Unassociated Document
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
x
Annual
report under
section 13 or 15(d) of the Securities Act of 1934.
For
the
fiscal year ended October 31, 2007
o
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)
|
03-0465528
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
223
North
Main Street, Suite 1
Pittsburgh,
Pennsylvania 15215
(Address
and zip code of principal executive offices)
(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:
Common
Stock, $.001 par value per share
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
o
Check
if
no disclosure of delinquent filers to Item 405 of Regulation S-B is contained
in
this form, and no disclosure will 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-KSB or any amendment to this Form
10-KSB.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
The
issuer’s revenues for its most recent fiscal year were $674,541.
The
aggregate market value of the voting stock, consisting solely of common stock,
held by non-affiliates of the issuer computed by reference to the closing price
of such stock was $3,204,997 as of February 5, 2008.
The
number of shares of the issuer’s common stock outstanding, as of February 5,
2008 was 17,908,643.
Transitional
Small Business Disclosure Format: Yes
o
No
x
ITEM
1. DESCRIPTION
OF BUSINESS.
The
Company, which was incorporated in the State of Delaware in June 25, 2002,
markets cold weather recreational and industrial clothing products that are
made
from INSULTEX, a low density foamed polyethylene, a material with buoyancy,
scent block and thermal resistant properties. On November 25, 2002, we entered
into a written sublicense agreement with RMF Global for the exclusive rights
to
produce and distribute three products made with INSULTEX, which RMF Global
developed, and to use INSULTEX in products that we develop. We intended to
market our products containing INSULTEX, under the label "i.d.i.gear". RMF
Global was incorporated in April 1999, by our Chief Executive Officer. RMF
Global had a license agreement with the inventor of INSULTEX. In April 2006,
we
ended our relationship with RMF Global and entered into a license agreement
directly with the owner of the INSULTEX Technology.
We
have
had no material reclassification, merger, consolidation, purchase, or sale
of a
significant amount of assets outside the ordinary course of
business.
We
currently have no plans to seek a merger, acquisition, or business
reorganization or to otherwise enter into a business combination with another
entity.
During
2006, an Involuntary Chapter 7 Petition was filed against us, based upon a
judgment award from an Italian Arbitration Panel. On October 31, 2007, we were
dismissed from the bankruptcy case. See “Item 4. Legal Proceedings”, elsewhere
in this report.
The
distribution rights we have are derived from our April 2006 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 two products containing INSULTEX which were developed by RMF
Global:
|
·
|
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.
|
|
·
|
Stadium
Pack:
The use of INSULTEX in this product provides protection from weather
conditions such as rain and cold. By altering the configuration of
the
folds and zippers, the product can be used as
a:
|
|
· |
Stadium
seat cushion or pillow;
|
|
· |
Thermal
rain parka with a zip-out hood;
|
We
use
INSULTEX to provide protection from harsh weather conditions in the following
products which we developed:
|
·
|
Hunting
Apparel Line:
Our hunting apparel provides almost total block from odors provided
by the
INSULTEX material. The Hunting Apparel Line is being endorsed by
Bill
Maas, former all pro National Football League football player and
Fox
Sports Analyst. We have also added Mr. Tom Nelson, “The American Archer”
to our pro staff and have introduced the new “American Archer” – Tom
Nelson Hunting Line for 2007. Tom is seen on the Outdoor Channel
and is
recognized as one of the premier archers in the industry.
|
|
·
|
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 does the jacket and
bibs.
|
Our
products are manufactured 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; (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; (c) prior
to
the time we had undertaken to design and prototype of these products, we
purchased the materials to accomplish these tasks, the cost of which did not
exceed $1000; and (d) the testing of these products was performed in the "field"
by our employees and our Manufacturer's Representative groups, as part of their
normal responsibilities.
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%) per the subsequent ten (10) year period. Innovative
Designs, Inc. shall order INSULTEX from time to time as needed and shall not
be
required to purchase any minimum amount of INSULTEX during the term of this
agreement, and we are not required to make any minimum annual payment. However,
should Innovative Designs, Inc. place an order, any quantity ordered must be
a
minimum of 35,000 meters of INSULTEX. Innovative Designs, Inc. is not required
to pay any part of any sublicense fee that Innovative Designs, Inc. receives
from third party sublicensees, and Innovative Designs, Inc. shall not 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. Innovative
Designs, Inc. will 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.
The
Haas
Agreement
On
June
16, 2003, we completed an agreement with Haas Outdoors in which Haas Outdoors
granted us a non-exclusive wholesale license in North America to: (a)
manufacture, or sell products or to have manufactured for us, and to sell
licensed products of Haas Outdoors; and (b) use the licensed trademark of Haas
Outdoors in association with the marketing and sale of licensed products. The
agreement defines licensed products as a product which bears or otherwise
includes Haas Outdoors' licensed design and is further restricted to mean only
our stadium pack. "Licensed design" is defined in the agreement as the
camouflage pattern(s) known
as
the Mossy Oak Break-Up and/or New BreakUp and Duck Blend patterns and which
is covered by Haas Outdoors' copyrights, including but limited to United States
Copyright Registration No. 2,227,642. The agreement defines "licensed trademark"
as Haas Outdoors' trademarks Mossy Oak Break-Up and/or New BreakUp and Duck
Blind patterns. The term of the agreement is two years from the effective date
of the agreement, May 30, 2003. During 2007, the Company extended the terms
of
this agreement with Haas Outdoors for an additional two years. We paid a one
time $250 licensing fee for these rights. We are also required to pay to Haas
Outdoors a running royalty, which is included in the price of fabrics purchased
from licensed vendors of Haas Outdoors.
In
addition, the agreement provides that we, as the licensee in the agreement
are
required to: (a) place on the licensed products in a manner prescribed by
copyright laws and unless otherwise indicated, a sufficient copyright notice
including the copyright notice, the year of publication, and an identification
of Haas Outdoors as the owner; and (b) in all instances where Haas Outdoors
so
desires, we will include on licensed products the authorized trademark
associated with the authorized design. We also agreed that nothing in the
agreement will confer upon us any proprietary interest in the licensed designs,
the licensed trademarks, or any other copyright, trademark and patents rights
owned by Haas Outdoors. In addition, we agreed that Haas Outdoors is the owner
of the licensed designs and licensed trademarks and that we will not contest
the
validity or enforceability of the licensed trademarks or Haas Outdoors
copyrights in the licensed designs.
Swimeez
Product
Our
Swimeez product is intended for use by the following groups that are in the
Company’s target market for these products:
·
Toddlers
and children from the ages of 3 to 12 who are learning to swim;
·
Handicapped
persons; and
·
Adults
learning to swim.
Stadium
Pack
Our
stadium pack products are intended for use by the following groups that are
in
the Company’s target market for these products:
·
Colleges;
·
Child/Amateur
sport organizations; and
·
Hunting/Fishing
enthusiasts.
Hunting
Line
Our
hunting line products are intended for use by the following consumer group
that
are in the Company’s target market for these products:
·
Hunting
enthusiasts; and
·
Professional
hunters.
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
·
Construction
workers; and
·
Ski
resort workers.
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 will provide barrier protection plus moisture vapor
transmission and the novel feature of approximately R2 insulation. The house
wrap was designed specifically to add enhanced insulating characteristics.
In
addition the house wrap will be priced competitively with existing house wraps
that do not provide any insulation. We are currently using the house wrap in
some controlled test application so as to provide useful statistical data.
The
development efforts were conducted by our own personnel.
Website
and Retailers
We
sell
both wholesale and retail products on our website. Our website, located at
www.idigear.com, became operational in October 2002 and 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 website features a "wholesaler only"
area, allowing our wholesalers access to information, ordering, and reordering.
The web site is hosted by Nidhog Hosting. The secure payment gateway provider
for our online e-commerce is SkipJack Financial Services.
Our
products are offered and sold by retailers, distributors and companies in
approximately thirty states, Canada, Russia and Finland who purchase our
products at wholesale prices which they plan to sell at their retail prices,
or
use within their industry:
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 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. In the case of our agreement for Russia and Finland, the agent
is required to prepay for all products ordered.
