Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended July 31, 2009

OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _______ to ________.

Commission File Number: 000-51791

INNOVATIVE DESIGNS, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
03-0465528
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

223 North Main Street, Suite 1
Pittsburgh, Pennsylvania  15215
(Address of Principal Executive Offices, Zip Code)

(412) 799-0350
(Issuer’s Phone Number Including Area Code)

N/A
(Former Name or Former Address, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   x          NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.

(Check One)

Large Accelerated Filer ¨
Accelerated Filer ¨
   
Non-accelerated Filer ¨
Smaller reporting company  x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).               YES ¨  NO x

As of September 11, 2009, there were 18,698,743 shares of the Registrant’s common stock, par value $.0001 per share, outstanding.

Transitional Small Business Disclosure Format:       YES  ¨          NO x

 
 
 

Innovative Designs, Inc.

Index

Form 10-Q for the Quarter Ended July 31, 2009

   
Page No.
 
Part I — Financial Information
  
     
Item 1.
Condensed Financial Statements
  
     
 
Condensed Balance Sheets at July 31, 2009 (Unaudited) and October 31, 2008
1
     
 
Condensed Statements of Operations for the Three Months Ended July 31, 2009 and 2008, Nine Months Ended July 31, 2009 and 2008
2
     
 
Condensed Statement of Changes in Stockholders’ Equity (Deficit) at July 31, 2009 (Unaudited) and October 31, 2008
3
     
 
Condensed Statements of Cash Flows for the Nine Months Ended July 31, 2009 and 2008
4
     
 
Notes to Condensed Financial Statements
5 - 8
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9 - 12
     
Item T.
Controls and Procedures
12 - 13
     
 
Part II — Other Information
  
     
Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds
14
     
Item 6.
Exhibits
15

 
 
 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

INNOVATIVE DESIGNS, INC.

CONDENSED BALANCE SHEETS
July 31, 2009 (Unaudited) and October 31, 2008

   
2009
    
2008
  
   
ASSETS
  
             
CURRENT ASSETS:
            
Cash
   $ 15,836     $ 22,523  
Accounts receivable
     14,592       159,128  
Inventory
     813,166       732,295  
Deposits on inventory
     117,061       305,000  
Total current assets
     960,655       1,218,946  
                 
LONG-TERM ASSETS
                
Property and equipment - net
     7,083       10,675  
Total long-term assets
     7,083       10,675  
                 
TOTAL ASSETS
   $ 967,738     $ 1,229,621  
              
                
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  
           
           
CURRENT LIABILITIES:
                
Accounts payable
   $ 43,643     $ 88,889  
Customer deposits
     -       9,823  
Current portion of notes payable
     13,076       169,530  
Accrued interest expense
     92,000       118,000  
Accounts payable - related party
     28,220       28,220  
Related party debt
     65,000       128,000  
Shareholders advances
     295,164       328,500  
Accrued expenses
     728       17,485  
Total current liabilities
     537,831       888,447  
           
LONG-TERM LIABILITIES:
          
Long-term portion of notes payable
     388,626       397,115  
Total long term liabilities
     388,626       397,115  
                 
TOTAL LIABILITIES
     926,457       1,285,562  
                 
STOCKHOLDERS' EQUITY (DEFICIT):
                
Preferred stock, $.0001 par value, 100,000,000 shares authorized
                
Common stock, $.0001 par value, 500,000,000 shares authorized, 18,703,743 and 18,455,243 shares issued and outstanding
     1,873       1,846  
Additional paid in capital
     5,638,018       5,565,045  
Accumulated deficit
     (5,598,610 )     (5,622,832 )
Total stockholders' equity (deficit)
     41,281       (55,941 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
   $ 967,738     $ 1,229,621  
 
The accompanying notes are an integral part of these financial statements.

 
- 1 -
 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

INNOVATIVE DESIGNS, INC.

CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended July 31, 2009 and 2008, Nine Months Ended July 31, 2009 and 2008
(Unaudited)

                   
Three Months Ended July 31,
    
Nine Months Ended July 31,
  
   
2009
    
2008
    
2009
    
2008
  
                         
REVENUE
   $ 26,616     $ 85,141     $ 675,446     $ 353,457  
                                 
OPERATING EXPENSES:
                                
Cost of sales
     11,810       74,127       298,023       382,425  
Non-stock compensation
     (9,300 )     14,000       44,000       23,600  
Selling, general and administrative expenses
     76,066       84,055       296,373       308,128  
      78,576       172,182       638,396       714,153  
                                 
(Loss)/income from operations
     (51,960 )     (87,041 )     37,050       (360,696 )
                                 
OTHER (EXPENSE)/INCOME:
                          
Interest expense
     (4,456 )     (566 )     (12,828 )     (34,572 )
Reversal of arbitration award
     -       4,176,000       -       4,176,000  
Total other (expense)/income
     (4,456 )     4,175,434       (12,828 )     4,141,428  
                                 
Net (loss)/income before income taxes
     (56,416 )     4,175,434       24,222       3,780,732  
Income taxes
     -       -       -       -  
                                 
NET (LOSS)/INCOME
   $ (56,416 )   $ 4,088,393     $ 24,222     $ 3,780,732  
                                 
Weighted Average
                                
Shares Outstanding
     18,646,743       18,034,743       19,321,799       18,052,743  
                                 
Net income/(loss) per share
   $ (.003 )   $ 22.7     $ .001     $ 20.9  

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

 
- 2 -
 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

INNOVATIVE DESIGNS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
July 31, 2009 (Unaudited) and October 31, 2008

            
Common Stock
          
Additional
    
Accumulated
        
   
Shares
    
Amount
    
Paid in Capital
    
Deficit
    
Total
  
                                         
Balance at October 31, 2007
     17,096,193     $ 1,711     $ 5,049,064     $ (9,180,051 )   $ (4,129,276 )
                                         
Shares issued for cash
     505,050       50       208,716       -       208,766  
                                         
Shares issued for services
     594,000       59       216,291       -       216,350  
                                         
Shares issued for
                                        
   extinguishment of debt
     260,000       26       90,974       -       91,000  
                                         
Net income
         -           -       -       3,557,219       3,557,219  
                                         
Balance at October 31, 2008
     18,455,243       1,846       5,565,045       (5,622,832 )     (55,941 )
                                         
Shares issued for services
     185,500       21       54,779       -       54,800  
                                         
Shares issued for cash
     90,000       9       28,991       -       29,000  
                                         
Return of shares for non-performance of services
     (27,000 )     (3 )     (10,797 )     -       (10,800 )
                                         
Net income
     -         -       -          24,222       24,222  
                                         
Balance at July 31, 2009
     18,703,743     $ 1,873     $ 5,638,018     $ (5,598,610 )   $  41,281  

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

 
- 3 -
 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

INNOVATIVE DESIGNS, INC.

CONDENSED STATEMENTS OF CASHFLOW
For Nine Months Ended July 31, 2009 and 2008
(Unaudited)

          
For the Nine Months Ended
  
   
July 31, 2009
    
July 31, 2008
  
             
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
   $ 24,222     $ 3,780,732  
Adjustments to reconcile net income to cash
                
   provided by (used in) operating activities:
                
Common stock issued for services
     54,800       23,600  
Depreciation and amortization
     3,592       1,879  
Common stock returned for noncompliance of services
     (10,800 )     -  
Accrued liability related to arbitration
     -       (4,176,000 )
Changes in operating assets and liabilities:
                
Accounts receivable
     144,536       133,550  
Inventory
     (80,871 )     154,702  
Deposits on inventory
     187,939       (285,000 )
Accounts payable
     (45,246 )     (915 )
Accrued expenses
     (16,757 )     16,864  
Customer deposits
     (9,823 )     58,750  
Accrued interest on notes payable
     (26,000 )     6,410  
Net cash provided by (used in) operating activities
     225,592       (285,428 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Payments on note payable
     (164,943 )     (54,866 )
Payment on note payable - related party
     (63,000 )     (32,800 )
Proceeds from shareholder advances
     -       78,000  
Payment of shareholder advances
     (33,336 )     -  
Common stock issued for cash
     29,000       349,513  
Net cash (used in) provided by financing activities
     (232,279 )     339,847  
                 
Net (decrease)/increase in cash
   $ (6,687 )   $ 54,419  
                 
Cash - beginning of year
   $ 22,523     $ 6,555  
Cash - end of period
   $ 15,836     $ 60,974  
                 
Supplemental cash flow information:
                
                 
Cash paid for interest
   $ 12,832     $ 566  

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

 
- 4 -
 

INNOVATIVE DESIGNS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS
July 31, 2009

1.         BASIS OF PRESENTATION - INTERIM FINANCIAL STATEMENTS

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the general instructions to Form 10-Q.  Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Actual results could differ from those estimates.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending October 31, 2009 or any future period.

