UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-54892
INSYNERGY PRODUCTS, INC
(Exact name of registrant as specified in its charter)
Nevada | 27-1781753 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4705 Laurel Canyon Blvd., Suite 205, Studio City, CA (Address of principal executive offices) | 91607 (Zip Code) |
Registrants telephone number, including area code: (818)760-1644
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Non-accelerated filer [ ] | Accelerated filed [ ] Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the 8,927,586 shares of voting and non-voting common equity held by non-affiliates computed by reference to the price ($2.90) at which the common equity was last sold as of the last business day of its most recently completed second fiscal quarter (June 28, 2013) was approximately $25,890,000.
At March 28, 2014, there were 19,760,683 shares of the registrants common stock outstanding.
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PART I | ||
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Item 1. | Business | 3 |
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Item 1A. | Risk Factors | 7 |
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Item 2. | Property | 10 |
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Item 3. | Legal Proceedings | 10 |
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Item 4. | Mine Safety Disclosures | 10 |
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PART II | ||
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Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 11 |
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Item 6. | Selected Financial Data | 12 |
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Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operation | 13 |
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Item 7A. | Quantitative and Qualitative Disclosure About Market Risk | 15 |
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Item 8. | Financial Statements and Supplementary Data | 16 |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 30 |
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Item 9A. | Controls and Procedures | 30 |
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Item 9B. | Other Information | 31 |
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PART III | ||
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Item 10. | Directors, Executive Officers and Corporate Governance | 31 |
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Item 11. | Executive Compensation | 32 |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 32 |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence | 34 |
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Item 14. | Principal Accountant Fees and Services | 34 |
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Item 15. | Exhibits, and Financial Statement Schedules | 35 |
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| Signatures |
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PART I
Item 1. BUSINESS
Business Development
Insynergy Products Inc. (the Company) was incorporated in the State of Nevada on January 26, 2010. The Company was organized to engage in Direct Response marketing that has the ability to take a product from the drawing board to the ultimate consumer via sales through television, Internet and retail.
Forward Looking Statements
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-K involve risks and uncertainties, including statements as to:
·our future operating results;
·our business prospects;
·our contractual arrangements and relationships with third parties;
·the dependence of our future success on the general economy;
·our possible future financings; and
·the adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we believe, anticipate, expect, estimate or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-K, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Plan of Operations
The Companys management believes the Direct Response market to be a booming business that has evolved during the past two decades from an entrepreneurial industry to one that now encompasses the marketing efforts of a vast number of companies to produce sales of a myriad of products. According to the Electronic Retailing Association (www.retailing.org), the only trade association that represents larger companies in the direct-to-consumer marketplace, this is an estimated more than $300 billion market. Management believes, but cannot assure, that this is a reasonable assessment of the size of this market.
Direct Response Marketing
Direct Response Marketing generally takes the form of the marketing and sale of products utilizing infomercials which are broadcast over local television channels, paired with a Call Response Center which takes the calls generated by potential purchasers who call in after viewing the infomercial, and a fulfillment center, which ships out the product.
The infomercial is designed to solicit a direct response in the target audience which is specific and quantifiable. The delivery of the response is directly between the viewer and the advertiser, that is, the customer responds to the marketer or its agent directly. In direct marketing (such as telemarketing), there is no intermediary broadcast media involved. In Direct Response Marketing, marketers use broadcast media to encourage customers to contact them directly. This direct response marketing seeks to elicit action. Marketing results from a Direct Response Marketing Program can be tracked, measured, and quantified.
Direct Response Marketing is characterized by:
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An offer of a specific product or combination of products
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Sufficient information for the consumer to make a decision whether to act and buy
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An explicit call to action
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Provision of a means for buy response (typically multiple options such as toll free number, web page, and email)
Direct Response Marketing Products
Direct Response Marketing is often used for new and innovative products that can be demonstrated and shown to make life easier or better, or products which solve a specific problem the target audience may have.
Health and fitness products, skin, hair and personal care products, nutritional supplements, house wares and appliances, have all been successfully marketed. Anti-aging products are a category of product which is currently generating successful sales. An idea for a new product usually comes from an inventor, who then approaches a company such as ours for development and implementation of a Direct Marketing Program or campaign for the product.
Our Company selects products invented by others for use in a Direct Response Marketing Program, but we also develop our own products for sale as well. We will analyze each product presented to us to see if it looks like it would be an attractive candidate for a direct marketing campaign. We will look for products which satisfy a specific need that can be concretely presented in the infomercial, lend themselves to generation of a call for action motivation in the target audience, provide for a substantial markup on the sales price over their cost (typically somewhere in the realm of a 5 to 1 markup), have a lower range target price in order to encourage immediate discretionary purchase, and have anticipated staying power as a useful product which the Company can sell over and over again.
We will license products from the inventor or owner of the product, with license fees paid on collected revenue from the sales of the product, net of returns and allowances. Typical license fees run between 2% and 4% of net sales for sales generated over television, and if the Company is able to then take the product for distribution to traditional brick and mortar outlets for further sales, an increased license fee of between 4% and 6% is typically paid. The license rights typically run for between 24 and 36 months, and are generally renewable. Products may or may not have patent protection, copyright protection, and/or trademark protection.
Products to Be Marketed
During the year ended December 31, 2013, the Company entered into eight new licensing agreements with various third parties. Each agreement provides the Company with the exclusive rights to market and sell the product and has an initial two year term with automatic one year renewals if the terms of the agreement are met. The agreements require the Company to satisfy minimum number of units sold and/or royalty payments.
Two of the current products selected by the Company are in the area of fitness and we have executed licensing agreements for both products. One product is a fitness product called the Best Ball. The Best Ball is a 65cm rubber gym ball which provides progressive stability and progressive resistance. Using it may increase core strength, balance and flexibility. A workout DVD and pump will be included in the package.
We have a License Agreement for the Best Ball covering World Wide rights through the term of the License Agreement, giving us the exclusive Worldwide right to advertise, promote, market, manufacturer, distribute, sell and exploit the product in any and all media, means, markets and channels of trade and distribution. The initial term may be renewed annually provided a minimum number of units are sold at a minimum price over each period. Management believes the Companys net profit may range up to 40%, but there is of course no assurance that the product will be successful or produce significant profits.
The other product to be released by Insynergy is a patented fitness product which was invented by a medical doctor who developed it because he was not satisfied with the physical therapy he was receiving after back surgery and felt he could develop a better protocol. It will come with a basic workout DVD. Additional DVDs will be available for more advanced workouts.
Our exclusive License Agreement gives us worldwide rights to advertise, promote, market, manufacture, distribute, sell and/or exploit the product in any and all media, means and markets and all channels of trade and distribution now known or hereafter devised. The term extends through October 16, 2017 provided that a minimum number of units have been sold by October 16, 2014 and that a minimum number of units are sold year 3, year 4 and year 5.
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During the second quarter of 2013 management terminated our agreement for the first product we marketed, The Kruncher, a fitness product designed to concentrate on the abs. After industry research management determined that due to the lack of financial success it would be in the best interest of the Company not to continue with The Kruncher and the Agreement was terminated. Management also decided to terminate the Xsize sandal, although it was never released or marketed to the public. As a result of the termination of these agreements, the Company recognized impairment to inventory (See Results of Operation for the Years Ended December 31, 2013 and 2012, below.)
It is estimated that the Company will shoot commercials for two to three products in the second and third quarters of 2014. Marketing for these products could take place in this same time period. One of these products will be a plumbing product to clear most normal clogs in your home. This will be a two minute spot. The other product is a hair care product that is expected to straighten hair for two to three month period. The infomercial for this product will be thirty minutes in length.
