INNOVATIVE DESIGNS INC - Quarter Report: 2008 July (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
For
the
quarterly period ended July 31, 2008
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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
No.)
|
223
North
Main Street, Suite 1
Pittsburgh,
Pennsylvania 15215
(Address
of Principal Executive Offices, Zip Code)
(412)
799-0350
(Issuer’s
Phone Number Including Area Code)
N/A
(Former
Name or Former Address, if changed since last report)
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 preceding 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 is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO x
As
of
July 31, 2008, there were 18,325,243 shares of the Registrant’s common stock,
par value $.0001 per share, outstanding.
Transitional
Small Business Disclosure Format: YES ¨ NO x
Innovative
Designs, Inc.
Index
Form
10-Q
for the Quarter Ended July 31, 2008
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Page No.
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Part
I — Financial Information
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Item
1.
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Condensed
Financial Statements (unaudited)
|
|
|
|
||
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Condensed
Balance Sheets at July 31, 2008 and October 31, 2007
|
1
|
|
|
|
||
|
Condensed
Statements of Operations for the Three Months Ended July 31, 2008
and
2007, Nine months ended July 31, 2008 and 2007
|
2
|
|
|
|
||
|
Condensed
Statement of Changes in Stockholders’ Equity/(Deficit) at July 31, 2008
and October 31, 2007
|
3
|
|
|
|
||
|
Condensed
Statements of Cash Flows for the Nine Months Ended July 31, 2008
and
2007
|
4
|
|
|
|
||
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Notes
to Condensed Financial Statements
|
5
-
8
|
|
|
|
||
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
-
12
|
|
|
||
|
Item
4T.
|
Controls
and Procedures
|
12
|
|
|
||
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Part
II — Other Information
|
||
|
|
||
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Item
2.
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Unregistered
Sale of Equity Securities and Use of Proceeds
|
13
- 14
|
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Item
5.
|
Other
Information
|
15
|
|
Item
6.
|
Exhibits
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15
|
ITEM
1. CONDENSED FINANCIAL STATEMENTS
INNOVATIVE
DESIGNS, INC.
CONDENSED
BALANCE SHEETS
July
31, 2008 (Unaudited) and October 31, 2007
|
2008
|
2007
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
|
$
|
60,974
|
$
|
6,555
|
|||
|
Accounts
receivable
|
75,450
|
209,000
|
|||||
|
Inventory
|
891,388
|
1,046,090
|
|||||
|
Deposits
on inventory
|
285,000
|
-
|
|||||
|
Total
current assets
|
1,312,812
|
1,261,645
|
|||||
|
PROPERTY
AND EQUIPMENT, NET
|
11,873
|
13,752
|
|||||
|
TOTAL
ASSETS
|
$
|
1,324,685
|
$
|
1,275,397
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
|||||||
|
CURRENT
LIABILITIES:
|
|||||||
|
Accounts
payable
|
$
|
8,399
|
$
|
9,314
|
|||
|
Customer
deposits
|
58,750
|
-
|
|||||
|
Current
portion of notes payable
|
166,295
|
300,742
|
|||||
|
Accrued
interest expense
|
98,405
|
91,995
|
|||||
|
Accounts
payable - related party
|
28,220
|
28,220
|
|||||
|
Current
portion of related party debt
|
113,200
|
146,000
|
|||||
|
Due
to shareholders
|
314,500
|
236,500
|
|||||
|
Accrued
expenses
|
21,340
|
4,476
|
|||||
|
Accrued
liability related to arbitration award
|
-
|
4,176,000
|
|||||
|
Total
current liabilities
|
809,109
|
4,993,247
|
|||||
|
LONG-TERM
LIABILITIES:
|
|||||||
|
Long-term
portion of notes payable
|
400,007
|
411,426
|
|||||
|
Total
long term liabilities
|
400,007
|
411,426
|
|||||
|
TOTAL
LIABILITIES
|
1,209,116
|
5,404,673
|
|||||
|
STOCKHOLDERS'
EQUITY/(DEFICIT):
|
|||||||
|
Preferred
stock, $.0001 par value, 100,000,000 shares authorized Common stock,
$.0001 par value, 500,000,000 shares authorized, 18,325,243 and
17,096,193
shares issued and outstanding
|
1,835
|
1,711
|
|||||
|
Additional
paid in capital
|
5,513,053
|
5,049,064
|
|||||
|
Accumulated
deficit
|
(5,399,319
|
)
|
(9,180,051
|
)
|
|||
|
Total
stockholders' equity/(deficit)
|
115,569
|
(4,129,276
|
)
|
||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
$
|
1,324,685
|
$
|
1,275,397
|
|||
The
accompanying notes are an integral part of these condensed financial
statements.
