U.S. SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q


[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended JUNE 30, 2016


  [   ]   TRANSITION REPORT UNDER 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.)

 

 

 

2501 West Burbank Blvd., Suite 201, Burbank, CA

 

91505

(Address of Principal Executive Offices)

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code: (818) 760-1644

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]        No  [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

 

 

 

Large accelerated filer              

[  ]

Accelerated filer                         

[  ]

Non-accelerated filer      

[  ]

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]

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of September 7, 2016, the issuer had 26,296,868 shares of its common stock issued and outstanding.





1



TABLE OF CONTENTS

PART I

 

 

Item 1.

Condensed Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

Item 4.

Controls and Procedures

14

PART II

  

Item 1.

Legal Proceedings

15

Item 1A.

Risk Factors

15

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

Item 3.

Defaults Upon Senior Securities

15

Item 4.

Mining Safety Disclosures

15

Item 5.

Other Information

15

Item 6.

Exhibits

16

 

Signatures

17




2




 PART I – FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


INSYNERGY PRODUCTS, INC.

INDEX TO FINANCIAL STATEMENTS


Condensed Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

4

Condensed Statements of Operations for the Three and Six Months ended June 30, 2016

and 2015 (unaudited)

5

Condensed Statements of Cash Flows for the Six Months ended June 30, 2016 and 2015 (unaudited)

6

Notes to the Condensed Financial Statements (unaudited)

7










3







INSYNERGY PRODUCTS, INC.

BALANCE SHEETS

  
  

June 30, 2016

  

December 31, 2015

ASSETS

 

(Unaudited)

 

  

Current Assets:

  

 

  

    Cash

$

8,449

 

$

40,485

Accounts receivable

 

67,311

  

158,482

    Inventory

 

-

  

503,946

    Prepaid consulting

 

-

  

16,324

    Prepaid and other assets

 

33,387

  

67,748

        Total Current Assets

 

109,147

 

 

786,985

   

 

  

    Deposit

 

3,500

 

 

10,161

    Property and equipment, net

 

1,550

 

 

35,300

        Total Assets

$

114,197

 

$

832,446

 

  

 

  

LIABILITIES AND STOCKHOLERS' (DEFICIT)

 

  

Current Liabilities:

  

 

  

    Accounts payable

$

717,443

 

$

522,100

    Other payables and accruals

 

223,369

 

 

223,615

    Product returns & allowances

 

305,663

  

609,770

    Accrued compensation

 

347,506

  

226,556

    Due to an officer

 

9,053

  

3,253

    Notes payable

 

344,240

  

370,671

        Total Current Liabilities

 

1,947,274

 

 

1,955,965

       Total Liabilities

 

1,947,274

 

 

1,955,965

Stockholders' (Deficit):

  

 

  

Common Stock par value $0.001 300,000,000 shares authorized, 26,296,868 and 26,296,868 shares issued, respectively

 

26,298

 

 

26,298

Additional paid in capital

 

13,506,140

 

 

13,506,140

Accumulated deficit

 

(15,365,515)

 

 

(14,655,957)

Total Stockholders' (Deficit)

 

(1,833,077)

 

 

(1,123,519)

Total Liabilities and Stockholders' (Deficit)

$

114,197

 

$

832,446

 

 

 

 

  

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





4






INSYNERGY PRODUCTS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

    

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2016

 

 

2015

 

2016

 

2015

Revenues

$

159,203

 

 $

469,497

 $

174,602

 $

1,877,028

Costs of goods sold

 

(412,345)

 

 

(351,274)

 

(503,946)

 

(898,293)

      Gross margin

 

(253,142)

 

 

118,223

 

(329,344)

 

978,735

 

 

  

 

 

 

 

 

 

Operating Expenses:

 

  

 

 

 

 

 

 

    Compensation expense

 

78,001

 

 

47,778

 

150,711

 

115,999

    Advertising and promotion

 

49,742

 

 

334,123

 

52,406

 

563,104

    Professional fees

 

1,456

  

38,907

 

42,500

 

70,275

      General and administrative

 

41,589

 

 

336,045

 

123,303

 

569,493

      Total operating expenses

 

170,788

 

 

756,853

 

368,920

 

1,318,871

 

 

  

 

 

 

 

 

 

Loss from operations

 

(423,930)

 

 

(638,630)

 

(698,264)

 

(340,136)

 

 

  

 

 

 

 

 

 

Other Income (Expense):

 

  

 