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 Gander
Mountain, Dicks Sporting Goods, Donaham’s and Scheels All Sports.
We
distribute our products to the following:
Sleeping
Bag Products
We
distribute our sleeping bag products through sporting goods catalogs, sporting
shows and trade shows, and retail outlets and chains.
Swimeez
Products
We
distribute our Swimeez products through sporting goods catalogs, trade shows,
and retail outlets and chains.
Stadium
Pack Products
We
distribute our Stadium Pack products through sporting goods catalogs, trade
shows, sporting shows, and retail outlets and chains.
Hunting
Apparel Line
We
distribute our hunting apparel through national and local retail
chains.
Six
pocket pants, 1/2 zip pullover jacket with collar, parka jacket, fleece jacket,
guide series shirt, bib coveralls in light weight, bib coveralls in arctic
weight. We distribute these products to the public, through trade shows, product
information mailings to prospective retail buyers, and private showings to
targeted buyers in the retail industry.
Arctic
Armor Line
We
distribute the Arctic Armor Line to retailers and distributors across the United
States and Canada and recently in Russia and Finland. These products will also
be marketed to utility companies, oil/gas pipeline workers and to construction
workers.
Our
marketing program consists of the following:
MARKETING
COMPONENT
Webside
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, Canada, and recently in Russia and Finland.
Public
Relations Campaign
Subject
to funding, we plan to contract with marketing consultants to develop and
distribute press releases regarding company status, product innovations,
and
other notable events and developments. Currently our public relations are
conducted by our own staff.
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.
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 is 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.
Our
"idigear" label is sewn on all of our products. Haas Outdoors, Inc.'s Mossy
Oak Break Up and New Break Up and Duck Blind hang tags are attached
only to our "Mossy Oak pattern" stadium pack products. Additionally, we will
be
utilizing the Mossy Oak camouflage on the new products that we are in the
development stages of introducing, which will feature the Mossy Oak hang tag
with our "idigear" hang tag. Our new hunting apparel line also includes a hang
tag noting such endorsement.
INSULTEX
will be used in all our finished goods and will be purchased directly from
the
Ketut Group.
All
of
our products are sub-manufactured by PT Lidya and Natalia located in Indonesia.
Because the predominant function of the Stadium Pack is a sleeping bag, they
are
imported as sleeping bags. Indonesia does not impose quotas that limit the
time
period or quantity of items which can be imported. The United States Customs
Service imposes a 9% importation duty on all finished goods based upon our
completed stadium packs. All other products are 6.5% including
INSULTEX.
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 are
manufactured on a per order basis.
The
fulfillment process involved in completing wholesale orders for non-stocked
swimsuit, hunting line and arctic armour products is described
below:
DAY
|
|
ACTION
|
|
|
|
1
|
|
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.
|
|
|
|
|
|
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.
|
|
|
|
10
|
|
Our
sub-manufacturers ship finished goods to us.
|
|
|
|
14
|
|
We
receive finished goods, and facilitate turn-around for shipment to
retailers. Goods are received in our distribution center where they
are
packaged in Master Packs, hang tags attached, and UPC/UCC codes labels
applied to items for retailer distribution.
|
|
|
|
The
basis
for the above time estimates has been derived from our prior experience with
the
sub-manufacturer.
The
fulfillment process involved in completing wholesale orders for our Stadium
Pack
products is described below:
DAY
|
|
ACTION
|
|
|
|
1
|
|
We
receive an order for a certain number of items from a wholesale purchase
by hand delivery, fax, courier, or mail with an authorized signature
of
the purchaser.
|
|
|
|
|
|
We
contact our sub-manufacturers with details of the order, including
the
number of units to be produced according to color combinations. The
sub-manufacturers then procure the raw materials.
|
|
|
|
7
|
|
Our
sub-manufacturers receive raw materials from suppliers and begin
production.
|
|
|
|
25
- 30
|
|
Within
25-30 days, our sub-manufacturers ship finished goods to us, pending
no
international freight or shipping issues.
|
|
|
|
56
- 61
|
|
We
receive finished goods, and facilitates shipment to the
buyer.
|
The
basis
for the above time estimates has been derived from our prior experience with
the
sub-manufacturer.
Any
inventory we maintain is stored at our warehousing facility. Our warehouse
facility has the capacity to hold 250,000 finished products in
inventory.
In
late
2003, we were granted a trademark for our name "idigear" with the United States
Patent and Trademark Office.
In
late
2005, we were granted the mark "INSULTEX" by the United States Patent and
Trademark Office.
The
INSULTEX Technology is protected by a Korean patent. We have been granted a
license for marketing and distribution rights for use of INSULTEX in swimeez
and
stadium packs and the rights to purchase INSULTEX for the manufacture of other
apparel and accessory items and any other use containing INSULTEX.
Our
production costs are limited to the invoices we receive from our
sub-manufacturer, PT Lidya and Natalia, on a per production basis.
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.
We
have
spent no funds on research and development of our products. In March of 1999,
our ex-affiliate, RMF Global, hired and paid $5,275 to Vartest Laboratories,
Inc. to perform testing of the INSULTEX material. Other than the testing
performed by Vartest Laboratories, Inc, Innovative Designs, Inc. has spent
no
significant funds on research and development.
The
Vartest Laboratories test results establish the buoyancy and insulation
qualities of INSULTEX. The results are as follows:
Issue
|
|
Test
Result
|
|
|
|
|
|
Fabric
Weight
|
|
0.042
oz./square yard
|
|
Low
|
Fabric
Thickness
|
|
0.021
inches
|
|
Thin
|
Thermal
Retention
|
|
Clo
value: 2.0
|
|
Good
|
Air
Permeability
(protection
from wind)
|
|
0.01
cubic feet of air/min/ft2 of material (Good)
|
|
Low
|
Moisture
Permeability (protection from water)
|
|
5
grams/sq. meter/24 hrs. (Good)
|
|
Low
|
During
2005, the Company hired Texas Research Institute Austin, Inc. to perform testing
on the permeation of gas on the INSULTEX product. The testing was based upon
accepted industry practices. The permeation test resulted in almost no detection
of the gas through the INSULTEX throughout the testing procedures.
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:
Department
of Transportation
Our
shipment of raw materials to our manufacturers is and will be subject to United
States Department of Transportation regulations.
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, may be 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 9% importation duty to the United States Customs Service
on
all finished goods, based upon our completed Stadium Pack. All other products
are 6.5% including INSULTEX. 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 affect on our
business, results of operations, and financial condition.
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 affect 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 6 employees, 3 of which are full time employees and
3
of which are part-time employees. Our full-time employees are:
·
Joseph
Riccelli, our Chief Executive Officer;
·
Joseph
A.
Riccelli, our Vice President; and
·
Gregory
P. Domian, Vice President of Sales and Marketing.
We
have
the following part-time employees:
·
Anthony
Fonzi, our Chief Financial Officer; and
·
2
part-time clerical/warehouse employees.
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.
ITEM
1A RISK
FACTORS.
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 include 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 floating swimwear market are:
·
www.floatingswimwear.com;
·
www.maui.net/-welck;
and
·
www.hotshop.at/enlisch/swimc.
·
Welck-em
Floats located in Lahaina, Hawaii;
·
Aqua
Leisure Industries located in Avon, Massachusetts; and
·
Swim
Coach websites located in the United Kingdom.
Some
of
our biggest competitors in the hunting apparel line are:
· Russell
Athletics
· Scentlock
· Various
big-box private labels
Some
of
our biggest competitors in the Arctic Armor™ line are:
·
Ice
Clam
Corporation
·
Vexilar
·
Mustang
Survival
We
compete in the following ways:
A. Emphasize
the Advantages of our Products.