-
1
-
INNOVATIVE
DESIGNS, INC.
CONDENSED
STATEMENTS OF OPERATIONS
Three
Months Ended July 31, 2008 and 2007, Nine Months Ended July 31, 2008 and
2007
(Unaudited)
|
Three Months Ended July 31,
|
Nine Months Ended July 31,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
REVENUE
|
$
|
85,141
|
$
|
35,093
|
$
|
353,457
|
$
|
293,727
|
|||||
|
OPERATING
EXPENSES:
|
|||||||||||||
|
Cost
of sales
|
74,127
|
20,354
|
382,425
|
124,300
|
|||||||||
|
Non-cash
stock compensation
|
14,000
|
-
|
23,600
|
6,000
|
|||||||||
|
Selling,
general and administrative expenses
|
84,055
|
63,254
|
308,128
|
197,606
|
|||||||||
|
172,182
|
83,608
|
714,153
|
327,906
|
||||||||||
|
Loss
from operations
|
(87,041
|
)
|
(48,515
|
)
|
(360,696
|
)
|
(34,179
|
)
|
|||||
|
OTHER
INCOME AND (EXPENSE):
|
|||||||||||||
|
Interest
income (expense)
|
(566
|
)
|
(3,851
|
)
|
(34,572
|
)
|
(30,495
|
)
|
|||||
|
Reversal
of arbitration award
|
4,176,000
|
-
|
4,176,000
|
-
|
|||||||||
|
Total
other income and (expense)
|
4,175,434
|
(3,851
|
)
|
4,141,428
|
(30,495
|
)
|
|||||||
|
NET
INCOME/(LOSS)
|
$
|
4,088,393
|
$
|
(52,366
|
)
|
$
|
3,780,732
|
$
|
(64,674
|
)
|
|||
|
Per
share information - basic and fully diluted
|
|||||||||||||
|
Weighted
Average Shares Outstanding
|
18,034,743
|
16,906,193
|
18,052,743
|
16,902,304
|
|||||||||
|
Net
income/(loss) per share
|
$
|
22.7
|
$
|
(.003
|
)
|
$
|
20.9
|
$
|
(.003
|
)
|
|||
The
accompanying notes are an integral part of these condensed financial
statements.
-
2
-
INNOVATIVE
DESIGNS, INC.
CONDENSED
STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
July
31, 2008 (Unaudited) and October 31, 2007
|
Common Stock
|
Additional
|
|||||||||||||||
|
Shares
|
Amount
|
Paid in Capital
|
Retained Deficit
|
Total
|
||||||||||||
|
Balance
at October 31, 2006
|
16,901,193
|
$
|
1,691
|
$
|
4,971,084
|
$
|
(9,233,144
|
)
|
$
|
(4,260,369
|
)
|
|||||
|
Shares
issued for services
|
15,000
|
2
|
5,998
|
-
|
6,000
|
|||||||||||
|
Services
performed - shares to be issued
|
180,000
|
18
|
71,982
|
-
|
72,000
|
|||||||||||
|
Net
income
|
-
|
-
|
-
|
53,093
|
53,093
|
|||||||||||
|
Balance
at October 31, 2007
|
17,096,193
|
1,711
|
5,049,064
|
(9,180,051
|
)
|
(4,129,276
|
)
|
|||||||||
|
Shares
issued for services
|
239,000
|
8
|
83,192
|
-
|
83,200
|
|||||||||||
|
Shares
issued for cash
|
840,050
|
101
|
328,312
|
-
|
328,413
|
|||||||||||
|
Shares
issued for extinguishment of debt
|
150,000
|
15
|
521,485
|
-
|
52,500
|
|||||||||||
|
Net
income
|
-
|
-
|
-
|
3,780,732
|
3,780,732
|
|||||||||||
|
Balance
at July 31, 2008
|
18,325,243
|
$
|
1,835
|
$
|
5,513,053
|
$
|
(5,399,319
|
)
|
$
|
115,569
|
||||||
The
accompanying notes are an integral part of these condensed financial
statements.
