR

 

¨

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

 

For the transition period from _______ to ________.

 

Commission File Number: 000-51791

 

INNOVATIVE DESIGNS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

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

 

124 Cherry Street

Pittsburgh, Pennsylvania 15223

(Address of Principal Executive Offices, Zip Code)

 

(412) 799-0350

(Issuer’s Phone Number Including Area Code)

 

N/A

(Former Name or Former Address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES   x     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). YES  x    NO  ¨

 

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

 

(Check One)

 

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-accelerated Filer ¨	Smaller reporting company x

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES   ¨   NO   x

 

As of March 13, 2014, there were 19,747,243 shares of the Registrant’s common stock, par value $.0001 per share, outstanding.

 

Transitional Small Business Disclosure Format:   YES  ¨   NO   x

 

 

Innovative Designs, Inc.

 

Index

 

Form 10-Q for the Quarter Ended January 31, 2014

 

			Page No.
Part I — Financial Information
Item 1.	Condensed Financial Statements (Unaudited)		1
	Condensed Balance Sheets as of January 31, 2014 (Unaudited) and October 31, 2013		1
	Condensed Statements of Operations for the Three Month Period Ended January 31, 2014 and 2013, (Unaudited)		2
	Condensed Statements of Changes in Stockholders’ Equity as of January 31, 2014 (Unaudited) and October 31, 2013		3
	Condensed Statements of Cash Flows for the Three Month Period Ended January 31, 2014 and 2013 (Unaudited)		4
	Notes to the Condensed Financial Statements		5 - 7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8 - 10
Part II — Other Information
Items 2., 3. and 4.T			11
Item 6.	Exhibits		12 - 14

 

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED BALANCE SHEETS

January 31, 2014 (Unaudited) and October 31, 2013

 

		2014				2013
ASSETS
CURRENT ASSETS
Cash		$	96,120			$	69,613
Accounts receivable			158,838				90,583
Other receivables			-				4,000
Inventory - net of obsolete inventory reserve of $52,000 for 2014 and 2013			516,871				614,581
Inventory on consignment			68,088				42,900
Deposits on inventory			37,281				30,846
Prepaid insurance			2,196				7,655
Total current assets			879,394				860,178
PROPERTY AND EQUIPMENT - NET			17,231				18,346
TOTAL ASSETS		$	896,625			$	878,524
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	83,239			$	83,183
Current portion of notes payable			61,447				155,053
Accrued interest expense			242,862				240,121
Due to shareholders			354,500				416,500
Accrued expenses			59,474				3,419
Total current liabilities			801,522				898,276
Long-term portion of notes payable			331,232				335,371
TOTAL LIABILITIES			1,132,754				1,233,647
STOCKHOLDERS' DEFICIT
Preferred stock, $0.0001 par value, 100,000,000 shares authorized			-				-
Common stock, $0.0001 par value, 500,000,000 shares authorized, and 19,747,243 and 19,325,743 issued and outstanding as of January 31, 2014 and October 31, 2013			1,977				1,935
Additional paid-in capital			5,861,864				5,777,606
Accumulated deficit			(6,099,970	)			(6,134,664	)
Total stockholders' deficit			(236,129	)			(355,123	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	896,625			$	878,524

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED STATEMENTS OF OPERATIONS

Three Month Period Ended January 31, 2014 and 2013 (Unaudited)

 

		Three Month Period Ended January 31,
		2014				2013
REVENUES - NET		$	373,752			$	295,046
OPERATING EXPENSES:
Cost of Sales			169,952				127,631
Selling, general and administrative expenses			140,836				150,064
TOTAL OPERATING EXPENSES			310,788				277,695
INCOME FROM OPERATIONS			62,964				17,351
INTEREST EXPENSE			(28,270	)			(24,323	)
NET INCOME/(LOSS)		$	34,694			$	(6,972	)
PER SHARE INFORMATION
Net Income/(Loss) Per Common Share		$	0.002			$	(0.000	)
Weighted Average Number of Common Shares Outstanding			19,440,281				18,935,743

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

January 31, 2014 (Unaudited) and October 31, 2013

 

		Common Stock				Common Stock				Additional				Accumulated
		Number of Shares				Amount				Paid-in Capital				Deficit				Total
Balance at October 31, 2012			18,935,743			$	1,896			$	5,688,645			$	(5,991,903	)		$	(301,362	)
Shares issued for services			70,000				7				24,993				-				25,000
Sale of stock			320,000				32				63,968				-				64,000
Net loss			-				-				-				(142,761	)			(142,761	)
Balance at October 31, 2013			19,325,743				1,935				5,777,606				(6,134,664	)			(355,123	)
Shares issues for debt conversion			371,500				37				74,263				-				74,300
Sale of stock			50,000				5				9,995				-				10,000
Net income			-				-				-				34,694				34,694
Balance at January 31, 2014			19,747,243			$	1,977			$	5,861,864			$	(6,099,970	)		$	(236,129	)