Floating
Swimwear Products
We
emphasize the following characteristics of our swimeez swimsuit
product:
|
·
|
inherent
buoyancy of INSULTEX which is sewn into our swimsuit and results
in a less
obtrusive swimming experience while still retaining buoyancy in comparison
to some of our competitors; and
|
Stadium
Pillow Products
We
emphasize the following advantages of our Stadium Pack product:
|
·
|
Our
Stadium Pack product has multiple uses by acting as a stadium seat
cushion
or pillow, thermal rain parka, sleeping bag, flotation raft and double
comforter; and
|
|
·
|
Our
Stadium Pack product has the advantages of low weight, compactness,
water
repellency, and thermal insulation
properties.
|
Hunting
Line
We
emphasize the following characteristics and advantages of our hunting line
products:
|
·
|
thermal
insulation properties which makes a thinner more compact and warmer
garment or accessory than some of our
competitors;
|
|
·
|
competitive
wholesale and retail prices; and
|
|
·
|
introduction
of a new proprietary technical insulation, i.e. "INSULTEX", to the
hunting
industry that has fewer such technical insulations in use by that
industry; and
|
Arctic
Armor Line
We
emphasize the following characteristics and advantages of our Arctic Armor
line
products:
The
basis
for our above product claims is derived from the Vartest Lab Results, a
fiber/yarn, fabric and apparel testing firm.
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 simulant
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.
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.
|
D.
|
Utilize
product endorsements from professional athletes and sports figures
to
bolster awareness and image of our products. We currently have former
all
pro national football league player Bill Maas endorsing our hunting
apparel line. We added Mr. Tom Nelson, “The American Archer”, who is, and
has been seen regularly on The Outdoor Channel.
|
Our
products have the following disadvantages in comparison to the products of
our
competitors:
|
· |
Lack
of a broad range of product designs or styles; lack of product line
depth.
|
|
·
|
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. Our Stadium Pillow products,
as
new products, will especially 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.
Material
Acquisition
All
of
the materials and items required to manufacture our products are purchased
by
our manufacturer in Indonesia with the exception of the Mossy Oak material.
We
order the Mossy Oak material and it is delivered to our manufacturer.
The
Company has only one supplier of INSULTEX, the special material which is
manufactured within the apparel of our products. Additionally, we have one
manufacturer that produces the apparel on behalf of the Company, located in
Indonesia.
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.
Geographic
Concentration
Many
of
the Company’s sales 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, 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
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. Our shares may someday be subject
to
such penny stock rules and our shareholders will, in all likelihood, find it
difficult to sell their securities.
Sarbanes-Oxley
Unless
the current requirement for compliance with Section 404 of the Sarbanes-Oxley
is
changed, the Company will experience higher internal and auditing costs to
comply by the end of fiscal 2008.
Significant
Customer
Earned
revenues for the fiscal year ending October 31, 2007 include revenues earned
to
one major customer. One major customer accounted for approximately 22.5% of
our
total revenue. Performance of this customer in its own market could have
negative impact on the Company’s sales and results of operations.
Information
Systems
The
Company is currently in its infancy stages. Accordingly, they are in the process
of devising their information systems which would currently only consist of
financial accounting systems. All manufacturing of products and shipping of
products are performed by independent third parties. These service providers
maintain their own information systems.
ITEM
2. |
DESCRIPTION
OF PROPERTY.
|
Since
May
2002, we have maintained our executive offices of 1500 square feet at 223 North
Main Street, Suite 1, Pittsburgh, Pennsylvania 15215. We pay monthly rent of
$700.00 to Riccelli Properties, a property management firm owned by our Chief
Executive Officer, Joseph Riccelli. 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.
In
October 2002, we arranged for the lease of warehouse space for our inventory
and
raw materials at 124 Cherry Street, Etna, Pennsylvania. 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, Frank
Riccelli, and we pay $2,600 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. The building in which our offices
are located is owned by Frank Riccelli, and is subject to a $120,000 mortgage.
Mr. Frank Riccelli is the brother to our Chief Executive Officer. 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
subject to dispute and litigation in the ordinary course of our business. None
of these matters, in the opinion of our management, is material or likely to
result in a material effect on us based upon information available at this
time.
The
following is a summary of the various litigation matters we have been involved
in:
United
States District Court for the Western District of Pennsylvania
Case
No. 04-00593-AJS
On
November 2, 2007, Innovative Designs, Inc. 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 of the Appellees, Elio D. Cattan
(“Cattan”) and Eliotex, SRL (“Eliotex”), and no appeal brief was ever filed on
their behalf. Innovative Designs awaits the Court’s ruling.
Greystone,
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 Innovative Designs.
Innovative Designs 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. Innovative Designs has entered into an agreement by which it
may
purchase and satisfy the judgment at a time of its choosing. In the opinion
of
our legal counsel, the judgment no longer represents a threat to the legal
or
economic viability of Innovative Designs. Once the appeal has been determined,
Innovative Designs will request the judgment be satisfied of
record.
Innovative
Designs 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 Innovative Design's appeal.
United
States Bankruptcy Court for the Western District of
Pennsylvania
Case
No. 06-23921-MBM
On
September 24, 2007, Innovative Designs 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, Innovative Designs 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 Innovative
Designs 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. Innovative Designs 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 Innovative Designs, which judgment,
as
aforesaid, was subsequently purchased at Sheriff Sale by Greystone, Inc. and
subsequently sold to a Pennsylvania LLC.
Counsel
for Cattan and Eliotex has indicated to counsel for Innovative Designs 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 remains in limbo
as
Cattan and Eliotex have taken no action to secure substitute counsel. Innovative
Designs believes 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. Legal counsel has advised that Innovative Designs
is
not directly implicated in this suit.
ITEM
4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
None
PART
II
ITEM
5. |
MARKET
FOR COMMON STOCK; RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
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
2007
|
|
Low
|
|
High
|
|
Fourth
Quarter
|
|
$
|
.19
|
|
$
|
.65
|
|
Third
Quarter
|
|
$
|
.22
|
|
$
|
.41
|
|
Second
Quarter
|
|
$
|
.31
|
|
$
|
.47
|
|
First
Quarter
|
|
$
|
.25
|
|
$
|
.53
|
|
FY
2006
|
|
|
Low
|
|
|
High
|
|
Fourth
Quarter
|
|
$
|
.32
|
|
$
|
.36
|
|
Third
Quarter
|
|
$
|
.32
|
|
$
|
.35
|
|
Second
Quarter
|
|
$
|
.32
|
|
$
|
.35
|
|
First
Quarter
|
|
$
|
.33
|
|
$
|
.36
|
|
On
February 5, 2008, the closing bid price was $.36.
The
source of the above data is http://finance.yahoo.com.
Holders.
As
of
February 5, 2008, we had 166 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.
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,
warrants
and
rights
|
|
Weighted-
average
exercise
price
of
outstanding
options,
warrants
and
rights
|
|
Number
of
securities
remaining
available
for
future
issuance
under
equity compensation
plans
(excluding
securites
reflected
in
column
(a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
$
|
400,000
|
|
$
|
0.42
|
(2)
|
$
|
16,000
|
(1)
|
(1)
|
The
Company has issued an additional 582,000 shares of its stock to various
consultants in exchange for past and future services. The weight
average
price per share was $0.42.
|
|
|
(2)
|
Weighted
average price was based on the market value of the shares on or about
the
date the service was performed. Market value of the price per share
ranged
from $2.00 to $0.15 per share over the period of time in which the
various
services were performed.
|
|
|
(3)
|
All
stock that has been issued by the Company out of the equity compensation
plan was for the exchange of services. No shares were sold for
cash.
|
Use
of
Proceeds from Registered Securities.
Not
applicable
ITEM
6. |
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 market and sell clothing products such as swim wear,
hunting apparel, and cold weather gear called “Artic Armor” that are made from
INSULTEX, a material with buoyancy, scent block and thermal resistant
properties. We obtain INSULTEX through a license agreement with the owner and
manufacturer of the material. Since our formation we have devoted our efforts
to:
· |
Formulating and developing our business
plan;
|
· |
Raising funding either through the sale of our common stock or through
borrowing;
|
· |
Developing our marketing plan;
|
· |
Completing the development, design and prototypes of our products,
and
|
· |
Obtaining retail stores 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. In October 2007,
our case was dismissed.
Results
of Operations
Comparison
of the fiscal year ended October 31, 2007, with the fiscal year ended October
31, 2006.
