Innovative Designs, Inc. Form 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __ TO __
COMMISSION FILE NUMBER 333-103746
INNOVATIVE DESIGNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 03-0465528
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
223 North Main Street, Suite 1
Pittsburgh, Pennsylvania 15215
(Address of principal executive offices) (Zip Code)
412-799-0350
(Registrant's telephone number, including area code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- ----------------------------------
Securities registered under Section 12(g) of the Exchange Act:
--------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [X]
State issuer's revenues for its most recent fiscal year. $55,416
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $4,938,906 as determined by the closing price of
$1.25 on February 6, 2004
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 17,420,625 shares of common stock
outstanding as of January 9, 2004
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus for
identification purposes (e.g., annual report to security holders for fiscal year
ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
INNOVATIVE DESIGNS, INC.
INDEX
Part I.
Item 1. Description of Business ........................................3
Item 2. Description of Property .......................................21
Item 3. Legal Proceedings .............................................21
Item 4. Submission of Matters to a Vote of Security Holders ...........21
Part II.
Item 5. Market for Common Equity and Related Stockholder Matters ......22
Item 6. Management's Discussion and Analysis or Plan of Operation .....32
Item 7. Financial Statements ..........................................48
Item 8. Changes in and Disagreements with Accountants
and Financial Disclosure ......................................60
Item 8A. Controls and Procedures .......................................60
Part III.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act ....60
Item 10. Executive Compensation ........................................63
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ....................64
Item 12. Certain Relationships and Related Transactions ................66
Item 13. Exhibits and Reports on Form 8-K ..............................67
Item 14. Principal Accountant Fees and Services ........................68
2
PART I.
Item 1. Description of Business.
Business Development
We are a development stage company. We were incorporated in the State of
Delaware on June 25, 2002 to market recreational products that are made from
eliotex, a material with buoyancy and thermal resistant properties. Since our
formation and as more fully explained on pages 34-36 of this Form 10-KSB, we
have devoted our efforts to:
o Formulating and developing our business plan;
o Raising capital through a private placement of our stock;
o Developing our marketing plan;
o Developing our web site;
o Negotiating and completing our sublicense agreement with RMF Global;
o Completing the development, design, and prototypes of certain
products;
o Leasing warehouse space for our inventory, eliotex, and other raw
materials;
o Obtaining retail stores to offer and sell our products;
o Executing an agreement with a manufacturers representative group to
sell our products to retail chains;
o Obtaining services from third parties for our participation in trade
shows; and
o Completing an agreement with Haas Outdoors as more fully described on
page 6.
RMF Global, Inc. was incorporated on April 1, 1999 in the State of Pennsylvania
and is owned and controlled solely by our Chief Executive Officer, Joseph
Riccelli. On March 2, 2003, RMF Global entered into a written license agreement
with Ko-Myung Kim for the exclusive distribution rights to eliotex in the United
States, Canada, Mexico, India, the United Kingdom and Turkey. Mr. Kim owns the
patent to the process to make the eliotex material. On November 25, 2002, we
entered into a written sublicense agreement with RMF Global for the exclusive
rights to distribute three products made from eliotex which RMF Global developed
and to use eliotex in products that we develop. We plan to market our products
containing eliotex, three of which were developed by RMF Global. All of our
products bear our label "idigear".
We have never been the subject of any bankruptcy or receivership action. We have
had no material reclassification, merger, consolidation, or purchase or sale of
a significant amount of assets outside the ordinary course of business.
We have no plans to seek a merger, acquisition or business reorganization or to
otherwise enter into a business combination with another entity.
Distribution Rights
The only exclusive distribution rights we have are derived from our November 25,
2002 written sublicense agreement with RMF Global, our affiliated entity, to:
(a) distribute the sleeping bags, Swimeez, and stadium pack products containing
eliotex, which RMF Global developed; and (b) to use eliotex in additional
products that we develop.
We have no distribution rights, exclusive or otherwise, to be a distributor of
eliotex; however, our affiliated entity, RMF Global, does have exclusive
distribution rights to distribute eliotex in the United States, Canada, Mexico,
Indonesia, the United Kingdom and Turkey, in accordance with the March 2, 2003
written license agreement with Mr. Kim which is described in more detail on page
5. As such, we purchase eliotex from RMF Global to be used in the manufacture
of our products. Similarly, other companies are free to purchase eliotex from
RMF Global, assuming that it is a company within the distribution jurisdiction
that RMF Global covers, which, as mentioned above, is the United States, Canada,
Mexico, Indonesia, the United Kingdom, and Turkey. RMF Global is the
supplier/distributor of the raw material "eliotex" and does not have any plans
to directly manufacture finished goods containing "eliotex."
3
Principal Products and Services
We offer the following three products containing eliotex which were developed
by RMF Global:
o 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 eliotex, which enhances floatability.
This product comes in a boys and girls design in children's sizes from
5 to 12 years old, and adult sizes of Small, Medium and Large. We
offer 7 colors for the girls' Swimeez: yellow, green, fuchsia,
daisies, floral blue, floral green, and cherries. We offer 3 colors
for the boys' Swimeez: neon lime, navy, and gray.
o Sleeping Bag Products. Our sleeping bag products, available in both
rectangular and mummy styles, are water resistant, windproof and weigh
less than 2 pounds each. The eliotex insulation enables our sleeping
bags to have a temperature rating of 15 degrees to 20 degrees
Fahrenheit. We offer our sleeping bag product in black and camouflage
colors.
o Stadium Pillow. The use of eliotex 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:
o Stadium seat cushion or pillow;
o Thermal rain parka with a zip-out hood;
o Sleeping Bag;
o Flotation Raft; and
o Double Comforter.
We use eliotex to provide protection from harsh weather conditions in the
following products which we developed:
o Windshirts. Our windshirts are available in only one style and in five
colors: grey, navy, red, black, khaki.
o Jackets. Our jackets are available in only one style and in five
colors: grey, navy, red, black, khaki.
o Ball Caps. Our ball caps are available in only one style and one
color, navy blue.
Products in Development Stage
In December 2003, we completed the design, prototype, and testing of certain
hunting line apparel and accessories, which we are in the development stage of
introducing into our existing "i.d.i.gear" line. These products
utilize the Mossy Oak / Haas Outdoors, Inc. camouflage fabric and our eliotex
fabric and are intended for the hunting outdoor apparel industry. The apparel
products in this development stage are:
o six pocket pants which are styled similar to cargo pants;
o 1/2 zip pullover jacket with collar;
o parka jacket;
o fleece jacket;
o guide series shirt, which is similar in style to a button down collar
long sleeved oxford style shirt;
o bib coveralls in light weight; and
o bib coveralls in arctic weight which contains two layers of eliotex.
In addition, we are in the development stage of introducing an accessory product
which is a "waterfowl" floating fishing bag/cooler.
These prototypes were manufactured at the 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 were 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, and the
cost of these materials did not exceed $1000; and (d) the testing of these
products was performed in the "field" by our employees and our Manufacturer's
Representative group, Havel-Giarusso & Associates, as part of their normal
responsibilities.
4
Material Agreements
June 11, 1999 Agreement between our affiliate RMF Global, and Eliotex SRL
On June 11, 1999, our affiliate, RMF Global, entered into an agreement with
Eliotex SRL, an Italy corporation owned and controlled by Mr. Elio Cattan, a
citizen of Italy, whereby Eliotex SRL guaranteed RMF Global an adequate supply
of eliotex sufficient to enable RMF Global to ensure an adequate and timely
supply of product to its customers in whatever quantities as may be required by
RMF Global. The agreement had an initial term of two years and was automatically
renewable if RMF Global placed orders of $1,500,000 during the first year of the
agreement. Because RMF Global did not place orders of $1,500,000, the agreement
was not automatically renewed and as such, the agreement expired on June 11,
2001.
From January 1999 to January 2001, Eliotex SRL furnished RMF Global with 42 inch
width eliotex. At the time, RMF Global was able to use 42 inch width eliotex to
make its childrens swimsuit products. RMF Global's primary business at this time
was to sell eliotex to other companies in the United States. RMF Global's
primary business continues to involve the sale of eliotex to other companies,
including us; however, 42 inch width eliotex did not conform to the standard
fabric width in the apparel industry, namely 60 inch fabric, and most companies,
including us, that submitted orders to RMF Global were for 60 inch width
eliotex. As such, using 42 inch width eliotex for 60 inch fabric would
essentially involve 18 inches of wasted fabric, which would not be a cost
effective means of manufacturing apparel. Based on these order requirements,
from approximately January 2000 to August 2002, on various occasions, RMF Global
requested that Eliotex SRL provide it with 60 inch width eliotex; however, on
each occasion Eliotex SRL was unable to do so, and remains unable to do so.
Additionally, as a result of not being able to obtain eliotex from Mr. Kim, the
holder of the patent as explained on page 5, Eliotex SRL no longer has the
ability to provide RMF Global with eliotex. As a result, RMF Global sought other
sources of eliotex. From February 2001 and until approximately January of 2002,
RMF Global searched for sources of eliotex and eventually located Mr. Kim. RMF
Global entered into a verbal agreement with Mr. Kim in June of 2002.
Agreement between RMF Global and Ko-Myung Kim
From February 2001 and until approximately January of 2002, RMF Global searched
for sources of eliotex and eventually located Mr. Kim, a citizen of Korea. RMF
Global entered into a verbal agreement with Mr. Kim in June of 2002. From
approximately June 2002 until March 2, 2003, RMF Global, our sublicensor,
purchased eliotex on an as needed basis from Mr. Kim, in accordance with a
verbal agreement. The same terms of the verbal agreement were set forth in a
written agreement on March 2, 2003. On March 2, 2003, RMF Global entered into a
written agreement with Mr. Kim, whereby Mr. Kim granted RMF Global the
exclusive, unlimited, irrevocable right and license, with the right to grant
sublicenses to third parties, to purchase, use, develop, commercialize, market,
have marketed, sell and have sold, manufacture and have manufactured products
related to or utilizing eliotex whether present or future for all countries in
the world other than Korea and Japan. Under the terms of the agreement Mr. Kim
agreed to promptly deliver to RMF Global within twenty-eight (28) days of
receiving an order from RMF Global, all eliotex ordered by RMF Global. Under the
terms of the agreement, RMF Global is required to pay $.60 USD per meter for all
eliotex ordered from Mr. Kim and this price remains $.60 USD per meter for a
period of ten (10) years from the date the agreement was signed. The agreement
further provides that after this ten year period, this price shall be adjusted
for subsequent ten (10) year terms at a price increase of no more than twelve
percent (12%) per ten (10) year term. The price paid by RMF Global for eliotex
shall remain the same for each ten (10) year term. RMF Global shall order
eliotex from Mr. Kim from time to time as needed and shall not be required to
purchase any minimum amount of eliotex during the term of this agreement, and
RMF Global is not required to make any minimum annual payment to Mr. Kim.
However, should RMF Global place an order, any quantity ordered must be a
minimum of 55,000 meters of eliotex. RMF Global is not required to pay to Mr.
Kim any part of any sublicense fee that RMF Global receives from third party
sublicensees, and RMF Global shall not pay any fees to Mr. Kim. This agreement
will be in full legal force and effect for an initial term of ten (10) years
from the date of its execution. RMF Global will have the option to renew this
agreement for up to four (4) successive terms of ten (10) years each by giving
notice to Mr. Kim of its intention to so renew not less than ninety (90) days
prior to the expiration of the then-current term.
5
Our Agreement with our Affiliated Entity, RMF Global, Inc.
On November 25, 2002, we entered into an agreement with RMF Global, which is
owned and controlled solely by our Chief Executive Officer, Joseph Riccelli. The
terms of this agreement provide that RMF Global: (a) grants us an exclusive
sublicense to manufacture and market RMF Global's three product lines, which are
bathing suits, sleeping bags, and stadium pillows; (b) is required to provide us
with eliotex to adequately and timely meet our needs; and (c) will sell eliotex
to us at a price equal to the lowest price it charges any of its other
customers. In addition, the agreement requires that Joseph A. Riccelli, our Vice
President, oversee raw material ordering, receiving and warehousing,
sub-manufacturing, warehousing, shipping and delivery of our products. The
agreement is for a term of ten years and we shall have the option to renew the
agreement for four subsequent terms of ten years each.
Under the agreement, we must pay RMF Global $1,250,000 for the grant of the
sublicense, consisting of a $50,000 down payment which we have already paid and
three annual payments of $400,000, payable in November 2003, 2004, and 2005.
Additionally, we must use our best efforts to manufacture our products in
accordance with high standards of quality and are required to promptly make full
payment to RMF Global for all eliotex that we purchase from them.
Our Agreement with C. Dillow & Company, Inc.
On February 12, 2003, we entered into a written agreement with C. Dillow &
Company, Inc. Under the terms of the agreement, we issued C. Dillow & Company,
Inc. 500,000 shares of our stock in exchange for C. Dillow & Company,
Inc.'s services which are to be rendered to us for a six month period after we
provide written notification to C. Dillow & Company that services are to
commence, as follows:
(a) Assist us in developing, creating and providing factual information and in
developing and implementing a strong market awareness for our business
operations;
(b) Prepare a comprehensive analytical report that highlights our industry,
opportunities, trends and potential;
(c) Develop and create a public relations campaign for our business;
(d) Aid, advise and assist us in establishing a means of securing local and
nationwide media interest and coverage; and
(e) Aid, consult, prepare and deliver "due diligence" packages requested by and
furnished to registered broker/dealers and/or other institutional and/or fund
managers as requested by us.
Letter Agreement with Victory Junction Gang Camp
On March 6, 2003, we agreed to enter into a letter agreement with the Victory
Junction Gang Camp located in Randleman, North Carolina, in which we agreed that
we would donate to Victory Junction Gang Camp a portion of the proceeds from
sales of our sleeping bag products, specifically $1 per sleeping bag sold, to be
paid to Victory Junction on a quarterly basis with the first payment due
following our third quarter. The agreement runs from April 2003 until the end of
April 2004. Our web site is linked on Victory Junction Gang's web site, which is
linked to Nascar and other organizations and sponsors. We are including the
Victory Junction Gang Camp logo on all of our point of sale posters and
literature, and have added a link from our website to theirs at
www.victoryjunction.org.
Agreement with Haas Outdoors
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 pillow products. "Licensed design" is defined in the agreement as
the camouflage pattern(s) known as the Mossy Oak Break-Up and/or New BreakUp
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 or New BreakUp. The term of the agreement is two years from the effective
date of the agreement, May 30, 2003. 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.
6
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 proscribed by
copyright laws and unless otherwise indicated, a sufficient copyright notice
which will include 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.
Independent Consulting Agreement with Summit Financial Partners, Inc.
On December 3, 2003, we completed an agreement with Summit Financial Partners,
LLC, an Indiana Limited Liability Company, for Summit Financial to represent us
in investors' communications and public relations with existing shareholders,
brokers, dealers, and other investment professionals as to our current and
proposed activities, and to consult with management concerning our activities.
The term of the agreement is from December 3, 2003 to June 3, 2005.
Under the agreement, Summit Financial agrees to provide us with the following
services: (a) consult with and assist us in developing and implementing
appropriate plans and means for presenting us and our business plans, strategy
and personnel to the financial community, establishing an image for us in the
financial community, and creating the foundation for subsequent financial public
relations efforts; (b) introduce us to the financial community, including, but
not limited to, retail brokers, buy side and sell side institutional managers,
portfolio managers, analysts, and financial public relations professionals; (c)
with our cooperation, maintain an awareness during the term of the agreement of
our plans, strategy and personnel, as they may evolve during such period, and
consult and assist us in communicating appropriate information regarding such
plans, strategy and personnel to the financial community; (d) assist and consult
us with respect to our: (i) relations with stockholders, (ii) relations with
brokers, dealers, analysts and other investment professionals, and (iii)
financial public relations generally; (e) perform the functions generally
assigned to stockholder relations and public relations departments in major
corporations, including responding to telephone and written inquiries, preparing
press releases for us with our involvement and approval of the press releases,
reports and other communications with or to shareholders, the investment
community and the general public; consulting with respect to the timing, form,
distribution and other matters related to such releases, reports and
communications; and, at our request and subject to our securing our own rights
to the use of our names, marks, and logos, consulting with respect to corporate
symbols, logos, names, the presentation of such symbols, logos and names, and
other matters relating to our corporate image; (f) upon and with our direction
and written approval, disseminate information regarding us to shareholders,
brokers, dealers, other investment community professionals, and the general
investing public; (g) upon and with our direction, conduct meetings, in person
or by telephone, with brokers, dealers, analysts, and other investment
professionals to communicate with them regarding the our plans, goals and
activities, and assist us in preparing for press conferences and other forums
involving the media, investment professionals, and the general investment
public; (h) at our request, review business plans, strategies, mission
statements budgets, proposed transactions, and other plans for the purpose of
advising us of the public relations implications thereof; and (i) otherwise
perform as our consultant for public relations and relations with financial
professionals.
Under the agreement, we agree to issue, or have issued, a fee of eight hundred
thousand (800,000) restricted shares of our common stock which are to be issued
(and have been issued) to Summit Financial's principals, as follows: (a) 560,000
restricted shares to the Altavilla Family Trust; (b) 120,000 restricted shares
to Alan C. Shoaf; and (c) 120,000 restricted shares to Marlin G. Molinaro.
7
Our Product Markets
Swimeez Product
Our Swimeez product is intended for use by the following groups that are our
target markets for these products:
o Toddlers and children from the ages of 3 to 12 who are learning to
swim;
o Handicapped persons; and
o Adults learning to swim.
