The accompanying notes are an integral part
of these condensed financial statements.
The accompanying notes are an integral part
of these condensed financial statements.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Nine
Month Period Ended July 31, 2017 and 2016 (Unaudited)
NOTE
1.
|
In the
opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly
Innovative Designs, Inc.’s financial position as of July 31, 2017, the changes therein for the three and nine month
periods then ended and the results of operations for the three and nine month periods ended July 31, 2017 and 2016.
|
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 Innovative Designs, Inc.’s annual report on Form 10-K for the fiscal year ended
October 31, 2016. The results of operations for the three and nine month periods ended July 31, 2017 and 2016 are not necessarily
indicative of operating results for the full year.
|
Inventory
consists principally of purchased apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at
the lower of cost or net realizable value on a first-in, first-out basis. Innovative Designs, Inc. (the “Company”)
has decided to discontinue the selling of its hunting and swimming line of apparel. The Company has booked a reserve against this
inventory at July 31, 2017 and October 31, 2016 of $40,000. Management will continue to evaluate its obsolete inventory reserve
throughout the year and make adjustments as needed.
NOTE
4.
|
EARNINGS
PER SHARE
|
The
Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standard Codification (“ASC”) Topic 260
“Earnings per Share”
. Basic earnings (loss) per share is
calculated by dividing income (loss) by the weighted average number of common shares outstanding for the period. During the periods
presented, the Company only has common stock outstanding. As a result, diluted earnings per share was not calculated.
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.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Nine
Month Period Ended July 31, 2017 and 2016 (Unaudited)
NOTE
6.
|
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 $16,000 and $25,000
for the nine month periods ended July 31, 2017 and 2016, respectively.
During
the quarter ended April 30, 2017, the Company issued stock to one director for services. The stock was issued at a price of $0.25
per share. The Company issued 30,000 shares for services in February 2017 valued at $7,500. Pursuant to Rule 12b-15 under the
Securities and Exchange Act of 1934, as amended, this Form 10-Q includes new certifications by our principal executive officer
and principal financial officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
During
the quarter ended July 31, 2017, the Company issued stock to one shareholder for services. The stock was issued at a price of
$0.30 per share. The Company issued 100,000 shares to the stockholders for services in April 2017 valued at $30,000. The Company
also issued 30,000 shares of stock to an individual valued at $0.34 per share for services in May 2017 valued at $10,200. Pursuant
to Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, this Form 10-Q includes new certifications by our principal
executive officer and principal financial officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
Additionally
for the quarter ended July 31, 2017, the Company sold stock for a price ranging from $0.18-$0.22 per share. The Company sold 217,000
shares of stock in June and July of 2017 for an aggregate price of $40,590. We believe that Section 4(2) of the Securities Act
of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation
or general advertising involved in this transactions. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on their transferability and sale.
NOTE
8.
|
DEPOSITS
ON EQUIPMENT
|
On
July 12, 2015 the Company reached an agreement with Ketut Jaya to purchase the machinery and equipment utilized to produce the
INSULTEX material. The purchase price is $700,000 which was to be paid in four installments. The first installment of $300,000
was to be paid at the execution of the agreement. The second installment of $200,000 was to be paid when the machinery and equipment
is ready to be shipped to the United States. The third installment of $100,000 is to be paid once the machinery and equipment
is producing INSULTEX, and the fourth and final installment of $100,000 is to made after the first commercial production run of
INSULTEX is completed. As of July 31, 2017, the Company has made payments of $500,000 in accordance with the agreement, and made
a $100,000 pre-payment as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $17,000 of additional
expenses related to shipping, site improvements and installation of the equipment.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Nine
Month Period Ended July 31, 2017 and 2016 (Unaudited)
NOTE
9.
|
SEGMENT
INFORMATION
|
We
have organized our operations into two segments. We rely on an internal management reporting process that provides segment information
for purposes of making financial decisions and allocating resources
.
The
following tables present our business segment information for the nine month period ended July 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Apparel
|
|
$
|
161,015
|
|
|
$
|
195,949
|
|
House
Wrap
|
|
|
89,168
|
|
|
|
301,858
|
|
Total
Revenues
|
|
$
|
250,183
|
|
|
$
|
497,807
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
680,465
|
|
|
$
|
1,316,622
|
|
House
Wrap
|
|
|
1,202,835
|
|
|
|
1,291,711
|
|
Total
|
|
$
|
1,883,300
|
|
|
$
|
2,608,333
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
House
Wrap
|
|
$
|
14,900
|
|
|
$
|
88,299
|
|
Total
|
|
$
|
14,900
|
|
|
$
|
88,299
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
5,184
|
|
|
$
|
1,388
|
|
House
Wrap
|
|
|
17,672
|
|
|
|
12,996
|
|
Total
|
|
$
|
22,856
|
|
|
$
|
14,384
|
|
NOTE
10.
|
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, number 16-1669. In the complaint, the FTC alleges, that, among other matters, the Company does not have
substantiation of claims made by the Company regarding the R value and energy efficiency of its INSULTEX House Wrap products.
The complaint asks as redress of rescission of revenue the Company received from the sale of House Wrap and a permanent injunction.
The parties are currently in the discovery phase.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Nine
Month Period Ended July 31, 2017 and 2016 (Unaudited)
The
Company strongly denies the allegation and intends to vigorously defend itself. It is the Company’s belief that the complaint
is based on improper testing of the INSULTEX products using the wrong type of testing equipment.
NOTE
11.
|
SUBSEQUENT
EVENTS
|
The
Company has evaluated subsequent events in accordance with ASC Topic 855, “
Subsequent Events
”, through September
14, 2017, which is the date financial statements were available to be issued. The Company identified the below subsequent event.
During
August 2017, the Company entered into a notes payable agreement with Riccelli Properties for $40,672.
INNOVATIVE
DESIGNS, INC.