Production of Infomercials
Demonstrating the appeal and uniqueness of the product in a sales video infomercial is critical in creating a buying response. An offer must be presented in the video such that its appeal is relevant to the wants or needs of the audience.
Short form direct response video commercials have time lengths ranging from 30 seconds to 2 minutes. Long form infomercials are 30 minutes in length. Direct Response ads can be contrasted with normal television commercials because traditional commercials normally do not solicit a direct immediate response from the viewer, but instead try to brand their product in the market place.
The typical direct response spot of two minutes consists of a spokesperson or dominant voice over footage showing the product being demonstrated, solving a problem and/or making life easier and better. An 800 phone number will be shown on screen a few seconds into the spot along with a website address. The last few seconds of the spot will show a blue screen with all the information to make a purchase and provide a call to action.
The Company will write, produce, hire the talent, direct, shoot and edit many of its infomercials in-house. The Company will also hire outside Production companies who have had success shooting shows with products in the same genre as the products we will be releasing such as fitness, house wares and hair care.
Test Marketing
We test all our products with a retail sales group before we execute a License Agreement, in order to gauge the likely reaction in the market place. Once a License Agreement is executed, we will typically create the video, and then spend small amounts of money on media air time over test stations and test air segments that have what management considers the right demographics for a particular product. If a product successfully generates sales in these test spots, we will then expand the campaign for the product over additional TV markets. During the test marketing stage we also tweak the video infomercial as to dialogue, and as to order of presentment of material.
Purchasing of Air Time
The products and demographics will dictate which TV market management selects for a particular campaign. We expect most of our spots to run approximately 2 minutes. The cost per spot will depend on which market it is show in, and at what time the spot airs. We may also use radio and/or direct mailing campaigns, and will provide a website over which a product can be purchased. We will need $300,000 to $400,000 for media buys. We are currently talking to several investors who have shown interest in financing Insynergy; however, none may decide to invest.
Telephone Marketing Functions
Once a customer has decided to buy our product, they either call an 800 phone number or go to a website to conclude the purchase. In todays marketing climate, order taking for many products sold under $20 is done by an interactive voice recognition telephone application (IVR) which electronically takes the customers name and address, phone number, credit card information and orders for products. Order information will be in a file format to be batched and sent daily to a fulfillment facility.
Using the IVR application is perhaps half the cost of using live agents to respond to calls, but for some products with higher price points, live sales agents provided by independent third party contractors will be used.
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The Company will subcontract out to independent third parties the telephone marketing functions associated with a campaign for each product. Initially, the Company has contracted for Ignite Media Solutions (Ignite Media) to provide this function, although many other companies are available to undertake this roll at competitive pricing, and the Company may use others in the future.
Based on our contract with Ignite Media, inbound calls are billed at $0.15 per connect minute with a $0.35 per order processing fee for all phone orders. There is also a set-up and development fee of $750 for the IVR application and a one-time programming, training and set-up fee of $1,000 for live operator services. All live operator calls are billed at $0.80 per connect minute.
Manufacture of Products
The Company will out-source the manufacture of products it markets to independent third party companies. The Company has had discussions with several Mainland China manufacturers, for the manufacture of products. Unless presented with a Letter of Credit, a mainland China manufacturer generally requires 30% as down payment to begin manufacturing and the balance when the product is ready to ship. Management believes there are many sources for manufacturing in China, and elsewhere offshore, which are generally dependable and reasonably priced
Fulfillment of Orders
Fulfillment involves the storage of inventory, acceptance of order information, boxing and shipping out of products, and dealing with questions, order status, complaints, returns and allowances on products, and maintaining proper records. The fulfillment function on each product will be sub contracted out to independent third party companies on each product.
Initially, the Company has contracted for Moulton Logistics to provide this function, although many other companies are available to undertake this role at competitive prices, and the Company may use others in the future.
Moulton Logistics is headquartered in Van Nuys, California, close to the Los Angeles and Long Beach ports and is also close to the Companys offices, and specializes in order taking and fulfillment for Direct Marketing Response Products. Moulton Logistics can provide a full range of fulfillment services including a full call center, full service direct mail, real-time online inventory reports, database management, continuity programs, Electronic Data Interchange for retail fulfillment and drop shipping, among others.
The Companys contract with Moulton Logistics provides for a Data Base/Order Processing/Maintenance Fee of $.72 on each customer transaction, a $0.10 per transaction fee on credit card and e-check transactions, and a $0.55 per transaction fee plus separate SKU fees and per cubic foot fees for packaging and shipping.
Credit Card Transactions
Sales orders for Direct Response Marketing Programs are typically taken using credit cards. The Company has contracted for credit card processing of sales orders on products with Litle & Co., an independent third party company. Litle & Co. powers payment processing for companies that sell direct to consumers through internet retail, online services, direct response marketing and multichannel retail.
Product Campaign Failure
Some of our future Direct Response Marketing Campaigns will no doubt fail. Direct response products can fail due to many reasons, including no perceived need for the product, other competing products provide better solutions or are better priced, the product price is too high, the infomercial is unconvincing, the wrong time slot or market segment is selected for broadcast, the marketing company lacks sufficient capital to fund product inventory and air time purchase, and for a variety of other reasons. Larger trends, such as a recessionary economy, less discretionary purchasing power in the hands of consumers, more restrictive credit or higher rates on credit cards, also can discourage sales and cause a campaign to fail. Other issues can also cause a campaign to fail, such as too low a price markup, poor quality resulting in high returns, a lack of sufficient capital to purchase sufficient airtime, or to purchase sufficient inventory, or failure by third party contractors to properly carry out their responsibilities for manufacturer, order taking, and fulfillment.
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Management will endeavor to avoid these pitfalls in selection of a product, production of the TV spot, test marketing, purchasing of air time, and other aspects of running of the campaign, but there are significant risks in conducting a direct response marketing business, and we will no doubt have some product failures which will result in loss, while other products may barely breakeven and return the costs laid out to undertake product production and the campaign.
Transition from Direct Response Marketing to Brick and Mortar Distribution
If a product is financially successful in our direct marketing response campaign, management will consider marketing and distributing the product to big box retail stores, building off the product branding that has occurred by running the television campaign.
Competition
There is significant competition in the Direct Response industry from both small and large companies since there are really no barriers to entry. As a result, there are literally hundreds of direct response companies that operate in the U.S. and offer a wide variety of products across all categories of consumer goods.
The Company will have to rely on the skills of its management to pick products which produce successful direct response marketing campaigns and ultimately profits to the Company.
Insurance
The Company carries general liability insurance through CNA with an occurrence limit of $1,000,000 with a general aggregate of $2,000,000 and a deductible of $500. Studio City Plaza Title Holding Co. LLC, the Companys landlord, is listed as an Additional Insured.
The Company also carries product liability insurance to insure against liability on the products it sells.
Patents, Trademarks, Copyrights
The Company may file registrations for such patents, trademarks, or copyrights, as it deems commercially prudent from time to time, but has made no such filings as of this date.
Government Regulation
Our infomercials may be subject to regulation by the FTC and each of the states under general consumer protection statutes prohibiting unfair or deceptive acts and practices. Most deception involves written or oral misrepresentations, or omissions of material information. Deception may also occur in other forms of conduct associated with a sales transaction.
Employees
The Company has three full-time employees, but will use independent contractors when we shoot our direct response marketing TV spots.