Sleeping Bags
Our sleeping bag products are intended for use by the following groups that are
our target markets for these products:
o Outdoor enthusiasts, such as hikers, climbers, mountain bikers and
kayakers;
o Campers;
o Boy Scouts and Girl Scouts;
o Motorcyclists; and
o Hunters and Fishermen.
Stadium Pillows
Our stadium pillow products are intended for use by the following groups that
are our target markets for these products:
o Colleges;
o Child/Amateur sport organizations; and
o Hunting/Fishing enthusiasts.
Windshirts
Our windshirt products are intended for use by the following consumer groups
that are our target markets for these products:
o Golf club pro shops;
o Golf tournament organizers;
o Corporate promotional organizations; and
o Sporting organizations and teams.
Jackets
Our jacket products are intended for use by the following consumer groups that
are our target markets for these products:
o Colleges;
o Sporting teams; and
o Corporations.
Ball Caps
Our ball cap products are intended for use by the following consumer groups that
are our target markets for these products:
o Golf club pro shops;
o Golf tournament organizers;
o Corporate promotional organizations;
o Sporting organizations and teams;
o Colleges;
o Sporting teams; and
o Corporations.
Products in the Development Stage of Introducing
We have completed the design, prototype and testing of the following products
which we are in the development stage of introducing into our existing
i.d.i.gear line. These products will utilize the Mossy Oak / Haas Outdoors, Inc.
camouflage fabric and our eliotex fabric and are intended for the hunting
outdoor apparel industry:
o six pocket pants which are styled similar to cargo pants;
o 1/2 zip pullover jacket with collar;
o parka jacket;
o fleece jacket;
o guide series shirt, which is similar in style to a button down collar
long sleeved oxford style shirt;
o bib coveralls in light weight; and
o bib coveralls in arctic weight which contains two layers of eliotex.
8
Distribution
We sell both wholesale and retail products on our website. Our website, which is
located at www.idigear.com, became operational in October 2002 and contains
information on our products, technical information on eliotex 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, our website
marketing consultant, which assists us in designing and continually developing
our website. Our website features a "wholesaler only" area, allowing our
wholesalers access to information, ordering, and recalls. The web site is hosted
by Nidhog Hosting. The secure payment gateway provider for our online e-commerce
is SkipJack Financial Services.
The following retailers purchase our products at wholesale prices which they
plan to sell at their retail prices:
o Woodlands Outdoor World, a retail store, located in Farmington,
Pennsylvania, sells our sleeping bag and our windshirt products;
o Nemacolin Woodlands Resort and Spa's retail store located in
Farmington, Pennsylvania, sells our windshirt product; their online
catalogue at www.nemacolin.com offers our i.d.i.gear products;
o Pool Nation located in Pittsburgh, Pennsylvania, B & R Pools located
in Pittsburgh, Pennsylvania, Knabes Swim Shop located in Monroeville,
Pennsylvania, and Ross and Sons Pools located in Punxsutawney,
Pennsylvania, all of which are retail shops, sell our "Swimeez"
products;
o The Pittsburgh Shop, a retail store located in Pittsburgh,
Pennsylvania, sells our windshirts and hats;
o Latrobe Country Club, a private country club located in Latrobe,
Pennsylvania, started retailing our windshirts and jackets;
o Bob's Army & Navy Store located in Clearfield, Pennsylvania retails
our sleeping bags and stadium packs; and
o the following retailers retail our sleeping bags: (a) Hunters
Headquarters located in Sunbury, Ohio; (b) Sportmens Den located in
Shelby, Ohio; (c) Fin, Feather, Fur Outfitters located in Ashland,
Ohio; (d) Buckeye Outdoors, Inc. located in Hebron, Ohio; and
(e) Southern Ohio Trading located in Nelsonville, Ohio.
We have no verbal or written agreement with these retailers and we have no
intention of entering into any such agreement. These retailers purchase our
products from us strictly on a purchase order basis.
Manufacturer Representatives
In November 2002, we entered into a verbal agreement with Havel-Giarusso and
Associates, a manufacturer representative located in Big Lake, Minnesota, to be
the manufacturer representative of our products. Established apparel
representatives have lists of distributors, retailers and buying groups who they
service regularly. We verbally agreed to pay Havel-Giarusso and Associates a 2%
to 10% commission on wholesale product sales to retailers depending upon the
size of the order. This agreement may be terminated at will by either party to
the agreement. We have no intention of entering into a written agreement with
Havel-Giarusso and Associates. Havel-Giarusso and Associates has the following
manufacturer representatives representing our product line to retailers in each
of the following locations:
o Parker, Colorado;
o Peace Dale, Rhode Island;
o Nashville, Indiana;
o Bike Lake, Minnesota;
o Olathe, Kansas;
o Minooka, Illinois;
o Wakeman, Ohio;
o Tannersville, Pennsylvania;
o Pittsburgh, Pennsylvania;
o Detroit Lakes, Minnesota; and
o Gansevoort, New York.
Each manufacturer representative covers the state in which they are located.
9
We plan to distribute our products to the following:
Sleeping Bag Products
We plan to distribute our sleeping bag products through sporting goods catalogs,
sporting shows and trade shows, and retail outlets and chains.
Swimeez Products
We plan to distribute our Swimeez products through sporting goods catalogs,
trade shows, and retail outlets and chains.
Stadium Pillow Products
We plan to distribute our Stadium Pillow products through sporting goods
catalogs, trade shows, sporting shows, and retail outlets and chains.
Windshirts, Jackets, Ball Caps
We plan to distribute our windshirts, jackets, and ball caps through various
wholesalers, retail outlets and chains, and trade shows.
Six pocket pants, 1/2 zip pullover jacket with collar, parka jacket, fleece
jacket, guide series shirt, bib coveralls in light weight, and bib coveralls in
arctic weight.
We plan to distribute these products, which we are in the development stage of
introducing to the public, through trade shows, product information mailings to
prospective retail buyers, and private showings to targeted buyers in the retail
industry.
Marketing
Our planned marketing program will consist of the following:
---------------------------- ---------------------------------------------------
Marketing component Description
---------------------------- ---------------------------------------------------
Website Development We plan to contract with marketing consultants to:
and Internet Marketing (a) increase visitation to our website; (b) link
with other established websites; (c) issue press
releases to on-line publications; (d) conduct
banner advertising; and (e) develop arrangements
with online retailers that purchase our products
on a wholesale basis.
---------------------------- ---------------------------------------------------
Sales Representatives We plan to hire 3 sales representatives to: (a)
sell our merchandise to retail chain stores; (b)
attend and network trade shows to establish
industry related contacts; (c) initiate
relationships with local and national recreational
organizations; and (d) provide support to our
manufacturer representatives.
---------------------------- ---------------------------------------------------
Contract with manufacturer We plan to locate 5 manufacturer representatives
representatives that will attempt to sell our apparel to retailers.
---------------------------- ---------------------------------------------------
Public relations campaign We plan to contract with marketing consultants to
develop and distribute press releases regarding
company status, product innovations, and other
notable events and developments.
---------------------------- ---------------------------------------------------
Design and develop We plan to contract with marketing consultants to
literature, displays and develop brochures, point-of-sale displays, mailers
media materials and literature and sales tools for our sales
representatives and manufacturer representatives.
---------------------------- ---------------------------------------------------
Establish wholesale We plan to develop relationships or distribution
relationships with retail points for our products with retail chain outlets
chain outlets and mass and mass merchandisers.
merchandisers to sell
our products
---------------------------- ---------------------------------------------------
Develop trade show booth We plan to contract with marketing consultants to
and attend trade shows design and develop a portable display booth and
product materials to be used in sporting goods and
outdoor apparel trade shows.
---------------------------- ---------------------------------------------------
Our method, time period, and cost for accomplishing these marketing plans is
detailed in our Plan of Operations Section at pages 32-47.
10
Delivery of Products
We plan to ship our wholesale product orders in packages consisting of 6
products per package of the same style, size, and color. We plan to ship
wholesale product orders by United Parcel Service or trucking companies. Retail
orders from our website will be 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.
Labels and our Labeling
Our "idigear" label is sewn on all of our products. Haas Outdoors, Inc.'s Mossy
Oak and New Break Up hang tags are attached only to our "Mossy Oak pattern"
stadium pillow 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. These products are listed on page 8.
Sources and Availability of Raw Materials
eliotex will be used in all our finished goods and will be purchased from our
affiliate/licensor, RMF Global.
Raw Materials to be Provided for our Floating Swimwear Products:
o eliotex
eliotex will be used to create the buoyant quality of our floating
swimwear product.
o Lycra
We will purchase Lycra from Yasha Fabrics which is located in Los
Angeles, California. Lycra is an elastic polyurethane fiber or fabric
used especially for close-fitting sports clothing and will be used for
the outer shell and inside lining of our floating swimwear product.
o Zippers
We will purchase zippers from Barbie International Corporation which
is located in New York, New York.
The delivery time involved for these raw materials from the date of order to
date of delivery is less than two weeks.
Raw Materials to be provided for our Sleeping Bags and Stadium Pillow Products:
o eliotex
eliotex will be used in our sleeping bags, Swimeez and stadium pillow
products as insulation and to provide buoyancy to these products.
o Rip Stop Nylon
We will purchase Rip Stop Nylon from Roberts Textile Company located
in New York, New York. Rip Stop Nylon is a manufactured fiber that is
strong and is resistant to both abrasion and damage from many
chemicals. Rip Stop Nylon fabric is non-absorbent, durable, fast
drying, resistant to moths and other insects, water, perspiration and
standard dry cleaning agents. The Rip Stop Nylon fabric also contains
an added nylon cross weave to prevent tearing of the material. Rip
Stop Nylon is commonly used in women's hosiery, knitted or woven
lingerie, socks and sweaters, rugs and carpets, sleeping bags, duffle
bags, racquet strings, and fishing lines. Rip Stop Nylon is used in
our sleeping bags and stadium pillow products as the exterior shell.
o Nylon polyester tricot
We will purchase nylon tricot from Roberts Textile Company or Fab
Industries, both of which are located in New York, New York. Nylon
tricot is made from very fine or single yarns, providing a suede-like
texture. Nylon tricot is typically used for underwear, sportswear,
bathing suits and gloves. Nylon tricot is used in our sleeping bags
as the inside lining.
11
o Compression sacks
We will purchase compression sacks from Equinox located in
Williamsport, Pennsylvania. Compression sacks are small Rip Stop Nylon
bags, approximately 12 inches by 8 inches. They are separate from our
sleeping bag and are used to compress our sleeping bag when not in
use. Rip Stop Nylon is the sole component of the compression sacks.
o New Products Utilizing the Mossy Oak Brand Camouflage Pattern
We will purchase the Mossy Oak Brand camouflage fabric from a licensed
distributor for Haas Outdoors, Inc, MAHCO, based in Bentonville,
Arkansas. This fabric will be shipped to our submanufacturer, PT Lydia
& Natalia, Indonesia. PT Lydia & Natalia, at their discretion,
will source the additional raw materials for the completion of each
garment or accessory.
Raw Materials to be provided for our Jackets, Windshirts, and Ball Caps
o eliotex
eliotex will be used to provide insulation in our jackets, windshirts,
and ball caps.
o Polyester peached microfiber
We will purchase polyester peached microfiber which is a type of grade
microfiber from Roberts Textile Company located in New York, New York.
It is durable and water repellent treated for our jackets, windshirts,
and ball caps.
o Rib knit
We will purchase rib knit for our jackets, windshirts and ball caps
from Green Mountain located in Knitter, Vermont. Rib knit is a mix of
cotton and Lycra and is elastic and is used for the trip around the
collars, waistbands and cuffs.
The delivery time involved for our raw materials from the date of order to the
date of delivery is less than one week for all stocked materials. Non-stocked
materials or special orders may take up to two weeks for delivery.
The only "raw product" we store on a continual basis is "eliotex" which we store
in our warehouse. Our warehouse space is sufficient for our storage of eliotex.
For the other raw materials that are below 1000 piece goods, we have the
materials shipped directly to the sub-manufacturer. For production runs in
excess of 1000 piece goods, we arrange for the raw materials to be shipped to
our warehouse facility, which is sufficient for that use. Thereafter, we
distribute to the sub-manufacturer the quantity needed for each production run
and we store the remaining quantity. Payment typically will be due on an average
of 30 to 60 days after receipt of the raw materials by our sub-manufacturer or
our warehouse facility. Our Indonesia based manufacturer, PT Lidya & Natalia,
has sole discretion in the sourcing and ordering of raw materials for their
production runs, the costs of which we reimburse PT Lidya & Natalia.
Manufacturing
All of our products are sub-manufactured by PT Lidya & Natalia located in
Sidoarjo, Indonesia. Because the predominant function of the Stadium Pillows 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 for Indonesia
based goods imported into the United States.
We have no verbal or written agreements or long term agreements with PT Lidya
& Natalia and we do not plan to obtain any such agreements. Our
sub-manufacturer manufactures our products on a per order basis.
Purchase Orders
We have submitted the following purchase orders to our manufacturers to effect
manufacturing of our products:
o August 30, 2002 - We submitted a purchase order to PT Lidya & Natalia
to manufacture 6,000 of our stadium pillows;
o January 12, 2003 - We submitted a purchase order to PT Lidya &
Natalia to manufacture 5,000 compression sacks for our sleeping bags,
and 1550 jackets;
o March 21, 2003 - We submitted a purchase order to R & M Apparel to
manufacture 648 of our windshirts.
12
Fulfillment Process
The fulfillment process involved in completing wholesale orders for non stocked
swimsuit, sleeping bag, windshirt, jacket, and ball cap products is described
below:
------- ------------------------------------------------------------------------
Day Action
------- ------------------------------------------------------------------------
1 o 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.
o We contact a raw material supplier to send a certain number of yards
of raw materials to our sub-manufacturers. Raw materials are ordered
according to need.
o 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.
o We complete and forward a purchase order to the manufacturer. The
manufacturer approves or disapproves a purchase order.
o 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 o Our sub-manufacturers ship finished goods to us.
------- ------------------------------------------------------------------------
14 o We receive finished goods, and facilitate turn-around for shipment
to the sporting goods store. Goods received in distribution center
where they are packaged in Master Packs, hang tags attached, and
UPC/UCC codes labels applied to items for distribution to retailer.
------- ------------------------------------------------------------------------
The basis for the above time estimates has been derived from RMF Global's
prior experience with these sub-manufacturers.
The fulfillment process involved in completing wholesale orders for our Stadium
Pillow products is described below:
------- ------------------------------------------------------------------------
Day Action
------- ------------------------------------------------------------------------
1 o 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.
o We contact our sub-manufacturers with the 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 o Our sub-manufacturers receive raw materials from suppliers and begin
production.
------- ------------------------------------------------------------------------
25 - 30 o Within 25-30 days, our sub-manufacturers ship finished goods to us,
pending no international freight or shipping issues.
------- ------------------------------------------------------------------------
56 - 61 o We receive finished goods, and facilitate shipment to the buyer.
------- ------------------------------------------------------------------------
The basis for the above time estimates has been derived from RMF Global's
prior experience with these sub-manufacturers.
13
Inventory
Any inventory we maintain will be stored at our warehousing facility. Our
warehouse facility has the capacity to hold 250,000 finished products in
inventory and raw materials or eliotex. The amount of raw materials or eliotex
we store at our warehousing facility is dependent upon the size of production
runs at any one time and cannot be estimated with any certainty.
Competitive Business Conditions and Our Place in the Market
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:
o www.floatingswimwear.com;
o www.maui.net/-welck; and
o www.hotshop.at/enlisch/swimc.
o Welck-em Floats located in Lahaina, Hawaii;
o Aqua Leisure Industries located in Avon, Massachusetts; and
o Swim Coach websites located in the United Kingdom.
Some of our biggest competitors in the sleeping bag market are:
o North Face located in San Leandro, California or www.thenorthface.com;
o Slumberjack located in Saint Louis, Missouri or www.slumberjack.com;
o Sierra Designs located in Emeryville, California;
o Kelly Pack, Inc. located in Boulder, Colorado; and
o Marmot Mountain, Ltd. located in Santa Rosa, California.
Some of our biggest competitors in our stadium pillow market are:
o North Face located in San Leandro, California or www.thenorthface.com;
o Slumberjack located in Saint Louis, Missouri or www.slumberjack.com;
o Sierra Designs located in Emeryville, California;
o Kelly Pack, Inc. located in Boulder, Colorado; and
o Marmot Mountain, Ltd. located in Santa Rosa, California.
Some of our biggest competitors in our windshirts market are:
o www.zerorestriction.com;
o www.innerharborshirts.com; and
o www.cutterbuckapparel.com.
Some of our biggest competitors in our jacket and ball cap markets are:
o www.zerorestriction.com;
o cutterbuckapparel.com; and
o North Face located in San Leandro, California or www.thenorthface.com.
Some of our biggest competitors in the hunting apparel line that we plan on
introducing to the public are:
o Cabela's located in Sidney, Nebraska;
o Bass Pro Shops located in Springfield, Missouri; and
o Dicks Sporting Goods located in Pittsburgh, Pennsylvania.
14
Our Plan to Compete
We plan to compete in the following ways:
A. Emphasize the Advantages of our Products
Sleeping Bag Products
We plan to emphasize the following characteristics of our sleeping bag products:
o inherent buoyancy of eliotex;
o low weight;
o compactness;
o water repellency;
o thermal insulation properties which makes a thinner, more compact, and
warmer sleeping bag than some of our competitors; and
o having these multiple advantages.