 

 

 

 

 

    Interest expense

 

(1,474)

  

(2,397)

 

(2,226)

 

(3,816)

   Amortization of debt discount

 

-

  

(16,436)

 

-

 

(29,801)

Loss on conversion of debt

 

-

  

-

 

-

 

(226,811)

   Gain on derivative liability

 

-

  

39,925

 

-

 

48,299

   Loss on disposal of property and equipment

 

(20,461)

  

-

 

(20,461)

 

-

Gain on extinguishment of debt

 

9,754

  

-

 

11,393

 

2,788

 Total other income (expense)

 

(12,181)

 

 

21,092

 

(11,294)

 

(209,341)

 

 

  

 

 

 

 

 

 

Loss before provision for income taxes

 

(436,111)

  

(617,538)

 

(709,558)

 

(549,477)

Provision for income taxes

 

-

  

-

 

-

 

-

          

    Net Loss

$

(436,111)

 

 $

(617,538)

 $

(709,558)

 $

(549,477)

 

 

  

 

 

 

 

 

 

Loss per Share, Basic & Diluted

$

(0.02)

 

 $

(0.02)

 $

(0.03)

 $

(0.02)

Weighted Average Shares Outstanding

 

26,296,868

 

 

26,267,275

 

26,296,868

 

25,888,861

 

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





5




INSYNERGY PRODUCTS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For the Six Months Ended

June 30,

 

 

2016

  

2015

CASH FLOW FROM OPERATING ACTIVITES:

     

Net loss

$

(709,558)

 

$

(549,477)

Adjustments to reconcile net loss to net cash used by operating activities:

  

 

  

    Deferred compensation

 

16,324

 

 

32,648

    Shares issued for service

 

-

  

22,350

    Depreciation

 

13,288

 

 

22,084

    Loss on disposal of property and equipment

 

20,461

  

-

    Loss on inventory

 

499,861

  

-

Gain on extinguishment of debt

 

(11,392)

  

(2,788)

    Loss on conversion of debt

 

-

  

226,811

    Amortization of debt discount

 

-

  

29,801

     Gain on derivative liability

 

-

  

(48,299)

Changes in Operating Assets and Liabilities:

  

 

  

   Accounts receivable

 

91,171

  

(329,043)

    Prepaids & other assets

 

41,022

 

 

(20,030)

    Inventory

 

4,085

  

(535,443)

    Accounts payable

 

206,736

 

 

452,786

    Product returns & allowances

 

(304,107)

  

-

    Accrued expenses

 

120,704

 

 

176,743

Net Cash Used in Operating Activities

 

(11,405)

 

 

(521,857)

   

 

  

CASH FLOWS FROM INVESTING ACTIVITIES:

 

-

  

-

      

CASH FLOWS FROM FINANCING ACTIVITIES:

  

 

  

Advances from officers

 

8,900

  

-

    Repayment of officer advance

 

(3,100)

 

 

(4,100)

    Proceeds from notes payable

 

36,843

 

 

548,174

    Payments on notes payable

 

(63,274)

  

(17,368)

Net Cash (Used) Provided by Financing Activities

 

(20,631)

 

 

526,706

Net Increase (Decrease) in Cash

 

(32,036)

 

 

4,849

Cash at Beginning of Period

 

40,485

 

 

196

Cash at End of Period

$

8,449

 

$

5,045

 

 

  

Cash paid during the year for:

  

 

  

   Interest

$

-

 

$

-

   Franchise and income taxes

$

-

 

$

-

Supplemental disclosure of non-cash activities:

     

   Stock issued for conversion of debt

$

-

 

$

298,000


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



6





INSYNERGY PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

 

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 of consumer products with the goal of producing sales through television and/or retail.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

The Company’s unaudited condensed 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 may differ from those estimates. The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending December 31, 2016. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s restated Annual Report on Form 10-K/A for the year ended December 31, 2015.

 

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.

 

Reclassifications

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements for the six months ended June 30, 2016.

 

Recently issued accounting pronouncements

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.

 

Accounts Receivable

Revenues that have been recognized but not yet received are recorded as accounts receivable. Losses on receivables will be recognized when it is more likely than not that a receivable will not be collected. An allowance for estimated uncollectible amounts will be recognized to reduce the amount of receivables to its net realizable value. The allowance for uncollectible amounts is evaluated quarterly.

