NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month and Nine Month Periods Ended July 31, 2018 and 2017 (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, 2018, 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, 2018
and 2017.
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, 2017. The results of operations for the three and nine month periods ended July 31, 2018 and
2017 are not necessarily indicative of operating results for the full year.
NOTE
3.
GOING CONCERN
The
Company had a net loss of $458,493 and a negative cash flow from operations of $333,364 for the nine month period ended July 31,
2018. In addition, the Company has an accumulated deficit of $8,804,305. Management of the Company has represented that they will
be able to continue to support the Company’s cash needs through sales, sales of Company stock, and borrowings from private
parties.
NOTE
4.
ACCOUNTS RECEIVABLE
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 $8,623 as of the quarter ended July 31, 2018 and an
allowance is applied on this receivable balance over 90 days. No allowance was deemed necessary for the fiscal year ended October
31, 2017.
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. 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 apparel
inventory at July 31, 2018 and October 31, 2017 of $75,468 and $51,000, respectively. Management has determined that no allowance
is currently necessary on their House Wrap Inventory. Management will continue to evaluate its obsolete inventory reserve throughout
the year and make adjustments as needed.
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. As a result, diluted earnings per share was not calculated.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month and Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)
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 $13,000 and $16,000
for the nine month periods ended July 31, 2018 and 2017, respectively.
NOTE
9.
COMMON STOCK
During
the nine month period ended July 31, 2018, the Company sold 732,250 shares of common stock to seven investors for total proceeds
of $221,560. The stock was issued for prices ranging from $0.20 - $0.32 per share. In addition, the Company issued 110,000 shares
to three individuals for services performed during the period. The shares issued were valued ranging between $0.18 - $0.40 per
share for a total price of $30,900. 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
these 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.
During
the nine month period ended July 31, 2017, the Company issued 160,000 shares of stock for service. The Company issued one director
30,000 shares at a price of $0.25 per share for services valued at $7,500. The Company issued one stockholder 100,000 shares at
a price of $0.30 per share for services valued at $30,000. The Company also issued 30,000 shares of stock to an individual at
a price of $0.34 per share for services 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.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month and Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)
Additionally,
for the nine month period 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 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 transaction. We placed legends on the stock certificates stated that the securities were not registered
under the Securities Act and set for the restrictions on their transferability and sale.
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. 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 be made after the first commercial production run
of INSULTEX is completed. As of July 31, 2018, 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. Due to various environmental regulations regarding
propane emitted from the machine into the air and other costs to assemble the machine the Company expects to incur costs in excess
of the current deposit agreement. Management of the Company currently can not reasonably estimate the costs.
NOTE
11.
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
.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month and Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)
The
following tables present our business segment information for the nine month periods ended July 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Apparel
|
|
$
|
96,971
|
|
|
$
|
161,015
|
|
House
Wrap
|
|
|
70,544
|
|
|
|
89,168
|
|
Total
Revenues
|
|
$
|
167,515
|
|
|
$
|
250,183
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
498,341
|
|
|
$
|
680,465
|
|
House
Wrap
|
|
|
1,208,561
|
|
|
|
1,202,835
|
|
Total
|
|
$
|
1,706,902
|
|
|
$
|
1,883,300
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
4,258
|
|
|
$
|
—
|
|
Housewrap
|
|
|
—
|
|
|
$
|
14,900
|
|
Total
|
|
$
|
4,258
|
|
|
$
|
14,900
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
8,962
|
|
|
$
|
5,184
|
|
House
Wrap
|
|
|
17,672
|
|
|
|
17,672
|
|
Total
|
|
$
|
26,634
|
|
|
$
|
22,856
|
|
NOTE
12.
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.
A trial date has been set for January 22, 2019.
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
13.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events in accordance with ASC Topic 855, “
Subsequent Events
”, through September
20, 2018, which is the date financial statements were available to be issued. The Company identified the below subsequent event.
On
August 2, 2018, the Company sold 100,000 shares of stock for total proceeds of $25,000 or $0.25 per share.
INNOVATIVE
DESIGNS, INC.