NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
|
NOTE 1.
|
BASIS OF PRESENTATION
|
In the opinion of management,
the accompanying unaudited financial statements contain all adjustments necessary to present fairly Innovative Designs, Inc.'s
financial position as of January 31, 2021, the changes therein for the three periods then ended and the results of operations for
the three periods ended January, 2021 and 2020.
The financial statements included
in the Form 10-Q are presented in accordance with the requirements of the Form and do not include all of the disclosures required
by accounting principles generally accepted in the United States of America. For additional information, reference is made to the
Innovative Designs, Inc.'s annual report on Form 10-K for the fiscal year ended October 31, 2020. The results of operations for
the three periods ended January, 2021 and 2020 are not necessarily indicative of operating results for the full year.
|
NOTE 2.
|
RIGHT OF USE ASSETS AND LEASE LIABILITIES
|
During the quarter ended April
30, 2019, the Company implemented Accounting Standards Update 2016-02, Leases. Under the new guidance, a lessee must be recorded
a liability for lease payments (referred to as the lease liability) and an asset for the right to use the leased asset during the
lease term (referred to at the right of use asset) for all leases, regardless of whether they are designated as finance or operating
leases. This election requires the lessee to recognize lease expense on a straight-line basis over the lease term. The right of
use assets and corresponding right of use liabilities have been recorded using the present value of the leases. See Notes 11 and
12 within the financial statement for additional disclosure on leases
These financial statements
have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its
liabilities in the normal course of business. The Company had a net loss of ($35,965) and a negative cash flow from operations
of ($36,899) for the three month period ended January 31, 2021. In addition, the Company has an accumulated deficit of ($9,765,993).
Management's plans include cash receipts through sales, sales of Company stock, and borrowings from private parties. These factors
raise substantial doubt regarding the Company's ability to continue as a going concern for a period of one year from the issuance
of these financial statements. These financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
|
NOTE 4.
|
ACCOUNTS RECEIVABLE
|
Management evaluates its receivables
on a quarterly basis to assess the validity of remaining receivables. Management has determined that there is significant doubt
regarding the receivable balance over 90 days of $5,860 January 31, 2021 and October 31, 2020, respectively. Management has applied
an allowance on all balances in excess of 90 days.
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
Inventory consists principally
of purchased apparel inventory and House Wrap which is manufactured by the Company. Inventory is stated at the lower of cost or
net realizable value on a first-in, first-out basis. The Company has decided to discontinue the selling of its hunting and swimming
line of apparel. The Company has booked a reserve against apparel inventory at January 31, 2020 and October 31, 2019 of $75,468.
Management has determined that no allowance is currently necessary on their House Wrap Inventory. Management will continue to evaluate
its obsolete inventory reserve throughout the year and make adjustments as needed.
|
NOTE 6.
|
EARNINGS PER SHARE
|
The Company calculates net
income (loss) per share in accordance with Financial Accounting Standards Board ('FASB') Accounting Standard Codification ('ASC')
Topic 260 'Earnings per Share'. Basic earnings (loss) per share is calculated by dividing income (loss) by the weighted
average number of common shares outstanding for the period. During the periods presented, the Company only has common stock outstanding.
As a result, diluted earnings per share was not calculated.
The Company accounts for income
taxes in accordance with ASC Topic 740 'Income Taxes', which requires an asset and liability approach for financial
reporting purposes.
Deferred income taxes are provided
for differences between the tax bases of assets and liabilities and the financial reporting amounts at the end of the period, and
for net operating loss and tax credit carryforwards available to offset future taxable income. Changes in enacted tax rates or
laws result in adjustments to recorded deferred tax assets and liabilities in the periods in which the tax laws are enacted or
tax rates are changed. The Company will continue to evaluate its income tax obligation throughout the year and will record a tax
provision when it is necessary.
|
NOTE 8.
|
SHIPPING AND HANDLING COSTS
|
The Company pays shipping and
handling costs on behalf of customers for purchased apparel merchandise. These costs are billed back to the customer through the
billing invoice. The shipping and handling costs associated with merchandise ordered by the Company are included as part of inventory
as these costs are allocated across the merchandise received. With House Wrap orders, the customer pays the shipping cost. The
shipping and handling costs associated with customer orders was approximately $3,007 and $2,800 for the three month periods ended
January 31, 2021 and 2020, respectively.