The
following table shows a comparison of the results of operations between the
fiscal years ended October 31, 2007 and October 31, 2006:
|
|
Fiscal
Year Ended
October
31,
2007
|
|
%
of
Sales
|
|
Fiscal
Year
Ended
October
31,
2006
|
|
%
of
Sales
|
|
$
Increase (Decrease)
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
674,541
|
|
|
100
|
%
|
$
|
78,013
|
|
|
100
|
%
|
$
|
596,528
|
|
|
100
|
%
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
219,665
|
|
|
32.5
|
%
|
|
34,147
|
|
|
43.7
|
%
|
|
185,518
|
|
|
31,1
|
%
|
Non-stock
compensation
|
|
|
78,000
|
|
|
11.5
|
%
|
|
91,751
|
|
|
117.6
|
%
|
|
(13,751
|
)
|
|
(2.3
|
)%
|
Selling,
general and administrative expenses
|
|
|
259,809
|
|
|
38.5
|
%
|
|
294,535
|
|
|
377.5
|
%
|
|
(34,726
|
)
|
|
(5.8
|
)%
|
Arbitration
award
|
|
|
-
|
|
|
-
|
|
|
4,176,000
|
|
|
5352.9
|
%
|
|
(4,176,000
|
)
|
|
(700.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
117,067
|
|
|
17.4
|
%
|
|
(4,518,420
|
)
|
|
(5791.9
|
)%
|
|
3,442,431
|
|
|
(577.0
|
)%
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense)
|
|
|
(63,974
|
)
|
|
9.4
|
%
|
|
(77,715
|
)
|
|
(99.6
|
)%
|
|
(141,689
|
)
|
|
(23.7
|
)%
|
Reversal
of interest on
related party debt
|
|
|
-
|
|
|
-
|
|
|
395,495
|
|
|
506.9
|
%
|
|
(395,495
|
)
|
|
(66.3
|
)%
|
Net
(loss) income
|
|
$
|
53,093
|
|
|
7.9
|
%
|
$
|
(4,200,640
|
)
|
|
(5384.5
|
)%
|
$
|
(77,697
|
)
|
|
(13.0
|
)%
|
Fiscal
years ended October 31, 2007 and 2006
Revenues
for the fiscal year ended October 31, 2007 were $674,541 compared to $78,013
for
2006. 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. Almost all of our sales for the fiscal year ended October 31, 2007
were for this product line.
Selling,
general and administrative expenses were $256,872 for the fiscal year ended
October 31, 2007 compared to $197,606 for the fiscal year ended October 31,
2006. The increase was on account of more sales commission being paid as a
result of the increase in sales and an increase in professional fees and
expenses attributable primarily to our bankruptcy matter. Professional fees
for
fiscal year 2007, were approximately $50,000.
Liquidity
and Capital Resources
During
the fiscal year ended October 31, 2007, we funded our operations with revenues
from sales and loans from our Chief Executive Officer. We will continue to
fund
operations from revenues and borrowings and the possible sale of
securities.
Short
Term: We funded our operations with revenues from sales and loans from our
Chief
Executive Officer. Our ability to obtain outside funding of either debt or
equity was adversely affected by our 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
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 areas where cold weather clothing is required.
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. Subsequent to the end of our fiscal
year
ended October 31, 2007, we sold our common stock in a private placement to
accredited investors and raised a total of $78,845. We also converted $40,000
of
debt to equity in January 2008 and $110,000 of debt was converted to common
stock in November 2007.
ITEM
7. |
FINANCIAL
STATEMENTS.
|
Our
audited financial statements may be found beginning on page 32 elsewhere in
this
report.
ITEM
8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE.
|
None
ITEM
8A. |
CONTROLS
AND PROCEDURES.
|
As
of
October 31, 2007 and 2006, an evaluation was performed under the supervision
and
with the participation of our management, including our Chief Executive Officer
and Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including our Chief Executive Officer and Principal Financial
Officer, concluded that our disclosure controls and procedures were effective
as
of October 31, 2007 and 2006.
There
have been no significant changes in our internal control over financial
reporting during the fiscal year ended October 31, 2007 and 2006, or subsequent
to October 31, 2006, that have materially affected or are reasonably likely
to
materially affect, our internal control over financial reporting.
ITEM
8B. |
OTHER
INFORMATION.
|
None
PART
III
ITEM
9. |
DIRECTORS,
EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION
16(A) OF THE
EXCHANGE ACT.
|
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 above will serve until the next annual meeting of our
shareholders which is held within sixty (60) days of our fiscal year end, or
until a successor is elected and has accepted the position.
None
of
our directors hold directorships in any Securities and Exchange Commission
reporting companies. Our directors and executive officers are as
follows:
Name
|
|
Age
|
|
Position
|
|
Term
|
|
|
|
|
|
|
|
Joseph
Riccelli
|
|
57
|
|
Chief
Executive Officer/Chairman
|
|
1
year
|
Dean
P. Kolocouris
|
|
35
|
|
Director
|
|
1
year
|
Robert
D. Monsour
|
|
55
|
|
Director
|
|
1
year
|
Anthony
Fonzi
|
|
59
|
|
Chief
Financial Officer/Director
|
|
1
year
|
Daniel
P. Rains
|
|
53
|
|
Director
|
|
1
year
|
Joseph
Riccelli 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 attended Point Park College located in Pittsburgh, Pennsylvania
from 1971 to 1972. On account of the litigation, as discussed in ITEM 3 LEGAL
PROCEEDINGS, that involved the company and RMF
Global, Inc., a company owned by Mr. Riccelli, filed a Chapter 7 Petition in
bankruptcy court and the Company has since been dissolved.
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 Bachelors Degree in Finance from Duquesne
University located in Pittsburgh, Pennsylvania.
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 Masters Degree in International Affairs at the Graduate School
of
Public and International Affairs in May 1983, with the exception of a required
Masters Thesis; and (c) Bachelor of Arts Degree in Political Science in May
1978.
Anthony
Fonzi has been one of our Directors and our Chief Financial Officer and Chief
Accounting Officer since our inception in June 2002. From our inception to
April
14, 2003, Mr. Fonzi spent approximately 10 hours a week as our Chief Financial
Officer and Chief Accounting Officer. Since April 15, 2003, Mr. Fonzi has spent
approximately 20 hours a week as our Chief Financial Officer and Chief
Accounting Officer. From June 1995 to present, Mr. Fonzi has been a Tax Director
at D. Cerniglia and Associates, a Certified Public Accounting firm located
in
Monroeville, Pennsylvania. As Tax Director, Mr. Fonzi is responsible for all
tax
functions on behalf of D. Cerniglia and Associates. In May 1985, Mr. Fonzi
received a Masters Degree in Taxation from Robert Morris College located in
Pittsburgh, Pennsylvania. In May 1970, Mr. Fonzi received a Bachelors Degree
in
Accounting from Robert Morris College.
Daniel
P.
Rains has been a director since March 2007. Mr. Rains is currently Vice
President of business development at McCart’s, Inc., a mechanical contracting
firm. He has held this position for 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.
Significant
Employees
We
have
the following additional significant employees:
Gregory
P. Domian, 51, has been our Vice President of Sales and Marketing since May
2005
and spends approximately 45 hours per week regarding this position. Gregory
manages the sales force across the United States and Canada, attends all major
trade shows for Innovative Designs, Inc. and performs inventory control. Prior
to this, Mr. Domion was employed with 84 Lumber performing analysis of product
sales from April 2000 to September 2003. Mr. Domion also worked at Dicks
Sporting Goods performing assortment planning, purchasing, and advertising
from
1994 to 1996. Mr. Domion has an Associates Degree from Duquesne University
located in Pittsburgh, Pennsylvania.
Section
16(a) Beneficial Ownership Reporting Compliance
Our
Chief
Executive Officer had a common stock transaction on October 1, 2007, which
required reporting the transaction on a Form 4. The Form 4 was required to
be
filed no later than October 3, 2007. The Form 4 was filed one day late on
October 4, 2007.
Code
of
Ethics
We
have
not, as yet, adopted a code of ethics. We have only one full time executive
officer and a part time Chief Financial Officer who also acts as our principal
accounting officer, both of whom have been with us since our formation. 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.