Item 1A. RISK FACTORS
Emerging Growth Company Status
We qualify as an emerging growth company under the recently enacted Jumpstart Our Business Startups Act of 2012 (the JOBS Act). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, among other things, we will not be required to:
Have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
Submit certain executive compensation matters to shareholder advisory votes, such as say-on-pay and say-on-frequency
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Obtain shareholder approval of any golden parachute payments not previously approved; and
Disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executives compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion; (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Investment in our shares is speculative.
Shares of our common stock are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment.
We are dependent upon external financing to fund our ongoing operations and implement our business plan.
Currently, we are dependent upon external financing to fund our operations. We project that the Company will need over the next 12 months approximately $1,000,000 in additional working capital to meet short term liquidity requirements. Of this sum, approximately $50,000 is estimated to be required to fund our public reporting requirements. It is imperative that we obtain this external financing to finance ongoing operations. We currently do not have commitments from third parties for additional capital. We cannot be certain that any such financing will be available or available on commercially reasonable terms.
Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and stock price and require us to curtail or cease operations, sell off our assets, and/or perhaps seek protection from our creditors through bankruptcy proceedings.
Furthermore, additional equity financing, if obtained, may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, which may require that we relinquish valuable rights.
No assurance the Company will be successful and ultimately operate profitably.
The Company is currently operating at a loss, and there is no assurance that the plans and strategies of the Company will be successful, or that the Company will be able to operate profitably. If we cannot operate profitably, you could lose your entire investment. We may not generate sufficient revenues in the next twelve months to become profitable and therefore will have to rely solely on the cash we raise from the private sale of debt or equity securities. Our ability to privately sell our securities is uncertain, as are the future terms upon which they might be sold.
The products we select for direct response marketing may not receive favorable market response, or the product campaign may fair for other reasons.
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Some of our future Direct Response Marketing Campaigns will no doubt fail. Direct Response Marketing products can fail due to many reasons, including no perceived need for the product, other competing products provide better solutions or are in the hands of consumers, more restrictive credit and higher rates on credit cards, also can discourage sales and cause a campaign to fail. Operational issues can also cause a campaign to fail, such as too low a price markup, poor quality resulting in high returns; a lack of sufficient capital to purchase sufficient inventory, or failure by sub contractors to properly carry out their responsibilities for manufacturer, order taking, and fulfillment.
Lack of market acceptance for a product is a particularly significant risk in our business. We will no doubt have some failures which will result in loss, and some products will likely only break even, doing little more then return the costs expended to undertake product production and to pay for the campaign itself. It is up to management to select, test, and carefully place infomercials for those Products which in managements opinion have a good chance of being successful and generating significant revenues and profits in the Market place. There is no assurance that management will be successful in these efforts to the required degree so that the Company becomes profitable.
With no significant operating history it is difficult to evaluate our Company
The Company was deemed to have exited the development stage at December 31, 2012 as it had began planned principle operations. Our business and prospects are difficult to evaluate because we have minimal operating history. An investment in us should be considered a high-risk investment where you could lose your entire investment.
We face intense competition from competitors with more experience, long track records, larger staffs, and better funding.
We will face intense competition in our industry from other established Companies once we begin product campaigns. We will compete to obtain licenses for products, for air time, and for the attention of the consumer and the consumers discretionary dollar spent in this market. Many of our competitors have significantly greater financial, technological, marketing and distribution resources than we do. Their greater capabilities in these areas enable them to better withstand periodic product campaign failures, and more general downturns in the industry, compete more effectively on the basis of price and production and more quickly develop or locate and license new products. In addition, new companies may enter the markets in which we expect to compete, further increasing competition in our industry.
Our product liability insurance may not be sufficient to cover claims.
We carry product liability insurance in such amounts as management deems appropriate, but there is no assurance that such insurance will be sufficient to cover claims if one of our products does not perform as described and causes damage. The Company could in the future become liable for substantial claims which in the aggregate materially exceed the limits of the Company product liability insurance, with that result that the Company suffers substantial losses, with a resulting loss in value of our stock.
We could fail to retain one or both of our two principle officers, which could be detrimental to our operations.
Our success largely depends on the efforts and abilities of our Chief Executive Officer, Sanford Lang, and our Chief Operating Officer, Martin Goldrod. We have employment agreements with Messrs Lang and Goldrod, but we do not carry key man insurance on their lives. The loss of either ones services could materially harm our business because of the cost and time necessary to find a successor.
Our two principle executive officers in the aggregate own 45.46% of our outstanding common stock and control the Company.
Our two principle executive officers, Sanford Lang and Martin Goldrod, in the aggregate own or control 45.46% of our outstanding common stock. As a result of this control, they effectively control the election of a majority of our Board of Directors, and have the ability to unilaterally block mergers, acquisitions and/or other corporate transactions which require the consent of a majority in capital interest of our shareholders.
Trading of our stock may be restricted by the Securities Exchange Commissions penny stock regulations, which may limit a stockholders ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally define penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject
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to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth exclusive of home in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
As a public company, we are required to meet periodic reporting requirements under SEC rules and regulations. Complying with federal securities laws as a public company is expensive and we will incur significant time and expense enhancing, documenting, testing and certifying our internal control over financial reporting.
We are required to file periodic reports containing our financial statements within a specified time following the completion of each quarterly and annual period, which comply with SEC rules and regulations, including audited financial statements. We may experience difficulty in meeting these SEC's reporting requirements. Any failure by us to file compliant periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.
As a public company we will incur significant legal, accounting, insurance and other expenses. Compliance with the Sarbanes-Oxley Act of 2002 and with other SEC and Financial Industry Regulatory Authority (FINRA) rules will increase our legal and financial compliance costs and make some activities more time-consuming and costly. We cannot predict or estimate with precision the amount of additional costs we may incur or the timing of such costs.
Currently, we are an emerging growth company, and, therefore, do not have to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five years. Beginning with our Annual Report on Form 10-K for our fiscal year ending December 31, 2013, if we are no longer considered an emerging growth company, our independent registered public accounting firm will be required to comply with these Section 404 requirements. This process generally requires significant documentation of policies, procedures and systems, review of that documentation by our internal accounting staff and our outside auditors and testing of our internal control over financial reporting by our internal accounting staff and our outside independent registered public accounting firm. Documentation and testing of our internal controls would involve considerable time and expense, and could strain our internal resources and have an adverse impact on our operating costs, and may make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
Item 2. PROPERTIES
Our principal offices are located at 4705 Laurel Canyon Blvd., Suite 205, Studio City, California, 91607. The property is leased from Studio City Plaza Title Holding Co. LLC, an unaffiliated third party, on a long term lease basis with 14 remaining months to run. The monthly lease payments are approximately $6,541. The Company considers the space to be adequate for the next several years.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed to trade on the OTCMarkets Pink under the symbol ISYG. The following table presents the range of the high and low trading prices of our common stock for each quarter of the years ended December 31, 2013 and 2012 as reported by the OTCMarkets. Bid and ask quotations are available when there are two or more market makers and those quotations represent prices between dealers and may not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.
2013 | 2012 | |||||
Fiscal Quarter Ended | High | Low | High | Low | ||
March 31 June 30 September 30 December 31 | $ 1.50 2.90 2.95 2.05 | $ 1.01 1.00 2.00 0.99 | $ - - - 2.00 | $ - - - 0.85 |
Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the penny stock rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares. Broker-dealers who sell penny stocks to persons other than established customers and accredited investors must make a special suitability determination for the purchase of the security. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse, and certain institutional investors. The rules require the broker-dealer to receive the purchasers written consent to the transaction prior to the purchase and require the broker-dealer to deliver a risk disclosure document relating to the penny stock prior to the first transaction. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent to customers disclosing recent price information for the penny stocks.