Swimeez Products
We plan to emphasize the following characteristics of our swimeez swimsuit
product:
o inherent buoyancy of eliotex 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
o low weight.
Stadium Pillow Products
We plan to emphasize the following advantages of our Stadium Pillow product:
o Our Stadium Pillow product has multiple uses by acting as a stadium
seat cushion or pillow, thermal rain parka, sleeping bag, flotation
raft and double comforter; and
o Our Stadium Pillow product has the advantages of low weight,
compactness, water repellency, and thermal insulation properties.
Windshirts, Ball Caps and Jackets
We plan to emphasize the following advantages of our windshirt, ball caps and
jacket products:
o low weight;
o compactness;
o water repellency;
o thermal insulation properties which makes a thinner, more compact
product than some of our competitors; and
o having these multiple advantages.
Development Stage "Hunting Line"
We plan to emphasize the following characteristics and advantages of our
Hunting Line products:
o low weight;
o compactness;
o water repellency;
o thermal insulation properties which makes a thinner more compact and
warmer garment or accessory than some of our competitors;
o competitive wholesale and retail prices; and
o introduction of a new proprietary technical fabric, i.e. "eliotex", to
the hunting industry that has fewer such technical fabrics in use by
that industry.
The basis for our above product claims is derived from the Vartest Lab Results,
a fiber/yarn, fabric and apparel testing firm, located in New York, New York
that RMF Global retained and paid $5,275 to conduct testing of the eliotex
material. The March 1999 Vartest Lab Results appear below under our "Research
and Development" Section.
15
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 sporting goods tradeshows to promote and market our products to
potential distributors and consumers. To date, we have only attended one trade
show, the Shot Show, a sporting/hunting/outdoor apparel show which occurred from
February 13, 2003 to February 16, 2003 in Orlando, Florida; however, as more
fully explained on pages 39-40, our Havel-Giarusso and Associates manufacturer
representative attended four trade shows during July, August, and September 2003.
E. Utilize product endorsements from professional athletes and sports figures to
bolster awareness and image of our products. To date, we have neither negotiated
nor obtained such endorsements. We have not established any criteria for
obtaining such endorsements.
Disadvantages
Our products have the following disadvantages in comparison to the products of
our competitors:
o Lack of a broad range of product designs or styles; lack of product
line depth.
Our competitors have many more products than we do that are available
in various inner and outer materials, insulations, as well as designs,
styles, and colors. In contrast, we only have 9 products which are in
the development stage of being introduced, and 6 products with limited
designs, styles, and colors. We have only two sleeping bag models with
essentially the same insulation, shell fabric and linings and in only
two colors, while other companies such as North Face, Inc. offer at
least 20 models of sleeping bags for mountaineering and backpacking
with differing insulations, shell fabrics and linings. Additionally,
we have only one floatable swimwear product, while other companies
have similar products with many different models and designs. Our
windshirts, jackets and ball caps are available in only one style and
a limited number of colors. Moreover, although our stadium pillow
products have multiple uses, they are not available in different
models or differing insulations, shell fabrics or linings. Because our
competitors offer hundreds of different products that we do not offer,
our limited product line may not appeal to a variety of consumer
preferences.
o Preference for less insulated sleeping bag.
Because our sleeping bags are developed for use in cold conditions,
outdoor enthusiasts in warmer climates may prefer a less insulated
sleeping bag offered by our competitors.
o Lack of brand name recognition or recognition of the properties of
eliotex 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 eliotex 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.
16
Customer Dependency
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.
Intellectual Property
idigear
On March 4, 2003, we applied for trademark protection for our name "idigear"
with the United States Patent and Trademark Office. On December 24, 2003, we
received a Notice of Publication from the United States Patent and Trademark
Office, informing us that the "idigear" mark appears to be entitled to
registration and would be published in the Official Gazette on January 13, 2004
to ascertain whether there would be any opposition by any person who believes he
will be damaged by the registration of the mark and that if no opposition is
filed within the time specified by Trademark rules, the Commissioner of Patents
and Trademarks may issue a certificate of registration. We have not received any
other communication or any disposition regarding this trademark application and
there is no assurance that we will ever receive trademark approval for our
idigear name.
eliotex
On March 10, 2003, our affiliated entity, RMF Global, applied for registration
of the mark "eliotex" with the United States Patent and Trademark Office. RMF
Global has not received approval or any disposition regarding this service mark
application and there is no assurance that RMF Global will ever receive service
mark approval for the "eliotex" name.
We have not applied for trademark protection for our name, "Innovative Designs,
Inc." with the United States Patent and Trademark Office. There can be no
assurance that our use of the name Innovative Designs, Inc. or idigear will not
violate the proprietary rights of others. If our use of the Innovative Designs,
Inc. or idigear name is challenged, our use of the name could be prohibited. Our
competitors may adopt product or service names similar to ours, which would
impede our ability to build brand identity and otherwise negatively affect our
brand name reputation. Should we be unable to protect our trade names, our
business, results of operations, and financial condition will be negatively
affected.
United States Patent
On July 4, 2000, the United States Patent and Trademark Office granted a United
States Patent, Patent Number 6,083,999, titled "Process for the Preparation of a
Super Lightweight Foamed Sheet". The inventor of the patent is identified in the
patent as Hung Seob Moon of the Republic of Korea and the assignee of the patent
is identified as Elio Davide Cattan.
The patent states that it is the "object of the present invention to eliminate
the above mentioned drawbacks [bulkiness and being cumbersome in practical use]
by providing a foamed expanded super lightweight sheet having superior buoyancy
and cold and heat resistance properties...Another object of the present
invention is to provide a thin and super lightweight lining for garments and
sports articles and other related equipment which are cumbersome and bulky,
while yet combining both buoyancy and thermal resistance properties."
We do not have the actual patent described above; rather, we have been granted a
sublicense by RMF Global for the exclusive marketing and distribution rights for
use of eliotex in sleeping bags, swimsuits, and stadium pillows and the rights
to purchase eliotex for the manufacture of other apparel and accessory items
containing eliotex. As explained immediately below, the inventor of eliotex and
patent recipient, Mr. Moon, assigned the patent to Mr. Kim. RMF Global obtained
its license rights from Mr. Kim.
17
Background of Assignment to Elio Davide Cattan
The original patent, Patent Number, 35988-1997, was issued in Korea to Hung Seob
Moon. On or about July 31, 1997, Mr. Moon assigned his right, title and interest
in the invention and patent to Ko Wyong Kim, a resident of Korea. Mr. Moon
reserved his patent rights in Korea and Japan. On December 6, 1997, Mr. Kim and
Mr. Elio Davide Cattan entered into a license agreement which grants to Eliotex
SRL, an Italy corporation under Mr. Cattan's control, those patent rights
granted to Mr. Kim by Mr. Moon. On June 1, 1998, Mr. Moon executed an assignment
of his right, title and interest in the patent and invention regarding such
usage in the United States to Mr. Cattan. The purpose of this assignment was to
facilitate the license agreement between Mr. Kim and Mr. Cattan. This agreement
provides that in the event of any breach of the agreement, the party not in
default may terminate the agreement by providing written notice, and if the
party in default fails to remedy the breach within 30 days, the written notice
becomes effective. In connection with this provision of the agreement, Shin &
Kim, a Seoul, Korea based law firm representing Mr. Kim, wrote a letter to Mr.
Cattan on March 11, 2000, informing Mr. Cattan that: (a) Eliotex SRL was in
breach of its various payment obligations under the license agreement, and
continued to be in such breach, despite numerous reminders for payment of
outstanding amounts; (b) upon termination of the license agreement, all rights
of eliotex under the license agreement, including patent rights, would
immediately cease.
Despite Mr. Kim's claim that Mr. Cattan no longer has any United States patent
rights, Mr. Cattan is still, according to the United States Patent and Trademark
Office, the rightful holder of the United States patent rights to eliotex.
Should Mr. Cattan bring legal action against our affiliate, RMF Global, or Mr.
Kim for violation of any intellectual property rights and should judgments or
other court actions be rendered against RMF Global or Mr. Kim, our ability to
purchase eliotex and to produce products containing eliotex may negatively
affect our ability to conduct or continue our operations, in which case you may
lose your entire investment.
Future Production Costs
Our production costs are limited to the invoices we receive from our
submanufacturer, PT Lidya & Natalia, on a per production basis.
Future Equipment Costs
Because we plan to use sub-manufacturers for our products, we will 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.
Research and Development
We have spent no funds on research and development of our products. In March of
1999, our affiliate, RMF Global, hired and paid $5,275 to Vartest
Laboratories, Inc. to perform testing of the eliotex material. Other than the
testing performed by Vartest Laboratories, Inc, RMF Global has spent no
funds on research and development.
The Vartest Laboratories test results establish the buoyancy and insulation
qualities of eliotex. The results are as follows:
------------------------------ -------------------------------------------
Issue Test Result
------------------------------ -------------------------------------------
Fabric weight 0.042 oz./sq yd Low
------------------------------ -------------------------------------------
Fabric Thickness 0.021 inches Thin
------------------------------ -------------------------------------------
Thermal Retention Clo value: 2.0 Good
------------------------------ -------------------------------------------
Air permeability (protection 0.01 cubic feet of air/min/ft2 Low
from wind) of material (Good)
------------------------------ -------------------------------------------
Moisture permeability 5 grams/sq. meter/24 hrs Low
(protection from water) (Good)
------------------------------ -------------------------------------------
18
Governmental Approval Requirements
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.
Effect of Existing Governmental Regulations
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 will subject us 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 Pillow, ballcap,
and jacket products, all containing "eliotex", which are sub-manufactured by a
foreign based manufacturer, PT Lidya & Natalia located in Sidoarjo, Indonesia,
and then imported into the United States. Because we purchase the eliotex from
our affiliated entity, RMF Global, we are not required to pay an importation
duty to the United States Customs Service on "eliotex"; however, our affiliate,
RMF Global, is required to pay a 6.5% importation duty to the United States
Customs Service for the importation of eliotex, regarding its importation of
eliotex from South Korea or Indonesia from Mr. Kim, in accordance with RMF
Global's agreement with Mr. Kim. RMF Global imports eliotex from South Korea
because this is the location of his manufacturing facilities for eliotex. RMF
Global imports eliotex from Indonesia because Mr. Kim has additional warehousing
facilities to store eliotex in Indonesia
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.
19
Compliance with Environmental Laws
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.
Revenue Sources
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.
Pricing
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.
Employees
We currently have a total of 9 employees, 4 of which are full time employees
and 5 of which are part time employees. Our full time employees are:
o Joseph Riccelli, our Chief Executive Officer;
o Michelle Griffith, our Vice President of Sales and Marketing;
o Joseph A. Riccelli, our Vice President; and
o Gina Leone, our marketing employee.
We have the following part-time employees:
o Frank Riccelli, our President;
o Anthony Fonzi, our Chief Financial Officer/Chief Accounting Officer;
o David Shondeck, our Director of Product Development Research; and
o 2 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.
20
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 share our
office space with RMF Global which is owned by Joseph Riccelli, our Chief
Executive Officer. We pay monthly rent of $700.00 to Riccelli Properties, a
property management firm owned by our Chief Executive Officer, Joseph Riccelli.
RMF Global occupies these offices rent-free from Riccelli Properties. 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. Neither
we nor RMF Global have any verbal or written agreement regarding these offices.
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, who is also our President, 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 in
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 our President, Frank
Riccelli, and is subject to a $120,000 mortgage. We have a verbal agreement with
our President, Frank Riccelli, to pay $2,600 per month for the space on a month
to month basis.
We do not own any property nor do we have any plans to own any property in the
future. We do not 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.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
21
Part II.
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
Below is the market information pertaining to the range of the high and low bid
information of our common stock for each quarter since our common stock has
been quoted on the OTC Bulletin Board. 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.
2003 Low High
Fourth Quarter $ .00 $ .00
Third Quarter $ .00 $ .00
Second Quarter $ .00 $ .00
First Quarter $ .00 $ .00
2002 Low High
Fourth Quarter $ .00 $ .00
Third Quarter $ .00 $ .00
Second Quarter $ .00 $ .00
First Quarter $ .00 $ .00
The source of the above data is www.OTCBB.com/Nasdaq Data Products, Historical
Data Service.
No regular trading market exists for our common stock and there is no assurance
that a regular trading market will develop, or if developed will be sustained. A
shareholder in all likelihood, therefore, will not be able to resell their
securities should he or she desire to do so when eligible for public resales.
Furthermore, it is unlikely that a lending institution will accept our
securities as pledged collateral for loans unless a regular trading market
develops.
Holders
As of January 9, 2004, we had 157 holders of record of our common stock. We have
one class of stock outstanding. We have no shares of our preferred stock
outstanding. As of January 9, 2004, there were 3,951,125 shares of our stock
held by non-affiliates and 13,469,500 shares of our stock held by affiliates
that Rule 144 of the Securities Act of 1933, defines as restricted securities.
Options.
We have no shares of our common equity that are subject to outstanding options
to purchase.
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:
o 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;
o Disclose commissions payable to the broker-dealer and its registered
representatives and current bid and offer quotations for the
securities;
o 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
o 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.
22
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.
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.
Not applicable.
Recent Sales of Unregistered Securities.
On June 26, 2002, we issued 2,000,000 shares of our stock to our President,
Frank Riccelli, in payment for services rendered to us as our President. The
shares issued to Frank Riccelli were valued at a price of $0.0001 per share, or
an aggregate price of $200. We relied upon Section 4(2) of the Act for the sale.
We believed that Section 4(2) was available because the sale did not involve a
public offering and there was no general solicitation or general advertising
involved in the sale. Frank Riccelli, our Officer and Director, represented to
us that he was purchasing the shares for investment purposes without a view
towards resale. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
On June 26, 2002, we issued 18,000 shares of our stock to our Chief Financial
Officer and Director, Anthony Fonzi, in payment for services rendered to us as
our Chief Financial Officer. The shares issued to Anthony Fonzi were valued at a
price of $0.75 per share, or an aggregate price of $13,500. We relied upon
Section 4(2) of the Act for the sale. We believed that Section 4(2) was
available because the sale did not involve a public offering and there was no
general solicitation or general advertising involved in the sale. Anthony Fonzi,
our Officer and Director, represented to us that he was purchasing the shares
for investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
On June 26, 2002, we issued 45,000 shares of our stock to our Board of Director
member, Robert D. Monsour, in payment for services rendered to us as our Board
of Director member. The shares issued to Robert D. Monsour were valued at a
price of $0.75 per share, or an aggregate price of $33,750. We relied upon
Section 4(2) of the Act for the sale. We believed that Section 4(2) was
available because the sale did not involve a public offering and there was no
general solicitation or general advertising involved in the sale. Robert D.
Monsour, our Director, represented to us that he was purchasing the shares for
investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
23
On June 26, 2002, we issued 22,500 shares of our stock to our Board of Director
member, Dean Kolocouris, in payment for services rendered to us as our Board of
Director member. The shares issued to Dean Kolocouris were valued at a price of
$0.75 per share, or an aggregate price of $16,875. We relied upon Section 4(2)
of the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Dean Kolocouris, our Director,
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On June 26, 2002, we issued 63,000 shares of our stock to our Board of Director
member, Dominic Cerniglia, in payment for services rendered to us as our Board
of Director member. The shares issued to Dominic Cerniglia were valued at a
price of $0.75 per share, or an aggregate price of $47,250. We relied upon
Section 4(2) of the Act for the sale. We believed that Section 4(2) was
available because the sale did not involve a public offering and there was no
general solicitation or general advertising involved in the sale. Dominic
Cerniglia, our Director, represented to us that he was purchasing the shares for
investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
On June 26, 2002, we issued 740,000 shares of our stock to our Vice President,
Joseph A. Riccelli, in payment for services rendered to us as our Vice
President. The shares issued to Joseph A. Riccelli were valued at a price of
$0.0001 per share, or an aggregate price of $74. We relied upon Section 4(2) of
the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Joseph A. Riccelli, our Vice
President, represented to us that he was purchasing the shares for investment
purposes without a view towards resale. We placed legends on the stock
certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
On June 26, 2002, we issued 740,000 shares of our stock to our consultant, Gino
M. Riccelli, in payment for services rendered to us as our technology business
consultant. The shares issued to Gino M. Riccelli were valued at a price of
$0.0001 per share, or an aggregate price of $74. We relied upon Section 4(2) of
the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Gino M. Riccelli had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Gino M. Riccelli
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On June 26, 2002, we issued 10,400,000 shares of our stock to our Chief
Executive Officer, Joseph Riccelli, in payment for services rendered to us as
our Chief Executive Officer. The shares issued to Joseph Riccelli were valued at
a price of $0.0001 per share, or an aggregate price of $1,040. We relied upon
Section 4(2) of the Act for the sale. We believed that Section 4(2) was
available because the sale did not involve a public offering and there was no
general solicitation or general advertising involved in the sale. Joseph
Riccelli, our Chief Executive Officer, represented to us that he was purchasing
the shares for investment purposes without a view towards resale. We placed
legends on the stock certificates stating that the securities were not
registered under the Securities Act and set forth the restrictions on their
transferability and sale.