-
3
-
INNOVATIVE
DESIGNS, INC.
CONDENSED
STATEMENTS OF CASHFLOW
For
the Nine Months Ended July 31, 2008 and 2007
(Unaudited)
|
For the Nine Months Ended
|
|||||||
|
July 31, 2008
|
July 31, 2007
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
income (loss)
|
$
|
3,780,732
|
$
|
(64,674
|
)
|
||
|
Adjustments
to reconcile net income (loss) to cash provided by (used in) operating
activities:
|
|||||||
|
Common
stock issued for services
|
23,600
|
6,000
|
|||||
|
Depreciation
and amortization
|
1,879
|
9,380
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
133,550
|
236,276
|
|||||
|
Inventory
|
154,702
|
(77,069
|
)
|
||||
|
Deposits
on inventory
|
(285,000
|
)
|
-
|
||||
|
Accounts
payable
|
(915
|
)
|
-
|
||||
|
Accrued
expenses
|
16,864
|
(2,592
|
)
|
||||
|
Customer
deposits
|
58,750
|
9,000
|
|||||
|
Deferred
revenue
|
-
|
(213,781
|
)
|
||||
|
Accrued
interest on notes payable
|
6,410
|
-
|
|||||
|
Accrued
liability related to arbitration
|
(4,176,000
|
)
|
-
|
||||
|
Net
cash used in operating activities
|
(285,428
|
)
|
(97,460
|
)
|
|||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
Payments
on note payable
|
(54,866
|
)
|
(104,149
|
)
|
|||
|
Payment
of notes payable-related party
|
(32,800
|
)
|
-
|
||||
|
Shareholder
advances (payments)
|
78,000
|
143,000
|
|||||
|
Common
stock issued for cash
|
349,513
|
-
|
|||||
|
Net
cash provided by financing activities
|
339,847
|
38,851
|
|||||
|
Net
increase (decrease) in cash
|
$
|
54,419
|
$
|
(58,609
|
)
|
||
|
Cash
- beginning of year
|
6,555
|
66,275
|
|||||
|
Cash
- end of period
|
$
|
60,974
|
$
|
7,666
|
|||
|
Supplemental
cash flow information:
|
|||||||
|
Cash
paid for interest
|
$
|
566
|
$
|
5,076
|
|||
The
accompanying notes are an integral part of these condensed financial
statements.
-
4
-
INNOVATIVE
DESIGNS, INC.
NOTES
TO
THE CONDENSED FINANCIAL STATEMENTS
July
31, 2008
| 1. |
BASIS
OF PRESENTATION - INTERIM FINANCIAL STATEMENTS
|
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America (“GAAP”) for interim financial information and the general instructions
to Form 10-Q. Accordingly, they do not include all information and footnotes
required by GAAP for complete financial statements. These interim financial
statements should be read in conjunction with our audited financial statements
and notes thereto included in our Annual Report on Form 10-KSB for the fiscal
year ended October 31, 2007. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of operations
for the periods presented are not necessarily indicative of the results that
may
be expected for the year ending October 31, 2008 or any future period.
|
2.
|
ADOPTION
OF SFAS NO. 123 (REVISED 2004) SHARE-BASED
PAYMENT
|
In
December 2004, FASB issued SFAS No. 123 (Revised 2004) Share-Based Payment.
This
Statement establishes standards for the accounting and transactions in which
an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity’s equity instruments or
that may be settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does
not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF
Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.” This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
Employers’
Accounting for Employee Stock Ownership Plans.
The
adoption of SFAS 123 (Revised 2004) by the Company did not have a material
impact on the Company’s financial position, results of operations or cash flows.
There was no change in the status of outstanding shares or in the Equity
Compensation Plan since October 31, 2006, and no shares were granted to
employees of the Company for services rendered or to be rendered.
| 3. |
EARNINGS
PER SHARE
|
Innovative
Designs, Inc. (the “Company”) calculates net income (loss) per share as required
by Statement of Financial Accounting Standard No. 128, 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. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During the periods presented common stock equivalents were not
considered as their effect would be anti-dilutive.
-
5
-
INNOVATIVE
DESIGNS, INC.