Holders
As of March 24, 2014, we had 138 shareholders of record, which does not include shareholders who hold shares in street accounts of securities brokers.
Dividends
We have not paid cash or stock dividends and have no present plan to pay any dividends, intending instead to reinvest our earnings, if any. For the foreseeable future, we expect to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely.
Recent Sales of Unregistered Securities
On January 17, 2013 the Company issued an aggregate of 6,000 shares of common stock for $3,000 cash. Kyle Clark was issued 3,000 shares for $1,500 and Lina Wong was issued 3,000 shares for $1,500. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On March 19, 2013 the Company issued 500,000 shares of common stock to Ronald Dorfman for legal services valued at $250,000. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On March 19, 2013 the Company issued 100,980 shares of common stock to Bershin Properties I, LLC in consideration for rental expense valued at $50,490. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
11
On April 17, 2013 the Company issued 250,000 shares of common stock to Phillip Miller, the former Vice President of Production for compensation valued at $86,793. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On May 9, 2013 the Company issued 62,500 shares of common stock to Full Service Marketing for marketing services valued at $17,188. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On May 31, 2013 the Company issued 400,000 shares of common stock to Gary Margolis for $100,000. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On June 28, 2013 the Company issued 64,200 shares of common stock to Bershin Properties I, LLC in consideration for rental expense valued at $19,260. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On July 24, 2013 the Company issued 500,000 shares of common stock to Bob S. Safai for $125,000. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On October 16, 2013 the Company issued 1,000,000 shares of common stock to Paul Bershin for $300,000. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On October 23, 2013 the Company issued 10,000 shares of common stock to Super People, Inc. in consideration for marketing services valued at $2,850. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On November 9, 2013 the Company issued 62,500 Full Service Marketing for marketing services valued at $17,813. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
On December 26, 2013 the Company issued 277,777 shares of common stock to Richard Sweeney for $75,000. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
In instances described above where we issued securities in reliance upon Section 4(2) under, the Securities Act, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the sale of the stock took place directly between the offeree and us, (f) the offeree in each cash was sophisticated, able to bear the risks of investment, and able to fend for himself; (g) all shares were taken for investment and not with a view to distribution, and appropriate legends were placed on all share certificates, (h) in each case the Company has a significant and long lasting relationship with the investor prior to issuance.
Issuer Purchase of Securities
The Company did not repurchase any of its securities during the fiscal year ended December 31, 2013.
Item 6. SELECTED FINANCIAL DATA
The registrant is a smaller reporting company, pursuant to Rule 229.10(f)(1), and is not required to report this information.
12
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
During 2013, the Company decided not to move forward with two products but comenced licensing agreements for eight others. These new products fall into the house wares and fitness categories.
Three production companies were chosen to shoot TV spots for our plumbing product, a hair straightening product and a fitness product. All three companies chosen have had direct response sales success in these specific areas. The plumbing product is scheduled to be shot the end of the first quarter of 2014 and will be a two minute spot. The other two products should be shot in the second quarter 2014 and both are expected to be thirty minute infomercials.
At the end of 2013, the Best Ball, our 65 cm rubber ball used at home and in the gym went through the quality assurance process at one of the TV shopping channels and was approved and we are soliciting them for an order. Also, an Italian home shopping TV channel has already ordered and been shipped inventory.
Liquidity and Capital Resources
We have been the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern. Our financial statements have been prepared assuming we will continue as a going concern. The Company had an accumulated deficit of $4,693,105 at December 31, 2013 and had a net loss of $1,363,986. During the year ended December 31, 2013, net cash used by operating activities was $786,157 compared to $520,771 for the prior year. Net cash flows from financing activities for the year ended December 31, 2013 were $779,553 compared to $623,788 for the prior year.
The Company is dependent on obtaining additional working capital in order to continue to implement its business plan and initiate its first product campaign, and the source, availability and terms for such additional capital are uncertain at this date. If such additional capital is not obtained, and/or if the products selected for marketing prove to be unsuccessful, the Company may fail and be unable to continue as a going concern.
The Companys 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. This need for additional capital and the uncertainty of obtaining such capital, along with other factors, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs, which we estimate at a minimum of $1,000,000.
The Company needs to locate investment capital sources and raise privately $1,000,000 before it can initiate a Direct Marketing Campaign for its first product. These funds will be used for product testing, product manufacture, video production, air time purchase, and operation of the initial Marketing Campaign, and for overhead expenses and working capital.
Commitments and Contingent Liabilities
Our total liabilities at December 31, 2013 were $442,563 compared to $863,249 at December 31, 2012. The decrease reflects a decrease of accrued compensation due to our officers agreeing not to receive the full salaries that had been accruing from the past.
Results of Operations for the years ended December 31, 2013 compared to the year ended December 31, 2012
The following information should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Form 10-K. We also urge you to review and consider our disclosures describing various risks that may affect our business, which are set forth under the heading "Risk Factors".
Revenues
13
The Company recorded its first revenue in the fourth quarter of 2012. During the year ended December 31, 2013 the Company recorded revenues of $23,740. Cost of goods sold was $69,437, which included $60,316 of impairment expense for the write down of inventory. The Company determined that it was in our best interest to no longer pursue the marketing and production of two of our initial products, The Kruncher and the Xsize sandal. As of December 31, 2013, the Company sold our remaining inventory of The Kruncher for $14,717 below cost. In addition, the Company impaired the remaining $34,140 of inventory of the Xsize sandal to cost of goods.
Operating Expenses
For the year ended December 31, 2013, consulting expense decreased to $2,000 from $29,790 for the year ended December 31, 2012. The decrease is the result of the consultant from the prior year becoming an employee and his services are now charged to compensation expense; however, there was a decrease in compensation expense during the year as a result of the officers transitioning from accruing compensation with sporadic cash payments to the use of a payroll service provider. During this period the officers agreed to not receive the full salaries that had been accruing in the past.
For the year ended December 31, 2013, the Company incurred $261,661 in advertising and promotional expense as compared to $51,226 for the prior year, an increase of $210,435, or 411%. The increase is a result of increased spending on promotional activities for the Companys many new products.
For the year ended December 31, 2013, the Company incurred $366,467 in professional fees compared to $113,564 in the prior year, an increase of $252,903 or 223%. The increase is due to increased fees related to quarterly SEC filing requirements and filing a post-effective amendment to our Registration Statement on Form S-1, as well as stock issued for legal services in the amount of $250,000.
For the year ended December 31, 2013, the Company incurred $530,761 in general and administrative expense as compared to $356,632 for the prior year, an increase of $174,129, or 48.9%. The increase can be attributed to increased spending on promotional activities for the Companys new products, increased travel expense and other general activities in connection with increased operations.
For the year ended December 31, 2013, the Company recorded a net loss of $1,363,986 as compared to a net loss of $867,143 in the prior year, a $496,834, or 57% increase. The increase can be attributed to the increase in advertising and promotion and general and administrative expenses as discussed above, professional fees including stock issued for services, as well as a $35,259 loss on disposal of fixed assets. This was offset by a $121,238 gain on extinguishment of debt.
Critical Accounting Estimates and Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.
We are subject to various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.
We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled. Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.
14
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update 2013-11 Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss or a tax credit carry-forward, except as follows. To the extent a net operating loss carry-forward, a similar tax loss or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INSYNERGY PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
17
Balance Sheets as of December 31, 2013 and 2012
18
Statements of Operations for the years ended December 31, 2013 and 2012
19
Statements of Cash Flows for years ended December 31, 2013 and 2012
20
Statements of Stockholders Equity (Deficit) for the years ended December 31, 2013 and 2012
21
Notes to the Financial Statements
22
16
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Insynergy Products, Inc.
