U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x Annual report under section 13 or 15(d) of the Securities Act of 1934.

For the fiscal year ended October 31, 2014

 

¨ Transition report under section 13 or 15(d) of the Securities 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 Number)
   
124 Cherry Street  
Pittsburgh, Pennsylvania 15223
(Address of Principal Executive Offices) (Zip Code)

 

(412) 799-0350

(Registrant’s telephone number including area code)

 

Securities to be registered pursuant to Section 12(b) of the Exchange Act:

________________

 

Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act:

(Title of Class)

 

Common Stock, $.0001 par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or Section 15 (d) of the Act.

¨ Yes x No

 

Check whether the issuer (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 past 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 for such shorter period that the registrant was required to submit and post such files).       Yes   x    No    ¨

 

Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulation S-K (sec. 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (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

 

The issuer’s revenues for its most recent fiscal year were $771,184.

 

The aggregate market value of the voting stock and non-voting stock held by non-affiliates of the issuer based on the closing price of $1.37 on February 4, 2015, as reported by the OTCQB, was $19,149,264.

 

The number of shares of the issuer’s common stock outstanding, as of February 5, 2015, was 22,721,043.

 

Transitional Small Business Disclosure Format: Yes      ¨      No     x

 

 
 

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

The Company was incorporated in the State of Delaware on June 25, 2002. We operate in two separate business segments, cold weather clothing and a house wrap for the building construction industry. For use as a base material, both of our segment lines use products made from INSULTEX, which is a low density foamed polyethylene with buoyancy, scent block, and thermal resistant properties. We have a license agreement directly with the owner of the INSULTEX Technology.

 

The distribution rights we have are derived from our license agreement. As such, we purchase INSULTEX to be used in the manufacturing of our products. Similarly, other companies are free to purchase INSULTEX from us assuming that it is a company within the distribution jurisdiction that we have, which is worldwide with the exception of Korea and Japan. Other than Korea and Japan, we are the sole worldwide supplier/distributor of the INSULTEX material.

 

We offer the following products containing INSULTEX:

 

· Floating Swimwear : Product under our product name "Swimeez". Our swimwear is designed to be a swim aid. The interior lining of our swimwear product is made from INSULTEX, which enhances floatability. This product was discontinued during 2010 and we are only selling from our existing inventory.

 

· Hunting Apparel Line : Our hunting apparel provides almost total block from odors provided by the INSULTEX material. This product was discontinued during 2010 and we are only selling from our existing inventory.

 

· Arctic Armor Line : The Arctic Armor line, introduced in April of 2006, consists of a jacket, bib and gloves. The suit contains 3 layers of INSULTEX for uncompromised warmth and provides the user with guaranteed buoyancy. The gloves contain a single layer of INSULTEX and are windproof, waterproof and good to sub-zero temperatures as are the jacket and bibs.

 

· INSULTEX House Wrap : Our house wrap product is designed for the building construction industry. This product, made from INSULTEX, provides barrier protection plus moisture vapor transmission and approximately R-3 and R-6 value insulation. We are currently working on a house wrap line with a much higher R value. We also sell a tape that is designed to be used with the INSULTEX House Wrap.

 

· INSULTEX Material : We sell INSULTEX material in bulk to non-competing customers.

 

We also offer a product that helps restore the waterproof character of the outer side of our Arctic Armor clothing. In addition, we offer cold weather headgear and a base insulation clothing product.

 

Our apparel products containing INSULTEX are manufactured, under agreement, at a facility we currently utilize in Indonesia. We assumed no material costs associated with the design, prototyping, and testing of these products because: (a) we did not utilize the services of any outside consultant or company for these purposes and (b) although we used the services of our Chief Executive Officer and Vice President of Sales and Marketing for these purposes, their efforts are part of their normal responsibilities. Our INSULTEX House Wrap product is manufactured in the United States through a third party manufacturer.

 

For financial information regarding each segment, please see Note 9 of the Note to Financial Statements appearing elsewhere in this Report.

 

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The INSULTEX License and Manufacturing Agreement

 

Under the terms of the agreement between us and the Ketut Group, Ketut Group agrees to promptly deliver to Innovative Designs, Inc. within twenty-eight (28) days of receiving an order, all INSULTEX ordered by us. Under the terms of the agreement, we are required to pay a fixed amount per meter of INSULTEX. This fixed amount will not change under the agreement for a period of ten (10) years after the date of the agreement was signed, which was April 1, 2006. The agreement provides that after the ten (10) year period, the price of the INSULTEX shall be adjusted for a subsequent ten (10) year term, no more than twelve percent (12%) for the subsequent ten (10) year period. We order INSULTEX from time to time as needed and are not required to purchase any minimum amount of INSULTEX during the term of the agreement, and we are not required to make any minimum annual payment. However, should we place an order; any quantity ordered must be a minimum of 35,000 meters of INSULTEX. We are not required to pay any part of any sublicense fee that we receive from third party sub-licensees, and we are not required to pay any fees to the Ketut Group. This agreement will be in full legal force and effect for an initial term of ten (10) years from the date of its execution. We have the option to renew this agreement for up to three (3) successive terms of ten (10) years each by giving notice of our intention to so renew not less than ninety (90) days prior to the expiration of the then-current term.

  

COLD WEATHER CLOTHING PRODUCTS

 

Arctic Armor Line

 

Our Arctic Armor line products are intended for use by the following consumer groups that are in the Company’s target market for these products:

 

· Ice fisherman
· Snowmobilers
· Utility workers
· Oil/gas pipeline workers
· Railroad workers
· Construction workers
· Ski resort workers; and
· Police and First Responders.

 

Website and Retailers

 

We sell both wholesale and retail products on our web site. Our web site, located at www.idigear.com, contains information on our products, technical information on INSULTEX insulation, e-commerce capabilities with "shopping cart", wholesaler information and order forms, company contact information, and links to retailers that carry our products. We have obtained the services of BA Web Productions who assists us in designing and continually developing our website. Our web site features a "wholesaler only" area, allowing our wholesalers access to information, ordering, and reordering. Our products are offered and sold by retailers, distributors and through our web site in all states and Canada. Except for products sold through our web site, others who purchase our products do so at wholesale prices which they plan to sell at their retail prices, or use within their industry:

 

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Sales

 

We primarily sell our products through independent sales agents and agencies. Once we have made contact with a potential sales agency or solo agent, we evaluate their existing accounts, the capacity and potential for them to effectively push our products. We also look at their current product lines through the sales channel. Our primary market area is the outdoor industry which includes all activity done in cold weather. These activities include recreational such as hunting, ice fishing, snowmobiling, and industries such as oil and gas, utilities and construction. Once we agree to bring on an independent sales agent or agency, we enter into a standard agreement.

 

A typical sales representative agreement will have a term of one year with the right of either party to terminate upon thirty days written notice. We do not provide any free samples of our products and all sales expenses are the sole obligation of the sales agent.

 

Certain retailers buy directly from us. We have no verbal or written agreements with them. These retailers purchase our products strictly on a purchase order basis. During our last fiscal year, we sold our products to such retailers as Canadian Tire. Some of our distributors during the last fiscal year were Triple S Pro Fishing Supplies, Fleece Corner and Dick’s Sporting Goods. We also sell our cold weather products to various divisions of CSX railroad. We distribute our products to the following:

 

Swimeez Products

 

We distribute our Swimeez products through our web site.

 

Hunting Apparel Line

 

We distribute our hunting apparel through our web site.

 

Our hunting apparel consists of a six pocket pants, 1/2 zip pullover jacket with collar, parka jacket, fleece jacket, bib coveralls in light weight, and bib coveralls in arctic weight.

 

Arctic Armor Line

 

We distribute the Arctic Armor Line to retailers and distributors across the United States and Canada. These products are also marketed to utility companies, oil/gas pipeline workers, railroad workers, police and first responders, and to construction workers.

 

During our last fiscal year, two customers accounted for more than ten percent of our cold weather clothing products sales, Fleece Corner (18%) and Pro Fishing Supplies (15%).

 

HOUSE WRAP

 

House Wrap

 

In early January 2008, we announced that we had completed our research and development effort on a new use for INSULTEX as a house wrap for the building construction industry. This house wrap provides barrier protection plus moisture vapor transmission and the feature of approximately R-3 and R-6 value insulation. The INSULTEX House Wrap was designed to specifically add enhanced insulating characteristics. In addition, the house wrap is priced competitively with existing house wraps that do not provide any insulation. The development efforts were conducted by our own personnel and an outside consultant.

 

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INSULTEX House Wrap

 

We offer our house wrap product directly to builders through our website and distributors either wholesale or retail. In December 2012, we entered into a Master Standard Buying Agreement with Lowes Companies, Inc. to offer INSULTEX House Wrap in their stores. Lowes and Home Depot have added the product onto their website.

  

During our last fiscal year one customer, A-Team Building Supplies, LLC, accounted for approximately 76% of our sales of House Wrap.

 

Competition

 

Many companies offer a type of house wrap some with insulating properties. These companies have large operations and are well financed. Some of the larger companies are DuPont, Owens-Corning and Kimberly Clark. The Company expects to face intense competition with others who have much greater resources in the building construction supply industry.

 

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Our marketing program consists of the following:

 

MARKETING COMPONENT

 

Website Development and Internet Marketing

 

We contract with marketing consultants to:

 

(a) increase visitation to our website;

(b) link with other established websites;

(c) issue press releases to on-line publications;

(d) conduct banner advertising;

(e) develop arrangements with online retailers that purchase our products on a wholesale basis.

 

Sales Representatives

 

Our vice president of sales and marketing works to:

 

(a) sell our merchandise to retail chain stores;

(b) attend and network trade shows to establish industry related contracts;

(c) initiate relationships with local and national recreational organizations; and

(d) provide support to our manufacturer representatives

 

Contract with Manufacturer

 

We utilize the services of sales agencies to represent our products in the United States and Canada.

 

Design and Develop

 

We presently use our own staff for services related to literature, displays, develop brochures, point-of-sale displays, mailers, media materials, and literature and sales tools for our sales representatives and manufacturer representatives. At such time as we have sufficient funding, we intend to contract out some of these services.

 

Establish Wholesale

 

We are and continue to develop relationships or distribution relationships with retail points for our products to retail chain outlets and mass merchandisers to sell our products.

 

Develop Trade Show Booth

 

We use our own personnel to design and develop a portable display booth, and product materials to be used in sporting goods and outdoor apparel trade shows. During the last fiscal year we did not attend any trade shows.

 

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We ship wholesale product orders by United Parcel Service or trucking companies. Retail orders from our website are shipped United Parcel Ground Service or Federal Express overnight. The costs of shipping our finished goods are paid by our customers. We have not instituted any formal arrangements or agreements with United Parcel Service, Federal Express or trucking companies, and we do not intend to do so.

 

INSULTEX is used in all our Arctic Armor finished goods, except for our headwear, and is purchased directly from the Ketut Group.