NOTES
TO
THE CONDENSED FINANCIAL STATEMENTS
July
31, 2008
|
4.
|
GOING
CONCERN
|
The
Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The
Company has experienced a significant loss from operations as a result of its
investment necessary to achieve its operating plan, which is long-range in
nature. For the nine month period ended July 31, 2008 and 2007, the Company
incurred a net income/(loss) of $3,780,732 and ($30,495), respectively. The
net
income for the three months ended July 31, 2008 is primarily comprised of the
reversal of the arbitration award of $4,176,000 due to the dismissal of the
bankruptcy against the Company, as discussed below. The Company incurred
significant losses, which included the recording of the arbitration award of
$4,176,000, since inception resulting in a retained deficit of ($5,399,319)
at
July 31, 2008. The Company has working capital of $503,703 and ($3,920,269)
and
a stockholders’ equity/(deficit) of $115,569 and ($4,319,043) at July 31, 2008
and 2007, respectively.
The
Company's ability to continue as a going concern is contingent upon its ability
to expand its operations and secure additional financing. The Company is
currently pursuing financing for its operations and seeking to expand its
operations. Failure to secure such financing or expand its operations may result
in the Company not being able to continue as a going concern.
The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability
of
the Company to continue as a going concern.
On
November 2, 2007, the Company participated in oral argument before a three-judge
panel of the United States Court of Appeals for the Third Circuit regarding
its
appeal from the Orders of the Honorable Arthur J. Schwab finding Innovative
Designs bound to the terms of an arbitration clause set forth in a contract
to
which it was not a party, and recognizing and enforcing a foreign arbitral
award
purportedly entered by default in arbitration proceedings in Italy. No one
participated in oral argument on behalf of the Appellees, Elio D. Cattan
("Cattan") and Eliotex, SRL (“Eliotex”), and no appeal brief was ever filed on
their behalf. During 2008, the Court ruled that the issue was
moved.
Greystoner
Inc., which purchased the judgment at Sheriff Sale on September 5, 2007,
subsequently sold the judgment by assignment to a Pennsylvania LLC controlled
by
an affiliate of our Chief Executive Officer at the behest of the Company. The
Company has elected not to cause the judgment entered by Judge Schwab to be
satisfied of record at this time, in order not to moot its appeal Innovative
Designs is confident in its position, and seeks vindication by the Third
Circuit. The Company has an understanding by which it may purchase and satisfy
the judgment at a time of its choosing. In the opinion of legal counsel, the
judgment no longer represents a threat to the legal or economic viability of
the
Company. Once the appeal has been determined, the Company will request the
judgment be satisfied of record.
-
6
-
INNOVATIVE
DESIGNS, INC.
NOTES
TO
THE CONDENSED FINANCIAL STATEMENTS
July
31, 2008
The
Company does have the right to administratively reopen the case for the purpose
of adjudicating the claims it originally brought in the action, seeking, inter
alia, a Declaration of Non-Infringement of the Cattan/Eliotex patent and a
Declaration the patent is null and void under applicable U.S. law. No decision
has yet been made as to whether or not to pursue further relief before Judge
Schwab. Neither Cattan, Eliotex nor their counsel has played any role in the
case subsequent to the filing of the Company's appeal.
United
States Bankruptcy Court for the Western District of
Pennsylvania
Case
No. 06-23921-MBM
On
September 24, 2007, the Company filed a Motion to Dismiss the bankruptcy case
initiated by Cattan and Eliotex, citing the fact that the Petitioning Creditors
no longer own any interest in the judgment which formed the basis of their
claim, and asserting that the Petitioning Creditors no longer had standing
to
pursue the claims, or, hence, the case.
On
October 22, 2007, the Company filed Objections to Claims Nos. 1, 2, 3, 4 and
5,
asserting that the instant claims, representing the claims of each of the
Petitioning Creditors, were improper and null and void, as the judgment which
formed the basis of those claims was no longer owned by any of the Petitioning
Creditors, and hence the Petitioning Creditors had no standing to pursue the
claims further.
On
October 26, 2007, a Stipulation between the Petitioning Creditors and the
Company was entered seeking a Stipulated Order of Dismissal of the bankruptcy
case, which Order was signed by the Honorable Chief Bankruptcy Court Judge
M.
Bruce McCullough on October 31, 2007- the Company is no longer in bankruptcy,
and notice to that effect was immediately transmitted to the appropriate
regulatory bodies.