 

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

 

 

INNOVATIVE DESIGNS, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS

Three Month Period Ending January 31, 2014 and 2013 (Unaudited)

 

		For the Three Month Period Ended
		January 31, 2014				January 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	34,694			$	(6,972	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Common stock issued for service			9,300				-
Depreciation			1,115				479
Increase (decrease) from changes in:
Accounts receivable			(68,255	)			13,597
Other receivable			4,000				-
Inventory			72,522				38,314
Deposits on inventory			(6,435	)			20,912
Prepaid insurance			5,459				3,110
Accounts payable			56				13,164
Accrued expenses			56,055				-
Accrued interest expense			2,741				3,500
Net cash provided by operating activities			111,252				86,104
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock			10,000				-
Payments on shareholder advances			(22,000	)			(88,000	)
Proceeds from shareholder advances			-				20,000
Payments on notes payable			(72,745	)			(80,163	)
Proceeds from notes payable			-				63,000
Net cash used in financing activities			(84,745	)			(85,163	)
Net increase in cash			26,507				941
CASH, BEGINNING OF YEAR			69,613				54,995
CASH, END OF THE PERIOD		$	96,120			$	55,936
Supplemental disclosure of cash flow information:
Stock issuance for debt conversion		$	74,300			$	-
Cash paid for interest		$	18,979			$	20,823

 

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

 

  

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three Month Period Ended January 31, 2014 and 2013 (Unaudited)

 

NOTE 1.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company’s financial position as of January 31, 2014, the changes therein for the three month period then ended and the results of operations for the three month periods ended January 31, 2014 and 2013.

 

NOTE 2.

The financial statements included in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. For additional information, reference is made to the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2013. The results of operations for the three month periods ended January 31, 2014 and 2013 are not necessarily indicative of operating results for the full year.

 

NOTE 3.

INVENTORY

 

Inventory consists principally of purchased finished goods. Inventory is stated at the lower of cost or market on a first-in, first-out basis. The Company has decided to discontinue the manufacturing of its hunting and swimming line of apparel. The Company has booked a reserve against this inventory at January 31, 2014 and October 31, 2013 of $52,000. Management will continue to evaluate its obsolete inventory reserve throughout the year and make adjustments as needed.

 

During 2013, the Company entered into an agreement with Dick’s Sporting Goods (“Dick’s”) in which it consigned certain Arctic Armor products to be offered in select stores. As of January 31, 2014, the Company earned revenues of $34,908 on consigned inventory, and is awaiting the return of its consigned Arctic Armor products of approximately $68,000 from Dick’s.

 

NOTE 4.

EARNINGS PER SHARE

 

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

 

NOTE 5.

DEPOSITS

 

The Company only has one manufacturer that produces the apparel on behalf of the Company, located in Indonesia. The Company will send 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, the deposits associated with those purchase orders are transferred into inventory. As of January 31, 2014 and October 31, 2013, the Company had $37,281 and $30,846, respectively, on deposit with its manufacturer.

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three Month Period Ended January 31, 2014 and 2013 (Unaudited)

 

NOTE 6.

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 7.

SHIPPING AND HANDLING COSTS

 

The Company pays shipping and handling costs on behalf of customers for purchased 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 in inventory as these costs are allocated across the merchandise received. The shipping and handling costs billed back to customer orders was approximately $11,600 and $10,500 for the three month periods ending January 31, 2014 and 2013, respectively. These amounts are included in both revenue and selling, general and administrative expenses.

 

NOTE 8.

COMMON STOCK

 

On January 7, 2014, the Company sold 50,000 shares of its common stock for $.20 per share or $10,000, to one investor who was a shareholder in the Company. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because the sale did not involve a public offering and there was no general solicitation or general advertising involved in the sale. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

 

In January, 2014, the following converted their notes into common stock at $.20 per share: John and Priscilla Zaontz converted a $15,000 note and interest into 82,500 shares; Hoi Ping Lee converted a $25,000 note and interest into 137,500 shares; Darryl Zaontz converted a $25,000 note and interest into 137,500 shares of stock. Each of these individuals was also issued shares as additional consideration as called for in the notes, which totaled 14,000 shares. We believe that Section 4(2) of the Securities Act, as amended, was available because these sales did not involve a public offering and there was no general solicitation or general advertising involved in the sale. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Three Month Period Ended January 31, 2014 and 2013 (Unaudited)

 

NOTE 9.

SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events in accordance with ASC Topic 855, “Subsequent Events”, through March 21, 2014, which is the date financial statements were available to be issued. With the exception of the matters discussed below, no subsequent event items were identified by the Company.

 

During February 2014 the Company received an $80,000 advance from a financial institution.

 

 

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 consolidated financial statements and the notes thereto and in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2013.