 

All of our cold weather clothing products, except for our gloves, which are purchased from a supplier in the U.S., are sub-manufactured by PT Lidya and Natalia located in Indonesia. Indonesia does not impose quotas that limit the time period or quantity of items which can be imported. The U.S. Customs Service imposes an importation duty of 6.5% on all our imported products.

 

We have no verbal or written agreements or long term agreements with PT Lidya and Natalia and we do not plan to obtain any such agreements. Our products, including our House Wrap, are manufactured on a per order basis.

 

The fulfillment process involved in completing wholesale orders for non-stocked Arctic Armor products is described below:

 

· We receive a purchase order for a certain number of items from a wholesale purchaser by hand delivery, fax, courier, or mail, with an authorized signature of the purchaser. We do not accept telephone orders.

 

· We contact our sub-manufacturers with the details of the order, including the number of units to be produced according to design or model, size, or color. The sub-manufacturer procures all materials required for the product. Our House Wrap inventory is stored in the facility that manufactures it. We use a commercially available breathable water repellant film used in the manufacturing process that we store at the seller’s facility.

 

· We complete and forward a purchase order to the manufacturer. The manufacturer approves or disapproves a purchase order.

 

· If the purchase order is approved, the manufacturer responds with a final cost, production schedule and date the goods will be delivered to us.

 

· We receive finished goods, and facilitate turn-around for shipment to retailers. Goods are received in our warehouse/distribution center located in Pittsburgh, Pennsylvania where they are packaged in Master Packs, hang tags attached, and UPC/UCC codes labels applied to items for retailer distribution.

 

Any apparel inventory we maintain is stored at our warehousing facility. Our warehouse facility has the capacity to hold 250,000 units of finished products in inventory. Our House Wrap inventory is stored in the facility that manufactures it.

 

In 2004, we were granted a trademark for our name "idigear" with the United States Patent and Trademark Office.

 

In 2007, we were granted the mark "INSULTEX" by the United States Patent and Trademark Office.

 

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In 2011, we were granted a trademark for “INSULTEX HOUSE WRAP” by the United States Patent and Trademark Office.

 

In December 2009, we filed a patent application, No. 12 642714, with the United States Patent and Trademark Office for our Composite House Wrap. The application is still pending. We had filed a provisional application in December 2008.

 

In February of 2010, our Chief Executive Officer filed a patent application for a composite fabric material and apparel made therefrom. The application is still pending. A provisional application was filed in January 2009. The Company and our Chief Executive Officer intend to enter into a formal agreement providing that the Company can use the technology. At the present time, the Company is using the technology at no cost on an oral basis.

 

Our production costs are limited to the invoices we receive from our sub-manufacturer, PT Lidya and Natalia, on a per production basis and for our gloves from our supplier in the U.S.

 

Because we use sub-manufacturers for our products, we do not require any equipment for manufacturing and we do expect to incur any material costs affiliated with purchase of plant and significant equipment. We do not currently have any plant or significant equipment to sell.

 

Although we are not aware of the need for any government approval of our principal products, we may be subject to such approvals in the future.

 

United States and foreign regulations may subject us to increased regulation costs, and possibly fines or restrictions on conducting our business. We are subject, directly or indirectly, to governmental regulations pertaining to the following government agencies:

 

Federal Trade Commission

 

The product suppliers and manufacturers of our products, to the extent that they are involved in the manufacturing, processing, formulating, packaging, labeling and advertising of the products, are subject to regulations by the Federal Trade Commission which may bring injunctive action to terminate the sale of such products, impose civil penalties, criminal prosecutions, product seizures, and voluntary recalls. Should we or our suppliers become subject to any such orders or actions, our brand name reputation and that of our suppliers and products will be adversely affected and our business would be negatively affected.

 

United States Customs Service

 

We are required to pay a 6.5% importation duty to the United States Customs Service on all imported products. We import INSULTEX from Indonesia from the Ketut Group, in accordance with Innovative Design’s agreement with the Ketut Group.

 

United States Department of Labor's Occupational Safety and Health Administration

 

Because our sub-manufacturers manufacture our completed products, we and our sub-manufacturers will be subject to the regulations of the United States Department of Labor's Occupational Safety and Health Administration.

 

We are not aware of any governmental regulations that will affect the Internet aspects of our business. However, due to increasing usage of the Internet, a number of laws and regulations may be adopted relating to the Internet covering user privacy, pricing, and characteristics and quality of products and services. Furthermore, the growth and development of Internet commerce may prompt more stringent consumer protection laws imposing additional burdens on those companies conducting business over the Internet. The adoption of any additional laws or regulations may decrease the growth of the Internet, which, in turn, could decrease the demand for Internet services and increase the cost of doing business on the Internet. These factors may have an adverse effect on our business, results of operations, and financial condition.

 

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Moreover, the interpretation of sales tax, libel, and personal privacy laws applied to Internet commerce is uncertain and unresolved. We may be required to qualify to do business as a foreign corporation in each such state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Any such existing or new legislation or regulation, including state sales tax, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations and financial condition.

 

We currently have no costs associated with compliance with environmental regulations. Because we do not manufacture our products, but rather they are manufactured by our sub-manufacturers, we do not anticipate any costs associated with environmental compliance. Moreover, the delivery and distribution of our products will not involve substantial discharge of environmental pollutants. However, there can be no assurance that we will not incur such costs in the future.

 

We estimate that all of our revenues will be from the sale of our products. We will sell our products at prices above our original cost to produce our products. Prices for some of our products will be lower than similar products of our competitors, while others will be higher. We expect our product prices to be lower than network marketing companies, but higher compared with retail establishments that directly manufacture their own products.

 

Products that are sold directly by our website will be priced according to our Manufacturer Suggested Retail Prices. Our wholesale clients will purchase our products at our wholesale prices. We recommend that our retailer clients sell our products at the Manufacturer Suggested Retail Prices that we provide to them which are the same prices for products on our website; however, they are not required to do so and may price our products for retail sale at their discretion. We have established M.A.P. (minimum advertised pricing) on our Arctic Armor™ suit in an attempt to allow all retailers and distributors carrying the line to obtain reasonable gross margin dollars.

 

We currently have a total of 4 employees, 2 of which are full time employees and 2 of which are part-time employees. We also use a consultant to head our sales and marketing effort.

 

We have no collective bargaining or employment agreements.

 

Reports and Other Information to Shareholders

 

We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Our filings are also available to the public from commercial document retrieval services and the Internet world wide website maintained by the Securities and Exchange Commission at www.sec.gov.

 

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ITEM 1A RISK FACTORS.

 

Lack of Sufficient Operating Funds

 

Because we are not able to generate sufficient funds from sales and because we are unable to access commercial sources of credit, we are consistently underfunded. As a result, our growth is very limited and we have difficulty in sustaining our current level of operations. We are not able to initiate adequate marketing programs, hire additional staff, develop new products or have flexibility in ordering products from our manufacturers. In the past, we have depended on borrowings from our CEO and other private parties, primarily shareholders and the private sale of our common stock. Should we not be able to continue to rely on these sources of funding to at least meet our current level of operations our revenue stream will be adversely affected.

 

Competition

 

The markets served by the Company are highly competitive. Competitive pricing pressure could result in loss of customers or decreased profit margins. Competition by product type includes the following:

 

The markets for our products are increasingly competitive. Our competitors have substantially longer operating histories, greater brand name and company name recognition, larger customer bases and greater financial, operating, and technical resources than us. Because we are financially and operationally smaller than our competitors, we will encounter difficulties in capturing market share. Our competitors are able to conduct extensive marketing campaigns and create more attractive pricing of their target markets than we are.

 

Some of our biggest competitors in the Arctic Armor™ line are:

 

· Ice Clam Corporation
· Vexilar
· Mustang Survival
· Frabill

 

We compete in the following ways:

 

A. Emphasize the Advantages of our Products.

 

Arctic Armor Line

 

We emphasize the following characteristics and advantages of our Arctic Armor line products:

 

· light weight
· waterproof
· windproof
· sub-zero protection
· buoyancy

  

INSULTEX provides a scent barrier which we had a permeation test performed on at the Texas Research Institute Austin, Inc. The product was subjected to gas stimulant for an eight-hour period. The product was tested for permeation of the gas every three minutes for the duration of the test with almost no detection of the gas throughout the test. The testing was based upon accepted industry practices as well as the test method used.

 

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B. Utilize our web site to promote, market, and sell our products to consumers.

 

C. Utilize professional sales representatives and manufacturer representatives to sell our products to established retailers, especially sporting goods retailers.

 

Our products have the following disadvantages in comparison to the products of our competitors:

 

· Lack of brand name recognition or recognition of the properties of INSULTEX and its advantages. We, as well as our products, have little brand name recognition compared to our competitors. And we may encounter difficulties in establishing product recognition. Also, although our products have insulation properties, the material "down" has a widespread and established reputation as being the superior insulation in the market, while the properties and advantages of INSULTEX has little public recognition.

 

There can be no assurance that we will be able to compete in the sale of our products, which could have a negative impact upon our business.

 

We do not expect our business to be dependent on one or a few customers or retailers; however, there is no assurance that we will not become so dependent.

 

Cyclicality

 

The Company’s apparel sales fluctuate based on temperature and weather conditions. Our products are suitable primarily for cold weather conditions. This will cause a cyclical effect on sales. It also makes our revenues totally dependent on cold weather.

 

Material Acquisition

 

All of the materials and items required to manufacture our cold weather clothing products are purchased by our manufacturer in Indonesia.

 

The Company has only one supplier of INSULTEX, the special material which is manufactured within the apparel of our cold weather products and our House Wrap products. Additionally, we have one manufacturer that produces the apparel on behalf of the Company, located in Indonesia. Any delays in getting INSULTEX and/or our finished products adversely affect our revenue stream.

 

Our Indonesia based manufacturer, PT Lidya and Natalia, has sole discretion in the sourcing and ordering of materials for their production runs, the costs of which we reimburse PT Lidya and Natalia.

 

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Geographic Concentration

 

Most of the Company’s sales for its cold weather clothing products to retailers are concentrated in colder climates of the United States and Canada. To the extent that any regional economic downturn impacts these regions, the Company will be adversely affected.

 

Management

 

The Company is dependent on the management of Joseph Riccelli, Sr., our Chief Executive Officer. The loss of Mr. Riccelli’s services could have a negative impact on the performance and growth of the Company for some period of time.

 

Stock Price

 

The Company’s stock is thinly traded. Should a major shareholder decide to liquidate its position, there could be a negative effect on the price of the stock until this condition is resolved.

 

Penny Stock Considerations

 

Our shares are "penny stocks" as that term is generally defined in the Securities Exchange Act of 1934 as equity securities with a price of less than $5.00. Our shares may be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

 

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or "accredited investor" must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth, exclusive of one’s residence, in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

 

· Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

· Disclose commissions payable to the broker-dealer and its registered representatives and current bid and offer quotations for the securities;

 

· Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks; and

 

· Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account.