United
States District Court for the Western District of Pennsylvania
Case
No. 06-00582-AJS
This
case
was filed by Cattan and Eliotex seeking relief ancillary to the judgment
obtained by Cattan and Eliotex against the Company, which judgment, as
aforesaid, was subsequently purchased at Sheriff Sale by Greystone, Inc. and
subsequently sold to a Pennsylvania LLC owned by a related party.
Counsel
for Cattan and Eliotex has indicated to counsel for the Company that it has
requested authority from Cattan and Eliotex to dismiss the action with prejudice
and, failing that, to seek leave to withdraw as counsel for Cattan and
Eliotex.
On
October 29, 2007, Cattan and Eliotex's counsel filed a Motion to Withdraw as
Attorneys for Plaintiff. Judge Schwab denied the Motion until such time as
Cattan and Eliotex have secured substitute counsel. The case remained in limbo
as Cattan and Eliotex had taken no action to secure substitute counsel. The
Company believed much, if not all, of the averments made in the Complaint have
been rendered moot by the subsequent purchase and assignment of the
Cattan/Eliotex judgment. The Company was not directly implicated in this
suit.
-
7
-
INNOVATIVE
DESIGNS, INC.
NOTES
TO
THE CONDENSED FINANCIAL STATEMENTS
July
31, 2008
The
Company no longer faces any legal or financial jeopardy as a result of the
Cattan/Eliotex litigation, is no longer in bankruptcy and has been able to
resume its business operations in earnest.
The
judgment entered against it by Elio Cattan and Eliotex SRL, subsequently
executed upon and sold to Greystone, Inc., and assigned in turn to Elite
Properties LLC, has been satisfied.
Notice
of
the satisfaction of the judgment has been filed in both the Court of Common
Pleas of Allegheny County, Pennsylvania and in the United States District Court
for the Western District of Pennsylvania. The Honorable Arthur J. Schwab has
closed the last remaining action pending against IDI and its CEO, Joseph
Riccelli. Accordingly, the obligation for $4,176,000 for the arbitration award
was removed from the books during the third quarter ended July 31,
2008.
-
8
-
ITEM
2.
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 and in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations in
our
Annual Report on Form 10-KSB for the fiscal year ended October 31,
2007.
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. (hereinafter referred to as the “Company”, “we or “our”) was
formed on June 25, 2002. We market and sell clothing products such as hunting
apparel, and cold weather gear called “Arctic Armor” that are made from
INSULTEX, a material with buoyancy, scent block and thermal resistant
proprieties. We obtain INSULTEX through a license agreement with the owner
and
manufacturer of the material. Since our formation we have devoted our efforts
to:
| · |
Raising
funding either through the sale of our common stock or through
borrowing;
|
| · |
Developing
and evolving our marketing plan;
|
| · |
Completing
the development, design and prototypes of our products,
and
|
| · |
Obtaining
retail stores or sales agents to offer and sell our
products.
|
In
November 2006, we were placed into involuntary Chapter 7 bankruptcy proceeding
which was subsequently converted to a Chapter 11 proceeding. On October 31,
2007, we were dismissed from the bankruptcy proceeding.
-
9
-
ITEM
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results
of Operations
Comparison
of the Three Months Ended July 31, 2008 with the Three Months Ended July 31,
2007.