 

Revenue recognition

The Company follows paragraph 605-15-25 of the FASB Accounting Standards Codification for revenue recognition when the right of return exists.  The Company will recognize revenue when it is realized or realizable and earned.  The Company considers



7




revenue realized or realizable and earned when all of the following criteria are met: (i) The seller's price to the buyer is substantially fixed or determinable at the date of sale, (ii) The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. If the buyer does not pay at time of sale and the buyer's obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met., (iii) The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product, (iv) The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition relates primarily to buyers that exist on paper, that is, buyers that have little or no physical facilities or employees. It prevents entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose of recognizing such sales revenue, (v) The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (vi) The amount of future returns can be reasonably estimated.

 

The Company records an allowance for sales returns. The allowance is based on multiple criteria, including type of store, history of returns, length of time since product was sold to the customer and inventory remaining with customer (if known). The allowance will be evaluated and adjusted accordingly on a quarterly basis.

 

NOTE 3 – INVENTORY

 

As of June 30, 2016 the Company has no inventory. As of December 31, 2015 there was $131,759 of finished goods and $372,187 of work in process inventory. Inventory is carried at the lower of cost or net realizable value. Management has recognized that all the existing inventory no longer has any commercial value and has therefore written all remaining inventory down to zero resulting in a loss on inventory impairment of $373,512, which has been recorded to cost of goods sold.

 

NOTE 4 – PRODUCT RETURNS AND ALLOWANCES

The Company recorded an allowance for estimated customer returns of $305,663 and $609,770 for the six months ended June 30, 2016 and the year ended December 31, 2015. The allowance was based on multiple criteria, including type of store, history of returns, length of time since product was sold to the customer and inventory remaining with customer (if known). Use of these criteria resulted in different percentages being applied to different customers. The allowance will be evaluated and adjusted accordingly on a quarterly basis

 

December 31, 2015

 

Amount to apply reserve against

 

Reserve %

 

Reserve

Pending return

$

N/A

 

N/A

$

362,719

Customer type 1

 

395,353

 

20%

 

79,071

Customer type 2

 

163,434

 

20%

 

32,687

Customer type 3

 

343,620

 

35%

 

120,267

Customer type 4

 

150,262

 

10%

 

15,026

 

$

1,052,669

  

$

609,770


June 30, 2016

 

Amount to apply reserve against

 

Reserve %

 

Reserve

 

Recognized in 2016

 

Reserve 6/30/2016

Pending return

$

N/A

 

N/A

$

140,962

 

-

 

140,962

Customer type 1

 

395,353

 

20%

 

79,071

 

(26,356)

 

52,715

Customer type 2

 

163,434

 

20%

 

32,687

 

(10,896)

 

21,791

Customer type 3

 

343,620

 

35%

 

120,267

 

(40,089)

 

80,178

Customer type 4

 

150,262

 

10%

 

15,026

 

(5,009)

 

10,017

 

$

1,052,669

  

$

388,013

 

(82,350)

 

305,663


NOTE 5 – NOTES PAYABLE

 

During the year ended December 31, 2015, the Company received short term loans from three creditors for a total of $354,000. The loans are uncollateralized, non-interest bearing and are due on demand. During the six months ended June 30, 2016, the Company added $1,400 to the balance due and repaid $35,000 for a balance due as of June 30, 2016 of $320,400.

 

The Company also has financing loans for its product liability and Director and Officer Insurance. The product liability was cancelled in April 2016. As of June 30, 2016 and December 31, 2015 the loans have a balance of $23,840 and $16,671, respectively, they bear interest at 5.99% and 6.7% and are due within one year.

 

NOTE 6 – COMMITMENTS & CONTIGENCIES



8



 

The Company currently occupies office space in Burbank, California. The Company signed a three-year lease starting January 1, 2016. Current lease payments are $3,425 with yearly increases.  The lease required a deposit of $3,500 which was paid on December 10, 2015. Minimum lease payments over the next three years are as follows: 

 

Year

 

Amount

2016

$

41,097

2017

 

42,330

2018

 

43,596

Total

$

127,023

 

Investment Agreement

 

On July 9, 2014, the Board of Directors approved an investment arrangement with an individual. Per the terms of the agreement the investor has transferred $150,000 to the Company for which he is now entitled to the following. $1 per unit sold through all retail outlets including online and retail shopping shows until the investment is paid back in full. Once the original investment is recouped the investor shall then receive a 2% royalty in perpetuity on all future retail sales of the fitness product. The investment remains with the Company and is disclosed as an accrued liability on the balance sheet.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

During the six months ended June 30, 2016, the Company owed its officers $8,400 for advances. The advances were used to pay for general operating expenses. They are uncollateralized, non-interest bearing and due on demand.