24
On August 29, 2002, we sold 450 shares of our stock to Dominic Cerniglia, our
Director, for a price of $2.00 per share or $900. We relied upon Section 4(2)
of the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Dominic Cerniglia, our Director,
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 2, 2002, we sold 3,600 shares of our stock to Dean Kolocouris, our
Director, for a price of $2.00 per share or $7,200. We relied upon Section 4(2)
of the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Dean Kolocouris, our Director,
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 26, 2002, we sold 2,250 shares of our stock to Anthony Cerniglia,
for a price of $2.00 per share or $4,500. We relied upon Section 4(2) of the Act
for the sale. We believed that Section 4(2) was available because the sale did
not involve a public offering and there was no general solicitation or general
advertising involved in the sale. Anthony Cerniglia had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Anthony Cerniglia
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On December 6, 2002, we sold 4,000 shares of our stock to Geoffrey B. Monsour,
for a price of $2.00 per share or $8,000. We relied upon Section 4(2) of the
Act for the sale. We believed that Section 4(2) was available because the sale
did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Geoffrey B. Monsour had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Geoffrey B. Monsour
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 15, 2003, we sold 10,000 shares of our stock to Stephen D. Seitz,
for a price of $2.00 per share or $20,000. We relied upon Section 4(2) of the
Act for the sale. We believed that Section 4(2) was available because the sale
did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Stephen D. Seitz had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Stephen D. Seitz
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 16, 2003, we sold 2,500 shares of our stock to James and Joann
Gould, for a price of $2.00 per share or $5,000. We relied upon Section 4(2) of
the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. James and Joann Gould had a
pre-existing relationship with Joseph Riccelli, our Officer and Director. James
and Joann Gould represented to us that they were purchasing the shares for
investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
25
On September 16, 2003, we sold 15,000 shares of our stock to Robert Giarusso,
for a price of $2.00 per share or $30,000. We relied upon Section 4(2) of the
Act for the sale. We believed that Section 4(2) was available because the sale
did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Robert Giarusso had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Robert Giarusso
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 16, 2003, we sold 1,000 shares of our stock to Wayne Dennis, for a
price of $2.00 per share or $2,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Wayne Dennis had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Wayne Dennis represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On September 16, 2003, we sold 3,000 shares of our stock to David Holzer, for a
price of $2.00 per share or $6,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. David Holzer had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. David Holzer represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On September 16, 2003, we issued 450,000 shares of our stock to legal counsel,
Hamilton, Lehrer, & Dargan, PA, in payment for legal services rendered to us. We
relied upon Section 4(2) of the Act for the sale. We believed that Section 4(2)
was available because the sale did not involve a public offering.
On September 19, 2003, we sold 2,500 shares of our stock to John Spagnolo, Jr.,
for a price of $2.00 per share or $5,000. We relied upon Section 4(2) of the Act
for the sale. We believed that Section 4(2) was available because the sale did
not involve a public offering and there was no general solicitation or general
advertising involved in the sale. John Spagnolo, Jr. had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. John Spagnolo, Jr.
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 24, 2003, we sold 250 shares of our stock to Bonnie Weissinger, for
a price of $2.00 per share or $500. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Bonnie Weissinger had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Bonnie Weissinger
represented to us that she was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 24, 2003, we sold 250 shares of our stock to J. Wood Weissinger,
for a price of $2.00 per share or $500. We relied upon Section 4(2) of the Act
for the sale. We believed that Section 4(2) was available because the sale did
not involve a public offering and there was no general solicitation or general
advertising involved in the sale. J. Wood Weissinger had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. J. Wood Weissinger
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
26
On September 25, 2003, we sold 100 shares of our stock to Grady L. Hill, for a
price of $2.00 per share or $200. We relied upon Section 4(2) of the Act for the
sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Grady L. Hill had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Grady L. Hill represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On September 26, 2003, we sold 4,000 shares of our stock to Carol Yenchik, for a
price of $2.00 per share or $8,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Carol Yenchik had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Carol Yenchik represented to us
that she was purchasing the shares for investment purposes without a view
towards resale. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
On September 26, 2003, we sold 1,000 shares of our stock to Darla Oliastro, for
a price of $2.00 per share or $2,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Darla Oliastro had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Darla Oliastro represented to us
that she was purchasing the shares for investment purposes without a view
towards resale. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
On September 26, 2003, we sold 1,000 shares of our stock to Christopher
Oliastro, for a price of $2.00 per share or $2,000. We relied upon Section 4(2)
of the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Christopher Oliastro had a
pre-existing relationship with Joseph Riccelli, our Officer and Director.
Christopher Oliastro represented to us that he was purchasing the shares for
investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
On September 26, 2003, we sold 1,000 shares of our stock to John A. Wasuchno,
for a price of $2.00 per share or $2,000. We relied upon Section 4(2) of the Act
for the sale. We believed that Section 4(2) was available because the sale did
not involve a public offering and there was no general solicitation or general
advertising involved in the sale. John A. Wasuchno had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. John A. Wasuchno
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On September 26, 2003, we sold 500 shares of our stock to Justin Oliastro, for a
price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Justin Oliastro had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Justin Oliastro
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
27
On September 26, 2003, we sold 200 shares of our stock to Harry J. Hilty, for a
price of $2.00 per share or $400. We relied upon Section 4(2) of the Act for the
sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Harry J. Hilty had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Harry J. Hilty represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On October 1, 2003, we sold 11,000 shares of our stock to Anthony Fazio, for a
price of $2.00 per share or $22,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Anthony Fazio had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Anthony Fazio represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On October 1, 2003, we sold 500 shares of our stock to Daniel C. Hudock, for a
price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Daniel C. Hudock had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Daniel C. Hudock
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 6, 2003, we sold 2,000 shares of our stock to Kathleen and Albert
Panza, for a price of $2.00 per share or $4,000. We relied upon Section 4(2) of
the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Kathleen and Albert Panza had a
pre-existing relationship with Joseph Riccelli, our Officer and Director.
Kathleen and Albert Panza represented to us that they were purchasing the shares
for investment purposes without a view towards resale. We placed legends on the
stock certificates stating that the securities were not registered under the
Securities Act and set forth the restrictions on their transferability and sale.
On October 10, 2003, we sold 1,000 shares of our stock to William A. Perry, for
a price of $2.00 per share or $2,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. William A. Perry had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. William A. Perry
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 11, 2003, we sold 5,000 shares of our stock to Eric Jerpe, for a
price of $2.00 per share or $10,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Eric Jerpe had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Eric Jerpe represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
28
On October 12, 2003, we sold 500 shares of our stock to Raymond A. Stevens, for
a price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Raymond A. Stevens had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Raymond A. Stevens
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 15, 2003, we sold 1,000 shares of our stock to Marina Posvar, for a
price of $2.00 per share or $2,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Marina Posvar had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Marina Posvar represented to us
that she was purchasing the shares for investment purposes without a view
towards resale. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
On October 15, 2003, we sold 500 shares of our stock to Mildred M. Posvar, for a
price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Mildred M. Posvar had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Mildred M. Posvar
represented to us that she was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 23, 2003, we sold 2,000 shares of our stock to Daniel J. Upham, for a
price of $2.00 per share or $4,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Daniel J. Upham had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Daniel J. Upham
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 23, 2003, we sold 5000 shares of our stock to Robert Giarusso, for a
price of $2.00 per share or $10,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Robert Giarusso had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Robert Giarusso
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On October 23, 2003, we sold 2,500 shares of our stock to Guy R. Leone, M.D.,
for a price of $2.00 per share or $5,000. We relied upon Section 4(2) of the Act
for the sale. We believed that Section 4(2) was available because the sale did
not involve a public offering and there was no general solicitation or general
advertising involved in the sale. Guy R. Leone, M.D. had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Guy R. Leone, M.D.
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
29
On November 14, 2003, we sold 500 shares of our stock to Bradford and Kendra
Herlehy, for a price of $2.00 per share or $1,000. We relied upon Section 4(2)
of the Act for the sale. We believed that Section 4(2) was available because the
sale did not involve a public offering and there was no general solicitation or
general advertising involved in the sale. Bradford and Kendra Herlehy had a
pre-existing relationship with Joseph Riccelli, our Officer and Director.
Bradford and Kendra Herlehy represented to us that they were purchasing the
shares for investment purposes without a view towards resale. We placed legends
on the stock certificates stating that the securities were not registered under
the Securities Act and set forth the restrictions on their transferability and
sale.
On November 15, 2003, we sold 7,950 shares of our stock to Peter E. Tyra, for a
price of $2.00 per share or $15,900. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Peter E. Tyra had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Peter E. Tyra represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On November 15, 2003, we sold 2,000 shares of our stock to George DeBruhl, for a
price of $2.00 per share or $4,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. George DeBruhl had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. George DeBruhl represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
On November 19, 2003, we sold 2,500 shares of our stock to Barbara K. James, for
a price of $2.00 per share or $5,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Barbara K. James had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Barbara K. James
represented to us that she was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On November 21, 2003, we sold 500 shares of our stock to Sean E. McGuire, for a
price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Sean E. McGuire had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Sean E. McGuire
represented to us that he was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
On November 22, 2003, we sold 500 shares of our stock to Sandra G. DaVane, for a
price of $2.00 per share or $1,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Sandra G. DaVane had a pre-existing
relationship with Joseph Riccelli, our Officer and Director. Sandra G. DaVane
represented to us that she was purchasing the shares for investment purposes
without a view towards resale. We placed legends on the stock certificates
stating that the securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
30
On November 25, 2003, we issued 100,000 shares of our stock to Arnold Palmer
Revocable Trust in exchange for Arnold Palmer's consulting services rendered to
us pertaining to the design and development of certain of our apparel, and
product related promotional services rendered to us. We valued these shares at
approximately $2.00 per share or an aggregate of $200,000.
On November 25, 2003, we issued 150,000 shares of our stock to Anthony Dorsett
in exchange for conducting certain licensing agreement negotiations pertaining
to our idigear products. We valued these shares at approximately $2.00 per share
or an aggregate of $300,000.
On November 25, 2003, we issued 50,000 shares of our stock to Dianne C. Roffe in
exchange for developing, designing, and endorsing current and future products,
and for providing on-location product promotional services. We valued these
shares at approximately $2.00 per share or an aggregate of $100,000.
On November 25, 2003, we issued 50,000 shares of our stock to Daniel P. Rains in
exchange for product promotions and on-location promotional event services
rendered to us. We valued these shares at approximately $2.00 per share or an
aggregate of $100,000.
On November 25, 2003, we issued 5,000 shares of our stock to Rodney Clark in
exchange for consulting in the design and product testing of our hunting
apparel, and for conducting license agreement related negotiations with Haas
Outdoors, Inc. We valued these shares at approximately $2.00 per share or an
aggregate of $10,000.
On November 25, 2003, we issued 10,000 shares of our stock to Robert Korbe, in
exchange for past and future consulting services pertaining to inventory
control, warehouse services, and a shipping program with freight carriers. We
valued these shares at approximately $2.00 per share or an aggregate of $20,000.
On November 25, 2003, we issued 10,000 shares of our stock to Anthony Fazio, in
exchange for providing construction modifications and improvements to our
facility. We valued these shares at approximately $2.00 per share or an
aggregate of $20,000.
On November 25, 2003, we issued 5,000 shares of our stock to John Spagnola, Jr.
in exchange for technical services rendered to us pertaining to the installation
of our network and Internet access system. We valued these shares at
approximately $2.00 per share or an aggregate of $10,000.
On December 10, 2003, we sold 1,500 shares of our stock to Shirley Komack, for a
price of $2.00 per share or $3,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Shirley Komack had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Shirley Komack represented to us
that she was purchasing the shares for investment purposes without a view
towards resale. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
On December 13, 2003, we sold 3,000 shares of our stock to Nick E. Novak, for a
price of $2.00 per share or $6,000. We relied upon Section 4(2) of the Act for
the sale. We believed that Section 4(2) was available because the sale did not
involve a public offering and there was no general solicitation or general
advertising involved in the sale. Nick E. Novak had a pre-existing relationship
with Joseph Riccelli, our Officer and Director. Nick E. Novak represented to us
that he was purchasing the shares for investment purposes without a view towards
resale. We placed legends on the stock certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.
31
On December 31, 2003, we issued 5,000 shares of our stock to Thomas Ciancutti in
exchange for product promotions and on-location promotional event services. We
valued these shares at approximately $2.00 per share or an aggregate of $10,000.
On December 31, 2003, we issued 560,000 shares of our stock to the Altavilla
Family Trust in exchange for investor relations related consulting services. We
valued these shares at approximately $2.00 per share or an aggregate of
$1,120,000.
On December 31, 2003, we issued 120,000 shares of our stock to Marlin Molinaro
in exchange for investor relations related consulting services. We valued these
shares at approximately $2.00 per share or an aggregate of $240,000.
On December 31, 2003, we issued 120,000 shares of our stock to Thomas Ciancutti
in exchange for investor related consulting services. We valued these shares at
approximately $2.00 per share or an aggregate of $240,000.
Use of Proceeds from Registered Securities.
Not applicable
Item 6. Management's Discussion and Analysis or Plan of Operation.
Plan of Operations
The following discussion provides information that we believe is relevant to our
Plan of Operations, and should be read in conjunction with our financial
statements and related notes appearing elsewhere in this Form 10-KSB. This
discussion contains forward-looking statements based on our current
expectations, assumptions, and estimates. The words or phrases "believe,"
"expect," "may," "anticipates," or similar expressions are intended to identify
"forward-looking statements." Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of risks and
uncertainties pertaining to our business, including: (a) Our limited operating
history and our history of losses makes it difficult for you to evaluate our
current and future business and prospects and future financial results; (b) If
we are unable to obtain additional financing, we will be unable to proceed with
our Plan of Operations and even if we obtain additional debt or equity
financing, your equity interest in our stock will be diluted; (c) If RMF Global,
Inc. violates the terms of its agreement with Ko-Myung Kim or we violate our
agreement with RMF Global, Inc., we may have no eliotex by which to manufacture
our products and we will have to terminate our business, and you will lose your
entire investment; (d) If our products are found to cause injury, have defects,
or fail to meet industry standards, we will incur substantial litigation,
judgment, product liability, and product recall costs, which will increase our
losses and negatively affect our brand name reputation and product sales; (e)
Because we offer only six products and our competitors have a variety of
products, we may not obtain consumer acceptance of our products, which may
adversely affect our ability to generate revenues; (f) We have not established
the Innovative Designs brand name or the "idigear" label, and eliotex has
little, if any, name recognition, which may prevent us from generating revenues
and reduce the value of your investment; (g) we do not have written agreements
with certain companies and persons providing us with services and instead
receive such services on a per project basis; and (h) other risk factors
discussed in our Form SB-2 Registration Statemment which is available for review
at www.sec.gov. The terms "we," our" or "us" are used in this discussion refer
to Innovative Designs, Inc. Statements made herein are as of the date of the
filing of this Form 10-KSB with the Securities and Exchange Commission and
should not be relied upon as of any subsequent date. Unless otherwise required
by applicable law, we do not undertake, and we specifically disclaim any
obligation, to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.
32
We cannot continue to satisfy our current cash requirements for a period of
twelve (12) months through our existing capital. We anticipate total estimated
capital expenditures of approximately $31,125 per month or an aggregate of
$373,500 over the next twelve (12) months, in the following areas:
o Hire approximately 2 additional consultants and 2 employees;
o Update and develop our web site and develop our online marketing
campaign;
o Contract with manufacturer representatives to sell our products;
o Design and develop literature, displays, and media and advertising
materials;
o Develop and maintain public relations campaigns;
o Develop trade show booths;
o Attend trade shows;
o Develop and initiate online marketing campaign;
o Establish relationships with retail chain outlets and mass
merchandisers; and
o Warehouse lease payments.
Our current cash of $26,841 as of January 30, 2004 will satisfy our cash
requirements for less than one month.
Accordingly, we will be unable to fund our expenses for our entire one year plan
of operations through our existing assets or cash. Our Chief Executive Officer
and President have each verbally agreed to loan us up to $400,000 for our
operational needs which will be sufficient to meet our Plan of Operations or
Alternative Plans of Operation. We may still need additional financing through
traditional bank financing or a debt or equity offering; however, because we are
a development stage company with no operating history and a poor financial
condition, we may be unsuccessful in obtaining such financing or the amount of
the financing may be minimal and therefore inadequate to implement our Plan of
Operations. In addition, if we only have nominal funds by which to conduct our
operations, we may have to curtail advertising or be unable to conduct any
advertising, both of which will negatively impact development of our brand name
and reputation. In the event that we do not receive financing or our financing
is inadequate, we may have to liquidate our business and undertake any or all of
the following actions:
o Sell or dispose of our assets, if any;
o Pay our liabilities in order of priority, if we have available cash
to pay such liabilities;
o If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal
to the net market value of our net assets;
o File a Certificate of Dissolution with the State of Delaware to
dissolve our corporation and close our business;
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic and
other required reports with the Securities and Exchange Commission,
if, in fact, we are a reporting company at that time; and
o Make the appropriate filings with the National Association of Security
Dealers to affect a delisting of our stock.
Based upon our current assets, however, we will not have the ability to
distribute any cash to our shareholders.
If we have any liabilities that we, or our President and/or Chief Executive
Officer on our behalf, are unable to satisfy and we qualify for protection under
the U.S. Bankruptcy Code, we may voluntarily file for reorganization under
Chapter 11 or liquidation under Chapter 7. Our creditors may also file a Chapter
7 or Chapter 11 bankruptcy action against us. If our creditors or we file for
Chapter 7 or Chapter 11 bankruptcy, our creditors will take priority over our
shareholders. If we fail to file for bankruptcy under Chapter 7 or Chapter 11
and we have creditors; such creditors may institute proceedings against us
seeking forfeiture of our assets, if any.