 

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our stock, which may affect the ability of shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities if our securities become publicly traded. In addition, the liquidity for our securities may be adversely affected, with a corresponding decrease in the price of our securities.

 

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ITEM 2. PROPERTIES.

 

Since May 2002, we have maintained an executive office of 1500 square feet at 223 North Main Street, Suite 1, Pittsburgh, Pennsylvania 15215. We pay monthly rent of $700 to Riccelli Properties, a property management firm owned by our Chief Executive Officer, Joseph Riccelli, Sr.. We have a verbal lease agreement with Riccelli Properties to pay Riccelli Properties $700 per month. This verbal agreement further provides that we or Riccelli Properties may terminate this verbal lease at any time with 30 days written notice. Mr. Riccelli estimates that he uses this office approximately twenty percent of his professional time.

 

In October 2002, we arranged for the lease of warehouse space for our inventory and raw materials at 124 Cherry Street, Etna, Pennsylvania. We also use this space as our principal executive offices. This facility encompasses 13,000 square feet of storage space on the first floor and 2,000 square feet for our sales department offices located on the second floor. We have entered into a verbal agreement with the owner of the building and we pay $3,500 per month for the space. This facility is composed of: (a) warehouse and storage areas including four (4) shipping bays and a distribution area consisting of square footage to store upward of 250,000 finished goods products; and (b) four (4) offices, one (1) conference room, with presentation area and sample display and (2) bathrooms totaling approximately 2,000 square feet located on the second floor. Mr. Frank Riccelli is the brother to our Chief Executive Officer and the owner of the property. The condition of our leased property is good.

 

We do not own any property nor do we have any plans to own any property in the future. We do not currently intend to develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities. We consider the condition of our leased property to be suitable for our needs.

 

ITEM 3. LEGAL PROCEEDINGS.

 

We are not currently engaged in any legal proceedings.

 

ITEM 4. REMOVED AND RESERVED.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Below is the market information pertaining to the range of the high and low bid information of our common stock for each quarter for the last two fiscal years. Our common stock is quoted on the OTC Bulletin Board under the symbol IVDN. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

FY 2014   Low     High  
Fourth Quarter   $ 1.34       2.02  
Third Quarter   $ 0.42       1.68  
Second Quarter   $ 0.23       0.54  
First Quarter   $ 0.20       0.39  

 

FY 2013   Low     High  
Fourth Quarter   $ 0.25       0.54  
Third Quarter   $ 0.14       0.71  
Second Quarter   $ 0.30       0.70  
First Quarter   $ 0.20       0.48  

 

On February 4, 2015, the closing bid price was $1.37.

 

The source of the above data is www.otcqb.com.

 

Holders

 

As of February 4, 2015, we had 196 holders of record of our common stock. We have one class of stock outstanding. We have no shares of our preferred stock outstanding.

 

Dividends.

 

We have not declared any cash dividends on our stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.

 

Recent Sales of Unregistered Securities.

 

During the first quarter of the fiscal year ended October 31, 2014 the Company sold 50,000 shares of stock for $.20 per share or $10,000 and converted three notes into stock at the principal of the note plus interest totaling $74,300, at $.20 per share, resulting in 371,500 shares of stock issued.

 

During the second quarter of the fiscal year ended October 31, 2014 the Company sold 115,000 shares of stock, at $.40 per share, for $46,000, and issued 35,000 shares, at $.40 per share, for services with a fair value of $14,000 to two individuals.

 

During the third quarter of the fiscal year ended October 31, 2014 the Company sold 1,080,680 shares of stock, at between $.40 and $.70 per share, for $632,340. The Company also issued 55,000 shares, at $.40 per share, for services with a fair value of $22,000 to two individuals, and issued 25,000 shares, at $.50 per share, for services with a fair value of $12,500 to an additional two individuals. The Company converted one note into stock at the principal of the note plus interest totaling $12,600, at $.60 per share, resulting in 20,800 shares of stock issued.

 

- 14 -
 

 

During the fourth quarter of the fiscal year ended October 31, 2014 the Company sold 1,294,320 shares of stock, at between $.50 and $.80 per share, for $882,950. The Company also issued 45,000 shares, at $.50 per share, for services with a fair value of $22,500 to two individuals, and issued 20,000 shares, at $.80 per share, for services with a fair value of $16,000 to one of those individuals for services performed later during the quarter.

 

During the first quarter of the fiscal year ended October 31, 2015, the Company sold 283,000 shares of stock, at between $0.60 and $0.80 per share, for $203,750.

 

All of the above transactions were exempt from the registration requirements under the federal securities laws by virture of the exemption provided in Section 4 (2) of the Securities Act of 1933, as amended.

 

ITEM 6. SELECTED FINANCIAL DATA.

 As a smaller reporting company, under SEC regulations, we are not required to furnish selected financial data.

 

ITEM 7. 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 appearing elsewhere in this report.

 

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. (hereafter referred to as the “Company”, “we” or “our”) was formed on June 25, 2002. We primarily market and sell cold weather clothing products called “Arctic Armor” that are, except for our headwear, made from INSULTEX, a material with buoyancy, scent block and thermal resistant properties. We also are starting to offer our house wrap product line which is also made from INSULTEX. We obtain INSULTEX through a license agreement with the owner and manufacturer of the material.

 

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Results of Operations

 

Comparison of the fiscal year ended October 31, 2014, with the fiscal year ended October 31, 2013.

 

The following table shows a comparison of the results of operations between the fiscal years ended October 31, 2014 and October 31, 2013:

 

    Fiscal Year           Fiscal Year                    
    Ended           Ended                    
    October 31,     % of     October 31,     % of     Increase        
    2014     Sales     2013     Sales     (Decrease)     % Change  
                                     
REVENUE   $ 771,184       100.00 %   $ 484,299       100.00 %   $ 286,885       59.24 %
                                                 
OPERATING EXPENSES                                                
Cost of sales     433,861       56.26 %     206,939       42.73 %     226,922       109.66 %
Selling, general and administrative expenses     646,932       83.89 %     507,868       104.87 %     139,064       27.38 %
                                                 
Loss from operations     (309,609 )     -40.15 %     (230,508 )     -47.60 %     (79,101 )     34.32 %
                                                 
OTHER INCOME/(EXPENSE)                                                
Interest expense     (124,461 )     -16.14 %     (102,253 )     -21.11 %     (22,208 )     21.72 %
Loss contingency     -       0.00 %     190,000       39.23 %     (190,000 )     -100.00 %
                                                 
Net loss   $ (434,070 )     -56.29 %   $ (142,761 )     -29.48 %   $ (291,309 )     204.05 %
                                                 
Common Shares outstanding     22,438,043               19,325,743                          
                                                 
Loss per common share   $ (0.019 )           $ (0.007 )                        

 

Fiscal years ended October 31, 2014 and 2013

 

Results of Operations

 

Revenues for the fiscal year ended October 31, 2014, were $771,184 compared to revenues of $484,299 for the comparable period ending October 31, 2013. The increase in revenue is a result of the colder weather in those areas of North America where we sell our cold weather products and from the sales of our House Wrap product which totaled $206,420 last year. Approximately $12,000 of revenues was from our hunting apparel line. Nearly all of the remaining revenues were derived from our Arctic Armor product line. Revenues are net of returns and discounts. During the period we took back products valued at approximately $2,200. We estimate that approximately sixty percent of our cold weather apparel products are sold to outdoor sportsmen.

 

Selling, general and administrative expense increased from $507,868 in fiscal year 2013, to $646,932 in fiscal year ending October 31, 2014. This increase reflects, in part, an increased cost of franchise taxes $47,274 and professional fees $30,768.

 

- 16 -
 

 

Our cost of sales increased from $206,939 as of October 31, 2013 to $433,861 as of October 31, 2014. Increase in Cost of Sales is directly attributed to the increase in revenue.

 

Liquidity and Capital Resources

 

During the fiscal year ended October 31, 2014, we funded our operations from revenues from sales, private sales of our common stock and loans from our Chief Executive Officer and others. We will continue to fund our operations from these sources and the possible sale of our securities until we are able to secure commercial lending arrangements.

 

Short Term: We funded our operations with revenues from sales, private sales of our common stock and from loans from our Chief Executive Officer and others. During the fiscal year ended October 31, 2014, we borrowed approximately $130,000 from these sources. We could not access commercial lines of credit during our last fiscal year.

 

Our existing debt obligations consist of the following:

 

· US SBA Loan. The amount was $280,100. This was a disaster loan assistance program. The date of the loan was July 12, 2005. The interest rate is 2.9% yearly. Payments are $1,186 per month for thirty years. The loan is guaranteed by our CEO and he and his spouse have pledged certain assets as collateral for the loan. The loan was modified on January 23, 2006. The new loan amount is $430,500. The monthly payments are $1,820 and the loan matures in July 2035. As the loan was for a specific disaster assistance program we cannot obtain any additional funds. As of October 31, 2014, $338,696 in principal plus accrued interest was still outstanding.

 

· Note Payable $8,000 - Roberta Riccelli. Interest is at 10% for 120 days. The principal and interest was due on June 17, 2012, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $5,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $50,000 - Joseph Riccelli, Sr. Interest is at 10% for 120 days. The principal and interest is due on demand on November 9, 2012, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $50,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $20,000 - Corinthian Development. Interest is at 10%. The principal and interest of $22,000 was due May 15, 2013, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $20,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $100,000 - Sol & Tina Waxman Family Foundation. Interest is at 10%. The principal and interest of $110,000 is due on demand on March 30, 2015. As of October 31, 2014, $60,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $90,000 - Joseph Riccelli, Sr. Interest is at 10% for 180 days. The principal and interest is due on demand on November 22, 2013, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $90,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $55,000 - Joseph Riccelli, Sr. Interest is at 10% for 180 days. The principal and interest is due on demand on March 23, 2014, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $55,000 in principal plus accrued interest was still outstanding.

 

- 17 -
 

 

· Note Payable $50,000 - Joseph Riccelli, Sr. Interest is at 10% for 180 days. The principal and interest is due on demand on November 12, 2014, but was extended through a verbal agreement with no set maturity date. As of October 31, 2014, $50,000 in principal plus accrued interest was still outstanding.

 

· Note Payable $80,000 - OnDeck Capital. Interest is at 45% for 18 months. 378 payments of $307 are due each business day, with final payment scheduled in July 2015. As of October 31, 2014, $48,240 in principal plus accrued interest was still outstanding.

 

The Company intends to repay these debt obligation with funds it generates from revenues, from the possible sale of its securities either debt or equity, from advances from its CEO or other stockholders. Because we cannot currently access commercial lending facilities, should we not be able to continue to obtain funding from our CEO and/or other individuals or sell our securities or should our revenues decrease our operations would be severely effected as we would not be able to fund our purchase orders to our suppliers for finished goods. The Company continues to pay its creditors when payments are due.

 

Long Term: The Company will continue to fund operations from revenues, borrowings and the possible sale of its securities. Should we not be able to continue to rely on these sources our operations would be severely effected as we would not be able to fund our purchase orders to our suppliers for finished goods.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

As a smaller reporting company under SEC Regulation, we are not required to provide this information.