 

NOTE 8 – STOCK OPTIONS

 

For the six months ended June 30, 2016 and 2015, $16,324 and $32,648 has been amortized to expense, respectively, for the vesting of options.

 

A summary of the status of the Company’s outstanding stock options and changes during the periods is presented below:


 

Shares available to purchase with options

 

 

Weighted

Average

Price

 

 

Weighted

Average

Fair Value

 

 

 

 

 

 

 

 

Outstanding, December 31, 2015

 

1,000,000

 

 

$

0.27

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

Issued

 

-

 

 

 

-

 

 

 

-

Exercised

 

-

 

 

 

-

 

 

 

-

Forfeited

 

-

 

 

 

-

 

 

 

-

Expired

 

1,000,000

 

 

 

-

 

 

 

-

Outstanding, June 30, 2016

 

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2016

 

-

 

 

$

-

 

 

$

-

 

A summary of the status of the Company’s outstanding stock warrants and changes during the periods is presented below:

 



9


 

Shares available to purchase with warrants

 

 

Weighted

Average

Price

 

 

Weighted

Average

Fair Value

 

 

 

 

 

 

 

 

Outstanding, December 31, 2015

 

51,000,000

 

 

$

0.23

 

 

$

0.186

 

 

 

 

 

 

 

 

 

 

 

Issued

 

-

 

 

$

-

 

 

$

-

Exercised

 

-

 

 

$

-

 

 

$

-

Forfeited

 

-

 

 

$

-

 

 

$

-

Expired

 

-

 

 

$

-

 

 

$

-

Outstanding, June 30, 2016

 

51,000,000

 

 

$

0.23

 

 

$

0.186

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2016

 

51,000,000

 

 

$

0.23

 

 

$

0.186


Range of Exercise Prices

Number Outstanding 6/30/2016

Weighted Average Remaining Contractual Life

 

Weighted Average Exercise Price

$0.23

51,000,000

9.37 years

$

0.23


NOTE 9 – GOING CONCERN

 

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $15,365,515 at June 30, 2016, had a net loss of $709,558 and net cash used in operating activities of $11,405 for six months ended June 30, 2016.

 

The Company now recognizes its cash position does not support the Company’s daily operations.  Management is analyzing future potential opportunities for the business including the potential of a restructuring. The Company has been unable to raise additional funds and may need to scale back operations. This raises substantial doubt about the Company’s ability to continue as a going concern.

 

 NOTE 10– SUBSEQUENT EVENTS

 

Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the financial statements were issued, and has determined that no material subsequent events exist.



10


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

 

The following information should be read in conjunction with our financial statements and related notes thereto included in Part I, Item 1, above. 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," below.

 

Forward Looking Statements

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q 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-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

Plan of Operations

 

Insynergy Products (“Insynergy”) was a company with experience in commercializing consumer products through commercial and infomercial production development. The corporate goal was to develop intellectual property (“IP”) internally or via a license from a third party; however, due to the inability to raise funds the Company has abandoned this strategy. The Board of Directors is cognizant of the Company’s limitations. The Company currently has no revenue from current operations, with liabilities exceeding its assets. Management is analyzing new potential growth paths and the potential for a restructuring; however, there is still substantial doubt about the Company’s ability to continue as a going concern.

 

In the third quarter of 2015, we entered into a license with Mr. Ross Sklar of The Starco Group.  Insynergy secured the exclusive license to a broad body of novel products and technologies.

 

Results of Operation for the Three Months Ended June 30, 2016 and 2015

 

Revenues

 

For the three months ended June 30, 2016 the Company recorded revenue of $159,203 compared to revenue of $469,497 for the three months ended June 30, 2015, a decrease of $310,294. In the current period we recognized $82,350 of revenue from the accrued product returns and allowance account. This revenue is not from sales in the current period. It is from sales made in 2015 and held in reserve in the event of subsequent returns (Note 4). Cost of goods sold was $412,345 compared to $351,274 of cost of goods sold in the prior period.  In the current period $373,512 was a result of the impairment of all remaining finished and work in process inventory of Plumber’s Hero.

 

Operating Expenses

 

For the three months ended June 30, 2016, the Company incurred compensation expense of $78,001 compared to $47,778 for the three months ended June 30, 2015; an increase of $30,223 or 63.2%. The increase is due to increased salaries for officers.