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
During the three month period
ended January 31, 2021, the Company sold 100,000 shares of common stock to one investors for total proceeds of $25,000. The stock
was issued for $0.25 per share.
During the three month period
ended January 31, 2020, the Company sold 300,000 shares of common stock to nine investors for total proceeds of $49,000. The stock
was issued between $0.15 and $0.17 per share.
|
NOTE 10.
|
DEPOSITS ON EQUIPMENT
|
On July 12, 2015 the Company
reached an agreement with Ketut Jaya to purchase the machinery and equipment utilized to produce the INSULTEX material. The purchase
price is $700,000 which was to be paid in four installments. The first installment of $300,000 was to be paid at the execution
of the agreement. The second installment of $200,000 was to be paid when the machinery and equipment is ready to be shipped to
the United States. The third installment of $100,000 is to be paid once the machinery and equipment is producing INSULTEX, and
the fourth and final installment of $100,000 is to be made after the first commercial production run of INSULTEX is completed.
As of January 31, 2021, the Company has made payments of $500,000 in accordance with the agreement and made a $100,000 pre-payment
as the machine is not yet producing INSULTEX. Additionally, the Company has incurred $17,000 of additional expenses related to
shipping, site improvements and installation of the equipment. Due to various environmental regulations regarding propane emitted
from the machine into the air and other costs to assemble the machine the Company expects to incur costs in excess of the current
deposit agreement. Management of the Company currently cannot reasonably estimate the costs. During the six month period ended
April 30, 2019 Management decided to sell the machine. The shipping and other purchase costs associated with the purchase of the
machine that were originally capitalized as part of the machine cost that were written off. The total loss on impairment for the
six month period ended April 30, 2019 was $17,000. In July 2021, management has decided that it is no longer selling this equipment
and is moving forward with plans of putting it in service in the future.
|
NOTE 11.
|
RIGHT OF USE ASSETS
|
The Company entered into a
month to month verbal lease at the time the Company was formed that is classified as right of use asset and lease liability. The
lease for the Company's office space is estimated to be through June 2022. In accordance with ASU 2016-02, the Company calculated
the present value of the leases using the average commercial real estate interest rate of 5.50% at the commencement of the office
lease. Applying the commercial rate, the Company calculated the present value of $150,496 for the office lease as of April 30,
2020.
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
|
NOTE 11.
|
RIGHT OF USE ASSETS (CONTINUED)
|
As of January 31, 2021, the
right of use assets associated with future operating lease is as follows:
Right of use assets associated with future operating leases
|
|
|
|
|
Total present value of right of use asset under lease agreement
|
|
$
|
150,496
|
|
|
|
|
|
|
Amortization of right of use asset
|
|
|
(80,254
|
)
|
|
|
|
|
|
Total right of use asset as of January 31, 2021
|
|
$
|
70,242
|
|
|
|
|
|
|
Less current portion due within one year
|
|
|
39,311
|
|
|
|
|
|
|
Long-term right of use asset
|
|
$
|
30,931
|
|
Total amortization expense
related to the right of use assets under the verbal lease agreement was $9,495 and $8,825 for the three month periods ended January
31, 2021 and 2020, respectively.
Future amortization of the
right of use asset as of January 31, 2021 is as follows:
Future amortization of right of use assets
|
|
|
|
|
|
2022
|
|
|
$
|
35,951
|
|
2023
|
|
|
|
34,291
|
|
|
|
|
$
|
70,242
|
|
|
NOTE 12.
|
RIGHT OF USE LEASE LIABILITY
|
As disclosed in Note 11, the
Company entered into a verbal lease for office space prior to the quarter ended January 31, 2020 that is classified as a right
of use asset and lease liability.