2.
ADOPTION OF SFAS NO. 123 (REVISED 2004) SHARE-BASED PAYMENT

In December 2004, FASB issued FASB No. 123 (Revised 2004) Share-Based Payment.  This Statement establishes standards for the accounting and transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”  This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans.  The adoption of SFAS 123 (Revised 2004) by the Company did not have a material impact on the Company’s financial position, results of operations or cash flows.  There was no change in the status of outstanding shares or in the Equity Compensation Plan since October 31, 2008, and no shares were granted to employees of the Company for services rendered or to be rendered.

3. 
EARNINGS PER SHARE

Innovative Designs, Inc. (the “Company”) calculates net income (loss) per share as required by Statement of Financial Accounting Standard No. 128, Earnings per Share.  Basic earnings (loss) per share is calculated by dividing income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding.  There were no fully diluted shares as of July 31, 2009 and 2008.

 
- 5 -
 

INNOVATIVE DESIGNS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS
July 31, 2009

4.
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's ability to continue as a going concern is contingent upon its ability to expand its operations and secure additional financing.  The Company is currently pursuing financing for its operations and seeking to expand its operations.  Failure to secure such financing or expand its operations may result in the Company not being able to continue as a going concern.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

We are subject to dispute and litigation both in and out of 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.  With respect to the former, we applied for a federal trademark for the name “Arctic Armor” which was approved by the Patent and Trademark Office.  The application has been opposed by a third party who objects to the word “Armor”.  We are attempting to resolve the matter.

With respect to the latter, on July 30, 2008, Elio D. Cattan and Eliotex srl filed a Motion to Strike Satisfaction of Judgment in the action filed at 04-00593 in the United States District Court for the Western District of Pennsylvania.  The basis for the relief requested was Cattan’s averment that Innovative Designs defrayed certain of the expenses in Greystone, Inc.’s litigation in the United States, and that assistance violated Pennsylvania public policy regarding champerty and maintenance.

On February 5, 2009, The Honorable Arthur J. Schwab entered an Order on the Motion of Elio Cattan and Eliotex, SRL (collectively, “Cattan”) to strike the assignment and satisfaction of judgment filed at Docket No. 04-00593 by Elite Properties, LLC.  Counsel for Innovative Designs, Inc. sought to preclude the District Court from rendering any determination on the merits as to the ownership of the Judgment or the propriety of the State Court execution proceedings by which ownership of the Judgment was transferred.

The District Court did not adopt or substantiate the legal argument brought forward by Counsel for Cattan, and did not render any findings on the merits that would disturb Elite Properties, LLC’s ownership of the IDI Judgment at the time it was satisfied.

On March 31, 2009, Eliotex, srl (“Eliotex”) and Elio Cattan (“Cattan”) filed a Motion to Strike Assignment and Satisfaction of Judgment in the Court of Common Pleas of Allegheny County, Pennsylvania at Case No. GD-06-011327.  The Motion requests that the Court invalidate State Court execution proceedings on the default judgment entered against Eliotex and Cattan by Greystone, Inc. (“Greystone”) by which Greystone purchased at Sheriff Sale the default judgment against IDI entered in favor of Eliotex and Cattan in Italian arbitration proceedings and confirmed by the District Court.  The Motion further requests that the Court strike the purchase of an assignment of that judgment from Greystone, and its subsequent satisfaction, by Elite Properties, LLC.  IDI consented to the issuance of a Rule to Show Cause why the relief should not be granted.

 
- 6 -
 

INNOVATIVE DESIGNS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS
July 31, 2009

On June 10, 2009, Eliotex and Cattan filed a Verification to their Motion.  IDI filed its Answer to Rule to Show Cause on June 23, 2009.  Eliotex and Cattan conducted no discovery within the 60 day time period provided for by the Order issuing the Rule, and no oral argument on the Rule has been requested.  The Motion is dormant and likely to remain so for the foreseeable future.