ITEM
10. 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
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Riccelli
|
|
2006
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Riccelli
|
|
2007
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
Chief
Executive Officer has not been paid any compensation since
inception.
There
are
no employment agreements between us and our executive officer Joseph Riccelli.
There are no change of control arrangements, either by means of a compensatory
plan, agreement, or otherwise, involving our current or former executive
officers. There are no automobile lease agreements or key man life insurance
policies that are to the benefit of our executive officers, in which we would
make such payments. There are no standard or other arrangements in which our
directors are compensated for any services as a director, including any
additional amounts payable for committee participation or special assignments.
There are no other arrangements in which any of our directors were compensated
during our last fiscal year for any service provided as a director.
Director
Compensation
Name
|
|
Fees Paid
Or Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Fonzi
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Dean
P. Kolocouris
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Robert
D. Monsour
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Daniel
P. Rains
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Joseph
Riccelli
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
|
-
0 -
|
|
Our
directors did not receive any compensation for their services as directors
during the fiscal year ended October 31, 2007. In December 2007, each director,
except for our Chairman of the Board and Chief Executive Officer Mr. Joseph
Riccelli, was awarded 25,000 shares of our common stock for services during
the
prior fiscal year. The value for the stock was $.40 per share. The total value
for each director was $10,000.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The
following table sets forth the ownership as of February 5, 2008 (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.
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
|
|
10,000,000
|
|
Direct
|
|
55.8
|
%
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
Chairman
of the Board of Directors
|
(1)
|
831,000
|
|
Indirect
|
|
4.6
|
%
|
|
|
142
Loire Valley Drive
|
|
|
|
|
|
|
|
|
|
Pittsburgh,
PA 15209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Robert
D. Monsour
|
|
61,500
|
|
Direct
|
|
*
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
6131
Saltzburg Road
|
|
|
|
|
|
|
|
|
|
Murrysville,
PA 15668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Dean
P. Kolocouris
|
|
52,000
|
|
Direct
|
|
*
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
120
Timberglen Drive
|
|
|
|
|
|
|
|
|
|
Imperial,
PA 15126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Daniel
P. Rains
|
|
75,000
|
|
Direct
|
|
*
|
|
|
|
2509
Wigham Road
|
|
|
|
|
|
|
|
|
|
Aliquippa,
PA 15001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Anthony
Fonzi
|
|
45,000
|
|
Direct
|
|
*
|
|
|
|
Director/Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
2912
Bryer-Ridge Ct.
|
|
|
|
|
|
|
|
|
|
Export,
PA 15632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group
|
|
11,820,500
|
|
|
|
60.4
|
%
|
*
|
Represents
less than one percent.
|
(1) |
represents
581,000 shares of common stock held in the Gino A. Riccelli Trust
and
250,000 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 is the trustee of both
trusts.
|
By
virtue
of his stock ownership or control over our stock, Mr. Riccelli may be deemed
to
“control” the Company.
ITEM
12. 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 affect on our revenues.
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, 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 Financial Officer. We pay $2,600
per
month for a total of $31,200 per
year.
|
ITEM
13. EXHIBITS
AND REPORTS ON FORM 8-K.
Exhibit
Number
|
|
Description
|
3.1
|
|
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]
|
31.1
|
|
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
|
99
|
|
Test
Results from Vartest Lab*
|
100
|
|
Test
Results from Texas Research Institute Austin,
Inc.*
|
|
*
|
Previously
filed as exhibits to Registration Statement on Form SB-2 filed on
March
11, 2003
|
We
hereby
incorporate the following additional documents by reference: (a) our
Registration Statement on Form SB-2 and all amendments thereto which was filed
on March 11, 2003, and amended on May 22, 2003, July 8, 2003, August 7, 2003,
and September 9, 2003.
Reports
on Form 8-K
On
October 2, 2007, the small business issuer filed a Form 8-K under Items 8.0
“Other Events”. The other event was a petition to the bankruptcy court seeking
to dismiss the bankruptcy case.
On
October 31, 2007, the small business issuer filed a Form 8-K under Item 8.0
“Other Events”. The other event was the dismissal of the bankruptcy
case.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
Audit
Fees
The
aggregate fees billed for the fiscal years ended October 31, 2007 and 2006
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-KSB 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, 2007 and 2006, our current auditors, Louis Plung & Company
billed the Company $10,000 and $7,000 for professional services, respectively.
Audit
Related Fees
None.
Tax
Fees
None.
All
Other
Fees
None.
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 8, 2008
|
By:
|
/s/
Joseph Riccelli
|
|
|
Joseph
Riccelli
|
|
|
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.
|
By:
|
/s/
Joseph Riccelli
|
|
|
Joseph
Riccelli
|
|
|
Chief
Executive Officer
|
|
|
Chairman
of the Board of Directors
|
|
|
|
Date:
February 8, 2008
|
By:
|
/s/
Anthony Fonzi
|
|
|
Anthony
Fonzi
|
|
|
Chief
Financial Officer,
|
|
|
Principle
Accounting Officer,
|
|
|
and
Director
|
|
|
|
Date:
February 8, 2008
|
By:
|
/s/
Dean P. Kolocouris
|
|
|
Dean
P. Kolocouris
|
|
|
Director
|
|
|
|
Date:
February 8, 2008
|
By:
|
/s/
Robert D. Monsour
|
|
|
Robert
D. Monsour
|
|
|
Director
|
|
|
|
Date:
February 8, 2008
|
By:
|
/s/
Daniel Rains
|
|
|
Daniel
Rains
|
|
|
Director
|
INNOVATIVE
DESIGNS, INC.
FINANCIAL
STATEMENTS AND
INDEPENDENT
AUDITORS’ REPORT
October
31, 2007 and 2006
INDEPENDENT
AUDITORS’ REPORT
To
the
Shareholders and Board of Directors
Innovative
Designs, Inc.
Pittsburgh,
Pennsylvania
We
have
audited the accompanying balance sheet of Innovative Designs, Inc. as of October
31, 2007, and the related statements of operations, stockholders' deficit,
and
cash flows for the years ended October 31, 2007 and 2006. These financial
statements are the responsibility of the Company's management. 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 audits 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 audit 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 includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates 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, 2007, and the results of its operations, and its cash flows for
the
years ended October 31, 2007 and 2006, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred significant losses from operations and
has
working capital and stockholders’ deficiencies. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to this matter are also discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of
these uncertainies.
/s/ Louis Plung & Company, LLP
|
|
|
LOUIS
PLUNG & COMPANY, LLP
|
|
Pittsburgh,
Pennsylvania
|
January
29, 2008
|
INNOVATIVE
DESIGNS, INC.
BALANCE
SHEET
October
31, 2007
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
|
$
|
6,555
|
|
Accounts
receivable
|
|
|
209,000
|
|
Inventory
|
|
|
1,046,090
|
|
Total
current assets
|
|
|
1,261,645
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
13,752
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,275,397
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
9,314
|
|
Current
portion of notes payable
|
|
|
300,742
|
|
Accrued
interest expense
|
|
|
91,995
|
|
Accounts
payable - related party
|
|
|
28,220
|
|
Current
portion of related party debt
|
|
|
146,000
|
|
Due
to shareholders
|
|
|
236,500
|
|
Accrued
expenses
|
|
|
4,476
|
|
Accrued
liability related to arbitration award - related party
|
|
|
4,176,000
|
|
Total
current liabilities
|
|
|
4,993,247
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
Long-term
portion of notes payable
|
|
|
411,426
|
|
Total
long term liabilities
|
|
|
411,426
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
5,404,673
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
|
Preferred
stock, $.0001 par value, 100,000,000 shares authorized
Common
stock, $.0001 par value, 500,000,000 shares
authorized,
17,096,193 issued and outstanding
|
|
|
1,711
|
|
Additional
paid in capital
|
|
|
5,049,064
|
|
Accumulated
deficit
|
|
|
(9,180,051
|
)
|
Total
stockholders' (deficit)
|
|
|
(4,129,276
|
)
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
1,275,397
|
|
The
accompanying notes are an integral part of these financial
statements.