We do not know and cannot determine which, if any, of these actions we will be
forced to take. If any of these foregoing events occur, you could lose your
entire investment in our shares.
33
Our Plan of Operations to Date
We have accomplished the following in our Plan of Operations from our inception
of June 2002 to date:
Reviewing Professional Marketing Organizations
From June 2002 to December 2002, our Chief Executive Officer, Joseph Riccelli,
interviewed and considered approximately 10 professional marketing organizations
for marketing, sales distribution, product endorsements and promotion of our
products. In October 2002, MCM Communications, Inc., a marketing and advertising
firm located in Pittsburgh, Pennsylvania, informed us that it would provide us
with marketing and advertising services. To date, this firm has developed and
designed our initial web site, product literature, and the graphic design of
"Point of Sale" displays.
Completion of Design, Prototype and Testing Phase of New Products
In November 2002, we completed the design, prototype, and testing phase of our
windshirts and our jackets. In January 2003, we completed the design and testing
phase of our ball caps. We assumed no direct material costs associated with the
design, prototype, 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 Vice President of Sales and Marketing and
Chief Executive Officer for these purposes, their efforts were part of their
normal responsibilities; (c) prior to the time we had undertaken the design and
prototype of these products, we had purchased the materials to accomplish these
tasks, and such materials were purchased for less than $1000; and (d) the
testing of these products was performed in-house and were conducted by our Vice
President of Sales and Marketing and Chief Executive Officer as part of their
normal responsibilities. The design, prototype, and testing of the Swimeez,
sleeping bag and stadium pillow products in which we had obtained an exclusive
license to sell such products from our affiliated entity, RMF Global, had been
completed by RMF Global.
Leased Warehousing Space
In October, 2002, we arranged for the lease of warehouse space for our
inventory, eliotex, and other raw materials storage at 124 Cherry Street, Etna,
Pennsylvania from Frank Riccelli, our President/Director. The warehouse space is
being utilized for the following: (a) inventory/raw material storage, (b) sales
offices, (c) conference/ presentation room, (d) sample/ source area, (e)
distribution center and (f) an aquatic area that tests our products.
Website Development, Point of Sale Display, Website Design and
Advertising/Product Literature Layout
In October 2002, we obtained the services on a per project basis of a website
marketing consultant, BA Web Productions, located in Pittsburgh, Pennsylvania,
to assist with marketing and developing our website, which has included adding
new product selections, a product page, and links. Our website became
operational on November 10, 2002.
In October 2002, we retained the services on a per project basis of MCM
Communications, Inc. located in Pittsburgh, Pennsylvania, to provide us with
marketing and advertising services, including creating our point of sale
display, text for website, product information, and marketing literature, all of
which have been completed.
Retailers
In November 2002, the website retailer, Woodlandsoutdoorworld.com, began
ordering our sleeping bag and wind shirt products on a wholesale basis for their
retail sale. In addition, Woodlands Outdoor World, a retail store, located in
Farmington, Pennsylvania, began carrying our sleeping bag product and our wind
shirt products and Nemacolin Woodlands Resort and Spa's retail store located in
Farmington, Pennsylvania began carrying our wind shirt product in its retail
store. As of December 2003, Nemacolin Woodlands Resort and Spa began featuring
our i.d.i.gear products on their "online" catalogue at www.nemacolin.com.
34
In June 2003, the following retail stores began carrying our "Swimeez" products:
o Pool Nation located in Pittsburgh, Pennsylvania;
o B & R Pools located in Pittsburgh, Pennsylvania;
o Knabes Swim Shop located in Monroeville, Pennsylvania; and
o Ross and Sons Pools located in Punxsutawney, Pennsylvania.
In June 2003, the Pittsburgh Shop located in Pittsburgh, Pennsylvania, began
carrying our windshirts and hats.
In November 2003, the following retail stores and one private club started
carrying our products:
o Latrobe Country Club, a private country club located in Latrobe,
Pennsylvania, started retailing our windshirts and jackets;
o Bob's Army & Navy Store located in Clearfield, Pennsylvania started
retailing our sleeping bags and stadium packs; and
o the following retailers started retailing our sleeping bags:
(a) Hunters Headquarters located in Sunbury, Ohio; (b) Sportsmens Den
located in Shelby, Ohio; (c) Fin, Feather, Fur Outfitters located in
Ashland, Ohio; (d) Buckeye Outdoors, Inc. located in Hebron, Ohio; and
Southern Ohio Trading located in Nelsonville, Ohio.
Contract with Manufacturer Representative Group
In November of 2002, we entered into a verbal agreement with a manufacturer
representative group, Havel-Giarusso and Associates, located in Big Lake,
Minnesota, to sell our products to outdoor retail chains. This manufacturer
representative group has relationships with outdoor retailers located in various
states.
Additional Hiring
From March 2003 to May 2003, we hired our Vice Presidents, Joseph A. Riccelli,
Jr. and Michelle Griffith, on a full time, salaried position basis. From March
2003 to present, we hired two part time employees for clerical and warehouse
duties at the rate of $7.00 per hour.
Letter Agreement with Victory Junction Gang Camp
On March 6, 2003, we agreed to partner with Victory Junction Gang Camp in a
cause related marketing alliance, and have added the Victory Junction Gang Camp
logo and Internet link to our web site.
Services of First Impression Printing
In April of 2003, we hired First Impression Printing in Pittsburgh,
Pennsylvania, on a one time project basis to design and print our product
catalogue, sleeping bag Point of Sale posters and mailing labels. The project
was completed on April 22, 2003. The total cost for these marketing and
advertising materials was $7309.17.
Services of Professional Trade Show Marketing Agency/Promoter
On June 12, 2003, we arranged for Discovery Marketing Associates, Inc. to
represent us and our products at the 2003 Mid-Atlantic Market Week Showcase Rent
A Rep from July 7 to July 11, 2003. Discovery Marketing Associates has indicated
that it will represent us at future trade shows on a per project invoice basis.
Manufacturers Agreement
On June 16, 2003, we completed an agreement with Haas Outdoors, Inc. located in
West Point, Mississippi, which grants a non-exclusive license in North America
to manufacture or sell camouflage fabric or to have manufactured, and to sell
Haas Outdoors licensed Mossy Oak camouflage fabric. In conjunction with the
rights conferred to us in this agreement, we plan to use Haas Outdoors Mossy Oak
fabric on the outside portion of our Stadium Pillow products using the
trademarked and registered "Mossy Oak" pattern and "Mossy Oak" hang tags. On
December 16, 2003 we received from Haas Outdoors, Inc. an addendum to this
agreement which extended the existing license to us to manufacture hunting
apparel with the Mossy Oak camouflage patterns under our i.d.i.gear label, all
of which contain eliotex.
35
Packaging Design and Manufacture
During September 2003, we arranged with Packaging Specialists, Inc., a box
manufacturing firm located in Pittsburgh, Pennsylvania, to design and
manufacture the boxes for all of our products. On October 1, 2003, Packaging
Specialists provided us with 2400 boxes for our various products.
Hired Marketing Employee on an Hourly Basis
On October 13, 2003, we hired Gina Leone to draft brand and advertising related
marketing materials. Until the end of November 2003, Ms. Leone was compensated
on an hourly basis for approximately 20 hours per week. On December 1, 2003, Ms.
Leone began working for us on a full-time basis for 40 hours a week and
continues to be compensated on an hourly basis. As of January 20, 2004, Ms.
Leone has completed the following:
o advertising billboard layout and design;
o All in One (Stadium Pack) hang tag design;
o design and layout for our new eliotex hang tag design that is hung on
all of our "idi" gear products;
o Shot Show directory listing layout;
o booth signage;
o letter of invitation to the press to visit booth;
o drafting a mailer for retailers to visit the Shot Show;
o press kit for Shot Show;
o updating salesman's kits; and
o revising our web site.
Our Future Plan of Operations
Our Plan of Operations is from September 2003 to September 2004 and consists of
the following:
September 2003 - December 2003
Utilize Consultants/Employees for Management and Operations
From September 2003 through December 2003, we intend to utilize outside web
design, marketing, and public relations firms on a part-time, as needed basis,
including BA Web Productions. We estimate the cost for these consultants will be
approximately $50,000. To date, apart from obtaining the services of BA Web
Productions, MCM Communications, Inc., and First Impression Printing, on a one
time project basis, we have not hired any other consultants due to our lack of
financial resources to do so. We entered into verbal employment agreements with
our Vice Presidents Joseph A. Riccelli, Jr. and Michelle Griffith as permanent
full time salaried employees.
September 2003 - September 2004
Hire In House Hourly Employees for Shipping, Receiving, Customer Service, Data
Entry and Invoicing.
We plan to hire up to 3 part time and 3 full time employees which we plan to
compensate on an hourly basis to perform shipping, receiving, customer service,
data entry and invoicing services; however, the number of employees that we hire
will be dependent upon the number of product orders we receive. We will pay
these hourly employees $7 per hour. On March 10, 2003 we hired two part time
employees at the rate of $7.00 per hour to assist with shipping and receiving,
customer service, data entry, and invoicing.
September 2003 - September 2004
Increase the Utility of our Web Site
We intend to continually improve the utility and design of our website. We have
added the following features since March 1, 2003:
o Simple navigational menu;
o Testimonials and third party product reviews, including a customer
testimonial for our sleeping bag;
o Product information and pictures/graphics;
o Wholesaler only area disclosing confidential price list; and
o Links to pertinent/affiliated websites, including a link to the
Victory Junction Gang Camp's website.
36
Previously, our product information was included on one page. We found this
organizational format presented difficult navigational problems; therefore,
during approximately December 2003 we changed our product pages to be more user
friendly by adding a "pull down" menu for each individual product so that once
the product is selected, the user is directly routed to a separate page
containing information pertaining to the particular product chosen.
We estimate that the cost of web site layout modification and continuing
development will be $20,000, including approximately $75.00 per month for web
site hosting and payment provider fees.
September 2003 -- September 2004
Develop and Initiate Online Marketing Campaign
We will utilize marketing professionals to focus on increasing our website page
rank, which is the numerical location or position of our web site among search
engine results. BA Web Productions updates, expands, and develops our web site.
This ongoing campaign will start with search engine optimization strategies, and
continue with banner advertisements and reciprocal linking campaigns with
established web sites with complementary or relevant products and/or services to
our products.
Our online marketing campaigns will entail the following:
o Reciprocal linking with well-established websites with related content
and/or complementary products;
o Issuance of press releases about our products to targeted on-line
publications; and
o Strategic placement of banner advertisements on websites.
The estimated cost of this online marketing campaign is $500 per month or $6,000
per year, including travel expenses and lodging, business lunches/dinners, and
telephone charges.
In December 2003, we utilized the services of BA Web Productions to update the
information and organizational format of our product pages and to submit our
name to additional search engines. In addition, we added trade show information
to include our contacts and/or booth numbers at each show to be attended. The
total cost of BA Web Productions' services was $200.
January 2004 -- March 2004
Manufacturer Representatives to Market our Product
We originally planned to hire 3 sales representatives at a base starting salary
of $30,000 with no commission by July 2003, which was then further delayed until
January 2003; however, because we have been utilizing manufacturers
representatives affiliated with Havel-Giarosso and Associates since July 2003 to
a greater extent than originally anticipated, and their representatives are
compensated on a commission basis only, we have chosen to only utilize
manufacturer representatives to market our products. These manufacturer
representatives will market our products to and service retail chain stores,
facilitate trade shows, and initiate and nurture relationships with local and
national organizations.
In March 2003, we entered into a verbal agreement and hired one independent
representative: Mr. George Douglas, of Concord, North Carolina. Mr. Douglas is
an independent contractor whose compensation is 10% of any Purchase Orders he
receives for our products.
37
January 2004 -- August 2004
Initially Contract with five (5) Manufacturer Representatives
Our Vice President of Sales and Marketing will interview and contact additional
established apparel representatives from manufacturer representative
organizations. Compensation to these manufacture representatives will be on a
commission basis only. We do not anticipate any expenses associated with this
activity. As of January 15, 2004, our Vice President of Sales and Marketing has
not accomplished anything pertaining to this step in our Plan of Operations.
Since February 2003, we have continued to utilize the services of the
manufacturers representative group, Havel-Giarusso & Associates to represent
and sell our products to various retailers and trade shows throughout the
country. At the present time we will continue to utilize the services of
Havel-Giarusso & Associates, rather than contract with an additional
Manufacturers Representative.
September 2003 -- August 2004
Design and Development of Literature, Displays, and Media Materials
We will develop literature, point-of-sale and media materials in our attempt to
integrate our products into large retail store outlets. We will utilize
marketing consultants to develop and implement professional photography and
graphics, brochures, point-of-sale displays, mailers and literature, which we
plan to use as trade show exhibits, and sales tools for our sales
representatives and manufacturer representatives. We estimate that our total
expenditure in this area will be $60,000.
We have scheduled a professional photographer to photograph our Haas
Outdoors/Mossy Oak brand camouflage hunting apparel related products during
January or February 2004 at an approximate cost of $700. These photographs will
be included in product sheets containing information about the Haas
Outdoors/Mossy Oak products, which will then be included in a bound catalogue of
all of our products. We intend to complete the catalogue by February 2004. We
have arranged for Schiff Printing located in Pittsburgh, Pennsylvania to print
20,000 of these catalogues at an approximate cost of $3,080. These catalogues
will be distributed at trade shows and by our sales persons to potential retail
distributors or stores.
The only other tasks that we have accomplished regarding this step in our Plan
of Operations is described below under "Develop Trade Show Booth."
September 2003 -- June 2004
Develop and Initiate Print Advertising
Throughout our Plan of Operations and as a congruent part of our overall
marketing strategy, we intend to initiate our targeted print advertising
campaign in specific newspapers, magazines, and trade journals. We plan on
beginning an advertising campaign with "Teaser Ads," advertisements stating
product and company information but not specific ads on one particular product,
in outdoor publications and magazines along with trade show brochures.
Additionally we will utilize ad space in chain store news and inserted flyers.
We will utilize marketing/ advertising agencies to assist in the design,
development, printing, and distribution of these advertising campaigns, along
with our Chief Executive Officer and Vice President of Sales and Marketing. The
total estimated cost for our print advertisements is $30,000.
To date, we have not placed any print advertisements due to our lack of cash
resources to do so.
38
On December 9, 2003, we executed an outdoor advertising contract with Roadway
Outdoor Advertising, Inc. This agreement provides that for a term of six months
Roadway Outdoor will provide us with an outdoor advertising display located on
the East Huntington Route 119, in Pennsylvania. Since December 2003, this
company has provided us with this billboard advertising display which advertises
our i.d.i.gear products. We are required to pay $625.00 of expenses incurred by
Roadway Outdoor, a 10% cost for production, and a one time $225 installation
fee. In addition, we are required to pay $400 to Roadway Outdoor for a period
of 5 months.
January 2004 - September 2004
Develop and Maintain Public Relations Campaigns
Starting in January 2004 and continuing throughout our Plan of Operations, we
intend to utilize marketing consultants to develop advertisements and press
releases for apparel and outdoor gear magazines and trade journals. The press
releases and advertisements will discuss issues such as company status, product
innovations, and other notable events and developments. The estimated cost is
$3,000 for consultant services, advertisements, press release submission via PR
Newswire, software and administrative expenses.
To date, we have not accomplished anything regarding this step in our Plan of
Operations.
September 2003 - January 2004
Develop Trade Show Booth
We will utilize marketing consultants to design and develop our portable display
booth to be used in participating in sporting goods and outdoor apparel specific
trade shows. The show booth development includes a modular wall design, display
pedestals and tables, carpeting, and company signage. We estimate the cost of
the booth to be $5,000.
We received 3 bids for design of a trade show booth for the Shot Show scheduled
for February 2004. We contracted with Reed Exhibitions, a convention management
firm located in Philadelphia, Pennsylvania, for our booth space at the 2004 Shot
Show to be held in Las Vegas, Nevada on February 12 - 14, 2004. On October 6,
2004, we paid $4,350 for this booth space. On December 19, 2003, we paid $490
to the Shot Show $490.00 for advertising space in the Shot Show Directory
contained in two separate publications to be distributed during the show.
During December 2003, we contracted with South Coast Exhibits, a trade show
booth design firm located in Laguna Beach, California, to manufacture and design
our booth at the Shot Show. We prepaid a total of $4,417 to South Coast Exhibits
for their services. On December 12, 2003, we paid a 50% deposit in the amount of
$2,208.50 to South Coast Exhibits for the booth. On January 15, 2004, we paid
the remaining balance of $2,208 for the booth.
November 2003 to February 2004
Attend Trade Shows
We will utilize marketing consultants to assist our Chief Executive Officer,
Vice President of Sales and Marketing, and our sales representatives to attend
and/or participate in various sporting goods trade shows, apparel trade shows,
and outdoor shows. We originally planned on attending the following trade shows:
o Swimwear Show, July 19-23, 2003, Miami, Florida
o Outdoor Retailer Summer Market, August 14-17, 2003, Salt Lake City,
Utah
o MAGIC Textile and Apparel, August 26-29, 2003, Las Vegas, Nevada
o Action Sports Retailer Trade Expo, September 5-7, 2003, San Diego,
California
o National Association of Sporting Goods Wholesaler Show, November 4-8,
2003, Phoenix, Arizona
o Sporting Goods Manufacturer Association Show, January 12-14, 2004,
Orlando, Florida
o PGA Show, Orlando, Florida, January 27-31, 2004
o Atlantic City Pool & Spa Show, January 27-29, 2004, Atlantic City,
New Jersey
39
Our Chief Executive Officer and our Vice President of Sales and Marketing did
not attend these trade shows. Instead, we decided to preserve our cash resources
by having manufacturer representatives affiliated with Havel-Giarosso and
Associates attend these trade shows, which they attended on the above dates.