 

ITEM 8. FINANCIAL STATEMENTS.

 

Our audited financial statements may be found beginning on page 30 elsewhere in this report.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

 

None

 

ITEM 9A. (T) CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Management of Innovative Designs, Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer/Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

 

- 18 -
 

 

At the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures, he concluded that during the period covered by this report, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff 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 and that may be considered to be “material weaknesses.”

 

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. 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.

 

Our Chief Executive Officer is also our Chief Financial Officer.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

 

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2014. This evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework. Based upon such assessment, our Chief Executive Officer/Chief Financial Officer concluded that our internal controls over financial reporting were not effective as of October 31, 2014. In particular, our controls over financial reporting were not effective in the specific areas described in the paragraphs below.

 

- 19 -
 

 

As of October 31, 2014, our Chief Executive Officer/Chief Financial Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

 

· Policies and Procedures for the Financial Close and Reporting Process – Currently there are no policies or procedures that clearly define the roles in the financial close and reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Not having such policies and procedures in place amounts to a material weakness in the Company’s internal controls over its financial reporting processes.

 

· Representative with Financial Expertise – For the year ended October 31, 2014, the Company did not have a representative with the requisite knowledge and expertise to review the financial statements and disclosures at a sufficient level to monitor the financial statements and disclosures to the Company. All of our financial reporting is carried out by one individual and the use of an external accounting firm. This lack of accounting staff results in a lack of segregation of duties, timeliness in closing the books and records, delays in filing quarterly and annual financial information, numerous post-closing adjusting journal entries, and accounting technical expertise necessary for an effective system of internal control. Failure to have a representative with such knowledge and expertise amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

 

There have been no significant changes in our internal control over financial reporting during the fiscal year ended October 31, 2014 and 2013, or subsequent to October 31, 2014, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting, except as discussed above.

 

- 20 -
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

 

Our executive officers are elected annually by our board of directors. A majority vote of the directors who are in office is required to fill vacancies on the board. Each director shall be elected for the term of one (1) year and until his successor is elected and qualified, or until his earlier resignation or removal. The directors named below will serve until the next annual meeting of our shareholders or until a successor is elected and has accepted the position.

 

Our directors and executive officers are as follows:

 

Name   Age   Position   Term
             
Joseph Riccelli, Sr.   65   Chief Executive Officer,
Chief Financial Officer,
Principal Accounting Officer,
Chairman 		  1 year
Dean P. Kolocouris   44   Director   1 year
Robert D. Monsour   64   Director   1 year
Daniel P. Rains   62   Director   1 year

 

Joseph Riccelli, Sr. has been our Chief Executive Officer and Chairman of the Board since our inception in June 2002. Mr. Riccelli was the owner of Pittsburgh Foreign and Domestic, a sole proprietor car dealership located in Glenshaw, Pennsylvania. Joseph Riccelli, Sr. attended Point Park College located in Pittsburgh, Pennsylvania from 1971 to 1972.

 

Dean P. Kolocouris has been one of our Directors since our inception in June 2002. From December 1996 to present, Mr. Kolocouris has been a Loan Officer and Assistant Vice President at Eastern Savings Bank located in Pittsburgh, Pennsylvania. In June 1993, Mr. Kolocouris received a Bachelor’s Degree in Finance from Duquesne University located in Pittsburgh, Pennsylvania. Mr. Kolcouris has been in banking for over fifteen years and his knowledge of finance and business experience is helpful to the Company.

 

Robert D. Monsour has been one of our Directors since our inception in June 2002. From November 1997 to 2005, Mr. Monsour was the Administrator of RGM Medical Management, a medical management firm headquartered in Pittsburgh, Pennsylvania. Thereafter he has acted as a consultant specializing in litigation support to various attorneys and law firms in Western Pennsylvania. Mr. Monsour received the following degrees from the University of Pittsburgh located in Pittsburgh, Pennsylvania: (a) Juris Doctor Degree in May 1983; (b) completed the course of study for a Master’s Degree in International Affairs at the Graduate School of Public and International Affairs in May 1983, with the exception of a required Master’s Thesis; and (c) Bachelor of Arts Degree in Political Science in May 1978. Mr. Monsour’s business experience and his knowledge of the law make him qualified to serve as a director of the Company.

 

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Daniel P. Rains has been a director since March 2007. Mr. Rains is currently Vice President of business development at McCarl’s, Inc., a mechanical contracting firm. He has held this position for over fifteen years. From 1981 through 1987, Mr. Rains was a professional football player for the Chicago Bears. He is a graduate of the University of Cincinnati. Mr. Rains has been in professional sports and in business for over twenty years. His experience and knowledge of these fields are helpful to the Company. As the Company enters the building construction market with its House Wrap product, Mr. Rains’ experience in that industry will be especially helpful.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

On July 31, 2014, our Chief Executive Officer, Joseph Ricelli, Sr., conducted a sale of the Company’s Common Stock under his control that was a reportable event within two days under the federal securities law by filing a Form 4 with the SEC. The Form 4 was not filed until August 15, 2014.

 

Audit Committee

 

We do not have a separate standing Audit Committee. Therefore, our entire Board of Directors acts as the Audit Committee. The Board of Directors has determined that Mr. Dean Kolocouris is its financial expert. Mr. Kolocouris is a loan officer for a bank and has a degree in Finance.

 

Nominating and Compensation Committees

 

We do not have either a nominating committee or a compensation committee. The basis for the Board of Directors to not have a nominating committee is the fact that our principal stockholder who is also our CEO and Chairman of the Board controls approximately fifty percent of the voting stock. And the Company has never held an Annual Meeting of stockholders. New board members are recommended to the Board by the Chairman of the Board.

 

Board of Directors Meetings

 

During the last full fiscal year, there were no meetings of the Board of Directors.

 

Code of Ethics

 

We have not, as yet, adopted a code of ethics. We have only one full time executive officer/ chief financial officer who also acts as our principal accounting officer. To date, our operations have been so minimal and our staff so small that we have not considered a formal standard relating to the conduct of our personnel.

 

- 22 -
 

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following Executive Compensation Chart highlights the terms of compensation for our Executives.

 

Summary Compensation Table

 

Name and
Principal
Position 		  Year     Salary
($) 		    Bonus
($) 		    Stock
Awards
($) 		    Option
Awards
($) 		    Non-Equity
Incentive Plan
Compensation
($) 		    Nonqualified
Deferred
Compensation
Earnings
($) 		    All Other
Compensation
($) 		    Total
($) 		 
                                                       
Joseph Riccelli, Sr.                                                                        
CEO, Chairman     2014     $ 65,639       0       0       0       0       0       0     $ 65,639  
                                                                         
Joseph Riccelli, Sr.                                                                        
CEO, Chairman     2013     $ 65,639       0       0       0       0       0       0     $ 65,639  

 

During 2014, we paid our Chief Executive Officer $65,639 in compensation.

 

There are no employment agreements between us and our executive officer Joseph Riccelli, Sr. There are no change of control arrangements, either by means of a compensatory plan, agreement, or otherwise, involving our current or former executive officers. There are no automobile lease agreements or key man life insurance policies that are to the benefit of our executive officers, in which we would make such payments. There are no standard or other arrangements in which our directors are compensated for any services as a director, including any additional amounts payable for committee participation or special assignments. There are no other arrangements in which any of our directors were compensated during our last fiscal year for any service provided as a director.

 

Other than Mr. Riccelli Sr., who is our CEO, the Board of Directors considers the remaining Directors Messrs. Monsour, Koloccouris and Rains to be independent directors.

 

Director Compensation

 

Name  

Fees

Paid
 or Paid

in Cash
($)

    Stock
Awards
($) 		    Option
Awards
($) 		    Non-Equity
Incentive Plan
Compensation
($) 		    Nonqualified
Deferred
Compensation
Earnings
($) 		    All Other
Compensation
($) 		    Total
($) 		 
                                           
Kolocouris     0       0       0       0       0       0       0  
                                                         
Monsour     0       0       0       0       0       0       0  
                                                         
Rains     0       0       0       0       0       0       0  
                                                         
Riccelli, Sr.     0       0       0       0       0       0       0  

 

- 23 -
 

 

Securities Authorized for Issuance under Equity Compensation Plans.

 

Equity Compensation Plan Information

 

Plan Category   Number of securities
to be issued upon
exercise of outstanding
options, warranties
and rights 		    Weighted-average
exercise price of
outstanding options,
warranties and rights 		    Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding those
reflected in column (a)) 		 
    (a)     (b)     (c)  
Equity compensation
plans approved by
security holders 		  $ 0     $ 0.30 (1)   $ 0  

 

(1) Weighted average price was based on market value of the shares on or about the date the service was performed. Market value of the price per share ranged from $.71 to $0.14 per share over the period of time in which the various services were performed.

 

(2) All stock that has been issued by the Company out of the equity compensation plan was for the exchange of professional services. No shares were sold for cash.

 

Use of Proceeds from Registered Securities

 

Not Applicable

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth the ownership as of February 4, 2015 (a) by each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock, and/or (b) by each of our directors, by all executive officers and our directors and executive officers as a group.

 

- 24 -
 

 

To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in our control.

 

Security Ownership of Management

 

Title of Class   Name and Address       Amount     Nature   Percent  
                         
Common Stock   Joseph Riccelli, Sr.       8,005,000     Direct     35.23 %
    Chief Executive Officer                        
    Chairman of the Board   (1)     601,478     Indirect     2.68 %
    of Directors                        
    142 Loire Valley Drive                        
    Pittsburgh, Pa 15209                        
                             
Common Stock   Robert D. Monsour         -              
    Director                        
    6131 Saltzburg Road                        
    Murrysville, PA 15668                        
                             
Common Stock   Dean P. Kolocouris         52,000     Direct     *  
    Director                        
    120 Timberglen Drive                        
    Imperial, Pa 15216                        
                             
Common Stock   Daniel P. Rains         85,000     Direct     *  
    2509 Wigham Road                        
    Aliquippa, PA 15001                        
                             
All Directors and Executive Officers as a Group       8,743,478           38.48 %

 

* Represents less than one percent.

 

(1) Represents 421,478 shares of common stock held in the Gino A. Riccelli Trust and 180,000 shares of common stock held in the Joseph A. Riccelli Trust. Both Trusts are for the sons of our Chief Financial Officer. Mr. Joseph Riccelli, Sr. is the trustee of both trusts.

 

By virtue of his stock ownership or control over our stock, Mr. Riccelli, Sr. may be deemed to “control” the Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

Our officers and directors may encounter conflicts of interests between our business objectives and their own interests. We have not formulated a policy for the resolution of such conflicts. Future transactions or arrangements between or among our officers, directors and shareholders, and businesses they control, may result in conflicts of interest, and the conflicts may be resolved in favor of businesses that our officers or directors are affiliated, which may have an adverse effect on our revenues.