As of January 31, 2021, the
lease liability associated with future payments due under the verbal lease is as follows:
Schedule of future minimum lease payments
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
150,496
|
|
|
|
|
|
|
Principal payments made as of the period ended January 31, 2021
|
|
|
(80,254
|
)
|
|
|
|
|
|
Total right of use lease liability as of January 31, 2021
|
|
|
70,242
|
|
|
|
|
|
|
Less current portion due within one year
|
|
|
39,311
|
|
|
|
|
|
|
Long-term right of use liability
|
|
$
|
30,931
|
|
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
Total maturities of lease liability
as of January 31, 2021 are as follows:
|
Schedule of maturities of lease liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
Present value discount
|
|
Right of use lease liability
|
|
|
|
|
|
|
|
|
2021
|
|
|
$
|
38,500
|
|
|
$
|
2,548
|
|
|
$
|
35,952
|
|
|
2022
|
|
|
|
35,000
|
|
|
|
710
|
|
|
|
34,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,500
|
|
|
$
|
3,258
|
|
|
$
|
70,242
|
|
|
NOTE 13.
|
SEGMENT INFORMATION
|
We have organized our operations
into two 2 segments. We rely on an internal management reporting process that provides segment information for purposes of making
financial decisions and allocating resources.
The following tables present
our business segment information for the three month periods ended January 31, 2021 and 2020:
Schedule of business segment information
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
33,937
|
|
|
$
|
43,661
|
|
House Wrap
|
|
|
6,080
|
|
|
|
3,765
|
|
Total Revenues
|
|
$
|
40,017
|
|
|
$
|
47,426
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
140,857
|
|
|
$
|
459,131
|
|
House Wrap
|
|
|
1,453,297
|
|
|
|
1,104,142
|
|
Total
|
|
$
|
1,594,154
|
|
|
$
|
1,563,273
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Apparel
|
|
$
|
2,372
|
|
|
|
2,372
|
|
House Wrap
|
|
|
5,955
|
|
|
|
5,955
|
|
Total
|
|
$
|
8,327
|
|
|
$
|
8,327
|
|
INNOVATIVE DESIGNS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Three Month Periods Ended January
31, 2021 and 2020 (Unaudited)
|
NOTE 14.
|
LEGAL PROCEEDINGS
|
On November 4, 2016,
the FTC filed a complaint against the Company in the U.S. District Court Western District of Pennsylvania, Case number 16-1669.
In the complaint, the FTC alleges that, among other matters, the Company did not have substantiation of claims made by the Company
regarding the R value and energy efficiency of its INSULTEX House Wrap products. The complaint asks as to redress a rescission
of revenue the Company received from the sale of House Wrap and a permanent injunction. On September 24, 2020, a judgment
was entered in favor of the Company as to all claims set forth in the FTC complaint. It was further ordered that as there were
no remaining claims in the action the case shall be marked as closed.
On November 23, 2020,
the Company was informed that the FTC had filed a notice of appeal in regard to the case. The appeal is from the District Court's
September 24, 2020, Order granting the Company's Motion for Judgment on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) and
subsequent Judgment in favor of the Company and from the District Court's February 14, 2020, striking Dr. David Yarbrough's expert
testimony made on behalf of the FTC. The FTC filed its appeal and on March 24, 2021, the Company filed its answer and on July 22,
2021, the Company was informed that the United States Court of Appeals for the Third District affirmed the District Court's ruling
in favor of the Company. The case number is No.20-3379.
|
NOTE 15.
|
SUBSEQUENT EVENTS
|
The Company has evaluated subsequent
events in accordance with ASC Topic 855, 'Subsequent Events', through, which is the date financial statements were available
to be issued. The Company identified the below subsequent event.
In June 2021, the Company's PPP Loan
was forgiven by the Small Business Administration. The Company will recognized $33,652 in income from the forgiveness of debt
at this time.
INNOVATIVE DESIGNS,
INC.