Our Vice President of Sales and Marketing, Michelle Griffith, attended the "Shot
Show" that was held in Orlando, Florida from February 13 to 17, 2003. Our Vice
President of Sales and Marketing, along with the Havel-Giarusso and Associates
manufacturers representatives will attend the Shot Show in Las Vegas, Nevada,
from February 10-16, 2004. The total estimated cost of attending all of these
shows is $6,500 for travel and accommodations.
Our Vice President of Sales, Michelle Griffith, attended the National
Association of Wholesaler Show from November 4-8, 2003. Our Havel-Giarusso &
Associates representatives attended the Sporting Goods Manufacturer Association
Show on our behalf.
September 2003 - September 2004
Establish Wholesale Relationships with Retail Chain Outlets and Mass
Merchandisers to Carry Our Products and Product Promotion
We plan to develop wholesale relationships or distribution points for our
products. Throughout our Plan of Operations, we plan to implement sales
campaigns to established retailers with the goal of establishing wholesale
relationships. Our Chief Executive Officer and Vice President of Sales and
Marketing will initiate these campaigns. Our sales campaigns will be an ongoing
process and will consist of our sales representatives accomplishing the
following:
o Lead Generation - Accomplished through cold calling, follow-up
contacts from tradeshows and mailers, and networking with outdoor gear
and apparel industry associations;
o Personal Presentations to Executives and Purchasing Departments of
Targeted Retailers - Through these sales presentations, we will
attempt to convince the retailer to purchase our products at wholesale
prices for resale in their store or chain of stores. The orientation
of the presentation will be an introduction of the innovative aspects
of our products, as well as the advantages of our products over some
of our competitors. For example, we will highlight the light weight,
compactness, thermal insulation, and buoyancy features of eliotex used
in our products. These personal presentations of our products will be
on-location at prospects' facilities to executives and purchasing
departments and will include a product display and a video
demonstration of the products in use;
o Order Acquisition and Management - Once the retailer places an order
for products, the sales representative is responsible for managing the
order fulfillment process, forwarding the purchase order to the
distribution manager who will then arrange the shipping specifics, as
well as coordinating the physical merchandising of our products on the
shelves of the client stores. By maintaining this hands-on approach,
we will attempt to continue successful relationships with our
distributors; and
o Relationship Management - The sales representative is also responsible
for maintaining an ongoing relationship with acquired distributors.
Our Vice President of Sales and Marketing will enforce a regimented
account management program. This program is to include monthly
telephone contacts, and personal visits, once per six months minimum,
with the distributor.
40
From July 2003 to November 2003, our Vice President of Sales and Marketing made
sales presentations to approximately 7 apparel buyers of retail chain outlets
as well as 2 privately held retail stores. These sales presentations highlighted
the eliotex material and our idigear products. Apart from these sales
presentations, we have not accomplished anything with this step in our Plan of
Operations.
September 2003 to September 2004
Sub-Manufacturing, Raw Materials Procurement and Fulfillment Process
We will conduct our sub-manufacturing, raw materials procurement and fulfillment
Process, as follows:
Sources and Availability of Raw Materials
eliotex will be used in all our finished goods and will be purchased from our
affiliate/licensor, RMF Global.
Raw Materials to be Provided for our Floating Swimwear Products:
o eliotex
eliotex will be used to create the buoyant quality of our floating
swimwear product.
o Lycra
We will purchase Lycra from Yasha Fabrics which is located in Los
Angeles, California. Lycra is an elastic polyurethane fiber or fabric
used especially for close-fitting sports clothing and will be used for
the outer shell and inside lining of our floating swimwear product.
o Zippers
We will purchase zippers from Barbie International Corporation which
is located in New York, New York.
The delivery time involved for these raw materials from the date of order to
date of delivery is less than two weeks.
Raw Materials to be provided for our Sleeping Bags and Stadium Pillow Products:
o eliotex
eliotex will be used in our sleeping bags, Swimeez and stadium pillow
products as insulation and to provide buoyancy to these products.
o Rip Stop Nylon
We will purchase Rip Stop Nylon from Roberts Textile Company located
in New York, New York. Rip Stop Nylon is a manufactured fiber that is
strong and is resistant to both abrasion and damage from many
chemicals. Rip Stop Nylon fabric is non-absorbent, durable, fast
drying, resistant to moths and other insects, water, perspiration and
standard dry cleaning agents. The Rip Stop Nylon fabric also contains
an added nylon cross weave to prevent tearing of the material. Rip
Stop Nylon is commonly used in women's hosiery, knitted or woven
lingerie, socks and sweaters, rugs and carpets, sleeping bags, duffle
bags, racquet strings, and fishing lines. Rip Stop Nylon is used in
our sleeping bags and stadium pillow products as the exterior shell.
o Nylon polyester tricot
We will purchase nylon tricot from Roberts Textile Company or Fab
Industries, both of which are located in New York, New York. Nylon
tricot is made from very fine or single yarns, providing a suede-like
texture. Nylon tricot is typically used for underwear, sportswear,
bathing suits and gloves. Nylon tricot is used in our sleeping bags
as the inside lining.
41
o Compression sacks
We will purchase compression sacks form Equinox located in
Williamsport, Pennsylvania. Compression sacks are small Rip Stop Nylon
bags, approximately 12 inches by 8 inches. They are separate from our
sleeping bag and are used to compress our sleeping bag when not in
use. Rip Stop Nylon is the sole component of the compression sacks.
o Mossy Oak Break and New Break-Up Camouflage Patterns
We will purchase Mossy Oak Break and New Break Up camouflage patterns
from Haas Outdoors, Inc. for the outside portion of our stadium pillow
products.
Raw Materials to be provided for our Jackets, Windshirts, and Ball Caps
o eliotex
eliotex will be used to provide insulation in our jackets, windshirts,
and ball caps.
o Polyester peached microfiber
We will purchase polyester peached microfiber which is a type of grade
microfiber from Roberts Textile Company located in New York, New York.
It is durable and water repellent treated for our jackets, windshirts,
and ball caps.
o Rib knit
We will purchase rib knit for our jackets, windshirts and ball caps
from Green Mountain located in Knitter, Vermont. Rib knit is a mix of
cotton and Lycra and is elastic and is used for the trip around the
collars, waistbands and cuffs.
The delivery time involved for our raw materials from the date of order to the
date of delivery is less than one week for all stocked materials. Non-stocked
materials or special orders may take up to two weeks for delivery.
The only "raw product" we store on a continual basis is "eliotex" which we store
in our warehouse. Our warehouse space is sufficient for our storage of eliotex.
For the other raw materials that are below 1000 piece goods, we have the
materials shipped directly to the sub-manufacturer. For production runs in
excess of 1000 piece goods, we arrange for the raw materials to be shipped to
our warehouse facility, which is sufficient for that use; thereafter, we
distribute to the sub-manufacturer the quantity needed for each production run
and we store the remaining quantity. Payment typically will be due on an average
of 30 to 60 days after receipt of the raw materials by our sub-manufacturer or
our warehouse facility. Our Indonesia based manufacturer, PT Lidya & Natalia,
has sole discretion in the sourcing and ordering of raw materials for their
production runs, the costs of which we reimburse them.
Manufacturing
All of our products are sub-manufactured by PT Lidya & Natalia located in
Sidoarjo, Indonesia.
We have no verbal or written agreement or long term agreement with PT Lidya &
Natalia, nor do we plan on obtaining any such agreements. Our sub-manufacturer
manufactures our products on a per order basis.
Purchase Orders
We have submitted the following purchase orders to our manufacturers to effect
manufacturing of our products:
o August 30, 2002 - We submitted a purchase order to PT Lidya & Natalia
to manufacture 6,000 of our stadium pillows;
o January 12, 2003 - We submitted a purchase order to PT Lidya &
Natalia to manufacture 5,000 compression sacks for our sleeping bags,
and 1550 jackets;
o March 21, 2003 - We submitted a purchase order to R & M Apparel to
manufacture 648 of our windshirts.
42
Fulfillment Process
The fulfillment process involved in completing wholesale orders for non stocked
swimsuit, sleeping bag, wind shirt, jacket, and ball cap products is described
below:
------- ------------------------------------------------------------------------
Day Action
------- ------------------------------------------------------------------------
1 o 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.
o We contact a raw material supplier to send a certain number of yards
of raw materials to our sub-manufacturers. Raw materials are ordered
according to need.
o 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.
o We complete and forward a purchase order to the manufacturer. The
manufacturer approves or disapproves a purchase order.
o 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 o Our sub-manufacturers ship finished goods to us.
------- ------------------------------------------------------------------------
14 o We receive finished goods, and facilitate turn-around for shipment
to the sporting goods store. Goods received in distribution center
where they are packaged in Master Packs, hang tags attached, and
UPC/UCC codes labels applied to items for distribution to retailer.
------- ------------------------------------------------------------------------
The basis for the above time estimates has been derived from RMF Global's
prior experience with these sub-manufacturers.
The fulfillment process involved in completing wholesale orders for our Stadium
Pillow products is described below:
------- ------------------------------------------------------------------------
Day Action
------- ------------------------------------------------------------------------
1 o 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.
o We contact our sub-manufacturers with the 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 o Our sub-manufacturers receive raw materials from suppliers and begin
production.
------- ------------------------------------------------------------------------
25 - 30 o Within 25-30 days, our sub-manufacturers ship finished goods to us,
pending no international freight or shipping issues.
------- ------------------------------------------------------------------------
56 - 61 o We receive finished goods, and facilitate shipment to the buyer.
------- ------------------------------------------------------------------------
The basis for the above time estimates has been derived from RMF Global's prior
experience with these sub-manufacturers.
43
September 2003 to September 2004
Product Design and Development
We plan to expand our sleeping bag and floating swimwear products and research
and develop other apparel and accessory items containing "eliotex". We plan to
continually evaluate trends, monitor the needs and desires of consumers by
conducting customer purchase follow-up, ongoing market research, and maintaining
open channels of communication with our distributor retailers and manufacturer
representatives. We plan to consult with our sub-manufacturers and raw material
suppliers regarding the development and use of new materials and the enhancement
of our product designs. In addition, we will continually evaluate our product
lines for proper positioning in the marketplace, by:
o Consulting with experts in the textiles and design engineering; and
o Consulting with third-party apparel designers and outdoor equipment
experts.
The steps involved in our prospective design and development are:
o Product conception and design by our Chief Executive Officer, Vice
Presidents, and/or third party designers;
o Patterns made from design concept;
o Pattern cut and distributed to contracted sub-manufacturer;
o Sample manufactured - The manufacturer constructs one or a few of the
sample garments by combining and sewing the appropriate materials as
specified in the design presentation;
o Sample testing - We plan to forward the sample garment to Vartest
Laboratories, Inc. for testing regarding weight, water repellency, and
thermal insulation properties or other aspects depending on the type
of product being tested and product functions. In addition, our
Officers and Directors will be asked to use the prototype products to
provide feedback to the designer of the product and possible product
improvements; and
o Final manufacturing plans submitted to manufacturer for production
sample.
Based on previous product development experience, we expect that our product
development cycle, from initial design to product introduction will take three
to twelve months, depending upon the complexity of the design and associated
testing. Based on our previously established relationships with garment
manufacturers, we estimate new product design and development costs at roughly
$5,000 per new item. We estimate that we will develop no more than two new
products during our Plan of Operations from September 2003 to September 2004. We
have not yet designed or commenced development of any new products.
Although we are not currently developing products that will contain eliotex for
use in the military and airline industries, we may do so in the future. Because
eliotex has insulation and water repellent properties, it potentially has
widespread application to products that may be used by the military and airline
industries, such as additional sleeping bag products or flotation devices. We
anticipate that we will not begin to develop such products until we have
effectively penetrated the sporting goods market or established sufficient
market share that enables us to allocate resources for this type of industry
specific application development and material testing procedures, which we do
not anticipate until we complete our Plan of Operations over the next 12 months
as detailed above.
44
Summary of Costs Affiliated with our Plan of Operations
Based on the above Plan of Operations, we will have total estimated costs of
$376,200, composed of the following:
--------------------------------------------------------------- ---------------
PLAN OF OPERATIONS TASK ESTIMATED COST
--------------------------------------------------------------- ---------------
Utilize Consultants for Management and Operations $50,000
--------------------------------------------------------------- ---------------
Increase the Utility of our Web Site $20,000
--------------------------------------------------------------- ---------------
Travel expenses affiliated with contracting with $500
manufacturing representatives
--------------------------------------------------------------- ---------------
Design and development of literature and media materials $60,000
--------------------------------------------------------------- ---------------
Develop and maintain public relations campaigns $3,000
--------------------------------------------------------------- ---------------
Develop trade booth for trade shows $5,000
--------------------------------------------------------------- ---------------
Attending trade shows $6,500
--------------------------------------------------------------- ---------------
Hiring of professionals for our online marketing campaign $19,500
--------------------------------------------------------------- ---------------
Establishing sales campaigns, relationships, and $18,000
agreements with retailers and affiliate marketers
which will include travel expenses, lodging, business
lunches, dinners and telephone charges
--------------------------------------------------------------- ---------------
Print advertising $30,000
--------------------------------------------------------------- ---------------
Product design and development $10,000
--------------------------------------------------------------- ---------------
Warehouse Lease $31,200
--------------------------------------------------------------- ---------------
Salaries $120,000*
--------------------------------------------------------------- ---------------
Total Costs $373,500
--------------------------------------------------------------- ---------------
*Estimated salaries consist of: (a) $40,000 annual salary to Joseph A. Riccelli,
our Vice President; (b) $55,000 annual salary to Michelle Griffith, our Vice
President of Sales and Marketing; and (c) $25,000 annual salary to Dave
Shondeck, our Director of Product Development Research. Does not include
commission costs paid to manufacturer representatives based on total purchase
order amount which cannot be determined at this time. Does not include hourly
wages, the specific amount of which can not be determined at this time.
45
Alternative Plan of Operations With Funding of less than $373,500 Should we
receive funding of less than $373,500, our alternative Plan of Operations,
based on funding of $250,700, will consist of the following costs and tasks that
have been described above:
PLAN OF OPERATIONS TASK ESTIMATED COST
--------------------------------------------------------------- ---------------
Salaries $120,000
--------------------------------------------------------------- ---------------
Warehouse Lease $ 31,200
--------------------------------------------------------------- ---------------
Establish Sales Campaign to be Conducted by
Our Chief Executive Officer and VP of Sales $ 18,000
--------------------------------------------------------------- ---------------
Attending Trade Shows $ 6,500
--------------------------------------------------------------- ---------------
Develop Trade Show Booth $ 5,000
--------------------------------------------------------------- ---------------
Travel Expenses Affiliated with Contracting with
Manufacturers Representatives to Our Product Line and
Thus Eliminate the Need to Hire Additional In-House
Full-Time Salaried Personnel $ 500
--------------------------------------------------------------- ---------------
Increase the Utility of our Website $ 20,000
--------------------------------------------------------------- ---------------
Print Advertising $ 30,000
--------------------------------------------------------------- ---------------
Hiring of Website and Advertising
Consultants for Online Marketing Campaign $ 19,500
--------------------------------------------------------------- ---------------
Total Costs $250,700
--------------------------------------------------------------- ---------------
Should we receive funding of less than $250,700, we will require funding of at
least $181,200 to continue our operations under an alternative Plan of
Operations, as follows:
PLAN OF OPERATIONS TASK ESTIMATED COST
--------------------------------------------------------------- ---------------
Salaries $120,000
--------------------------------------------------------------- ---------------
Warehouse Lease $ 31,200
--------------------------------------------------------------- ---------------
Establish Sales Campaign to be Conducted by
Our Chief Executive Officer and VP of Sales $ 18,000
--------------------------------------------------------------- ---------------
Attending Trade Shows $ 6,500
--------------------------------------------------------------- ---------------
Develop Trade Show Booth $ 5,000
--------------------------------------------------------------- ---------------
Travel Expenses Affiliated with Contracting with
Manufacturers Representatives to Our Product Line and
Thus Eliminate the Need to Hire Additional In-House
Full-Time Salaried Personnel $ 500
--------------------------------------------------------------- ---------------
Total Costs $181,200
--------------------------------------------------------------- ---------------
46
Source of Funds to Fund our Plan of Operations
We plan to fund our total costs of $376,200, or if necessary $250,700 or
$181,200 under Alternative Plans of Operations through the following:
o Our existing cash of $26,841 as of January 30, 2004;
o Possible revenue generated from our sale of products; and
o If necessary, loans from our Chief Executive Officer and/or our
President.
Our Plan of Operations is dependent upon our ability to generate revenues to
fund our operations; however, our revenues may be insufficient to provide
adequate funding. If our revenues are insufficient, Joseph Riccelli, our Chief
Executive Officer, and Frank Riccelli, our President, have verbally agreed to
loan us sufficient funds to meet our Plan of Operations or Alternative Plans of
Operation. Messrs. Joseph and Frank Riccelli have further verbally agreed to
loan us these funds at no interest, with no specified term for the repayment of
the loan. We may seek financing through traditional bank financing. However,
because we are a development stage company with a poor financial condition,
financial institutions may not provide us with financing, in which case we may
have to curtail or cease our operations and you may lose your entire investment.