INNOVATIVE
DESIGNS, INC.
STATEMENTS
OF OPERATIONS
For
the Years Ended October 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
674,541
|
|
$
|
78,013
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
219,665
|
|
|
34,147
|
|
Non-cash
stock compensation
|
|
|
78,000
|
|
|
91,751
|
|
Selling,
general and administrative expenses
|
|
|
259,809
|
|
|
294,535
|
|
Arbitration
award
|
|
|
-
|
|
|
4,176,000
|
|
|
|
|
557,474
|
|
|
4,596,433
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from operations
|
|
|
117,067
|
|
|
(4,518,420
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND (EXPENSE):
|
|
|
|
|
|
|
|
Reversal
of interest on related party debt
|
|
|
-
|
|
|
395,495
|
|
Interest
expense
|
|
|
(63,974
|
)
|
|
(77,715
|
)
|
Other
expense
|
|
|
-
|
|
|
-
|
|
|
|
|
(63,974
|
)
|
|
317,780
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
53,093
|
|
$
|
(4,200,640
|
)
|
|
|
|
|
|
|
|
|
Per
share information - basic
and fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
16,906,152
|
|
|
18,028,022
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
.003
|
|
|
(.23
|
)
|
The
accompanying notes are an integral part of these financial
statements.
INNOVATIVE
DESIGNS, INC.
STATEMENTS
OF STOCKHOLDERS’ DEFICIT
For
the Years Ended October 31, 2007 and 2006
|
|
Common Stock
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Paid in Capital
|
|
Retained Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at October 31, 2005
|
|
|
19,224,291
|
|
$
|
1,923
|
|
$
|
4,813,676
|
|
$
|
(5,032,704
|
)
|
$
|
(217,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
625,000
|
|
|
63
|
|
|
259,688
|
|
|
-
|
|
|
259,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash
|
|
|
611,000
|
|
|
61
|
|
|
261,059
|
|
|
-
|
|
|
261,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
returned for nonperformance
of services
|
|
|
(1,650,000
|
)
|
|
(165
|
)
|
|
(168,035
|
)
|
|
200
|
|
|
(168,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
shares issued for extinguishment
of note payable
|
|
|
(1,909,098
|
)
|
|
(191
|
)
|
|
(763,448
|
)
|
|
-
|
|
|
(763,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of license agreement with
RMF Global
|
|
|
-
|
|
|
-
|
|
|
568,144
|
|
|
-
|
|
|
568,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,200,640
|
)
|
|
(4,200,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
The
accompanying notes are an integral part of these financial
statements.
INNOVATIVE
DESIGNS, INC.
STATEMENTS
OF CASHFLOW
For
the Years Ended October 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
53,093
|
|
$
|
(4,200,640
|
)
|
Adjustments
to reconcile net income (loss) to cash (used in) operating
activities:
|
|
|
|
|
|
|
|
Common
stock returned for noncompliance services
|
|
|
-
|
|
|
(168,200
|
)
|
Common
stock issued for services
|
|
|
78,000
|
|
|
259,688
|
|
Depreciation
and amortization
|
|
|
6,745
|
|
|
11,229
|
|
Extinguishment
of related party debt
|
|
|
-
|
|
|
(568,144
|
)
|
Interest
reversed on related party note
|
|
|
-
|
|
|
(395,495
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
74,251
|
|
|
(12,451
|
)
|
Inventory
|
|
|
(225,677
|
)
|
|
(503,707
|
)
|
Deposits
|
|
|
-
|
|
|
47,000
|
|
Prepaid
commissions
|
|
|
6,377
|
|
|
(6,381
|
)
|
Deferred
financing
|
|
|
5,196
|
|
|
(7,558
|
)
|
Accounts
payable
|
|
|
2,433
|
|
|
(48,563
|
)
|
Accrued
expenses
|
|
|
(449
|
)
|
|
3,009
|
|
Accrued
interest on notes payable
|
|
|
29,795
|
|
|
39,879
|
|
Accrued
liability related to arbitration award
|
|
|
-
|
|
|
4,176,000
|
|
Deferred
revenue
|
|
|
(213,781
|
)
|
|
213,781
|
|
Net
cash (used in) operating activities
|
|
|
(184,017
|
)
|
|
(1,160,553
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
on note payable
|
|
|
(160,703
|
)
|
|
(20,681
|
)
|
Payment
on related party note
|
|
|
(20,000
|
)
|
|
(93,000
|
)
|
Payment
of bank line of credit
|
|
|
-
|
|
|
(27,188
|
)
|
Payment
of shareholder advances
|
|
|
-
|
|
|
(43,000
|
)
|
Proceeds
from shareholder advances
|
|
|
195,000
|
|
|
44,000
|
|
Common
stock issued for cash
|
|
|
-
|
|
|
261,059
|
|
Proceeds
from bank line of credit
|
|
|
-
|
|
|
253,440
|
|
Proceeds
from loan payable to related party
|
|
|
40,000
|
|
|
30,000
|
|
Proceeds
from notes payable
|
|
|
70,000
|
|
|
211,620
|
|
Reversal
of license agreement with RMF Global
|
|
|
-
|
|
|
568,144
|
|
Net
cash provided by financing activities
|
|
|
124,297
|
|
|
1,184,394
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(59,720
|
)
|
|
23,841
|
|
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
66,275
|
|
|
42,434
|
|
Cash
- end of period
|
|
$
|
6,555
|
|
$
|
66,275
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
6,147
|
|
$
|
36,891
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of interest on extinguishment of debt
|
|
$
|
-
|
|
$
|
395,495
|
|
The
accompanying notes are an integral part of these financial
statements.
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 that are made from INSULTEX, a low density foamed
polyethylene, a material with buoyancy, scent block and thermal resistant
properties. These products are offered and sold by retailers, distributors
and
companies throughout the United States, Canada, Russia and Finland.
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.
Estimates
- The
preparation of financial statements in conformity with accounting principles
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
collectibility is probable. Revenue is derived from sales of the Company’s
recreational products such as artic armor, stadium packs, floating swimwear
and
hunting apparel. 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
2006, the Company entered into a sales agreement with a national retailer
whereby any unsold product may be returned to the Company. Revenue from this
sales agreement was deferred until actual cash payments are received from the
national retailer, at which time revenue was recognized and inventory is
released into cost of goods sold. All unsold inventory from this retailer was
returned in September 2007 and deferred revenue was reduced to $0.
Financial
Instruments
- Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management as of October 31, 2007 and 2006.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable and notes payable. Fair values were
assumed to approximate carrying values for these financial instruments because
they are short term in nature and their carrying amounts approximate fair
values. The carrying value of the Company’s long-term debt approximated its fair
value based on the current market conditions for similar debt
instruments.
Allowance
for Bad Debts
- The
Company considers all accounts receivable balances to be fully collectable
at
October 31, 2007, accordingly, no allowance for doubtful accounts is provided.
If amounts become uncollectible, they will be charged to operations when the
determination is made.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
Inventory
-
Inventory consists principally of purchased finished goods. Inventory is stated
at the lower of cost or market on a first-in, first-out basis.
Property
and Equipment
-
Property and equipment are recorded at cost. Depreciation is computed using
the
straight line method over the estimated useful lives of the related
assets.
Property
and equipment are summarized by major classification as follows:
Equipment
|
|
7
years
|
Furniture
and fixtures
|
|
7
years
|
Leasehold
improvements
|
|
5
years
|
Automobiles
|
|
5
years
|
Maintenance
and repairs are charged to operating expenses as incurred, significant
improvements are capitalized. When property is sold or otherwise disposed of,
the asset account and related accumulated depreciation account are relieved,
and
any gain or loss is included in operations.
Impairment
of Long-Lived Assets
- The
Company reviews the carrying value of its long-lived assets annually or whenever
events or changes in circumstances indicate that the historical cost-carrying
value of an asset may no longer be appropriate. The Company assesses
recoverability of the carrying value of the asset by estimating the future
net
cash flows expected to result from the asset, including eventual disposition.