Studio City, California
We have audited the accompanying balance sheets of Insynergy Products, Inc. as of December 31, 2013 and 2012, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Insynergy Products, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered losses from operations since inception and its current cash flow is not enough to meet current needs. This raises substantial doubt about the Companys ability to continue as a going concern. Managements plans in regards to this matter are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
HJ Associates & Consultants, LLP
Salt Lake City, Utah
March 28, 2014
17
INSYNERGY PRODUCTS, INC. BALANCE SHEETS | |||||
December 31, 2013 | December 31, 2012 | ||||
ASSETS |
| ||||
Current Assets: |
| ||||
Cash | $ | 8,398 |
| $ | 67,860 |
Inventory | 25,730 | 120,573 | |||
Prepaid and other expenses | 71,362 | 65,288 | |||
Total Current Assets | 105,490 |
| 253,721 | ||
| |||||
Deposit | 10,610 |
| 10,610 | ||
Property and equipment, net | 72,596 |
| 88,924 | ||
Total Assets | $ | 188,696 |
| $ | 353,255 |
|
| ||||
LIABILITIES AND STOCKHOLERS' EQUITY (DEFICIT) |
| ||||
Current Liabilities: |
| ||||
Accounts payable | $ | 122,863 |
| $ | 82,747 |
Other payable and accruals | 10,593 |
| 48,468 | ||
Accrued compensation | 92,332 | 591,376 | |||
Due to an officer | 32,500 | 5,470 | |||
Notes payable | 177,311 | 100,288 | |||
Accrued interest | 6,964 | 15,750 | |||
Total Current Liabilities | 442,563 |
| 844,099 | ||
Non-Current Liabilities: |
|
|
| ||
Notes payable | - |
| 17,500 | ||
Accrued interest | - |
| 1,650 | ||
Total Liabilities | 442,563 |
| 863,249 | ||
Stockholders' Equity (Deficit): |
| ||||
Common Stock par value $.001 300,000,000 shares authorized, 19,760,683 and 16,526,726 shares, issued, respectively | 19,762 |
| 16,528 | ||
Additional paid in capital | 4,419,476 |
| 2,802,597 | ||
Retained deficit | (4,693,105) |
| (3,329,119) | ||
Total Stockholders' Equity (Deficit) | (253,867) |
| (509,994) | ||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 188,696 |
| $ | 353,255 |
|
|
| |||
The accompanying notes are an integral part of these financial statements. |
18
INSYNERGY PRODUCTS, INC. STATEMENTS OF OPERATIONS | |||||
|
|
|
|
| |
|
| For the Years Ended December 31, | |||
|
| 2013 |
| 2012 | |
Revenues | $ | 23,740 | $ | 3,381 | |
Costs of goods sold |
| 69,437 |
| 1,186 | |
Gross margin (deficit) |
| (45,697) |
| 2,195 | |
|
|
|
| ||
Operating Expenses: |
|
|
| ||
Consulting |
| 2,000 |
| 29,790 | |
Officer compensation |
| 234,313 |
| 326,250 | |
Advertising and promotion | 261,661 | 51,226 | |||
Professional fees | 366,467 | 113,564 | |||
General and administrative |
| 530,761 |
| 356,632 | |
Total operating expenses |
| 1, 395,202 |
| 877,462 | |
|
|
| |||
Loss from operations |
| (1,440,899) |
| (875,267) | |
|
|
| |||
Other Income (Expense): |
|
|
| ||
Interest expense |
| (11,666) |
| (7,653) | |
Loss on disposal of assets | (35,259) | - | |||
Other income | 2,600 | - | |||
Gain on extinguishment of debt | 121,238 | 15,777 | |||
Total other income (expense) |
| 76,913 |
| 8,124 | |
|
|
| |||
Net Loss | $ | (1,363,986) | $ | (867,143) | |
|
|
| |||
Loss per Share, Basic & Diluted | $ | (0.08) | $ | (0.06) | |
Weighted Average Shares Outstanding |
| 17,930,498 |
| 15,618,582 | |
The accompanying notes are an integral part of these financial statements. |
19
INSYNERGY PRODUCTS, INC. STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) | |||||||||||
Common Stock | Additional | Stock | |||||||||
| Shares | Amount | Paid in Capital | Subscription Receivable | Accumulated Deficit | Total | |||||
Balance, December 31, 2011 | 15,021,150 | $ | 15,021 | $ | 2,271,751 | $ | (147,000) | $ | (2,461,976) | $ | (322,204) |
Cash received on subscription | - | - | - | 147,000 | - | 147,000 | |||||
Stock issued for cash | 1,317,276 | 1,317 | 465,183 | - | - | 466,500 | |||||
Stock issued for services | 188,300 | 190 | 65,061 | - | - | 65,251 | |||||
Interest on officer loans | - | - | 602 | - | - | 602 | |||||
Net Loss for the year ended December 31, 2012 | - | - | - | - | (867,143) | (867,143) | |||||
Balance, December 31, 2012 | 16,526,726 | 16,528 | 2,802,597 | - | (3,329,119) | (509,994) | |||||
Stock issued for cash | 2,183,777 | 2,184 | 600,816 | - | - | 603,000 | |||||
Stock issued for services & accrued rent | 800,180 | 800 | 356,801 | - | - | 357,601 | |||||
Stock issued for accrued compensation | 250,000 | 250 | 86,543 | - | - | 86,793 | |||||
Forgiveness of related party debt | - | - | 539,000 | - | - | 539,000 | |||||
Contributed services | - | - | 32,964 | - | - | 32,964 | |||||
Interest on officer loans | - | - | 755 | - | - | 755 | |||||
Net Loss for the year ended December 31, 2013 | - | - | - | - | (1,363,986) | (1,363,986) | |||||
Balance, December 31, 2013 | 19,760,683 | $ | 19,762 | $ | 4,419,476 | $ | - | $ | (4,693,105) | $ | (253,867) |
The accompanying notes are an integral part of these financial statements. |
20
INSYNERGY PRODUCTS, INC. STATEMENTS OF CASH FLOWS | |||||
| |||||
| For the Years Ended December 31, | ||||
| 2013 | 2012 | |||
CASH FLOW FROM OPERATING ACTIVITES: | |||||
Net Loss for the Year | $ | (1,363,986) |
| $ | (867,143) |
Adjustments to reconcile net loss to net cash used by operating activities: |
| ||||
Shares issued for services and rent | 295,647 |
| 65,251 | ||
Depreciation | 33,928 |
| 20,421 | ||
Contributed services | 32,964 |
| - | ||
Gain on extinguishment of debt | (121,238) | 15,777 | |||
Loss on disposal of fixed assets | 35,259 | - | |||
Inventory impairment | 60,316 | - | |||
Interest expense on shareholder loan | 755 |
| 602 | ||
Changes in Operating Assets and Liabilities: |
| ||||
(Increase) / decrease in prepaids | 33,809 |
| (44,805) | ||
(Increase) / decrease in inventory | 34,527 | (120,573) | |||
Increase in accounts payable | 40,116 |
| 30,205 | ||
Increase in accrued expenses | 124,183 |
| 373,044 | ||
Increase in interest payable | 7,563 |
| 6,450 | ||
Net Cash (Used) in Operating Activities | (786,157) |
| (520,771) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
| ||||
Purchase of property and equipment | (52,858) |
| (74,150) | ||
Net Cash Used by Investing Activities | (52,858) |
| (74,150) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
| ||||
Proceeds from issuance of stock | 603,000 |
| 613,500 | ||
Officer advances | 70,000 |
| - | ||
Repayment of officer advance | (37,500) |
| - | ||
Payments on loan from shareholders | (5,470) | - | |||
Proceeds from notes payable | 472,742 |
| 34,072 | ||
Payments on notes payable | (323,219) | (23,784) | |||
Net Cash Provided by Financing Activities | 779,553 |
| 623,788 | ||
Net Increase (decrease) in Cash | (59,462) |
| 28,867 | ||
Cash at Beginning of Period | 67,860 |
| 38,993 | ||
Cash at End of Period | 8,398 |
| 67,860 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
| |||
Cash paid during the year for: |
|
|
| ||
Interest | $ | 728 |
| $ | 601 |
Franchise and income taxes | $ | 301 |
| $ | 1,600 |
Supplemental disclosure of non-cash activities: | |||||
Forgiveness of related party debt | $ | 539,000 | $ | - | |
Stock issued for accrued rent | $ | 30,000 | $ | - | |
Stock issued for prepaid rent | $ | 19,260 | $ | - |
The accompanying notes are an integral part of these financial statements.