Liquidity and Capital Resources (October 31, 2003)
Cash at October 31, 2003 amounted to $73,476. We have experienced significant
losses from our operations. For the period ended October 31, 2003, we incurred a
net loss of $2,398,169. In addition, we had an accumulated deficit of $2,976,230
and a working capital deficit of $289,55 at October 31, 2003. Our ability to
continue as a going concern is contingent upon our ability to expand our
operations and secure additional financing. Although we are pursuing financing
to expand our operations, there are no assurances that we will be successful in
obtaining such financing. Our failure to secure financing or expand our
operations may result in our not being able to continue as a going concern.
47
Item 7. Financial Statements.
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Innovative Designs, Inc.
(A Development Stage Company)
Sharpsburg, Pennsylvania
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of Innovative Designs, Inc. for the period from June 25, 2002
(Inception) through October 31, 2002. These financial statements are the
responsibility of Innovative Designs' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Innovative Designs, Inc.'s operations and
its cash flows for the period described in conformity with accounting principles
generally accepted in the United States of America.
/s/MALONE & BAILEY, PLLC
MALONE & BAILEY, PLLC
www.malone-bailey.com
Houston, Texas
January 21, 2003
48
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Innovative Design, Inc.
We have audited the accompanying balance sheets of Innovative Design, Inc. (a
development stage company) as of October 31, 2003 and the related statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audit provides 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 Design, Inc. (a
development stage company) as of October 31, 2003, and the results of its
operations, and its cash flows for the year then ended, 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 stockholder 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 this uncertainty.
/s/ Stark Winter Schenkein & Co., LLP
Stark Winter Schenkein & Co., LLP
Denver, Colorado
January 29, 2004
49
Innovative Designs, Inc.
(A Development Stage Company)
Balance Sheet
October 31, 2003
Assets
Current assets:
Cash $ 73,476
Accounts receivable 4,820
Other receivables 8,500
Inventory 285,254
-------------
Total current assets 372,050
-------------
Property and equipment, net 79,187
-------------
$ 451,237
=============
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable $ 4,286
Current portion of note payable 8,136
Note payable - related party 618,183
Due to shareholders 31,000
-------------
Total current liabilities 661,605
-------------
Note payable - related party 127,272
Note payable 32,980
-------------
160,252
-------------
Stockholders' (deficit):
Preferred stock, $.0001 par value,
100,000,000 shares authorized, -
Common stock, $.0001 par value,
500,000,000 shares authorized,
16,067,175 shares issued and outstanding 1,607
Additional paid in capital 2,604,003
(Deficit) accumulated during the development stage (2,976,230)
-------------
(370,620)
-------------
$ 451,237
=============
See the accompanying notes to the financial statements.
50
Innovative Designs, Inc.
(A Development Stage Company)
Statements of Operations
The Period From Inception (June 25, 2002) to October 31, 2002,
the Year Ended October 31, 2003 and
the Period From Inception (June 25, 2002) to October 31, 2003
Inception Year Inception
to Ended to
October 31, October 31, October 31,
2002 2003 2003
------------- ------------- -------------
Revenue $ - $ 55,416 $ 55,416
------------- ------------- -------------
Operating expenses:
Cost of sales - 23,201 23,201
Non-cash stock compensation 479,030 1,950,000 2,429,030
Selling, general and administrative expenses 99,031 302,457 401,488
------------- ------------- -------------
578,061 2,275,658 2,853,719
------------- ------------- -------------
(Loss) from operations (578,061) (2,220,242) (2,798,303)
------------- ------------- -------------
Other expense:
Interest - 177,927 177,927
------------- ------------- -------------
- 177,927 177,927
------------- ------------- -------------
Net (loss) $ (578,061) $(2,398,169) $(2,976,230)
============= ============= =============
Per share information - basic and fully diluted:
Weighted average shares outstanding 14,769,375 15,578,967 15,219,825
============= ============= =============
Net (loss) per share $ (0.04) $ (0.15) $ (0.20)
============= ============= =============
See the accompanying notes to the financial statements.
51
Innovative Design, Inc.
(A Development Stage Company)
Statement of Stockholders' (Deficit)
The Period From Inception (June 25, 2002) to October 31, 2002,
the Year Ended October 31, 2003 and
the Period From Inception (June 25, 2002) to October 31, 2003
(Deficit)
Accumulated
Additional During the
Common Stock Paid in Development
Shares Amount Capital Stage Total
----------- ------ ---------- ------------ -----------
Shares issued to founders in 14,050,000 $1,405 $ - $ - $ 1,405
June 2002 at par $.0001
Shares issued for cash during
June 2002 at $.75 per share 20,500 2 15,373 - 15,375
July 2002 through August 2002
at $1.00 per share 57,000 6 56,994 - 57,000
August 2002 through October 2002
at $2.00 per share 122,750 12 245,488 - 245,500
Shares issued for services during
June 2002 at $.75 per share 623,500 62 467,563 - 467,625
August 2002 at $2.00 per share 5,000 1 9,999 - 10,000
Net (loss) for the period - - - (578,061) (578,061)
----------- ------ ---------- ------------ -----------
Balance, October 31, 2002 14,878,750 1,488 795,417 (578,061) 218,844
Shares issued for services during
January 2003 at $2.00 per share 525,000 52 1,049,948 - 1,050,000
September 2003 at $2.00 per share 450,000 45 899,955 - 900,000
Shares issued for cash during
January 2003 at $2.00 per share 175,125 18 350,232 - 350,250
October 2003 at $2.00 per share 63,300 6 126,594 - 126,600
Cancellation of shares (25,000) (2) 2 - -
License agreement - - (618,145) - (618,145)
Net (loss) for the year - - - (2,398,169) (2,398,169)
----------- ------ ---------- ------------ -----------
Balance October 31, 2003 16,067,175 $1,607 $2,604,003 $(2,976,230) $ (370,620)
=========== ====== ========== ============ ===========
See the accompanying notes to the financial statements.
52
Innovative Designs, Inc.
(A Development Stage Company)
Statements of Cash Flows
The Period From Inception (June 25, 2002) to October 31, 2002,
the Year Ended October 31, 2003 and
the Period From Inception (June 25, 2002) to October 31, 2003
Inception Year Inception
to Ended to
October 31, October 31, October 31,
2002 2003 2003
------------ ------------- -------------
Cash flows from operating activities:
Net (loss) $(578,061) $(2,398,169) $(2,976,230)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Common stock issued to founders 1,405 - 1,405
Common stock issued for services 477,625 1,950,000 2,427,625
Depreciation 214 7,875 8,089
Interest added to related party note - 177,310 177,310
Changes in assets and liabilities:
Accounts receivable - (4,820) (4,820)
Inventory (16,727) (268,527) (285,254)
Deposits (77,000) 77,000 -
Other receivables - (8,500) (8,500)
Accounts payable 7,705 (3,419) 4,286
Net cash (used in) operating activities (184,839) (471,250) (656,089)
------------ ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (17,756) (24,520) (42,276)
------------ ------------- -------------
Net cash (used in) investing activities (17,756) (24,520) (42,276)
------------ ------------- -------------
Cash flows from financing activities:
Payments on note payable - (3,884) (3,884)
Payment on related party note - (50,000) (50,000)
Shareholder advances - 31,000 31,000
Common shares issued for cash 317,875 476,850 794,725
------------ ------------- -------------
Net cash provided by financing activities 317,875 453,966 771,841
------------ ------------- -------------
Net increase (decrease) in cash 115,280 (41,804) 73,476
Beginning cash balance - 115,280 -
------------ ------------- -------------
Ending cash balance $ 115,280 $ 73,476 $ 73,476
============ ============= =============
Supplemental cash flow information:
Cash paid for interest $ - $ 616 $ 616
============ ============= =============
Cash paid for income taxes $ - $ - $ -
============ ============= =============
Non-cash investing and financing activities:
License agreement $ - $ 618,145 $ 618,145
============ ============= =============
Property and equipment acquired with note payable $ - $ 45,000 $ 45,000
============ ============= =============
See the accompanying notes to the financial statements.
53
INNOVATIVE DESIGNS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. Innovative Designs, Inc., (Innovative) was incorporated in
Delaware on June 25, 2002 to provide unique products such as recreational
sleeping bags and floating swimwear for outdoor recreation enjoyment.
Fiscal Year End. Innovative Designs' fiscal year ends on October 31.
Reclassifications. Certain amounts presented in prior periods financial
statements have been reclassified to conform to current year presentation.
Use of Estimates. In preparing financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheet and revenue and expenses in the income statement. Actual
results could differ from those estimates.
Cash and Cash Equivalents. For purposes of the statements of cash flows,
Innovative Designs considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition. Innovative 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
Innovative's recreational products such as sleeping bags, stadium packs and
swimsuits. Sales of these items are recognized when the items are shipped.
Innovative offers a 5 day return policy and no warranty on all of Innovative's
products.
Allowance for Doubtful Accounts. Bad debt expense is recognized based on
management's estimate of likely losses per year, based on past experience and an
estimate of current year uncollectible amounts.
Accounts Receivable. Accounts receivable are stated at estimated net realizable
value. Accounts receivable are comprised of balances due from customers net of
estimated allowances for uncollectible accounts. In determining collectibility,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances.
Financial Instruments. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to management as
of December 31, 2002. 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.
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.
54
Property and equipment. Property and equipment is valued at cost. The costs of
additions and betterments are capitalized and maintenance and repairs are
charged to expense as incurred. Gains and losses on dispositions of equipment
are reflected in operations. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets, which are
generally from five to seven years.
Impairment of Long-Lived Assets. Innovative Designs 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. Innovative Designs 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.
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. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During periods in which the Company incurs
losses common stock equivalents, if any, are not considered, as their effect
would be anti dilutive.
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.
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 May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS 150 changes the accounting guidance for certain
financial instruments that, under previous guidance, could be classified as
equity or "mezzanine" equity by now requiring those instruments to be classified
as liabilities (or assets in some circumstances) on the balance sheet. Further,
SFAS 150 requires disclosure regarding the terms of those instruments and
settlement alternatives. SFAS 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS 150 in the first quarter of fiscal 2004 is not
expected to have any material impact on the Company's financial position,
results of operations or cash flows.
55
In December 2002, the FASB issued SFAS 148 "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of SFAS 123." SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation from the
intrinsic value-based method of accounting prescribed by APB 25. As allowed by
SFAS 123, the Company has elected to continue to apply the intrinsic value-based
method of accounting, and has adopted the disclosure requirements of SFAS 123.
The Company currently does not anticipate adopting the provisions of SFAS 148.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS 146 provides new guidance on the recognition
of costs associated with exit or disposal activities. The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of commitment to an exit or disposal
plan. SFAS 146 supercedes previous accounting guidance provided by the EITF
Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." EITF Issue No. 94-3 required recognition of costs at the date
of commitment to an exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Early application is permitted. The adoption of SFAS 146 by the Company is not
expected to have a material impact on the Company's financial position, results
of operations, or cash flows.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other things, this statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt" which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria in APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," will now be used to
classify those gains and losses. The provisions of SFAS 145 related to the
classification of debt extinguishment are effective for years beginning after
May 15, 2002. The adoption of SFAS 145 by the Company is not expected to have a
material impact on the Company's financial position, results of operations, or
cash flows.
In November 2001, the EITF of the FASB issued EITF 01-9 "Accounting for
Consideration Given by a Vendor to a Subscriber (Including a Reseller of the
Vendor's Products)." EITF 01-9 provides guidance on when a sales incentive or
other consideration given should be a reduction of revenue or an expense and the
timing of such recognition. The guidance provided in EITF 01-9 is effective for
financial statements for interim or annual periods beginning after December 15,
2001. The adoption of EITF 01-9 by the Company did not have a material impact on
the Company's financial statements.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides new guidance on the
recognition of impairment losses on long-lived assets with definite lives to be
held and used or to be disposed of and also issued the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. SFAS 144 is effective for fiscal
years beginning after December 15, 2001. The adoption of SFAS 144 did not have a
material impact on the Company's financial position, results of operations, or
cash flows.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period that it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS 143 is not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
56
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
which provides for non-amortization of goodwill and intangible assets that have
indefinite useful lives, annual tests of impairments of those assets and interim
tests of impairment when an event occurs that more likely than not has reduced
the fair value of such assets. The statement also provides specific guidance
about how to determine and measure goodwill impairments, and requires additional
disclosure of information about goodwill and other intangible assets. The
provisions of this statement are required to be applied starting with fiscal
years beginning after December 15, 2001, and applied to all goodwill and other
intangible assets recognized in the financial statements at that date. Goodwill
and intangible assets acquired after June 30, 2001 will be subject to the
non-amortization provisions of the statement. Early application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements had not been issued previously. The Company's
adoption of the provisions of SFAS 142 did not have a material impact on the
Company's financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS 141, "Business Combinations," which is
effective for all business combinations initiated after June 30, 2001. SFAS 141
requires companies to account for all business combinations using the purchase
method of accounting, recognize intangible assets if certain criteria are met,
as well as provide additional disclosures regarding business combinations and
allocation of purchase price. The adoption of SFAS 141 did not have a material
impact on the Company's financial position, results of operations or cash flows.
Note 2. BASIS OF REPORTING
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. For the period
ended October 31, 2002 and the year ended October 31, 2003, the Company incurred
net losses of $578,061 and $2,398,169. In addition, the Company has an
accumulated deficit of $2,976,230 and a working capital deficit of $289,555 at
October 31, 2003.
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.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
Equipment 7 yr. $13,611
Furniture & fixtures 7 yr. 7,104
Leasehold improvements 5 yr. 18,331
Automobile 5 yr 48,230
--------
87,276
Less accumulated depreciation (8,089)
--------
$79,187
========
57
Depreciation expense for the period ended October 31, 2002 and the year ended
October 31, 2003 was $214 and $7,875. $3,000 of the equipment and $2,875 of the
furniture and fixtures were purchased during 2002 from a company owned by one of
the founding shareholders and have been recorded at the original cost of the
founding shareholder's company.
NOTE 4 - COMMON STOCK
In June 2002, four founders were issued a total of 14,050,000 shares of
Innovative Designs common stock valued at par or $1,405.
In June 2002, Innovative Designs sold 20,500 shares of common stock for $.75 per
share or $15,375.
In June 2002, Innovative Designs issued 623,500 shares of common stock for
services valued at $.75 per share or $467,625.
In July 2002, Innovative Designs sold 31,000 shares of common stock for $1 per
share or $31,000.
In August 2002, Innovative Designs sold 26,000 shares of common stock for $1 per
share or $26,000.
In August 2002, Innovative Designs sold 49,000 shares of common stock for $2 per
share or $98,000.
In August 2002, Innovative Designs issued 5,000 shares of common stock for
services valued at $2 per share or $10,000.
In September 2002, Innovative Designs sold 48,500 shares of common stock for $2
per share or $97,000.
In October 2002, Innovative Designs sold 25,250 shares of common stock for cash
at $2 per share or $50,500.
During February 2003 the Company issued 525,000 shares of common stock for
services valued at $2 per share or $1,050,000 and 175,125 shares of common stock
for cash at $2 per share or $350,250. In addition, 25,000 shares previously
issued were cancelled.
During September 2003 the Company issued 450,000 shares of common stock for
services valued at $2 per share or $900,000.
During October 2003 the Company sold 63,300 shares of common stock for cash at
$2 per share or $126,000.
NOTE 5 - INCOME TAXES
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.
58
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:
Income tax provision at
the federal statutory rate 34 %
Effect of operating losses (34)%
-----
-
=====
The Company's deferred tax asset is as follows:
Deferred tax assets $126,000
Less: valuation allowance (126,000)
--------
Net deferred taxes $ -
========
Innovative Designs has a net operating loss of approximately $370,000 at October
31, 2003, which can be carried forward through October 31, 2023. The principal
difference between the net operating loss for book purposes and income tax
purposes results from common shares issued for services aggregating $2,429,030.
NOTE 6 - COMMITMENTS
Innovative Designs 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 period ended October 31, 2002 and the year ended October 31, 2003, rent
expense totaled approximately $7,300 and $39,600.
NOTE 7 - RELATED PARTY TRANSACTIONS
On November 25, 2002, Innovative purchased a product license for $1,250,000 from
a company owned by the majority shareholder of Innovative. The License Agreement
is for 10 years and gives Innovative the exclusive right to manufacture and
market Eliotex, a fabric used in recreational products. Innovative will have the
option to renew the agreement for four subsequent terms of ten years each.
Innovative paid $50,000 upon signing in November 2002, with the remaining amount
payable at $400,000 per year for the next three years. The note bears no
interest, therefore Innovative discounted the payments due under the agreement
using a discount rate of 30 percent. Imputed interest expense of $177,310 has
been recorded through October 31, 2003. The discounted value of the note
payments in addition to the $50,000 already paid total $618,145. The initial
$400,000 payment was due in November 2003 and is in default.
Because the license was purchased from a company owned by the majority
shareholder, it must be recorded at the shareholder's cost which was $0. The
$618,145 Innovative paid in excess of the shareholder's cost was recorded as a
reduction of paid in capital.
NOTE 8 - NOTE PAYABLE
The Company is indebted to a financial institution pursuant to a note payable
secured by automotive equipment in the amount of $41,166 which is payable as
follows:
2004: $8,136 2005: $8,651 2006: $9,198 2007: $9,781 2008:$5,400
NOTE 9 - SUBSEQUENT EVENTS
Through December 2003 the Company issued 1,325,000 shares of common stock valued
at $2 per share for services and 28,450 shares of common stock for cash at $2
per share.
