NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month Periods Ended January 31, 2019 and 2018 (Unaudited)
BASIS
OF PRESENTATION
NOTE
1.
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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 January 31, 2019, the changes therein for
the three month period then ended and the results of operations for the three month periods ended January 31, 2019
and 2018.
|
|
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, 2018. The results of operations for the three periods ended January
31, 2019 and 2018 are not necessarily indicative of operating results for the full year.
|
The
Company had a net loss of $250,368 and a negative cash flow from operations of $79,532 for the three month period ended January
31, 2019. In addition, the Company has an accumulated deficit of $9,179,062. 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 3.
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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 $10,354 and $9,320 as of the quarter ended January
31, 2019 and as of the fiscal year ended October 31, 2018, respectively. Management has applied an allowance on all balances in
excess of 90 days.
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 January 31, 2019 and October 31, 2018 of $75,468. 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
5.
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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 Periods Ended January 31, 2019 and 2018 (Unaudited)
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.
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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 $4,400 and $5,500 for
the three month periods ended January 31, 2019 and 2018, respectively.
During
the three month period ended January 31, 2019, the Company sold 360,000 shares of common stock to seven investors for total proceeds
of $61,200. The stock was issued for $0.17 per share. 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.
NOTE 9.
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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 January 31, 2019, 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 cannot reasonably estimate the costs. During the three month
period ended January 31, 2019 Management plans to sell the machine. The shipping and other purchase costs associated with the
purchase of the machine are deemed impaired. The total loss on impairment for the three month period ended January 31, 2019 is
$17,000.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month Periods Ended January 31, 2019 and 2018 (Unaudited)
NOTE 10.
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SEGMENT
INFORMATION
|
We
have organized our operations into two segments. We rely on an internal management reporting process that provides segment information
for purposes of making financial decisions and allocating resources.
The
following tables present our business segment information for the three month periods ended January 31, 2019 and 2018:
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|
2019
|
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2018
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Revenues:
|
|
|
|
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Apparel
|
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$
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94,219
|
|
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$
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86,063
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House Wrap
|
|
|
15,125
|
|
|
|
30,140
|
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Total Revenues
|
|
$
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109,344
|
|
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$
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116,203
|
|
|
|
|
|
|
|
|
|
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Assets:
|
|
|
|
|
|
|
|
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Apparel
|
|
$
|
451,289
|
|
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$
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581,654
|
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House Wrap
|
|
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1,146,673
|
|
|
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1,274,279
|
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Total
|
|
$
|
1,597,962
|
|
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$
|
1,855,933
|
|
|
|
|
|
|
|
|
|
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Capital Expenditures:
|
|
|
|
|
|
|
|
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Apparel
|
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$
|
-
|
|
|
$
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4,258
|
|
Housewrap
|
|
|
-
|
|
|
|
-
|
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Total
|
|
$
|
-
|
|
|
$
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4,258
|
|
|
|
|
|
|
|
|
|
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Depreciation:
|
|
|
|
|
|
|
|
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Apparel
|
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$
|
2,372
|
|
|
$
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2,853
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House Wrap
|
|
|
5,955
|
|
|
|
6,025
|
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Total
|
|
$
|
8,327
|
|
|
$
|
8,878
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NOTE
11.
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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.
Due to the partial government shutdown a new trial date was set for July 29, 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.
INNOVATIVE
DESIGNS, INC.
NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
Three
Month Periods Ended January 31, 2019 and 2018 (Unaudited)
NOTE 12.
|
SUBSEQUENT
EVENTS
|
The
Company has evaluated subsequent events in accordance with ASC Topic 855, “
Subsequent Events
”, through May
1, 2019, which is the date financial statements were available to be issued. The Company identified the below
subsequent event.
During
February, the Company sold 60,000 shares for total proceeds of $10,200. The stock was issued for $0.17 per share. 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.
INNOVATIVE
DESIGNS, INC.