 

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. (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 proprieties. 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, and

·

Establishing distribution channels for our House Wrap product.

 

 

INNOVATIVE DESIGNS, INC.

 

Results of Operations

 

Comparison of the Three Month Period Ended January 31, 2014 with the Three Month Period Ended January 31, 2013.

 

The following table shows a comparison of the results of operations between the three month periods ended January 31, 2014 and January 31, 2013:

 

		Three Month								Three Month
		Period Ended								Period Ended
		January 31,				% of				January 31,				% of				Increase
		2014				Sales				2013				Sales				(Decrease)				% Change
REVENUE		$	373,752				100.00	%		$	295,046				100.00	%		$	78,706				26.68	%
OPERATING EXPENSES
Cost of sales			169,952				45.47	%			127,631				43.26	%			42,321				33.16	%
Selling, general and administrative expenses			140,836				37.68	%			150,064				50.86	%			(9,228	)			-6.15	%
Income from operations			62,964				16.85	%			17,351				5.88	%			45,613				262.88	%
OTHER INCOME/(EXPENSE)
INTEREST EXPENSE			(28,270	)			-7.57	%			(24,323	)			-8.24	%			(3,947	)			16.23	%
Net income/(loss)		$	34,694				9.28	%		$	(6,972	)			-2.36	%		$	41,666				-597.62	%

 

Revenues for the quarter ended January 31, 2014 were $373,752 compared to revenues of $295,046 for the quarter ended January 31, 2013. As a result of the colder winter that was experienced, our customers are ordering later in the year. Approximately 91% of our sales for the period were for our Arctic Armor products, hunting apparel accounted for approximately 3% of sales and House Wrap for approximately 2% of sales for the period. Our net income from operations for the three months ended January 31, 2014 was $34,694.

 

Our selling, general and administrative expenses were $140,836 for the three months ended January 31, 2014 compared to $150,064 for the three months ended January 31, 2013.

 

 

INNOVATIVE DESIGNS, INC.

 

Liquidity and Capital Recourses

 

During the quarter ended January 31, 2014, we funded our operations from revenues from sales and short-term advances.

 

Short Term: We will continue to fund our operations from sales and short term borrowings from shareholders and others and the possible sale of our securities. We currently have no commercial credit facilities available to us. We continue to pay our creditors when payments are due.

 

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, our operations would be severely effected as we would not be able to fund our purchase orders to our suppliers for finished goods.

 

Our House Wrap product continues to await the International Code Council’s certification of the lab which certifies the R value of House Wrap. Once such certification is obtained, we believe that the R value of House Wrap will be increased such that large home builders will be able to use the product in their home construction. House Wrap is currently being offered, online, by Lowes, Home Depot and Tool King.

 

 

INNOVATIVE DESIGNS, INC.

 

PART II – OTHER INFORMATION

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On January 7, 2014, we sold 50,000 shares of our Common Stock to one person, who was a shareholder, for $.20 per share for a total of $10,000. The proceeds were used as general operating funds. We believe that the sale was exempt from the registration requirements of the securities laws as the purchaser was a sophisticated person and the sale did not involve any general solicitation or advertising and the sale was permitted under Section 4(2) of the Securities Act of 1933, as amended.

 

Also in January of 2014, three noteholders converted their notes into Common Stock. A total of 357,500 shares were issued for an aggregate of $65,000 in principal amount of the notes. The conversation rate was $.20 per share. As additional consideration as set out in the notes a total of 14,000 more shares were issued to the noteholders. We believe the sale (conversion) was exempt from the registration requirements of the securities laws as the purchasers were all sophisticated persons and the sale did not involve any general solicitation or advertising and the sale(s) were permitted under Section 4(2) of the Securities Act of 1933, as amended. See Note 8 of the “Notes To The Condensed Financial Statements” contained elsewhere in this Report.

 

ITEM 3. QUANTITATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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 quarter ended January 31, 2014, our principle executive/financial officer concluded that these controls and procedures were ineffective. At this time we do not have the financial resources to employ a financial staff with accounting and financial expertise, once we have the necessary financial resources, we plan to hire and designate an individual responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. During the fourth quarter of 2013 and the first quarter ended January 31, 2014, the Company was not able to close the books and records in a timely fashion. Consequently, the Company was unable to file its Form 10-K for the year ended October 31, 2013 or the Form 10-Q for the period ended January 31, 2014 within the timeline established by the SEC.

 

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.

 

 

INNOVATIVE DESIGNS, INC.

 

ITEM 6. EXHIBITS

 

*3.1		Certificate of Incorporation
*3.2		By-Laws
31.1		Rule 13a - 14a Certification of Chief Executive Officer and Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
*		Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003

 

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 21, 2014	by:	/s/ Joseph Riccelli
		Joseph Riccelli, Chief Executive Officer
		and Chief Financial Officer