59
Item 8. Changes in and Disagreements with Accountants and Financial Disclosure.
On October 27, 2003, we reported in a Form 8K-A, that: (a) on September 23,
2003, we changed accountants from Malone & Bailey, PLLC to Stark Winter
Schenkein & Co., LLP; (b) we decided to dismiss Malone & Bailey, PLLC as
our independent accountants; (c) Malone & Bailey, PLLC's reports on the
financial statements were not subject to an adverse or qualified opinion or a
disclaimer of opinion and were not modified as to uncertainty, audit scope or
accounting principles during the period from inception (June 25, 2002) to
October 31, 2002 and the interim period through September 23, 2003; (d) the
decision to change accountants was approved by the our Board of Directors;
(e) during the period from inception (June 25, 2002) to October 31, 2002 and the
interim period to September 23, 2003, there were no disagreements with Malone &
Bailey, PLLC related to accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Malone & Bailey, PLLC, would have caused Malone &
Bailey, PLLC to make reference to the subject matter of the disagreement in
connection with its report; and (f) on September 23, 2003, we engaged Stark
Winter Schenkein & Co., LLP as our independent accountants; and (g) we did not
consult with Stark Winter Schenkein & Co., LLP, our new independent accountants,
regarding any matter prior to its engagement.
Item 8A. Controls and Procedures.
As of October 31, 2003, 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, 2003.
There have been no significant changes in our internal control over financial
reporting during the fiscal year ended October 31, 2003, or subsequent to
October 31, 2003, that have materially affected or are reasonably likely to
materially affect, our internal control over financial reporting.
Part III.
Item 9. Directors, Executive Officers, Promoters and Control Persons; 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
-----------------------------------------------------------------------------
Frank Riccelli 43 President/Director 1 year
Joseph Riccelli 53 Chief Executive Officer/Chairman 1 year
Dean P. Kolocouris 31 Director 1 year
Robert D. Monsour 49 Director 1 year
Dominic Cerniglia 69 Director 1 year
Anthony Fonzi 55 Chief Financial Officer/Director 1 year
Joseph A. Riccelli 22 Vice President Not Applicable
60
Family Relationships.
Frank Riccelli, our President and Director, and Joseph Riccelli, our Chief
Executive Officer and Chairman of the Board, are brothers. Joseph A. Riccelli,
our Vice President, is the son of our Chief Executive Officer, Joseph Riccelli,
and the nephew of our President, Frank Riccelli.
Frank Riccelli has been our President and a Director since our inception in June
2002. Frank Riccelli dedicates only approximately 30 hours per week to our
business and operations. From April 1989 to present, Frank Riccelli has been
the owner and president of Exceptional Motor Cars, a car dealership located in
Glenshaw, Pennsylvania. Additionally, since March 1981 to present, Frank
Riccelli has been the owner of Pittsburgh Foreign Domestic, a car dealership
located in Glenshaw, Pennsylvania. Frank Riccelli attended the Community College
of Allegheny County from 1979 to 1981.
Joseph Riccelli has been our Chief Executive Officer and Chairman of the Board
since our inception in June 2002. Joseph Riccelli now spends approximately 40
hours per week to implement our Plan of Operations; however, upon completion of
our Plan of Operations, if ever, he plans to spend only half time to our
operations and the other half of his time to our affiliated entity, RMF Global.
From February 1999 to present, Joseph Riccelli has been the President, Owner and
Chief Executive Officer of RMF Global, our licensor/eliotex distributor located
in Pittsburgh, Pennsylvania. From February 1999 to our inception, Mr. Riccelli
worked full time at RMF Global; however, since our inception, he has devoted
only 10 hours per week to RMF Global's operations. From March 1984 to November
1998, Joseph 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.
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 July 1984 to November 1997, Mr. Monsour was the owner and founder of
his own law firm, Robert D. Monsour, Esq., P.C., located in Pittsburgh,
Pennsylvania. From November 1997 to present, Mr. Monsour has been the
Administrator of RGM Medical Management, a medical management firm headquartered
in Pittsburgh, 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 & 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.
Dominick Cerniglia has been one of our Directors since our inception in June
2002. Mr. Cerniglia has been a licensed insurance agent in Pennsylvania since
December 1959. From August 1996 to present, Mr. Cerniglia has been the owner and
president of D. Cerniglia Insurance, a Pennsylvania licensed insurance firm
located in Pittsburgh, Pennsylvania.
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.
61
Joseph A. Riccelli, Jr., 22, has been our Vice President since May 15, 2003.
From November of 2002 until May 14, 2003, Mr. Riccelli was our Vice President on
a consultant basis. As Vice President, Mr. Joseph A. Riccelli assists our Chief
Executive Officer on a full-time basis by overseeing our daily operations and
our distribution center. From June 2002 to October 2002, Joseph A. Riccelli was
our outside consultant to assist in overseeing our daily operations. From June
2001 to June 2002, Mr. Riccelli was the Vice President of RMF Global. Mr.
Riccelli has no other employment experience. Joseph A. Riccelli has been
attending the University of Pittsburgh since September 2001 and is majoring in
Business Administration.
Significant Employees
We have the following additional significant employees:
Michelle Griffith, 35, has been our full-time Vice President of Sales and
Marketing since May 15, 2003. From December of 2002 until May 14, 2003, Ms.
Griffith was our Vice President of Sales and Marketing on a consultant basis.
From October 2002 to November 2002, Ms. Griffith was our Marketing Director on a
consultant basis. From June 1986 to November 2001, Ms. Griffith was a
professional ski and racing athlete, and in addition, Ms. Griffith participated
in the Equestrian Grand Prix Show Jumping competition on the United States
circuit. From 1990 to 2000, Ms. Griffith was a ski instructor certified level 2
racing coach instructing juniors and adults. From June 1989 to September 2002,
Ms. Griffith was self-employed as a sports promotional and marketing agent on
behalf of professional athletes and resorts to initiate and contract sporting
events and athletic appearances. From September 1986 to December 1989, Ms.
Griffith attended the University of Pittsburgh with a major in Political
Science.
Dave Shondeck, 36, has been our Director of Product Development Research since
April 15, 2003, and spends approximately 30 hours per week regarding this
position. From January 2003 until April 14, 2003, Mr. Shondeck was our Director
of Product Development Research on a consultant basis. During only June 2002,
Mr. Shondeck was our consultant to assist in formulating our business plan. From
June 2000 to November 2002, Mr. Shondeck was employed as a Marketing and
Financial Consultant by Fonzi and Associates, an accounting and financial
services firm located in Pittsburgh, Pennsylvania. From May 1996 to February
2001, Mr. Shondeck was employed as a Sales and Marketing Product Manager with Dt
Technologies, Inc., a manufacturing technology firm located in Pittsburgh,
Pennsylvania. In May 1987, Mr. Shondeck obtained a BSBA Degree in accounting
from Duquesne University located in Pittsburgh, Pennsylvania.
Committees of the Board Of Directors
We presently do not have an audit committee, compensation committee, nominating
committee, an executive committee of our board of directors, stock plan
committee or any other committees. However, our board of directors is
considering establish various committees during the current fiscal year.
Audit Committee Financial Expert
We have no financial expert. We believe the cost related to retaining a
financial expert at this time is prohibitive. Further, because of our start-up
operations, we believe the services of a financial expert are not warranted.
Code of Ethics
We have not yet adopted a corporate code of ethics. Our board of directors is
considering, over the next year, establishing a code of ethics to deter
wrongdoing and promote honest and ethical conduct; provide full, fair, accurate,
timely and understandable disclosure in public reports; comply with applicable
laws; ensure prompt internal reporting of code violations; and provide
accountability for adherence to the code.
62
Legal Proceedings
None of our officers, directors, or persons nominated for such position,
significant employees, or promoters have been involved in legal proceedings that
would be material to an evaluation of their ability or integrity, including:
o involvement in any bankruptcy;
o conviction in a criminal proceeding;
o being the subject of a pending criminal proceeding;
o being the subject of any order or judgment, decree permanently or
temporarily enjoining, barring, suspending or otherwise limiting their
involvement in any type of business, securities or banking activities;
and
o being found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended,
or vacated.
Item 10. Executive Compensation.
The following Executive Compensation Chart highlights the terms of compensation
for our Executives.
Summary Compensation Chart
Annual Compensation Long-Term Compensation
Salary Bonus Other Restricted Stock Options L/TIP All
Name & Position Year ($) ($) ($) Awards ($) ($) Other
------------------ ---- ------ ----- ----- ---------------- ------- ----- -----
Frank Riccelli 2002 0 0 0 2,050,000 0 0 0
President/Director
Frank Riccelli 2003 0 0 0 0 0 0 0
President/Director
Joseph Riccelli 2002 0 0 0 10,500,000 0 0 0
Chief Executive
Officer/Chairman
Joseph Riccelli 2003 0 0 0 0 0 0 0
Chief Executive
Officer/Chairman
Joseph A. Riccelli 2002 0 0 0 750,000 0 0 0
Vice President
Joseph A. Riccelli 2003 40,000 0 0 0 0 0 0
Vice President
Michelle Griffith 2002 0 0 0 40,000 0 0 0
VP Sales and
Marketing
Michelle Griffith 2003 55,000 0 0 0 0 0 0
VP Sales and
Marketing
63
There are no employment agreements between us and our executive officers, Frank
Riccelli or Joseph Riccelli. We have a May 2003 verbal agreement with Michelle
Griffith, our Vice President of Sales and Marketing, which provides that we pay
Ms. Griffith a $55,000 annual salary for the period from May 2003 to May 2004.
We have a May 2003 verbal agreement with Joseph A. Riccelli, our Vice President,
which provides that we pay Joseph A. Riccelli a $40,000 annual salary for the
period from May 2003 to May 2004. 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.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following tables set forth the ownership as of January 9, 2004 (a) by each
person known by us to be the beneficial owner of more than five percent (5%) of
our outstanding common stock, and (b) by each of our directors, by all executive
officers and our directors 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 Beneficial Owners:
Title of Class Name & Address Amount Nature Percent
-------------- --------------------------------- ---------- ------ -------
Common Stock Joseph Riccelli 10,500,000 Direct 60.27
Chief Executive Officer/
Chairman of the Board of Directors
142 Loire Valley Drive
Pittsburgh, PA 15209
Common Stock Frank Riccelli 2,050,000 Direct 11.77
President and Director
152 Wedgewood Drive
Gibsonia, PA 15044
Common Stock Gino M. Riccelli Trust 750,000 Direct 4.30
221 N. Main Street
Apartment 1
Pittsburgh, PA 15215
Common Stock Joseph A. Riccelli Trust 750,000 Direct 4.30
Vice President
223 N. Main Street
Apartment 6
Pittsburgh, PA 15215
---------- -------
Total 14,050,000 80.64
========== =======
64
Security Ownership of Management:
Title of Class Name & Address Amount Nature Percent
-------------- --------------------------------- ---------- ------ -------
Common Stock Joseph Riccelli 10,500,000 Direct 60.27
Chief Executive Officer/
Chairman of the Board of Directors
142 Loire Valley Drive
Pittsburgh, PA 15209
Common Stock Frank Riccelli 2,050,000 Direct 11.77
President and Director
152 Wedgewood Drive
Gibsonia, PA 15044
Common Stock Robert D. Monsour 50,000 Direct 0.29
Director
6131 Saltzburg Road
Murrysville, PA 15668
Common Stock Dean P. Kolocouris 29,000* Direct 0.17*
Director
120 Timberglen Drive
Imperial, PA 15126
Common Stock Dominic Cerniglia 70,500 Direct 0.40
Director
100 Oxford Drive
Apt. 116
Monroeville, PA 15146
Common Stock Anthony Fonzi 20,000 Direct 0.11
Director/Chief Financial Officer
2912 Bryer-Ridge Ct.
Export, PA 15632
Common Stock Joseph A. Riccelli Trust 750,000 Direct 4.30
Vice President
223 N. Main Street
Apartment 6
Pittsburgh, PA 15215
---------- -------
Total 13,469,500 77.31
========== =======
*As of January 15, 2004, our Director, Dean P. Kolocouris, held 27,000 shares of
our common stock, as a result of the sale of 2,000 shares on January 15, 2004.
Accordingly, as of January 15, 2004, Director Kolocouris' percentage ownership
in our common stock is 0.15.
65
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:
o Our Chief Executive Officer and Chairman of the Board, Joseph Riccelli,
is the owner of RMF Global, our sublicensor, upon which our entire
business is wholly dependent;
o Our sublicense agreement with RMF Global requires us to pay a total
of $1,250,000 for the grant of a license to sell RMF Global's three
products and other products we develop using eliotex, and because Joseph
Riccelli, our Chief Executive, is the owner of RMF Global, he will
personally benefit from our payment of these license payments to RMF
Global;
o We lease warehouse space that is owned by our President, Frank Riccelli,
at a rate of $2,600 per month;
o 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. RMF Global shares our executive offices rent-free;
and
o Our officers, directors and key consultants have the following family
relationships: (a) Joseph Riccelli, our Chief Executive Officer/Chairman
of the Board, is the brother of Frank Riccelli, our President/Director; and
(b) Joseph A. Riccelli, Vice President, is the son of our Chief Executive
Officer, Joseph Riccelli, and the nephew of Frank Riccelli, our
President/Director.
Agreement Between us and RMF Global
On November 25, 2002, we entered into a written agreement with RMF Global
The agreement provides that:
o RMF Global grants an exclusive license to us to manufacture and
market RMF's three products made from eliotex and grants us a license to
develop our own products using eliotex;
o RMF Global assures us of an adequate and timely supply of eliotex to
meet our product orders;
o RMF Global will offer eliotex to us at a price equal to the lowest
price it charges any other RMF Global customer;
o RMF Global will transfer all of its rights, title and interest in all
promotional materials, advertisements, marketing strategies, and the like
for which it has contracted to us, and we will have the unfettered right
to use the same in any manner we see fit; and
o We must pay $1,250,000 to RMF Global, as follows: (i) $50,000 down
payment which has been paid; and (ii) three annual payments of $400,000,
due in November 2003, 2004, and 2005.
Other than the above transactions, we have not entered into any material
transactions with any director, executive officer, and nominee for director,
beneficial owner of five percent (5%) or more of our stock, or family
members of such persons where the amount of the transaction or chain of
transactions exceeds $60,000. We are not a subsidiary of any company.
66
Item 13. Exhibits and Reports on Form 8-K.
Exhibit
Number Description
3.1 Certificate of Incorporation*
3.2 Bylaws*
4 Specimen Stock Certificate*
5 Opinion of Hamilton, Lehrer & Dargan, P.A.***
10.1 Agreement between us and RMF Global, Inc.*
10.2 Exclusive Agency, Distribution and Marketing Agreement between RMF
Global and Mr. Ko-Myung Kim.*
10.3 Agreement between us and C. Dillow & Company, Inc.*
10.5 Agreement between Innovative Designs, Inc. and Haas Outdoors, Inc.**
10.6 Letter of commitment from Innovative Designs, Inc. to Victory Junction
Gang Camp**
10.7 Agreement with Summit Financial Partners, LLC
23.1 Consent of Malone & Bailey PLLC, Certified Public Accountants ****
23.2 Consent of Hamilton, Lehrer & Dargan P.A. contained in Exhibit 5***
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*
* Previously filed as exhibits to Registration Statement on Form SB-2 filed on
March 11, 2003
** Previously filed as exhibits to Registration Statement on Form SB-2
Amendment 2 filed on July 8, 2003
*** Previously filed as exhibit to Registration Statement on Form SB-2
Amendment 3 filed on August 7, 2003
**** Previously filed as exhibit to Registration Statement on Form SB-2
Amendment 4 filed on September 9, 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; and (b) our Form 8-K filed on September 29, 2003 and
amended on October 27, 2003.
(b) Reports on Form 8-K
On September 29, 2003, the registrant filed a Form 8-K under Item 4, "Changes in
Registrant's Certifying Accountant". On October 27, 2003, the registrant filed
an amendment to this Form 8-K to correct a typographical error.
67
Item 14. Principal Accountant Fees and Services.
Audit Fees
The aggregate fees billed for the fiscal year ended October 31, 2003 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 estimated as follows: (a) we paid our prior accountant, Malone &
Bailey, PLLC, $4,000; and (b) we paid our current accountant, Stark Winter
Schenkein & Co., LLP, $1,750.
The aggregate fees billed for the fiscal year ended October 31, 2002 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 estimated as $5,100 that we paid to our prior accountant, Malone
& Bailey, PLLC.
Audit Related Fees
None.
Tax Fees
None.
All Other Fees
None.
68
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INNOVATIVE DESIGNS, INC.
By /s/Joseph Riccelli February 9, 2004
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 February 9, 2004
Joseph Riccelli
Chief Executive Officer,
Chairman of the Board of Directors
By /s/Anthony Fonzi February 9, 2004
Anthony Fonzi
Chief Financial Officer,
Principal Accounting Officer,
and Director
By /s/ Frank Riccelli February 9, 2004
Frank Riccelli, Director
By /s/ Dean P. Kolocouris February 9, 2004
Dean P. Kolocouris, Director
By /s/ Robert D. Monsour February 9, 2004
Robert D. Monsour, Director
By /s/ Dominic Cerniglia February 9, 2004
Dominic Cerniglia, Director
69