If
the future net cash flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the asset's carrying
value and fair value. There was no impairment of long-lived assets during
2007.
Income
Taxes
- The
Company follows SFAS 109 "Accounting for Income Taxes" for recording the
provision for income taxes. Deferred tax assets and liabilities are computed
based upon the difference between the financial statement and income tax basis
of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets
to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes
in
the period of change.
Net
Income (Loss) Per Common Share
- The
Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. The Company did
not
compute dilutive earnings per share because there is only one class of
stock.
Stock-Based
Compensation
- The
Company accounts for equity instruments issued to employees for services based
on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever
is
more reliably measurable.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company accounts for stock based compensation in accordance with SFAS 123,
"Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow
companies to either expense the estimated fair value of stock options or to
continue to follow the intrinsic value method set forth in APB Opinion 25,
"Accounting for Stock Issued to Employees" (APB 25) but disclose the pro forma
effects on net income (loss) had the fair value of the options been expensed.
The Company has elected to continue to apply APB 25 in accounting for its stock
option incentive plans.
Recent
Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 ("FAS 157"), Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles ("GAAP"), and expands disclosures
about
fair value measurements. FAS 157 applies under other accounting pronouncements
that require or permit fair value measurements. Prior to FAS 157, there were
different definitions of fair value and limited guidance for applying those
definitions in GAAP. Moreover, that guidance was dispersed among the many
accounting pronouncements that require fair value measurements. Differences
in
that guidance created inconsistencies that added to the complexity in applying
GAAP. The changes to current practice resulting from the application of FAS
157
relate to the definition of fair value, the methods used to measure fair value,
and the expanded disclosures about fair value measurements. FAS 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company presently
does
not expect the adoption of FAS 157 to have an effect on its financial
statements.
In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159 ("FAS 159"), The Fair Value Option for
Financial Assets and Financial Liabilities, which permits entities to choose
to
measure many financial instruments and certain other items at fair value which
are not currently required to be measured at fair value. FAS 159 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company presently
does
not expect the adoption of FAS 159 to have an effect on its financial
statements.
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 14IR ("FAS 141 R"), Business Combinations,
which establishes principles and requirements for how the acquirer recognizes
and measures in its financial statements the identifiable assets acquired,
the
liabilities assumed, and any noncontrolling interest in the acquiree, goodwill
acquired in the business combination or a gain from a bargain purchase. FAS
141R
is effective for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. The
Company presently does not expect the adoption of FAS 14IR to have an effect
on
its financial statements.
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.160 ("FAS 160"), Noncontrolling Interests
in
Consolidated Financial Statements, which establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. FAS 160 is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008, and interim
periods within those fiscal years. The Company presently does not expect the
adoption of FAS 160 to have an effect on its financial statements.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
Reclassification
- Certain 2006 balances were
reclassified to conform with the 2007 financial statement
presentation.
2. |
GOING
CONCERN AND LEGAL PROCEEDINGS
|
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 significant losses from operations during prior
years. For years ended October 31, 2006, the company incurred a net loss
of $4,200,640. In addition, the Company has an accumulated deficit of
$9,180,051 at October 31, 2007.
The
Company's abilitty 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 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 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. The Company awaits the Court's ruling.
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 entered into an agreement 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.
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.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
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 remains in limbo
as
Cattan and Eliotex have taken no action to secure substitute counsel. The
Company believes 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 is not directly implicated in this
suit.
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.
3. |
PROPERTY
AND EQUIPMENT
|
Property
and equipment are summarized by major classifications as follows:
|
|
2007
|
|
|
|
|
|
Equipment
|
|
$
|
14,827
|
|
Furniture
and fixtures
|
|
|
11,092
|
|
Leasehold
improvements
|
|
|
4,806
|
|
Automobile
|
|
|
10,294
|
|
|
|
|
|
|
|
|
|
41,019
|
|
Less
accumulated depreciation
|
|
|
25,310
|
|
|
|
|
|
|
|
|
$
|
15,709
|
|
Depreciation
expense for the years ended October 31, 2007 and 2006 was $4,788 and $6,993.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
Borrowings
at October 31, 2007 consisted of the following:
|
|
|
2007
|
|
|
|
|
|
|
Related
Party Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Payable - Related party; Riccelli Properties. Loan Payable is non-interest
bearing with no payment terms.
|
|
|
$
|
101,000
|
|
|
|
|
|
|
|
Loan
Payable - Dean Kolocouris due on demand; interest is 10%.
|
|
|
|
40,000
|
|
|
|
|
|
|
|
Note
Payable - Related party; Gregory P. Domian; there are no terms and
is due
upon demand.
|
|
|
|
5,000
|
|
|
|
|
|
|
|
Total
Related Party Borrowings
|
|
|
$
|
146,000
|
|
|
|
|
|
|
|
Other
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
Note
Payable - James Kearney; interest is flat rate of $8,000; principal
and
interest due and payable in full at any time after December 10,
2005.
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
Loan
payable - Citizens National Bank - due March 26, 2009; interest is
8% per
annum; payable in monthly installments of $193.27.
|
|
|
|
2,252
|
|
|
|
|
|
|
|
Note
Payable - Redevelopment Authority of Allegheny County; due June
2010;
payable in monthly installments of $290. This is a non-interest
bearing
note.
|
|
|
|
9,433
|
|
|
|
|
|
|
|
Note
Payable - U.S. Small Business Administration; due December 2035;
payable
in monthly installments of $1,820 including interest at 2.9% per
annum.
|
|
|
|
414,367
|
|
|
|
|
|
|
|
Note
Payable - Related party; Bonnie Dake; there are no terms and is
due upon
demand.
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
$
|
531,052
|
|
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
$
|
531,052
|
|
|
|
|
|
|
|
Loan
Payable - Daryl Zaontz; three notes payable: $30,000 due on October
14,
2007, interest is 14% per annum; $30,000 due on February 8, 2008,
interest
is 15% per annum; $40,000 due on December 10, 2007, interest is
10% per
annum.
|
|
|
|
100,000
|
|
|
|
|
|
|
|
Loan
Payable - Enterprise Bank line of credit; interest is prime rate
plus
2.25%.
|
|
|
|
81,116
|
|
|
|
|
|
|
|
|
|
|
$
|
712,168
|
|
|
|
|
|
|
|
|
|
|
$
|
858,168
|
|
|
|
|
|
|
|
Less
current portion of Related Party
Borrowings
|
|
|
|
(146,000
|
)
|
|
|
|
|
|
|
Less
current portion of Other Borrowings
|
|
|
|
(300,742
|
)
|
|
|
|
|
|
|
Total
Long-Term Borrowings
|
|
|
$
|
411,426
|
|
Maturities
of debt for the next five years after October 2007 are as follows:
Year
Ending October 31,
|
|
Related Party
Borrowings
|
|
Other
Borrowings
|
|
Total
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
146,000
|
|
$
|
300,742
|
|
$
|
446,742
|
|
2009
|
|
|
-
|
|
|
14,092
|
|
|
14,092
|
|
2010
|
|
|
-
|
|
|
13,129
|
|
|
13,129
|
|
2011
|
|
|
-
|
|
|
10,858
|
|
|
10,858
|
|
2012
and thereafter
|
|
|
-
|
|
|
373,347
|
|
|
373,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,000
|
|
$
|
712,168
|
|
$
|
858,168
|
|
In
July
2005, the Company entered into a loan with a shareholder, Bonnie Dake,
for
$5,000. The loan has no terms, bears no interest and is due upon demand.
Accordingly, no interest has been reflected within the financial statements.
In
July
2005, the Company entered into a loan with a related party shareholder and
employee Gregory P. Domian, for $5,000. The loan has no terms, bears no interest
and is due upon demand. Accordingly, no interest has been reflected within
the
financial statements.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
In
July
2005, the Company received a no interest loan with Redevelopment Authority
of
Allegheny County in the amount of $13,923. The Company qualified for a 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 loan is to be repaid over
a
forty-seven month period in equal payments of approximately $290, commencing
July 1, 2006. The loan balance was $9,433 at October 31, 2007.
In
July
2005, the Company was approved for a low interest promissory note from the
U.S.