Counsel for IDI is confident that the outcome of the Motion, if adjudicated, will favor IDI.  The Motion cites arcane theories of champerty and maintenance that the District Court expressly refused to adopt, and must be adjudicated by the Honorable R. Stanton Wettick, Jr., who in 2007 upheld the propriety of the execution proceedings at the time of a prior challenge by Eliotex and Cattan.

5. 
COMMON STOCK

On December 11, 2008, we issued a total of 20,000 shares of our common stock for cash for $.40 per share or $8,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On December 30, 2008, we issued a total of 70,000 shares of our common stock for cash for $.30 per share or $21,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On December 30, 2008, we issued a total of 1,500 shares of our common stock for professional services for $.30 per share or $450.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On February 5, 2009, we issued a total of 100,000 shares of our common stock for professional services for $.25 per share or $25,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On February 5, 2009, we issued a total of 25,000 shares of our common stock for professional services for $.25 per share or $6,250.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On March 6, 2009, we issued a total of 54,000 shares of our common stock for professional services for $.40 per share or $21,600.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.  Subsequently on June 2, 2009, the Company cancelled 27,000 shares of this stock for non-performance of services.  The shares were valued at $.40 per share or an aggregate of $10,800.

 
- 7 -
 

On May 26, 2009, we issued 5,000 shares of our common stock for professional services for $.30 per share or $1,500.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

 
- 8 -
 
INNOVATIVE DESIGNS, INC.

July 31, 2009

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following information should be read in conjunction with the consolidated financial statements and the notes thereto and in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.

Disclosure Regarding Forward-Looking Statements

Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute “forward-looking statements” within the meaning of the federal securities laws.  When used in this report, the words “believes,” “expects,” “estimates,” “intends” and similar expressions are intended to identify forward-looking statements.  Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, intentions, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws.  Examples of such statements in this report include descriptions of our plans and strategies with respect to developing certain market opportunities. and our overall business plan.  All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected.  We believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements.  These statements are based on current expectations and speak only as of the date of such statements.  We undertake no obligations to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

Background

Innovative Designs, Inc. (hereinafter referred to as the “Company”, “we or “our”) was formed on June 25, 2002.  We market and sell clothing products such as  hunting apparel, and cold weather gear called “Artic Armor” that are made from INSULTEX, a material with buoyancy, scent block and thermal resistant proprieties.  We obtain INSULTEX through a license agreement with the owner and manufacturer of the material.  Since our formation we have devoted our efforts to:

 
·
Completing the development, design and prototypes of our products,
 
·
Obtaining retail stores or sales agents to offer and sell our products, and
 
·
Developing our website to sell more of our products.

 
- 9 -
 

INNOVATIVE DESIGNS, INC.

July 31, 2009

Results of Operations

Comparison of the Three Months Ended July 31, 2009 with the Three Months Ended July 31, 2008.

Revenues

The following table shows a comparison of the results of operations between the three months ended July 31, 2009 and three months ended July 31, 2008:

   
Three Months
Ended
July 31, 2009
    
% of
Sales
    
Three Months
Ended
July 31, 2008
    
% of
Sales
    
$ Increase
(Decrease)
    
% Change
  
REVENUE
   $ 26,616       100 %   $ 85,141       100 %   $ (58,525 )     (68.7 )%
                                                 
OPERATING EXPENSES
                                                
Cost of sales
     11,810       44.4 %     74,127       87.1 %     (62,317 )     (84.1 )%
Non-stock compensation
     (9,300 )     (34.9 )%     14,000       16.4 %     (23,300 )     (166.4 )%
Selling, general and administrative expenses
     76,066       285.8 %     84,055       98.7 %     (7,989 )     (9.5 )%
      78,576       295.2 %     172,182       202.2 %     (93,606 )     (54.4 )%
Loss from operations
     (51,960 )     195.2 %     (87,041 )     (102.2 )%     35,081       40.3 %
                                                 
OTHER INCOME (EXPENSE)
                                                