 

- 25 -
 

 

Our officers and directors have the following conflicts of interests:

 

· We lease our executive offices from Riccelli Properties, which is solely owned by our Chief Executive Officer, Joseph Riccelli, Sr., for which we pay $700 per month for a total of $8,400 per year and we lease our warehouse space from the brother of our Chief Executive Officer. We pay $3,500 per month for a total of $42,000 per year.

 

Independence of Board Members

 

The Company has adopted the NASDAQ Listing Rules; Rule 5605 and 5605 (a) (20, for determining the independence of its directors. Directors are deemed independent only if the Board affirmatively determines that the director has no material relationship with the Company directly or as an officer, share owner or partner of an entity that has a relationship with the Company or any other relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees billed for the fiscal years ended October 31, 2014 and 2013 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows: (a) during fiscal year ended October 31, 2014 and 2013, our current auditors, Louis Plung & Company billed the Company $18,000 for professional services, respectively.

 

Audit Related Fees

None.

 

Tax Fees

None.

 

All Other Fees

None.

 

- 26 -
 

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit    
Number   Description
3.1   Revised Certificate of Incorporation
3.2   Bylaws*
4   Specimen Stock Certificate*
10.1   Exclusive License and Manufacturing Agreement by and between Ko-Myung Kim, Ketut Jaya and Innovative Designs, Inc. [Confidential Treatment Requested]**
10.2   Authorization dated April 1, 2008 by and between Jordan Outdoor Enterprises, Ltd and Innovative Designs, Inc.***
10.3   License Agreement effective May 30, 2005 by and between Haas outdoors, Inc. and Innovative Designs, Inc.***
10.4   Loan Authorization Agreement, dated July 12, 2005 between the U. S. Small Business Administration and Innovative Designs, Inc.***
10.6   Motor Vehicle Installment Sale Contract dated September 26, 2005.***
31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
99   Test Results from Vartest Lab.*
100   Test Results from Texas Research Institute Austin, Inc.*
101   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Statement of Operations for the years ended October 31, 2011 and 2010, (ii) the Balance Sheets at October 31, 2011 and 2010, (iii) the Statements of Cash Flows for the years ended October 31, 2011 and 2010 and (iv) the notes to the Financial Statements.

 

* Previously filed as exhibits to Registration Statement on Form SB-2 filed on March 11, 2003
** Previously filed as exhibit to Form 10-KSB filed on February 8, 2008
*** Previously filed as exhibits to Form 10-K/A filed November 23, 2009

 

- 27 -
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      INNOVATIVE DESIGNS, INC.
      (Registrant)
       
Date: February 6, 2015 by: /s/ Joseph Riccelli
      Joseph Riccelli, Sr.
      Chief Executive Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: February 6, 2015 by: /s/ Joseph Riccelli
      Joseph Riccelli, Sr.
      Chief Executive Officer,
      Chief Financial Officer, Principal Accounting Officer, and Chairman of the Board of Directors
       
Date: February 6, 2015 by: /s/ Dean P. Kolocouris
      Dean P. Kolocouris
      Director
       
Date: February 6, 2015 by: *
      Robert D. Monsour
      Director
       
Date: February 6, 2015 by: /s/ Daniel Rains
      Daniel Rains
      Director

 

- 28 -
 

 

INNOVATIVE DESIGNS, INC.

 

FINANCIAL STATEMENTS AND

INDEPENDENT AUDITORS’ REPORT

October 31, 2014 and 2013

 

- 29 -
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors

Innovative Designs, Inc.

Pittsburgh, Pennsylvania

 

We have audited the accompanying balance sheets of Innovative Designs, Inc. (a Delaware corporation) as of October 31, 2014 and 2013, and the related statements of operations, stockholders' equity (deficit), and cash flows for the fiscal years then ended, and the related notes to the financial statements. Innovative Designs, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Innovative Designs, Inc. as of October 31, 2014 and 2013, and the results of its operations, and its cash flows for the fiscal years then ended, in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Louis Plung & Company  
   
Pittsburgh, Pennsylvania  
February 6, 2015  

 

- 30 -
 

 

INNOVATIVE DESIGNS, INC.

 

BALANCE SHEETS

October 31, 2014 and 2013

 

    2014     2013  
             
ASSETS                
                 
CURRENT ASSETS                
Cash   $ 988,681     $ 69,613  
Accounts receivable     64,298       90,583  
Other receivables     30,000       4,000  
Inventory - net of obsolete inventory reserve of  $46,000 and $52,000, respectively     889,560       614,581  
Inventory on consignment     -       42,900  
Deposits on inventory     -       30,846  
Prepaid insurance     2,881       7,655  
Total current assets     1,975,420       860,178  
                 
PROPERTY AND EQUIPMENT - NET     56,189       18,346  
                 
OTHER ASSETS                
Deferred financing costs, net of  accumulated amortization of $990     1,010       -  
                 
TOTAL ASSETS   $ 2,032,619     $ 878,524  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
                 
CURRENT LIABILITIES                
Accounts payable   $ 87,933     $ 83,183  
Current portion of notes payable     59,407       155,053  
Accrued interest expense     184,487       240,121  
Due to stockholders     330,000       416,500  
Accrued expenses     87,266       3,419  
Total current liabilities     749,093       898,276  
                 
Long-term portion of notes payable     327,529       335,371  
                 
TOTAL LIABILITIES     1,076,622       1,233,647  
                 
STOCKHOLDERS' EQUITY (DEFICIT)                
Preferred stock, $0.0001 par value, 25,000,000 and 100,000,000 shares authorized as of October 31, 2014 and 2013, respectively     -       -  
Common stock, $0.0001 par value, 1000,000,000 and 500,000,000 shares authorized as of October 31, 2014 and 2013, respectively, and 22,438,043 and 19,325,743 issued and outstanding as of October 31, 2014 and 2013, respectively     2,244       1,935  
Additional paid-in capital     7,522,487       5,777,606  
Accumulated deficit     (6,568,734 )     (6,134,664 )
Total stockholders' equity (deficit)     955,997       (355,123 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $ 2,032,619     $ 878,524  

 

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

 

- 31 -
 

 

INNOVATIVE DESIGNS, INC.

 

STATEMENTS OF OPERATIONS

For the Fiscal Years Ended October 31, 2014 and 2013

  

    2014     2013  
             
REVENUES   $ 771,184     $ 484,299  
                 
OPERATING EXPENSES                
Cost of sales     433,861       206,939  
Selling, general and administrative expenses     646,932       507,868  
                 
LOSS FROM OPERATIONS     (309,609 )     (230,508 )
                 
OTHER INCOME (EXPENSE)                
Loss contingency     -       190,000  
Interest expense     (124,461 )     (102,253 )
                 
TOTAL OTHER INCOME (EXPENSE)     (124,461 )     87,747  
                 
NET LOSS   $ (434,070 )   $ (142,761 )
                 
PER SHARE INFORMATION                
Basic                
                 
Net Loss Per Common Share   $ (0.021 )   $ (0.008 )
                 
Weighted Average Number of Common Shares Outstanding     20,397,432       18,974,811  

 

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

 

- 32 -
 

 

INNOVATIVE DESIGNS, INC.

 

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Fiscal Years Ended October 31, 2014 and 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 issued for services     180,000       18       86,982       -       87,000  
                                         
Shares issued for debt conversion     392,300       39       86,861               86,900  
                                         
Sale of stock     2,540,000       252       1,571,038       -       1,571,290  
                                         
Net loss     -       -       -       (434,070 )     (434,070 )
                                         
Balance at October 31, 2014     22,438,043     $ 2,244     $ 7,522,487     $ (6,568,734 )   $ 955,997  

 

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

 

- 33 -
 

 

INNOVATIVE DESIGNS, INC.

 

STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended October 31, 2014 and 2013

  

    2014     2013  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (434,070 )   $ (142,761 )
Adjustments to reconcile net loss to  net cash used in operating activities:                
Common stock issued for services and interest expense     96,400       25,000  
Amortization     990       -  
Depreciation     4,000       2,102  
Loss contingency     -       (190,000 )
Increase in deferred financing     (2,000 )     -  
Provision for inventory reserves     (6,000 )     (13,000 )
Increase (decrease) from changes in:                
Accounts receivable     26,285       7,767  
Other receivables     (26,000 )     -  
Inventory     (226,079 )     (20,759 )
Deposits on inventory     30,846       13,668  
Prepaid insurance     4,774       (3,295 )
Accounts payable     4,750       18,728  
Accrued expenses     83,847       2,543  
Accrued interest expense     (55,634 )     49,262  
                 
Net cash used in operating activities     (497,891 )     (250,745 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Capital expenditures     (41,843 )     -  
                 
Net cash used in investing activities     (41,843 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from sale of stock     1,571,290       64,000  
Payments on stockholder advances     (84,000 )     (155,100 )
Proceeds from stockholder advances     50,000       305,000  
Payments on notes payable     (158,488 )     (119,933 )
Proceeds from notes payable     80,000       171,396  
                 
Net cash provided by financing activities     1,458,802       265,363  
                 
Net increase in cash equivalents     919,068       14,618  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     69,613       54,995  
                 
CASH AND CASH EQUIVALENTS, END OF THE YEAR   $ 988,681     $ 69,613  
                 
Supplemental disclosure of cash flow information:                
Stock issuance for debt conversion   $ 86,900     $ -  
Cash paid for interest   $ 173,595     $ 52,991  

 

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

 

- 34 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations - Innovative Designs, Inc. (the “Company”), which was incorporated in the State of Delaware on June 25, 2002, markets cold weather recreational and industrial clothing products, as well as house wrap, which are made from INSULTEX, a low density foamed polyethylene, a material with buoyancy, scent block, and thermal resistant properties. Our clothing is offered and sold by retailers, distributors, and companies throughout the United States and Canada.

 

We operate two reportable segments: Apparel and House Wrap. Our apparel segment offers a wide variety of extreme cold weather apparel and related items. Our House Wrap segment offers our Insultex House Wrap which has an R-value of 3 and our own seam tape.

 

Basis of Accounting - The financial statements are prepared using the accrual basis of accounting in which revenues are recognized when earned and expenses are recognized when incurred.

 

Fiscal Year End - The Company’s fiscal year ends on October 31. The fiscal years ending October 31, 2014 and 2013 are referred to as 2014 and 2013, respectively, throughout the Company’s financial statements.

 

Estimates - The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results may differ from these estimates and assumptions.

 

Cash and Cash Equivalents - The Company defines cash and cash equivalents as those highly liquid investments purchased with a maturity of three months or less.

 

Revenue Recognition - The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is probable. Revenue is derived from sales of the Company’s recreational products, such as Arctic Armor, and our house wrap line of products. Sales of these items are recognized when the items are shipped. The Company offers a 5 day return policy and no warranty on all of its products. All sales outside the United States are entered into using the U.S. dollar as its functional currency. During 2014 and 2013, the Company took back certain products from customers that accounted for $2,226 and $4,598 in revenue, respectively. The Company was not required to accept these returns but made a business decision to do so.