22
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
Insynergy Products, Inc. (formerly Insynergy, Inc.) (the "Company") was incorporated in the State of Nevada on January 26, 2010 to engage in Direct Response marketing that has the ability to take a product from the drawing board to the ultimate consumer via sales through television and/or retail. Direct Response marketing is a booming $300 billion per year business that has evolved during the past two decades from an entrepreneurial industry to one that now encompasses the marketing efforts of a vast majority of Fortune 500 companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Companys financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (Paragraph 820-10-35-37) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
22
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally observable inputs and not corroborated by market data.
The carrying amount of the Companys financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Companys notes payable approximate the fair value of such instruments based upon managements best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2013.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis.
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. All fixed assets with a cost of $2,000 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
Equipment 3 years
Furniture and fixtures 3 years
Impairment of long-lived assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Companys long-lived assets, which includes computer equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
Commitments and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Revenue recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
23
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income taxes
The Company follows Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (Section 740-10-25) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
Net income (loss) per common share
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period presented.
There were no potentially dilutive shares outstanding as of December 31, 2013 and 2012.
Advertising Costs
The Company expenses the cost of advertising and promotional materials when incurred. For the years ended December 31, 2013 and 2012 advertising costs were $261,661 and $51,226, respectively.
Reclassifications
Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements for the year ended December 31, 2013.
Recently issued accounting pronouncements
In July 2013, the FASB issued Accounting Standards Update 2013-11 Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss or a tax credit carry-forward, except as follows. To the extent a net
24
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
operating loss carry-forward, a similar tax loss or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 GOING CONCERN
As reflected in the accompanying financial statements, the Company has an accumulated deficit of $4,693,105 at December 31, 2013, had a net loss of $1,363,986 and net cash used in operating activities of $786,157 for year ended December 31, 2013. This raises substantial doubt about the Companys ability to continue as a going concern.
While the Company is attempting to increase operations and revenues, the Companys cash position may not be significant enough to support the Companys daily operations. Management intends to raise additional funds by way of debt and equity financing. Management believes that the actions presently being taken to further implement its business plan and generate increased revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate increased revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Companys ability to further implement its business plan and generate increased revenues.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 INVENTORY
As of December 31, 2013 and 2012, the Company has $25,730 and $120,573, respectively of finished goods inventory. Inventory is carried at the lower of cost or market.
During the year ended December 31, 2013 the Company determined that it was in its best interest to no longer pursue the marketing and production of two of its initial products, The Kruncher and the Xsize sandal. As of December 31, 2013, the Company sold the remaining inventory of The Kruncher for $14,717 below cost. In addition, the Company impaired the remaining $34,140 of inventory of the Xsize sandal to cost of goods.
25
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 5 PROPERTY AND EQUIPMENT
Furniture fixtures and equipment, stated at cost, less accumulated depreciation at December 31 consisted of the following:
|
| December 31, 2013 |
| December 31, 2012 | |
Furniture Fixtures & Equipment | $ | 104,165 |
| $ | 109,186 |
Leasehold improvements | 12,230 | 5,000 | |||
Less: accumulated depreciation |
| (43,799) |
|
| (25,262) |
Fixed assets, net | $ | 72,596 |
| $ | 88,924 |
During the year ended December 31, 2013 the Company determined that it was in its best interest to no longer pursue the marketing and production the Xsize sandal. Consequently the molds and tools used for the manufacturing of this product are of no future use to the Company and were returned to the distributer. The write off of the assets resulted in a $35,259 loss on disposal.
Depreciation expense
Depreciation expense for the years ended December 31, 2013 and 2012 was $33,928 and $20,421, respectively.
NOTE 6 NOTES PAYABLE
The Company has two non-collateral notes payable outstanding, that bear simple interest at 6% per annum. The first note is dated April 5, 2011 and is for $10,000. The second note is dated September 1, 2011 and is for $7,500. The notes principle and interest are due three years from the date of issuance. As of December 31, 2013 total accrued interest on the notes is $2,715.
On June 12, 2013, a third non-collateral notes payable dated February 3, 2010 for $90,000, plus $18,000 of accrued interest was forgiven by the note holder. As a result the Company has recorded a $108,000 gain on forgiveness of debt.
During the year ended December 31, 2013, an individual advanced the Company $97,500 for a short term loan. The loan accrues interest at 6% and is due on demand. As of December 31, 2013 total accrued interest on the loan is $3,863.
During the year ended December 31, 2013, an individual advanced the Company $50,000 for a short term loan. The loan accrues interest at 6% and is due on demand. As of December 31, 2013 total accrued interest on the loan is $386.
During the year ended December 31, 2013, an individual advanced the Company $276,257 for a short term loan. The loan accrued interest at 6% and was due on demand. As of December 31, 2013 all principle and interest on the loan was repaid in full.
As of December 31, 2013, the Company owed an individual $4,942. The loan accrues interest at 6% and is due on demand. The interest expense is recorded as additional paid in capital.
The Company also has financing loans for its product liability and Director and Officer insurance. As of December 31, 2013 and December 31, 2012 the loans have a balance of $7,369 and $31,140, respectively, they bear interest at 7.75% and are due within one year.
26
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 6 NOTES PAYABLE - continued
The five year maturity of these loans is as follows:
Year ended December 31, 2013 | $ | 177,311 |
2014 | - | |
Total Notes Payable | 177,311 | |
Less: Current Portion | 177,311 | |
Long Term Portion | $ | - |
NOTE 7 COMMITMENTS & CONTIGENCIES
Operating Lease
The Company currently occupies office space at 4705 Laurel Canyon Boulevard in Studio City, California. The Company signed a three year, three month lease starting December 1, 2011. Current lease payments are $6,541. The lease required a deposit of $10,610 which was paid on November 1, 2011.
During the quarter ended March 31, 2013, management negotiated a settlement with the lease holder to satisfy all past due and future lease payments through June 30, 2013. The terms of the agreement allowed for the Company to issue the lease holder 100,980 shares of common stock at $0.50 per share. The issuance of the stock relieved the Company of all past due amounts and paid its rent through June 30, 2013, which resulted in a gain on extinguishment of debt of $7,930.
During the quarter ended June 30, 2013, management agreed to issue the lease holder 64,200 shares of common stock at $0.30 per share in order to pay for the lease payments from July 1, 2013 through September 30, 2013.