Interest expense
     (4,456 )     (16.7 )%     (566 )     (.67 )%     (3,890 )     (687.3 )%
Reversal of arbitration award
     -       -       4,176,000       4,904.8 %     (4,176,000 )     (100 )%
Total other income (expense)      (4,456 )     (16.7 )%     4,175,434       4,904.1 %     (4,179,890 )     (100.1 )%
                                                 
Net (loss)/income
   $ (56,416 )     (212.0 )%   $ 4,088,393       4,801.9 %   $ (4,144,809 )     (101.4 )%

Three Months Ended July 31, 2009 and 2008

Revenues for the three months ended July 31, 2009, were $26,616 compared to $85,141 for the three months ended July 31, 2008.  The decrease was largely on account of the fact that during the last few days of July 2008, two orders totaling approximately $56,000 were shipped.  Over 90% of the products sold were our Artic Armor line of products.  Because this line is our main source for sales, there is a very seasonal nature to our sales cycle.  We do anticipate a much greater demand for our products for the next three months.  We believe that as a result of a cooler summer this year orders will be received earlier than in prior years.  In the first part of September we have already seen this to occur.  As discussed below, we do have written orders for delivery later in the year and as the cold season approaches we expect orders to increase.  Included in the net income (loss) for the three months ended July 31, 2008, is the reversal of the arbitration award in the amount of $4,176,000.

 
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INNOVATIVE DESIGNS, INC.

July 31, 2009

During the period we did reach a verbal understanding with a large distributor and we expect orders to be received later in the month of September or early October. Our Early Order Booking program produced orders that began shipping September 1, 2009, and will continue until February 1, 2010.  We did not start counting EOB orders until this year, but we believe the program has produced significantly more orders than in the first year of the program.  Our building wrap product is still in the last stages of testing.

The following table shows a comparison of the results of operations between the nine months ended July 31, 2009 and nine months ended July 31, 2008.

   
Nine Months
Ended
July 31, 2009
    
% of
Sales
    
Nine Months
Ended
July 31, 2008
    
% of
Sales
    
$ Increase
(Decrease)
    
% Change
  
REVENUE
   $ 675,446       100 %   $ 353,457       100 %   $ 321,989       91.1 %
                                                 
OPERATING EXPENSES
                                                
Cost of sales
     298,023       44.1 %     382,425       108.2 %     (84,402 )     (22.1 )%
Non-stock compensation
     44,000       6.5 %     23,600       6.7 %     20,400       86.4 %
Selling, general and administrative expenses
     296,373       43.9 %     308,128       87.2 %     (11,755 )     (3.8 )%
      638,396       94.5 %     714,153       202.0 %     (75,757 )     (10.6 )%
Income/(loss) from operations
     37,050       5.5 %     (360,696 )     (102.0 )%     397,746       110.3 %
                                                 
OTHER INCOME (EXPENSE)
                                                
Interest (expense) income
     (12,828 )     (1.9 )%     (34,572 )     (9.8 )%     21,744       (62.9 )%
Reversal of arbitration award
     -       -       4,176,000       1,181.5 %     4,176,000       100 %
Total other income (expense)     (12,828 )     (1.9 )%     4,141,428       (1,171.7 )%     (4,128,400 )     (99.7 )%
                                                 
Net income/(loss)
   $ 24,222       3.6 %   $ 3,780,732       1,069.6 %   $ (3,756,510 )     (99.4 )%

Nine months ended July 31, 2009 and 2008.

Revenues for the nine months ended July 31, 2009, were $675,446 compared to revenues of $353,457 for the nine months ended July 31, 2009.  The increase is a result, we believe, of the advertising program conducted over the last cold season.  We also added a new color to the Artic Armor line.  Included in the net income for the nine months ended July 31, 2008, is the reversal of the arbitration award in the amount of $4,176,000.

 
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INNOVATIVE DESIGNS, INC.

July 31, 2009

As of September 10, 2009, we had orders for approximately $150,000.  However, we have shipped more orders since July 31, 2009, than we did in the corresponding period in 2008.  These orders have delivery dates for October, November and December of this year.  The orders do not require any monetary deposit and can be cancelled, without penalty, by the customer at any time.