 

Fair Value of Financial Instruments - The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and certain other liabilities approximate their estimated fair values due to the short-term nature of these instruments. The fair value of the Company’s debt instruments approximates their fair values as the interest is tied to or approximates market rates.

 

Estimated Uncollectable Accounts - The Company considers all accounts receivable balances to be fully collectable at October 31, 2014 and 2013, accordingly, no allowance for doubtful accounts is provided.

 

- 35 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Inventory - Inventory consists primarily of finished goods. Inventory is stated at the lower of cost or market on a first-in, first-out basis.

 

During the fiscal year ended October 31, 2010, the Company discontinued its hunting and swimming lines of apparel. A reserve balance of approximately $46,000 and $52,000 was recorded as of October 31, 2014 and 2013, respectively. The reserve is evaluated on a quarterly basis and adjusted accordingly.

 

During 2013, the Company entered into an agreement with Dick’s Sporting Goods in which it has consigned certain Arctic Armor products. These items were offered in select stores and through the Dick’s Sporting Goods website. As of October 31, 2013, the Company had provided $42,900 of inventory to be placed in stores. This agreement resulted in revenues of $44,600 as of October 31, 2014. There were no sales of these products during 2013. At the expiration of this agreement, $68,600 of inventory was not sold by Dick’s Sporting Goods and subsequently returned to the Company during its 2014 fiscal year, in accordance with the agreement. 

 

Property and Equipment - Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to income as incurred. Additions, improvements and major replacements are capitalized. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income.

 

For financial reporting purposes, depreciation is primarily provided on the straight-line method over the estimated useful lives of depreciable assets, which range from 5 to 7 years.

 

Impairment of Long-lived Assets - Management of the Company considers the valuation and depreciation of property and equipment. Management considers both the current and future levels of undiscounted cash flow generated by the Company and the continuing value of property and equipment to determine when and if an impairment has occurred. Any write-downs due to impairment are charged to operations at the time the impairment is identified. No such write-downs due to impairment have been recorded in 2014 and 2013.

 

Income Taxes - The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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.

 

In addition, ASC 740 clarifies the accounting for uncertainty in tax positions and requires that a company recognize in its financial statements the impact of a tax position, only if it is more likely than not of being sustained upon examination, based on the technical merits of the position. The Company recognized no material adjustments to the liability for unrecognized income tax benefits.

 

The Company’s policy regarding the classification of interest and penalties recognized in accordance with ASC 740 is to classify them as income tax expense in its financial statements, if applicable.

 

- 36 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Company believes it is no longer subject to income tax examinations for years up to and including the year ended October 31, 2011.

 

Concentration of Credit Risk - The Company maintains its cash and cash equivalents with a financial institution which management believes to be of high credit quality. Their accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 in coverage. The balances in these accounts may, at times, exceed the federally insured limits. The Company has not experienced any losses on the deposits and management believes the Company is not exposed to any significant credit risk related to these accounts. As of October 31, 2014, the Company has $738,681 of uninsured cash balances. There were no uninsured cash balances as of October 31, 2013.

 

Shipping and Handling - Shipping costs associated with acquiring inventories are charged to cost of goods sold when incurred. 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 customer orders was $29,568 and $29,827 as of October 31, 2014 and 2013, respectively. Freight costs for delivering products to customers are included in revenues from sales at the time the goods are shipped.

 

Net Income Per Common Share - The Company calculates net income per share in accordance with ASC Topic 260 “ Earnings per Share ”. Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding for the period. The Company only has common stock outstanding for 2014 and 2013. As a result, diluted earnings per share was not calculated.

 

Stock-Based Compensation - The Company accounts for stock based compensation in accordance with ASC Topic 718 “ Compensation - Stock Compensation ”. In accordance with the provisions of ASC 718 share-based payment transactions with employees are measured based on the fair value of the equity instruments issued on the grant date or on the fair value of the liabilities incurred. Share-based payments to nonemployees are measured and recognized using the fair-value method, based on the fair value of the equity instruments issued or the fair value of goods or services received, whichever is more reliably measured.

 

Amendment to the Certificate of the Incorporation  - Stockholders, as of October 2, 2014, holding a majority of the issued and outstanding voting shares of the Company, approved an amendment to the Company’s Certificate of Incorporation, to decrease the number of authorized shares of Common Stock from 500,000,000 to 100,000,000 and to decrease the number of Preferred Shares from 100,000,000 shares to 25,000,000 shares. The Company had authorized capital stock of 500,000,000 shares of Common Stock, of which 21,638,043 shares were issued and outstanding as of October 2, 2014, and 100,000,000 shares of Preferred Stock. There were no shares of Preferred Stock designated or issued. The Company’s Board of Directors believes that the decrease in authorized Common Stock and Preferred Stock would save the Company money by lowering its annual franchise tax and more closely reflects the Company’s size and ownership structure. The approved amendment was implemented on or about October 27, 2014.

 

The terms of the lesser shares of Common Stock will be identical to those of the currently outstanding shares of Common Stock. This amendment and the creation of lesser shares of authorized will not alter the current number of issues shares. The relative rights and limitations of the shares of Common Stock remained unchanged under this amendment. Holders of Common Stock have no preemptive rights to purchase or subscribe for nay unissued capital stock of the Company. This amendment did not alter this limitation.

  

New Accounting Pronouncements - During 2014 and 2013, the FASB issued various Accounting Standards Updates (“ASUs”). Based on management’s review, it was determined that the ASUs will have no material effect on the Company’s financial statements. As new ASUs are issued, management will evaluate their impact on the Company. Any future impact will be included in the notes to the Company’s financial statements.

 

- 37 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

2. PROPERTY AND EQUIPMENT

 

Property and equipment are summarized by major classifications as follows:

 

    2014     2013  
             
Equipment   $ 70,830     $ 28,987  
Furniture and fixtures     11,092       11,092  
Leasehold improvements     4,806       4,806  
Automobile     7,841       7,841  
      94,569       52,726  
                 
Less accumulated depreciation     38,380       34,380  
                 
Property and equipment - net   $ 56,189     $ 18,346  

 


Depreciation expense for the years ended October 31, 2014 and 2013 was $4,000 and $2,102, respectively.

 

3. BORROWINGS

 

Borrowings at October 31, 2014 and 2013 consisted of the following:

 

    2014     2013  
             
Due to Stockholders                
                 
Note Payable - Joseph Riccelli, Sr. Interest is 8% per quarter with no payment terms.   $ -     $ 31,000  
                 
Note Payable $100,000 - James Kearney, September 2005. Interest of $8,000 per quarter was charged from October 2005 through October 2008; principal and interest due and payable in full at any time after December 10, 2005.     -       12,500  
                 
Note Payable $10,000 - Frank Riccelli, July 2011. Due December 20, 2011; payable on demand; interest is 10% for 120 days.  Note was extended through a verbal agreement.     -       10,000  
                 
Note Payable $8,000 - Roberta Riccelli, February 2012. Due June 17, 2012; interest is 10% for 120 days. Note was extended through a verbal agreement.     5,000       8,000  
                 
Subtotal of Notes Payable   $ 5,000     $ 61,500  

 

- 38 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

    2014     2013  
             
Subtotal Due to Stockholders from Page 39   $ 5,000     $ 61,500  
                 
Note Payable $50,000 - Joseph Riccelli, Sr., July 2012. Due January 9, 2013; interest is 10% for 120 days. Note was extended through a verbal agreement.     50,000       50,000  
                 
Note Payable $20,000 - Corinthian Development, January 15, 2013. Due May 15, 2013; payable on demand;interest is 10%; Note was extended through a verbal agreement.     20,000       20,000  
                 
Note Payable $100,000 - Sol & Tina Waxman Family Foundation, September 2014.  Due March 31, 2015; payable on demand; interest is 10%.     60,000       100,000  
                 
Note Payable $90,000 - Joseph Riccelli, Sr., May 2013. Due November 22, 2013; interest is 10% for 180 days. Note was extended through a verbal agreement.     90,000       90,000  
                 
Note Payable $25,000 - Darryl Zaontz, July 2013. Due January 16, 2014; payable on demand; interest is 10% for 6 months.     -       25,000  
                 
Note Payable $15,000 - John and Priscilla Zaontz, July 2013.  Due January 6, 2014; payable on demand; interest is 10% for 6 months.     -       15,000  
                 
Note Payable $55,000 - Joseph Riccelli, Sr., September 2013. Due March 23, 2014; interest is 10% for 180 days.  Note was extended through a verbal agreement.     55,000       55,000  
                 
Note Payable $50,000 - Joseph Riccelli, Sr., May 2014. Due November 12, 2014; interest is 10% for 180 days.  Note was extended through a verbal agreement.     50,000       -  
                 
Total Due to Stockholders   $ 330,000     $ 416,500  

 

- 39 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

             
    2014     2013  
                 
Notes Payable                
                 
Note Payable - U.S. Small Business Administration. Due July 2035; payable in monthly installments of $1,820 including interest at 2.9% annum.   $ 338,696     $ 351,625  
                 
Note Payable $9,911 - Prime Rate Premium Finance Corporation, March 2013.  Monthly payments of $1,159 due beginning April 10, 2013, including interest at 12.5%.     -       3,304  
                 
Note Payable $40,000 - Xunjin Hua, November 2012. Due March 22, 2013; payable on demand; interest is 10% for 6 months.     -       40,000  
                 
Note Payable $4,485 - Prime Rate Premium Finance Corporation, April 2013.  Monthly payments of $529 due beginning May 16, 2013, including interest at 14.5%.     -       1,495  
                 
Note Payable $25,000 - Aaron Riccelli, April 2013. Due August 31, 2013; payable on demand; interest is 10% for 120 days. Note was extended through a verbal agreement     -       25,000  
                 
Note Payable $25,000 - Hoi Ping Lee, July 2013. Due January 6, 2014; payable on demand; interest is 10% for 6 months.     -       25,000  
                 
Note Payable $25,000 - Xunjin Hua, August 2013. Due February 10, 2014; payable on demand; interest is 10% for 6 months.     -       25,000  
                 
Note Payable $19,000 - Veronique Francois, September 2013. Due March 6, 2014; payable on demand; interest is 10% for 6 months.     -       19,000  
                 
Note Payable $80,000 - OnDeck Capital, February 2014. 378 payments of $307 due on each business day; interest is 45% for 18 months.     48,240       -  
                 
Total Notes Payable   $ 386,936     $ 490,424  
                 
Total Borrowings     716,936       906,924  
                 
Less Due to Stockholders     330,000       416,500  
                 
Less Current Portion of Notes Payable     59,407       155,053  
                 
Total Long Term Portion of Notes Payable   $ 327,529     $ 335,371  

 

- 40 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Maturities of long-term debt are as follows:

 

Year Ending         Notes        
October 31   Stockholders     Payable     Amount Due  
                   
2015   $ 330,000     $ 59,407     $ 389,407  
2016     -       12,481       12,481  
2017     -       12,874       12,874  
2018     -       13,252       13,252  
2019     -       13,642       13,642  
Thereafter     -       275,280       275,280  
                         
Total   $ 330,000     $ 386,936     $ 716,936  

 

The Company has received various advances from our Chief Executive Officer, Joseph Riccelli, Sr., which have been used to fund operations. These advances totaled $31,000 as of October 31, 2013 and were paid in full during 2014.