Year | Amount | |
2014 | $ | 78,492 |
2015 | 13,082 | |
$ | 78,492 |
NOTE 8 RELATED PARTY TRANSACTIONS
Loans from Shareholders
Occasionally, officers will loan money at 6% interest rate to the Company to support working capital. As of December 31, 2012 the Company owed its CEO $5,470. During the year ended December 31, 2013 the Company repaid the loan in full. For the period end December 31, 2013 and December 31, 2012 the Company recognized $52 and $328, respectively, of interest expense on the loan. The expense was recorded as additional paid in capital.
On or about June 7, 2013, two of the three officers of the Company agreed to forgive all of their accrued compensation. As a result the Company recorded $539,000 to additional paid in capital. Additionally accrued compensation of $32,964 was forgiven by these officers as of June 30, 2013.
In April 2013, the Company issued 250,000 shares of common stock to an officer, for accrued stock compensation, as required per the terms of the officers employment agreement and the Board Resolution dated April 2, 2012. Fair market value for the shares was determined by taking the average share price for each cash-for-stock purchase in the applicable period of accrual. The price ranged from $0.34 to $0.50 for a total expense of $86,793.
During the fourth quarter of 2013 an officer advanced the Company $70,000, $32,500 of which was repaid as of December 31, 2013. The Company recognized $406 of interest expense on the loan. The expense was recorded as additional paid in capital.
27
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 9 STOCKHOLDERS EQUITY (DEFICIT)
During the year ended of December 31, 2013, the Company issued 2,183,777 common shares for total cash proceeds of $603,000.
During the year ended December 31, 2013, the Company issued 500,000 shares of common stock for services. The shares were valued at $0.50 per share for a total expense of $250,000. Fair market value for the shares was determined by taking the average share price for each cash-for-stock purchase in the period.
During the year ended December 31, 2013, the Company issued 165,180 shares of common stock for accrued rent and current period rent expense (see Note 7).
During the year ended December 31, 2013, the Company issued 135,000 shares of common stock for services. The shares were valued at $0.28 per share for a total expense of $37,850, $12,685 of which was booked to prepaid expense for marketing services. Fair market value for the shares was determined by taking the average share price for each cash-for-stock purchase in the period.
NOTE 10 INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax asse,ts are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31:
|
| 2013 | 2012 | ||
Deferred Tax Assets: |
|
|
| ||
NOL Carryover | $ | 964,700 | $ | 298,300 | |
Related party accrual |
| - |
| 2, 100 | |
Depreciation | 2,600 | 200 | |||
Payroll accrual | 40,100 | 213,300 | |||
Deferred tax liabilities: | |||||
Less valuation allowance |
| (1,007,400) |
| (513,900) | |
Net deferred tax assets | $ | - | $ | - |
28
INSYNERGY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 10 INCOME TAX - continued
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the period ended December 31, due to the following:
| 2013 |
| 2012 | |
Book Income (loss) | $ | (532,000) | $ | (338,200) |
Meals and entertainment |
| 4,900 |
| 2,800 |
Depreciation | 1,800 | 500 | ||
Other nondeductible expenses |
| 34,500 |
| 37,400 |
Related party accruals | (2,100) | - | ||
Accrued payroll |
| (173,200) |
| 109,900 |
Valuation allowance |
| 666,100 |
| 187,600 |
| $ | - | $ | - |
At December 31, 2013, the Company had net operating loss carry forwards of approximately $2,473,000 that may be offset against future taxable income from the year 2012 to 2032. No tax benefit has been reported in the December 31, 2013 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
NOTE 11 SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other then noted below.
Subsequent to the year ended December 31, 2013 the Company approved the issuance of a Stock Option to Full Service Marketing. The option is for the purchase of 1,000,000 common shares at an option price of $0.27 with a term of three years.
30
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements between the Company and our accountants related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedures during the last two fiscal year.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer who also acts as our principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SECs rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer concluded that, as of December 31, 2013, these disclosure controls and procedures were effective.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible to establish and maintain adequate internal control over financial reporting. Our Chief Executive Officer is responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:
•
maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets,
•
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and
•
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the fiscal year December 31, 2013, our internal control over financial reporting was effective at that reasonable assurance level.
Changes in Internal Controls over Financial Reporting
Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2013.
Attestation Report of Independent Public Accounting Firm
31
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting because as a smaller reporting company we are not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only managements report in this annual report.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers. Also the principal offices and positions with us held by each person and the date such person became our director, executive officer. Our executive officers are appointed by our Board of Directors. Our directors serve until the earlier occurrence of the election of his or her successor at the next meeting of stockholders, death, resignation or removal by the Board of Directors. There are no family relationships among our directors, executive officers, director nominees.
Name | Age | Position |
Sanford Lang | 68 | Chief Executive Officer, Director & Chairman |
Martin Goldrod | 72 | Chief Financial Officer, Director, President, & COO |
Mark Spallucci | 44 | Director |
Sanford Lang is a co-founder of Insynergy and has served as its Chief Executive Officer and as Chairman of its Board of Directors from January 2010 when the company was incorporated, to the present. From January 2007 to October 2009, Mr. Lang was President of Xstatic Corporation, a company involved in the development, marketing and sale of retail products designed to improve strength, balance and flexibility. Mr. Lang was responsible for planning and implementation of all marketing for products, including the scripting and shooting of video campaigns for the Products. Mr. Lang was previously for approximately 30 years an executive in the movie industry.
Martin Goldrod is a co-founder of Insynergy, and has served as its President and Chief Operating Officer, as well as on the Board of Directors, from January 2010 when the company was incorporated, to the present. From January 2007 to October 2009, Mr. Goldrod was Vice President of Xstatic Corporation, a company involved in the development, marketing and sale of retail products designed to improve strength, balance and flexibility. Mr. Goldrod was responsible for accounting and budgeting for Xstatic Corporation. Mr. Goldrod has an Associate of Arts degree from City College of San Francisco along with a certificate in Financial Planning from UCLA Extension.
Mark Spallucci was appointed as a Director to fill a vacancy on our Board of Directors on June 22, 2012, Mr. Spallucci has been for more than the last 10 years a partner in Paravista, a printing and promotional company involved in the printing and the development of promotional items for many Fortune 500 companies in the Pharmaceutical, Financial and Entertainment industries. For the last 5 years he has held the title of Managing Partner for Paravista. In this role he is responsible for directing the development of client focused solutions for new product launches, brand line extensions and custom overseas products.
32
Involvement in Certain Legal Proceedings
None of our officer nor directors, promoters or control persons have been involved in the past ten years in any of the following:
(1) | Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
(2) | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
(3) | Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
(4) | Being found by a court of competent jurisdiction (in a civil action), the 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. |
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than ten percent of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. Officers, directors and ten-percent or greater beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based upon a review of those forms and representations regarding the need for filing for the year ended December 31, 2013, we believe Mr. Sanford failed to file a Form 4 within the required time related to four transactions.
Corporate Governance
We do not have a standing nominating committee for directors, nor do we have an audit committee with an audit committee financial expert serving on that committee. Our entire board of directors, including Messrs. Sanford, Goldrod and Spallucci, act as our nominating and audit committee.
Code of Ethics
The Company has not adopted a Code of Ethics.
Item 11. EXECUTIVE COMPENSATION
The following table provides information as to cash compensation of all executive officers of the Company, for each of the Companys last two fiscal years.