Revenues
The
following table shows a comparison of the results of operations between the
three months ended July 31, 2008 and three months ended July 31,
2007:
|
Three Months
Ended
July 31, 2008
|
% of
Sales
|
Three Months
Ended
July 31, 2007
|
% of
Sales
|
$ Increase
(Decrease)
|
% Change
|
||||||||||||||
|
REVENUE
|
$
|
85,141
|
100
|
%
|
$
|
35,093
|
100
|
%
|
$
|
50,048
|
58.8
|
%
|
|||||||
|
OPERATING
EXPENSES
|
|||||||||||||||||||
|
Cost
of sales
|
74,127
|
87.1
|
%
|
20,354
|
58.0
|
%
|
53,773
|
72.5
|
%
|
||||||||||
|
Non-stock
compensation
|
14,000
|
16.4
|
%
|
-
|
-
|
14,000
|
100
|
%
|
|||||||||||
|
Selling,
general and administrative expenses
|
84,055
|
98.7
|
%
|
63,254
|
180.2
|
%
|
20,801
|
24.7
|
%
|
||||||||||
|
172,182
|
202.2
|
%
|
83,608
|
238.2
|
%
|
88,574
|
106
|
%
|
|||||||||||
|
Income
(loss) from operations
|
(87,041
|
)
|
(102.2
|
)%
|
(48,515
|
)
|
(138.2
|
)%
|
(38,526
|
)
|
(44.3
|
)%
|
|||||||
|
|
|||||||||||||||||||
|
OTHER
INCOME (EXPENSE)
|
|||||||||||||||||||
|
Interest
income (expense)
|
(566
|
)
|
(1
|
)%
|
(3,851
|
)
|
(10.9
|
)%
|
3,285
|
(580.3
|
)%
|
||||||||
|
Reversal
of arbitration award
|
4,176,000
|
-
|
-
|
-
|
4,176,000
|
100
|
%
|
||||||||||||
|
4.175,434
|
4,904.1
|
%
|
(3,851
|
)
|
(10.9
|
)%
|
4,179,285
|
100.1
|
%
|
||||||||||
|
Net
income (loss)
|
$
|
4,088,393
|
4,801.9
|
%
|
$
|
(52,366
|
)
|
(149.2
|
)%
|
$
|
4,140,759
|
101.3
|
%
|
||||||
Three
Months ended July 31, 2008 and 2007
Revenues
for the three months ended July 31, 2008, were $85,141 compared to $35,093
for
the three months ended July 31, 2007. The increase in revenue is a result of
more retailers selling our products. Cost of Sales as of July 30, 2008 includes
the sales of certain products the Company no longer markets. Consequently,
these
products were sold below our cost which resulted in a loss from this sale of
approximately $14,000. Because of our adverse financial condition as a result
of
our being in bankruptcy, we are only offering our cold weather products, Artic
Armor and our hunting line. Therefore, there is a very seasonal nature to our
sales cycle. We do anticipate purchases to be much greater for the next three
month period. As discussed below, we do have written orders for delivery late
in
the year and as the year progresses, we expect orders to continue to increase
as
the cold season approaches. Included in net income for the three months
ended
July 31, 2008 is the reversal of the arbitration award in the amount of
$4,176,000. This matter is further discussed in the notes to the condensed
financial statements
-
10
-
ITEM
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following table shows a comparison of the results of operations between the
nine
months ended July 31, 2008 and nine months ended July 31, 2007:
|
Nine Months
Ended
July 31, 2008
|
% of
Sales
|
Nine Months
Ended
July 31, 2007
|
% of
Sales
|
$ Increase
(Decrease)
|
% Change
|
||||||||||||||
|
REVENUE
|
$
|
353,457
|
100
|
%
|
$
|
293,727
|
100
|
%
|
$
|
52,730
|
14.9
|
%
|
|||||||
|
OPERATING
EXPENSES
|
|||||||||||||||||||
|
Cost
of sales
|
382,425
|
108.2
|
%
|
124,300
|
42.3
|
%
|
258,125
|
67.5
|
%
|
||||||||||
|
Non-stock
compensation
|
23,600
|
6.7
|
%
|
6,000
|
20.4
|
%
|
17,600
|
74.6
|
%
|
||||||||||
|
Selling,
general and administrative expenses
|
308,128
|
87.1
|
%
|
197,606
|
67.3
|
%
|
110,522
|
35.9
|
%
|
||||||||||
|
(714,153
|
)
|
(202
|
)%
|
327,906
|
111.6
|
%
|
(1,042,059
|
)
|
(145.9
|
)%
|
|||||||||
|
Income
(loss) from operations
|
(360,696
|
)
|
(102
|
)%
|
(34,179
|
)
|
(11.6
|
)%
|
(326,517
|
)
|
(90.5
|
)%
|
|||||||
|
OTHER
INCOME (EXPENSE)
|
|||||||||||||||||||
|
Interest
income (expense)
|
(34,572
|
)
|
(9.8
|
)%
|
(30,495
|
)
|
(10.4
|
)%
|
(4,077
|
)
|
11.8
|
%
|
|||||||
|
Reversal
of arbitration award
|
4,176,000
|
1,181.4
|
%
|
4,176,000
|
100
|
%
|
|||||||||||||
|
4,141,428
|
1,171.7
|
%
|
(30,495
|
)
|
(10.4
|
)%
|
4,171,923
|
100.7
|
%
|
||||||||||
|
Net
(loss) income
|
$
|
3,780,732
|
1,070
|
%
|
$
|
(64,674
|
)
|
(22.0
|
)%
|
$
|
3,845,406
|
101.7
|
%
|
||||||
Nine
Months ended July 31, 2008 and 2007
Revenues
for the nine months ended July 31, 2008, were $353,456 compared to $293,727
for
the nine months ended July 31, 2007. Cost of Sales as of July 30, 2008 includes
the sales of certain products the Company no longer markets. Consequently,
these
products were sold below our cost which resulted in a loss from this sale of
approximately $14,000. The increase was due primarily to our use of sales agents
who were familiar with the industries that had a need for our Artic Armor line
of products and the fact that more retailers are carrying our cold weather
product lines. Most of our sales for the nine month period ended July 31, 2008,
were for our Artic Armor product line.