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, will be $1,186 beginning five months from the date of the promissory
note. The note will be payable over 30 years. Certain guarantees of collateral
were made by the Company’s Chief Executive Officer and shareholder, Joseph
Riccelli to service the note. The Company is 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 has
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, will increase to $1,820 due every month beginning
February 13, 2006. All remaining principal and accrued interest are due and
payable on July 13, 2035. The loan balance was $414,367 at October 31,
2007.
In
September 2005, the Company entered into a 42 month loan payable with Citizens
National Bank for $7,000 due March 2009. This loan was used to finance a pick-up
truck purchased by the Company. The loan is payable in monthly installments
of
$193.27 including interest at 8.5% per annum. The loan balance was $2,252 on
October 31, 2007.
In
September 2005, the Company signed 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, in addition to accrued interest of $62,000. This note bears interest
at a flat rate of $8,000. The principal of $100,000 and interest of $86,200
are
payable in full at any time after December 10, 2005.
On
May
18, 2006, the Company entered into a loan of credit agreement with Enterprise
Bank for borrowing up to $900,000 with a rate of interest computed at Prime
plus
2.25%. The terms of this agreement were modified on June 1, 2006 to reduce
borrowings to a maximum of $300,000 with interest computed at prime rate plus
2.25%. Interest is calculated from the date of each advance until repayment
of
each advance. The payment of all borrowings and accrued interest is due on
demand. Borrowings as of October 31, 2007 were $81,116. This loan is
collateralized with a First lien on all business assets of the Company business
including, but not limited to, the licensing agreement to manufacture and
distribute products containing INSULTEX insulation. Personal property of the
Chief Executive Officer of the Company was also used as collateral.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
In
November 2006, the Company entered into a loan payable with a related party,
Dean Kolocouris 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% per
annum.
In
October 2006, the Company entered into three loans payable with Daryl Zaontz
for
$100,000. These loans were to be used to purchase inventory. The first loan
was
for $30,000 to be paid back in full on or before October 14, 2007, including
interest at 14% per annum. The second loan for $30,000 is to be paid back in
full on or before February 8, 2008, including interest at 15% per annum. The
third loan for $40,000 was to be paid back in full on or before December 10,
2007, including interest at 10% per annum.
On
November 7, 2006, the $30,000 loan plus interest that was due on or before
October 14, 2007 was converted to 110,000 shares of the Company’s common
stock.
5. |
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.
6. |
EQUITY
COMPENSATION PLAN
|
The
Company’s Equity Compensation Plan (the “Plan”), which is shareholder-approved,
permits the Company to grant options and shares to employees for services based
on the fair value of the equity instruments issued and to non-employees based
on
the fair value of the consideration received or the fair value of the equity
instrument, whichever is more reliably measurable.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
A
summary
of the Equity Compensation Plan as of October 31, 2007 and 2006 is presented
below:
|
|
2007
|
|
2006
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
balance at beginning
of year
|
|
|
16,000
|
|
$
|
.42
|
|
|
16,000
|
|
$
|
.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
balance at end
of year
|
|
|
16,000
|
|
$
|
.42
|
|
|
16,000
|
|
$
|
.42
|
|
The
weighted average exercise price was based on the market value of the shares
on
or about the date services were performed. The market value of the price
per
share ranged from $2.00 to .015 per share over the period of time in which
the
various services were performed.
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.
During
2007 through 2006, the Company has issued an additional 582,000 shares
of its
stock, that were not part of the Equity Compensation Plan, to various
consultants in exchange for past and future services. The weighted average
price
per share was $0.42.
Earned
revenues for the fiscal year ending October 31, 2007 includes earned revenue
to
one major customer. The major customer accounted for approximately 22% of total
Company earned revenue for the fiscal year. Accounts receivable from this
customer was approximately $120,000 at October 31, 2007.
Earned
revenues for the fiscal year ending October 31, 2006 include earned revenue
to
three major customers. The three major customers accounted for approximately
57%
of total Company earned revenue for the fiscal year. Accounts receivable from
these customers was approximately $1,700 as of October 31, 2006.
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.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company accounts for income taxes under SFAS 109, which requires use of the
liability method. SFAS 109 provides that deferred tax assets and liabilities
are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences. Deferred tax assets and liabilities at
the
end of each period are determined using the currently enacted tax rates applied
to taxable income in the periods in which the deferred tax assets and
liabilities are expected to be settled or realized.
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Income
tax provision at the federal statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
Effect
of operating losses
|
|
|
34
|
%
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
-
|
|
The
Company's deferred tax asset is as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
15,899
|
|
$
|
40,851
|
|
Less:
valuation allowance
|
|
|
(15,899
|
)
|
|
(40,851
|
)
|
|
|
|
|
|
|
|
|
Net
deferred taxes
|
|
$
|
-
|
|
$
|
-
|
|
The
Company has a net operating loss of approximately $1,954,292 and $1,912,020
at
October 31, 2007 and 2006, respectively, which can be carried forward through
October 31, 2025. The principal difference between the net operating loss for
book purposes and income tax purposes results from common shares issued for
services aggregating of $6,000 and $259,751 at October 31, 2007 and 2006,
respectively.
FASB
Interpretation 48, “Accounting for Uncertainty in Income Taxes”, is effective
for fiscal years beginning after December 15, 2006. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in
enterprise’s financial statements in accordance with FASB Statement FASB No.
109, Accounting for Income Taxes. The interpretation prescribes a recognition
threshold and measurement attributable for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
The Company does not believe this will have an impact on the financial
statements.
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company currently maintains two offices which are leased pursuant to an oral
agreement on a month-to-month basis for approximately $3,300 per month. For
the
years ended October 31, 2007 and 2006, rent expense totaled approximately
$39,600 for each year.
10.
|
QUARTERLY
FINANCIAL INFORMATION
(UNAUDITED)
|
2007
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
215,683
|
|
$
|
42,951
|
|
$
|
35,093
|
|
$
|
380,814
|
|
$
|
674,541
|
|
Income
(Ioss) from operations
|
|
|
54,081
|
|
|
(45,745
|
)
|
|
(48,515
|
)
|
|
157,246
|
|
|
117,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
46,882
|
|
$
|
(65,190
|
)
|
$
|
(52,366
|
)
|
$
|
123,767
|
|
$
|
53,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
outstanding
|
|
|
16,906,030
|
|
|
16,906,030
|
|
|
16,906,030
|
|
|
16,906,193
|
|
|
16,906,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per
share
|
|
|
.003
|
|
|
(.004
|
)
|
|
(.003
|
)
|
|
.007
|
|
|
.003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
12,241
|
|
$
|
7,138
|
|
$
|
41,330
|
|
$
|
17,304
|
|
$
|
78,013
|
|
(Loss)
from operations
|
|
|
(220,422
|
)
|
|
(78,466
|
)
|
|
(66,243
|
)
|
|
(4,153,289
|
)
|
|
(4,518,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(224,560
|
)
|
$
|
884,684
|
|
$
|
(83,554
|
)
|
$
|
(4,777,210
|
)
|
$
|
(4,200,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
17,667,073
|
|
|
18,470,740
|
|
|
16,882,552
|
|
|
16,901,193
|
|
|
18,028,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
|
(0.013
|
)
|
|
(0.05
|
)
|
|
(0.00
|
)
|
|
(0.28
|
)
|
|
(0.23
|
)
|
INNOVATIVE
DESIGNS, INC.
NOTES
TO FINANCIAL STATEMENTS
The
Company issued 997,450 shares of the Company’s common stock subsequent to the
date of the financial statement valued at $374,160. 180,000 shares, valued
at
$72,000 were for services which occurred for the fiscal year-end October 31,
2007. The shares are reflected in the statement of operations non-cash stock
compensation and the statement of stockholders’ deficit as services performed -
shares to be issued. The remaining shares of 817,450, of which 118,800 shares,
valued at $78,450, were issued for cash and 588,650 shares, valued at $185,210
were issued for services performed, subsequent to the date of the financial
statements and 110,000 shares were used to convert $38,500 of debt.
Exhibits