 

In September 2005, the Company entered into a new loan agreement with James Kearney for a note payable. This new agreement is for a prior note payable of $100,000, dated July 2004. Interest of $8,000 per quarter was charged from October 2005 through October 2008. Interest accrued and due on this note was $92,000 as of October 31, 2012. The principal and interest are due and payable in full at any time after December 10, 2005. The principal balance as of October 31, 2013 was $12,500. The remaining principal on this loan was converted to stock at $.60 per share during June 2014.

 

In July 2005, the Company was approved for a low interest promissory note from the U.S. Small Business Administration in the amount of $280,100. The Company qualified for the loan due to the significant loss of inventory, raw materials, and equipment when its leased warehouse, in which it maintained these items, was flooded by the remnants of Hurricane Ivan in September 2004. The note bears interest at an annual rate of 2.9%. Monthly installment payments, including principal and interest of $1,186 began five months from the date of the promissory note. The note is payable over 30 years. Certain guarantees of collateral were made by the Company’s Chief Executive Officer and shareholder, Joseph Riccelli, Sr., to service the note. The Company was to use the loan proceeds to repair or replace the following: approximately $6,200 for machinery and equipment; approximately $80,100 for furniture and fixtures; approximately $148,700 for inventory; and approximately $45,100 for working capital. The Company received the full amount of this loan at October 31, 2005. In January 2006 the Company amended the promissory note with the Small Business Administration increasing the principal balance to $430,500. The note still bears an annual interest rate of 2.9% and matures on July 13, 2035. Monthly payments, including principal and interest, of $1,820 are due each month beginning February 13, 2006. All remaining principal and accrued interest are due and payable on July 13, 2035. The loan balance was $338,696 and $351,625 at October 31, 2014 and 2013, respectively.

 

In July 2011, the Company entered into a note payable with Frank Riccelli for $10,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 120 days. This note was extended through a verbal agreement. The loan balance was $10,000 as of October 31, 2013 and was paid in full during 2014.

 

- 41 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

In February 2012, the Company entered into a note payable with Roberta Riccelli for $8,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 120 days. This note was extended through a verbal agreement. The loan balance as of October 31, 2014 and 2013 was $5,000 and $8,000, respectively.

 

In July 2012, the Company entered into a note payable with its president, Joseph Riccelli, Sr., for $50,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 120 days. This note was extended through a verbal agreement. The loan balance at October 31, 2014 and 2013 was $50,000.

 

In November 2012, the Company entered into a note payable with Xunjin Hua for $40,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months. The loan was extended through a verbal agreement. This note was paid in full during 2014.

 

In January 2013, the Company entered into a note payable with Corinthian Development for $20,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 4 months. This note was extended through a verbal agreement. The loan balance at October 31, 2014 and 2013 was $20,000.

 

In March 2013, the Company entered into a note payable with Prime Rate Premium Finance for $9,911. This loan was to be used to finance insurance premiums of the Company. Monthly payments of $1,159 were due beginning April 10, 2013, including interest at 12.5%. This note was paid in full during 2014.

 

In April 2013, the Company entered into a note payable with Prime Rate Premium Finance for $4,485. This loan was to be used to finance insurance premiums of the Company. Monthly payments of $529 were due beginning May 16, 2013, including interest at 14.5%. This note was paid in full during 2014.

 

In April 2013, the Company entered into a note payable with Aaron Riccelli for $25,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 120 days. This note was paid in full during 2014.

 

In May 2013, the Company entered into a note payable with the Sol & Tina Waxman Family Foundation for $100,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% on December 31, 2013. The Company’s CEO has pledged 250,000 shares of its stock, as collateral. This note is also personally guaranteed by the Company’s CEO. This was converted into a $60,000 note due March 31, 2015 after $40,000 in principal and $10,000 in interest was paid.

 

In May 2013, the Company entered into a note payable with its CEO, Joseph Riccelli, Sr., for $90,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 180 days. This note was extended through a verbal agreement. The loan balance at October 31, 2014 and 2013 was $90,000.

 

- 42 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

In July 2013, the Company entered into a note payable with Darryl Zaontz for $25,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months, as well as 5,000 restricted shares of stock. The loan balance at October 31, 2013 was $25,000. This note and accrued interest were converted at $.20 per share, into 142,500 shares of the Company’s stock, during January 2014.

 

In July 2013, the Company entered into a note payable with Hoi Ping Lee for $25,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months, as well as 5,000 restricted shares of stock. The loan balance at October 31, 2013 was $25,000. This note and accrued interest were converted at $.20 per share, into 142,500 shares of the Company’s stock, during January 2014.

 

In July 2013, the Company entered into a note payable with John and Priscilla Zaontz for $15,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months, as well as 4,000 restricted shares of stock. The loan balance at October 31, 2013 was $15,000. This note and accrued interest were converted at $.20 per share, into 86,500 shares of the Company’s stock, during January 2014.

 

In August 2013, the Company entered into a note payable with Xunjin Hua for $25,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months, as well as 5,000 restricted shares of stock. The loan balance was $25,000 as of October 31, 2013 and was paid in full during 2014.

 

In September 2013, the Company entered into a note payable with Veronique Francois for $19,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 6 months. Principal and interest may be converted into shares of stock upon request of the lender. The loan balance was $19,000 as of October 31, 2013 and was paid in full during 2014.

 

In September 2013, the Company entered into a note payable with its CEO, Joseph Riccelli, Sr., for $55,000. This loan was to be used to fund operations of the Company. This loan is due on demand, including interest at 10% for 180 days. The loan balance at October 31, 2014 and 2013 was $55,000.

 

In February 2014, the Company entered into a new loan agreement with OnDeck Capital for a note payable for $80,000. The note has 378 payments of $307, due on each business day, including interest at 45% for 18 months. The balance as of October 31, 2014 is $48,240.

 

In May 2014, the Company entered into a note payable with its CEO, Joseph Riccelli, Sr., for $50,000. The loan is used to fund operations of the Company. The loan is due on demand, including interest at 10% for 180 days. This note was extended through a verbal agreement. The loan balance as of October 31, 2014 is $50,000.

 

- 43 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

4. EXCLUSIVE LICENSING AND MANUFACTURING AGREEMENT

 

On April 16, 2006, the Company entered into an Exclusive License and Manufacturing Agreement (the “Agreement”) with the Ketut Group, with an effective date of April 1, 2006, whereby the Company acquired an exclusive license to develop, use, sell, manufacture and market products related to or utilizing INSULTEX™, Korean Patent Number, (0426429) or any Insultex Technology. At the behest of the Board of Directors, the Insultex trademark was chosen as the mark to identify the product utilized by Innovative since its inception, and was originally registered by Joseph Riccelli on February 17, 2005. The new trademark, intended to avoid confusion arising from the use of the old Eliotex trademark in association with a new, subsequent, different and separately-patented product, was assigned by Mr. Riccelli to the Company on April 25, 2006, with that assignment to become effective upon final approval of the Statement of Use by the United States Patent and Trademark Office. The License was awarded by the Korean inventor, an individual who is part of the Ketut Group, and the manufacturer of INSULTEX™. The Company received an exclusive forty (40) year worldwide license, except for Korea and Japan, with an initial term of ten (10) years and an option to renew the License for up to three (3) successive ten (10) year terms. Additionally, the Company was granted the exclusive rights to any current or future inventions, improvements, discoveries, patent applications and letters of patent which the Ketut Group controls or may control related to INSULTEX™. Furthermore, the Company has the right to grant sub-licenses to other manufacturers for the use of INSULTEX™ or any Insultex Technology.

 

5. CONCENTRATIONS

 

Revenues from three customers were approximately 43% of the Company’s revenues for the fiscal year ended October 31, 2014. Revenues from two customers were approximately 42% of the Company’s revenues for the fiscal year ended October 31, 2013.

 

Accounts receivable from two customers were approximately 52% of the Company’s accounts receivable as of October 31, 2014. Three customers accounted for approximately 61% of the Company’s October 31, 2013 accounts receivable balance.

 

The Company only has one supplier of INSULTEX, the special material which is manufactured within the apparel of the Company. Additionally, the Company only has one manufacturer that produces the apparel on behalf of the Company, located in Indonesia, and one manufacturer that produces house wrap on behalf of the Company in Massachusetts.

 

6. INCOME TAXES

 

In prior years the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. For the 2013 tax year, fiscal year end October 31, 2014, the Company had net operating loss carryforwards of approximately $2,900,000 for tax purposes. The carryforwards are available to offset taxable income of future periods and begin to expire after the Company’s 2024 tax year, fiscal year end October 31, 2025. Realization of the deferred tax benefit related to the carryforward is dependent upon the Company generating sufficient taxable income in the future, against which the loss can be offset, which is not guaranteed.

 

- 44 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Deferred income taxes reflect the net tax effect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as tax benefits of net operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities relate to the following:

 

    2014     2013  
             
Net operating loss carryforward   $ 986,000     $ 948,500  
Depreciation     -       (200 )
Net deferred tax assets before valuation allowance     986,000       948,300  
Less: Valuation allowance     (986,000 )     (948,300 )
                 
Net deferred tax assets   $ -     $ -  

 

For financial reporting purposes, the Company has incurred losses in previous years. Based on the available objective evidence, including the Company’s previous losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets as of October 31, 2014 and 2013, respectively.

 

The effective income tax rate varied from the statutory Federal tax rate as follows:

 

    2014     2013  
             
Federal statutory rate     34 %     34 %
Effect of net operating losses     (34 %)     (34 %)
                 
Effective income tax rate     -       -  

 

The Company’s effective tax rate is lower than what would be expected if the federal statutory rate were applied to income (loss) before taxes, primarily due to net operating loss carryforwards.

 

7. COMMITMENTS

 

The Company currently maintains two locations which are leased pursuant to oral agreements on a month-to-month basis. The Company leases offices from Riccelli Properties, which is solely owned by our Chief Executive Officer, Joseph Riccelli, Sr., for $700 per month. The Company leases its executive offices/warehouse space from Frank Riccelli, a stockholder and brother of our Chief Executive Officer, for $3,500 per month. For the years ended October 31, 2014 and 2013, rent expense totaled $50,650 and $50,400, respectively.