SUMMARY COMPENSATION TABLE
Name and principal position | Year | Salary | Bonus | All Other Compensation | Total |
Sanford Lang CEO | 2013 2012 | $58,585 $29,200 | $0 $0 | $0 $0 | $0 $0 |
Martin Goldrod, President, COO & CFO | 2013 2012 | $29,241 $21,500 | $0 $0 | $0 $0 | $0 $0 |
Phillip Miller, former VP of Production | 2013 2012 | $86,793 $0 | $0 $0 | $0 $0 | $0 $0 |
33
Employment Agreements
We have separate employment agreements with our two principle officers as follows:
The Company has entered into a five year employment contract with Sanford (Sandy) Lang, providing for his services as Chief Executive Officer of the Company. The employment Agreement provides for a salary of $180,000 per year, and for additional bonus compensation each year at the discretion of the Board of Directors. It also provides for a car allowance of $900 per month, reimbursement for all business expenses, and for participation in all employee benefit programs offered to other employees from time to time to other employees of the Company.
The Company has entered into a five year employment contract with Martin (Marty) Goldrod, providing for his services as President and Chief Operating Officer of the Company. The employment Agreement provides for a salary of $90,000 per year, and for additional bonus compensation each year at the discretion of the Board of Directors. It also provides for reimbursement for all business expenses, and for participation in all employee benefit programs offered to other employees from time to time to other employees of the Company.
The following table provides information concerning the compensation of the directors of the Company for the past fiscal year:
DIRECTOR COMPENSATION
The following table provides information concerning the compensation of the directors of the Company for the past fiscal year:
Name | Fees Earned or Paid in Cash | Stock Awards | All Other Compensation | Total |
Sanford Lang | $0 | $0 | $0 | $0 |
Martin Goldrod | $0 | $0 | $0 | $0 |
Mark Spallucci | $0 | $0 | $0 | $0 |
There are no outstanding equity awards or options to directors issued or outstanding.
34
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Under Equity Compensation Plans
The Company currently does not maintain any equity compensation plans.
Beneficial Ownership
The following table lists the beneficial ownership of our outstanding common stock by our management and each person or group known to us to own beneficially more than 5% of our voting common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Based on these rules, two or more persons may be deemed to be the beneficial owners of the same securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to the shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 19,760,683 shares of common stock outstanding as of March 29, 2014.
Title of Class | Name of Beneficial Owner | Amount of Beneficial Ownership | Percent of Class |
Common Stock | Sanford Lang |
| 38.2% |
Common Stock | Martin Goldrod | 1,442,500 | 7.3% |
Common Stock | Mark Spallucci | 275,000 | 1.4% |
Directors and executive officers as a group (3 persons) | 9,257,820 | 46.9% |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Occasionally, officers will loan money at 6% interest rate to the Company to support working capital. As of December 31, 2012 the Company owed Sanford Lang, CEO, $5,470. During the year ended December 31, 2013 the Company repaid the loan in full. For the period end December 31, 2013 and December 31, 2012 the Company recognized $52 and $328, respectively, of interest expense on the loan. The expense was recorded as additional paid in capital.
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On or about June 7, 2013, Sanford Lang, CEO, and Martin Goldrod, CFO, agreed to forgive all of their accrued compensation. As a result the Company recorded $539,000 to additional paid in capital.
In April 2013, the Company issued 250,000 shares of common stock Phillip Miller, the former Vice President of Production, for accrued stock compensation, as required per the terms of the officers employment agreement and the Board Resolution dated April 2, 2012. Fair market value for the shares was determined by taking the average share price for each cash-for-stock purchase in the applicable period of accrual. The price ranged from $0.34 to $0.50 for a total expense of $86,793.
During the fourth quarter of 2013 Sandford Lang, CEO advanced the Company $70,000, $32,500 of which was repaid as of December 31, 2013. The Company recognized $406 of interest expense on the loan. The expense was recorded as additional paid in capital.
Director Independence
At this time the Company does not have a policy that its directors or a majority be independent of management. The Company has at this time only two directors. It is the intention of the Company to implement a policy in the future that a majority of the Board member be independent of the Companys management as the members of the board of directors increases after implementation of the Companys business plan. A Director is considered independent if the Board affirmatively determines that the Director (or an immediate family member) does not have any direct or indirect material relationship with the Company or its affiliates or any member of senior management of the Company or his or her affiliates. The term affiliate means any corporation or other entity that controls, is controlled by, or under common control with the Company, evidenced by the power to elect a majority of the Board of Directors or comparable governing body of such entity. The term immediate family member means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in law, brothers- and sisters-in-laws and anyone (other than domestic employees) sharing the Directors home.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The following table presents the aggregate fees billed for each of the last two fiscal years by our accounting firm, HJ Associates & Consultants, LLP, in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
2013 | 2012 | ||
Audit fees | $ 34,200 | $ 37,260 | |
Audit-related fees | - | - | |
Tax fees | - | - | |
All other fees | $ 1,500 | $ - |
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Audit fees represent fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.
All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other three categories.
Pre-Approval Policies
Our audit committee makes recommendations to our board of directors regarding the engagement of an auditor. Our board of directors approves the engagement of the auditor before the firm renders audit and non-audit services. Our audit committee does not rely on pre-approval policies and procedures.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The audited financial statements of Insynergy Products, Inc., Inc are included in this report under Item 8 on pages 16 to 29.
(a)(2) Financial Statement Schedules
All financial statement schedules are included in the footnotes to the financial statements or are inapplicable or not required.
(a)(3) Exhibits
The following documents have been filed as part of this report
Exhibit No. | Description |
3(i) | Articles of Incorporation (incorporated by reference to exhibit 3.0 Form S-1 file No. 333-179262, filed January 31, 2012) |
3(ii) | Bylaws (incorporated by reference to exhibit 3.2 Form S-1 file No. 333-179262, filed January 31, 2012) |
10.1 | Commercial Lease Agreement by and between Insynergy Products Inc. and Bershin Properties I, LLC, (incorporated by reference to exhibit 10.0 Form S-1, file No. 333-179262, filed January 31, 2012) |
10.2 | Agreement re Telephone Call Center, by and between Insynergy Products Inc. and Ignite Media Solutions, dated January 5, 2012 (incorporated by reference to exhibit 10.1 Form S-1, file No. 333-179262, filed January 31, 2012) |
10.3 | Agreement re Fulfillment, by and between Insynergy Products Inc. and Moulton Logistics, dated December 15, 2011 (incorporated by reference to exhibit 10.2 Form S-1, file No. 333-179262, filed January 31, 2012) |
10.4 | Agreement re Merchant Services, by and between Insynegy Products Inc. and Litle & Co., dated August 3, 2012 |
10.5* | Executive Compensation Agreement between Sanford Lang and Insynergy Products Inc., dated February 2, 2010 (incorporated by reference to exhibit 10.6 Form S-1, file No. 333-179262, filed January 31, 2012) |
10.6* | Executive Compensation Agreement between Martin Goldrod and Insynergy Products Inc., dated February 2, 2010 (incorporated by reference to exhibit 10.7 Form S-1, file No. 333-179262, filed January 31, 2012) |
31.1 | Chief Executive Officer Certification |
31.2 | Chief Financial Officer Certification |
32.1 | Section 1350 Certification |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Label Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
* Management compensation agreement
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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.
Insynergy Products, Inc. | ||
By: | /s/ Sandford Lang | |
Sandford Lang | ||
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Sandford Lang Sandford Lang |
Chief Executive Officer, Co-Founder and Director |
March 28, 2014 | ||
/s/Martin Goldrod Martin Goldrod |
President, Chief Financial Officer, COO and director | March 28, 2014 | ||
/s/ Mark Spallucci Mark Spallucci |
Director | March 28, 2014 |
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