Included
in net income for the nine months ended July 31, 2008 is the reversal of the
arbitration award in the amount of $4,176,000. This matter is further discussed
in the notes to the condensed financial statements.
-
11
-
ITEM
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As
of
September 12, 2008, we had written orders for approximately $290,000 of our
products. The orders are from retail customers and deliveries are scheduled
for
October, November and December of 2008. The orders do not require any monetary
deposit and can be cancelled by the customer at any time.
Liquidity
and Capital Resources
During
the quarter ended July 31, 2008, we funded our operations with revenues from
sales, loans from our Chief executive Officer and sales of our common stock
in
private transactions. We will continue to fund operations from revenues and
borrowings and the possible sale of securities. Our ability to obtain outside
funding of either debt or equity has been adversely affected by our former
status in bankruptcy.
Short
Term: We funded our operations with revenues from sales, loans from our Chief
Executive Officer and sales of our common stock in private transactions. Our
ability to obtain outside funding of either debt or equity has been adversely
affected by our former status in bankruptcy. Further, the bankruptcy status
has
resulted in customers reducing their sales activity or ceasing to do business
with us or all together. The loss of this revenue had an adverse impact on
the
Company’s short term liquidity. The financial institution has restricted the
amounts we can borrow on our lines of credit and they will not increase our
borrowing capacity on the lines of credit. The Company continues to pay its
creditors when payments are due and has been successful in expanding its sales
base into the oil and gas industry and other industries that have a need for
our
cold weather products.
Long
Term: The Company will continue to fund operations from revenues, borrowings
and
the possible sale of its securities. The Company is currently pursing financing
to fund its long-term liquidity needs.
ITEM
4T.
CONTROLS AND PROCEDURES
|
Management
has developed and implemented a policy and procedures for reviewing,
on a
quarterly basis, our disclosure controls and procedures and our internal
control over financial reporting. Management, including our principal
executive and financial officer, evaluated the effectiveness of the
design
and operation of disclosure controls and procedures as of July 31,
2008
and, based on their evaluation, our principal executive and financial
officers have concluded that these controls and procedures are operating
effectively. Disclosure controls and procedures are controls and
other
procedures that are designed to ensure that information we are required
to
disclose in the reports we file or submit under the Exchange Act
is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed in the reports we file under the Exchange Act is accumulated
and
communicated to management, including the principal executive and
financial officers, as appropriate to allow timely decisions regarding
required disclosure.
|
There
were no significant changes in our internal control over financial reporting
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
-
12
-
PART
II
ITEM
2.
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
On
November 1, 2007, we issued a total of 425,000 shares of our common stock for
cash for $.35 a share. Based on the closing price, the value of the common
stock
issued was $148,750. The shares were issued without registration pursuant to
the
exemption provided by Section 4(2) of the Securities act of 1933, as
amended.
On
November 3, 2007, we issued 110,000 shares of our common stock to a noteholder
in exchange for the note. The closing price of our common stock on that date
was
$.35 per share making the value of the transaction $38,500. The shares were
issued without registration pursuant to the exemption provided by Section 4
(2)
of the Securities Act of 193, as amended.
On
November 3, 2007, we issued a total of 31,000 shares of our common stock to
a
total of two consultants for their services. The closing price of our common
stock on that date was $.40. Based on the closing price, the value of the common
stock issued was $12,400. The shares were issued without registration pursuant
to the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended.