 

- 45 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

 

    First     Second     Third     Fourth        
2014   Quarter     Quarter     Quarter     Quarter     Year  
                               
Revenue   $ 373,752     $ 66,670     $ 195,035     $ 135,727     $ 771,184  
                                         
Income/(loss) from operations     62,964       (167,260 )     (98,437 )     (106,876 )     (309,609 )
                                         
Net income (loss)   $ 34,694     $ (202,663 )   $ (123,249 )   $ (142,852 )   $ (434,070 )
                                         
Weighted average shares outstanding     19,440,281       19,776,232       20,444,578       21,908,380       20,397,432  
                                         
Basic income/(loss) per share     0.002       (0.010 )     (0.006 )     (0.007 )     (0.021 )

 

    First     Second     Third     Fourth        
2013   Quarter     Quarter     Quarter     Quarter     Year  
                               
Revenue   $ 295,046     $ 55,010     $ 11,117     $ 123,126     $ 484,299  
                                         
Income/(loss) from operations     17,351       (97,217 )     (107,870 )     (42,772 )     (230,508 )
                                         
Net income (loss)   $ (6,972 )   $ (117,160 )   $ 55,316     $ (73,945 )   $ (142,761 )
                                         
Weighted average shares outstanding     18,935,743       18,964,732       18,980,091       19,023,134       18,974,811  
                                         
Basic income/(loss) per share     (0.000 )     (0.006 )     0.003       (0.004 )     (0.008 )

 

- 46 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

9. SEGMENT INFORMATION

 

We have organized our operations into two segments as discussed in Note 1 to the financial statements. 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 fiscal years ending October 31, 2014 and 2013:

 

    2014     2013  
             
Revenues:                
Apparel   $ 564,764     $ 473,193  
Housewrap     206,420       11,106  
Total Revenues   $ 771,184     $ 484,299  
                 
Assets:                
Apparel   $ 1,736,681     $ 804,602  
Housewrap     295,938       73,922  
Total   $ 2,032,619     $ 878,524  
                 
Capital Expenditures:                
Apparel   $ -     $ -  
Housewrap     41,843       -  
Total   $ 41,843     $ -  
                 
Depreciation:                
Apparel   $ 1,813     $ 1,959  
Housewrap     2,187       143  
Total   $ 4,000     $ 2,102  

 

- 47 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

10. COMMON STOCK

 

During the second quarter of the fiscal year ended October 31, 2013, the Company issued 30,000 shares of its common stock for professional services for $.30 per share or $9,000. The negotiated value was divided by the approximate trading value of the Company’s common stock and the date the transaction was entered into to calculate the number of shares issued to the service provider. The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

 

During the third quarter of the fiscal year ended October 31, 2013, the Company issued 40,000 shares of its common stock for professional services for $.40 per share or $16,000. The negotiated value was divided by the approximate trading value of the Company’s common stock and the date the transaction was entered into to calculate the number of shares issued to the service provider. The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

 

During the fourth quarter of the fiscal year ended October 31, 2013, the Company issued 320,000 shares of its common stock for cash for $.20 per share or $64,000. Of the $64,000, only $60,000 had been received as of October 31, 2013. The remaining $4,000 was classified as other receivables.

 

During the first quarter of the fiscal year ended October 31, 2014 the Company sold 50,000 shares of stock for $.20 per share or $10,000 and converted three notes into stock at the principal of the note plus interest totaling $74,300, at $.20 per share, resulting in 371,500 shares of stock issued.

 

During the second quarter of the fiscal year ended October 31, 2014 the Company sold 115,000 shares of stock, at $.40 per share, for $46,000, and issued 35,000 shares, at $.40 per share, for services with a fair value of $14,000 to two individuals.

 

During the third quarter of the fiscal year ended October 31, 2014 the Company sold 1,080,680 shares of stock, at between $.40 and $.70 per share, for $632,340. The Company also issued 55,000 shares, at $.40 per share, for services with a fair value of $22,000 to two individuals, and issued 25,000 shares, at $.50 per share, for services with a fair value of $12,500 to an additional two individuals. The Company converted one note into stock at the principal of the note plus interest totaling $12,600, at $.60 per share, resulting in 20,800 shares of stock issued.

 

During the fourth quarter of the fiscal year ended October 31, 2014 the Company sold 1,294,320 shares of stock, at between $.50 and $.80 per share, for $882,950. The Company also issued 45,000 shares, at $.50 per share, for services with a fair value of $22,500 to two individuals, and issued 20,000 shares, at $.80 per share, for services with a fair value of $16,000 to one of those individuals for services performed later during the quarter.

 

- 48 -
 

 

INNOVATIVE DESIGNS, INC.

 

NOTES TO FINANCIAL STATEMENTS

 

11. RELATED PARTY TRANSACTIONS

 

The Company has entered into various debt agreements with related parties. These agreements are classified as shareholder loans within Note 3 to the financial statements.

 

The Company has entered into 2 verbal lease agreements as further discussed in Note 7 to the financial statements.

 

12. LITIGATION

 

During 2012, the Company filed a civil complaint in which we asserted that the defendants made deceptive claims in advertising and promotions that were aimed at our Arctic Armor products. The Company was then named as a defendant in a countersuit that asserted libel, slander, and torturous interference. The Company did not respond timely to the summons and complaint in the Minnesota action, and as a result recorded a $190,000 contingent liability as of October 31, 2012.

 

During 2013, a settlement was reached regarding the open litigation. The Company withdrew the complaint in Pennsylvania, and the defendant withdrew the complaint in Minnesota. The parties have entered a mutual non-disparagement agreement. As a result, the Company has reversed the contingent liability of $190,000 associated with the countersuit as of October 31, 2013.

 

13. SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855, “ Subsequent Events ”, the Company evaluated subsequent events through February 6, 2015, the date these financial statements were available to be issued. During such evaluation the following subsequent event was identified as discussed below:

 

The Company sold 283,000 shares of stock, at between $0.60 and $0.80 per share, for $203,750 to five investors from November 1, 2014 through January 3, 2015.

 

- 49 -
 

 

Page Intentionally Left Blank

 

 

 

 

Exhibit 3.1

 

  SECRETARY OF STATE
  DIVISION OF CORPORATIONS
  FILED 01:15 PM 06/25/2002
  020411422 – 3540884

 

State of Delaware

Certificate Of Incorporation For
INNOVATIVE DESIGNS, INC.

 

FIRST: The name of the Corporation is INNOVATIVE DESIGNS, INC.

 

SECOND: Its registered office and place of business in the State of Delaware is to be located at 709 Woodside Avenue, City of Wilmington, 19809, County of New Castle. The registered agent in charge thereof is GLOBAL CORPORATE SERVICES, INC.

 

THIRD: The nature of the business and, the objects and purposes proposed to be transacted, promoted and carried on, are to do any or all the things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world viz:

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the general Corporation law of Delaware.

 

FOURTH: The Corporation shall be authorized to issue

 

Five Hundred Million (500,000,000) Shares Of Common Stock at a value of .0001, each and

One Hundred Million (100,000,000) Shares Of Preferred Stock at a value of .0001 each.

 

FIFTH: The name and address of the incorporator is as follows:

 

Nancy B. Stewart of 709 Woodside Avenue, Wilmington, Delaware, 19809.

 

SIXTH: The directors shall have power to make and to alter or amend the by-laws; to fix the amount to be reserved, to make capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of the Corporation.

 

Having consent in writing, and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the directors shall have the authority to dispose, in any manner of the whole property of this Corporation.

 

The by-laws shall determine whether and to what extent the accounts and books of this Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholders shall gave any right of inspecting any account, book, or document of this corporation, except as conferred by the law or by-laws, or by resolution of the stockholders.

 

The stockholders and directors shall have the power to hold their meetings and keep the books, documents, and papers of the Corporation outside of the State of Delaware, at such places as may be from time to time designated by the by-laws, or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware.

 

It is the Intention that the objects, purposes and powers specified In the third paragraph hereof shall, except where otherwise specified in said paragraph, be nowise limited or restricted by reference to or inference from the terms of any clause or paragraph in this certificate of incorporation, but that the objects, purposes and powers specified in the third paragraph and in each of the clauses or paragraphs of this charter shall be regarded as independent objects, purposes and powers.

 

SEVENTH: The Corporation shall, to the full extent permitted by section 145 of the Delaware Corporation law, as amended from time to time, indemnify all persons whom may indemnify pursuant thereto.

 

In Witness Whereof, I have set my hand this 25 th day of June 2002.

Nancy B. Stewart

 

 
 

  

  State of Delaware
  Secretary of State
  Division of Corporations
  Delivered 02:54 PM 10/28/2014
  FILED 02:54 PM 10/28/2014
  SRV 141343652 - 3540884 FILE

 

STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF INNOVATIVE DESIGNS, INC.

 

The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

 

FIRST: That at a meeting of the Board of Directors of Innovative Designs, Inc. held on October 3,2014, the following resolutions were duly adopted setting forth a proposed amendment of the Certificate of lncorporation of said corporation, declaring said amendment to be advisable and calling for a vote by the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

 

RESOLVED, that the Certificate of Incorporation of the Corporation be amended by changing the Article thereof numbered" Fourth” so that, as amended, said Article shall be and read as follows: “Fourth: The Corporation shall be authorized to issue One Hundred Million (100,000,000) Shares of Common Stock at a value of .0001 each, and Twenty-Five Million (25,000,000) Shares of Preferred Stock at a value of .0001 each.”

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, stockholders holding a majority of the shares eligible to vote, in lieu of a special meeting of stockholders, voted in favor of the amendment in accordance with Section 228 of the General Corporation Law of the State of Delaware.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 27 th day of October, 2014

 

  By: /s/ Joseph Riccelli
    Authorized Officer
     
  Title: Chief Executive Officer
  Name: Joseph Riccelli
  Print or Type

 

 

 

 

 

EXHIBIT 31.1

INNOVATIVE DESIGNS, INC.

CERTIFICATIONS

 

I, Joseph Riccelli, Sr., certify that:

 

1.         I have reviewed this annual report on Form 10-K 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 principals;

 

(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: February 6, 2015 by: /s/ Joseph Riccelli, Sr.
      Joseph Riccelli, Sr.
      Chief Executive Officer

 

 

 

 

EXHIBIT 31.2

INNOVATIVE DESIGNS, INC.

CERTIFICATIONS

 

I, Joseph Riccelli, Sr., certify that:

 

1.         I have reviewed this annual report on Form 10-K 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 principals;

 

(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: February 6, 2015 by: /s/ Joseph Riccelli, Sr.
      Joseph Riccelli, Sr.
      Chief Financial Officer, Principal
      Accounting Officer and Director

 

 

 

 

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 2013 annual report of Innovative Designs, Inc. (the "Company") on Form 10-K for the annual period ended October 31, 2014, 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: February 6, 2015 by: /s/ Joseph Riccelli, Sr.
      Joseph Riccelli, Sr.
      Chief Executive Officer

 

 

 

 

EXHIBIT 32.2

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 annual report of Innovative Designs, Inc. (the "Company") on Form 10-K for the annual period ended October 31, 2014, 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: February 6, 2015 by: /s/ Joseph Riccelli, Sr.
      Joseph Riccelli, Sr.
      Chief Financial Officer, Principal
      Accounting Officer and Director