Liquidity and Capital Resources

During the quarter ended July 31, 2009, we funded our operations with revenues from sales.  We will continue to fund operations from revenues and borrowings and the possible sale of securities.  Our ability to obtain outside funding of either debt or equity is being adversely affected in part, by the general inability to obtain commercial lending.

Short Term: We funded our operations with revenues from sales.  The financial institution has restricted the amounts we can borrow on our lines of credit and they will not increase our borrowing capacity on the lines of credit.  The Company continues to pay its creditors when payments are due and has been successful in expanding its sales base into the oil and gas industry and to the railroad industry as well as to other sectors of the market.

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, however, the general state of the credit industry has made borrowing more difficult.

ITEM T. CONTROLS AND PROCEDURES

Management has developed and implemented a policy and procedures for reviewing, on a quarterly basis, our disclosure controls and procedures and our internal control over financial reporting.  Management, including our principal executive and financial officer, evaluated the effectiveness of the design and operation of disclosure controls and procedures as of July 31, 2009 and, based on their evaluation, our principal executive and financial officers have concluded that these controls and procedures are not operating effectively.  Effective March 19, 2008, our Chief Executive Officer temporarily assumed the duties of our Chief Financial Officer.  As of the date of filing this Form 10-Q, the Chief Executive Officer continues these duties.  During the fourth quarter of 2008, a number of adjusting journal entries were recorded in order to adjust the ending inventory balance to the correct balance.  The nature of these entries related primarily to inventory valuation with regards to the correct balance.  Consequently, during the first quarter of 2009, a number of adjustments were recorded in order to correct the Company’s books and records.  The adjustments included the following: adjustments were made to ending cash balances which were not properly reconciled; inventory was adjusted for items which were received during this quarter but not entered into the inventory system by the Company and not reflected in the ending inventory balance; notes payables were corrected for payments made by the Company to lenders; and adjustments were made in order to adjust cost of sales to the correct balances.  During the second quarter of 2009, the Company hired an outside Certified Public Accountant to analyze and prepare the books and records.  As such, only immaterial reclassifications were made during the second quarter of 2009.  No reclassifications were made during the third quarter of 2009.  The Chief Executive Officer is currently in the process of evaluating the Company’s controls and procedures surrounding the evaluation of inventory and properly stating cost of sales.

 
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INNOVATIVE DESIGNS, INC.

July 31, 2009

There were no significant changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
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INNOVATIVE DESIGNS, INC.

July 31, 2009

PART II

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 11, 2008, we issued a total of 20,000 shares of our common stock for cash for $.40 per share or $8,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On December 30, 2008, we issued a total of 70,000 shares of our common stock for cash for $.30 per share or $21,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On December 30, 2008, we issued a total of 1,500 shares of our common stock for professional services for $.30 per share or $450.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On February 5, 2009, we issued a total of 100,000 shares of our common stock for professional services for $.25 per share or $25,000.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On February 5, 2009, we issued a total of 25,000 shares of our common stock for professional services for $.25 per share or $6,250.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

On March 6, 2009, we issued a total of 54,000 shares of our common stock for professional services for $.40 per share or $21,600.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.  Subsequently on June 2, 2009, the Company cancelled 27,000 shares of this stock for non-performance of services.  The shares were valued at $.40 per share or an aggregate of $10,800.

On May 26, 2009, we issued 5,000 shares of our common stock for professional services for $.30 per share or $1,500.  The shares were issued without registration pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

We funded our operations with revenues from sales and the sale of our securities.  We sold approximately $29,000 worth of our common stock in private transactions during the nine month period ended July 31, 2009.

 
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INNOVATIVE DESIGNS, INC.

July 31, 2009

ITEM 6. EXHIBITS

*3.1
  
Certificate of Incorporation
     
*3.2
  
By Laws
     
31.1
  
Rule 13a - 14a Certification of Chief Executive Office and Chief Financial Officer
     
32.1
  
Section 1350 Certification of Chief Executive Officer and Chief Financial officer
     
*
  
Incorporated by reference to the Company’s registration statement on Form SB-2, filed March 11, 2003

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Innovative Designs, Inc.
 
Registrant
   
Date: September 11, 2009
/s/ Joseph Riccelli
 
Joseph Riccelli, Chief Executive Officer
 
and Chief Financial Officer

 
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