On
November 3, 2007, we issued a total of 47,150 shares of our common stock for
cash for $.40 a share. Based on the closing price, the value of the common
stock
issued was $18,860. The shares were issued without registration pursuant to
the
exemption provided by Section 4(2) of the Securities Act of 1933, as
amended.
On
December 1, 2007, we issued each of our director’s except our CEO and Chairman
of the Board 25,000 shares of our common stock for their services. We also
issued 25,000 shares to our Vice-president Sales, 80,000 shares to one of our
legal counsel for their services and 25,000 shares for marketing services.
The
closing price of our common stock was $.40 per share. Based on the closing
price, the value of the shares issued was $62,000. The shares were issued
without registration pursuant to the exemption provided by Section 4(2) of
the
Securities Act of 1933, as amended.
On
December 2, 2007, we issued a total of 118,800 shares of our common stock to
five investors in a private placement. Total proceeds were $50,335. The shares
were issued without registration pursuant to the exemption provided in Section
506 of regulation D, promulgated under the Securities Act of 1933, as amended
as
an offering to “accredited investors” as that term is defined in Regulation D.
On
January 4, 2008, we issued 30,375 shares of our common stock for cash. The
proceeds were $13,669. The shares were issued without registration pursuant
to
the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended.
On
January 7, 2008, we issued 40,000 shares of our common stock in exchange for
debt. The closing price of our common stock on that date was $.35 per share.
Based on the closing price, the value of the stock was $14,000. The shares
were
issued without registration pursuant to the exemption provided by section 4(2)
of the Securities Act of 1933, as amended.
-
13
-
On
February 29, 2008, we issued 110,000 shares of our common stock in exchange
for
debt and accrued interest for $.35 per share. Based on the closing price, the
value of the stock was $38,500. The shares were issued without registration
pursuant to the exemption provided by section 4(2) of the Securities Act of
1933, as amended.
On
February 29, 2008, we issued 11,100 shares of our common stock for cash for
$.45
per share or $4,995. The shares were issued without registration pursuant to
the
exemption provided by section 4(2) of the Securities Act of 1933, as
amended.
On
March
18, 2008, we issued 18,000 shares of our common stock for professional services
for $.40 per share or $7,200. The shares were issued without registration
pursuant to the exemption provided by section 4(2) of the Securities Act of
1933, as amended.
On
May
23, 2008, we issued 25,000 shares of our common stock for consulting services
for $.40 per share or $10,000. The shares were issued without registration
pursuant to the exemption provided by section 4(2) of the Securities Act of
1933, as amended.
On
June
30, 2008, we issued 10,000 shares of our common stock for consulting services
for $.40 per share or $4,000. The shares were issued without registration
pursuant to the exemption provided by section 4(2) of the Securities Act of
1933, as amended.
On
June
30, 2008, we issued 62,500 shares of our common stock for cash for $.40 per
share or $25,000. The shares were issued without registration pursuant to the
exemption provided by section 4(2) of the Securities Act of 1933, as
amended.
On
July
8, 2008, we issued 125,000 shares of our common stock for cash for $.40 per
share or $50,000. The shares were issued without registration pursuant to the
exemption provided by section 4(2) of the Securities Act of 1933, as
amended.
On
July
29, 2008, we issued 50,000 shares of our common stock for cash for $.40 per
share or $20,000. The shares were issued without registration pursuant to the
exemption provided by section 4(2) of the Securities Act of 1933, as
amended.
-
14
-
ITEM
5.
OTHER INFORMATION
Effective
March 19, 2008, our Chief Executive Officer temporally assumed the duties of
Chief Financial Officer and Principal Accounting Officer.
ITEM
6.
EXHIBITS
|
*3.1
|
Certificate
of Incorporation
|
|
|
*3.2
|
By
Laws
|
|
|
31.1
|
Rule
13a - 14a Certification of Chief Executive Office, Chief Financial
Officer
and Principal Accounting Officer
|
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer and Chief Financial
Officer
|
| * |
Incorporated
by reference to the Company’s registration statement on Form SB-2, filed
March 11, 2003
|
-
15
-
SIGNATURE
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Innovative
Designs, Inc.
|
|
|
Registrant
|
|
|
Date:
September 15, 2008
|
/s/
Joseph Riccelli
|
|
Joseph
Riccelli, Chief Executive Officer
|
|
|
and
Chief Financial Officer
|
-
16
-