11



For the three months ended June 30, 2016, the Company incurred $49,742 in advertising and promotional expense as compared to $334,123 for three months ended June 30, 2015; a decrease of $284,381. In the prior year there was substantial spending on promotional activities for the Plumber’s Hero. There have been no such expenditures in the current period.

 

For the three months ended June 30, 2016, the Company incurred $1,456 in professional fees compared to $38,907 for the same period in the prior year. Professional fees are mainly for accounting, auditing and legal services associated with our quarterly filings as a public company. The decrease is due to decreased audit fees.

 

For the three months ended June 30, 2016, the Company incurred $41,589 in general and administrative expense as compared to $336,045 for the same period in the prior year; a decrease of $294,456 or 87.6%. In the prior year there was $220,992 of non-cash expense for stock based compensation.

 

Other Income and Expense

 

For the three months ended June 30, 2016 we had total other expense of $12,181 compared to total other income of $21,092 for the same period in the prior year. For the three months ended June 30, 2016, the Company recorded interest expense of $1,474 and a loss on disposal of property and equipment of $20,461, which was offset by a gain on forgiveness of debt of $9,754.  For the three months ended June 30, 2015 we had interest expense of $2,397 and as a result of the convertible Promissory Note with KBM Worldwide, Inc., we recorded amortization of debt discount of $16,436 and a gain on derivative of $39,925.

 

Net Loss

 

For the three months ended June 30, 2016 we realized a net loss of $436,111 as compared to $617,538 for the same period in the prior year. In the prior period our cash and non-cash expenses were far greater than in the current period as discussed above.

 

Results of Operation for the Six Months Ended June 30, 2016 and 2015

 

Revenues

 

For the six months ended June 30, 2016 the Company recorded revenue of $174,602 compared to revenue of $1,877,028 for the six months ended June 30, 2015. In the current period we recognized $82,350 of revenue from the accrued product returns and allowance account. This revenue is not from sales in the current period. It is from sales made in 2015 and held in reserve in the event of subsequent returns (Note 4). The six months ended June 30, 2015, saw the majority of our sales for Plumber’s Hero. Cost of goods sold was $503,946 compared to $898,293 of cost of goods sold in the prior period. In the current period $373,512 was a result of the impairment of all remaining finished and work in process inventory of Plumber’s Hero.

 

Operating Expenses


For the six months ended June 30, 2016, the Company incurred compensation expense of $150,711 compared to $115,999 for the six months ended June 30, 2015; an increase of $34,712 or 29.9%. The increase is due to increased salaries for officers.

 

For the six months ended June 30, 2016, the Company incurred $52,406 in advertising and promotional expense as compared to $563,104 for six months ended June 30, 2015; a decrease of $510,698. In the prior year there was substantial spending on promotional activities for the Plumber’s Hero. There have been no such expenditures in the current period; however, we did recognize $52,059 that was previously in prepaid expenses for promotional activities that will no longer be completed. and for which there will be no refunds.

 

For the six months ended June 30, 2016, the Company incurred $42,500 in professional fees compared to $70,275 for the same period in the prior year. Professional fees are mainly for accounting, auditing and legal services associated with our quarterly filings as a public company. The decrease is due to decreased audit fees.

 

For the six months ended June 30, 2016, the Company incurred $123,303 in general and administrative expense as compared to $569,493 for the same period in the prior year; a decrease of $446,190 or 78.3%. In the prior year there was $220,992 of non-cash expense for stock based compensation.

 



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Other Income and Expense

 

For the six months ended June 30, 2016 we had total other expense of $11,294 compared to $209,341 for the same period in the prior year. For the six months ended June 30, 2016, the Company recorded interest expense of $2,226 and a loss on disposal of property and equipment of $20,461, which was offset by a gain on forgiveness of debt of $11,393.  For the six months ended June 30, 2015 we had interest expense of $3,816, a loss on conversion of debt of $226,811, and as a result of the convertible Promissory Note with KBM Worldwide, Inc., we recorded amortization of debt discount of $29,801 and a gain on derivative of $48,299.  

 

Net Loss

 

For the six months ended June 30, 2016 we realized a net loss of $709,558 as compared to $549,477 for the same period in the prior year. In the prior period our cash and non-cash expenses were far greater than in the current period as discussed above.


Liquidity and Capital Resources

 

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $15,365,515 at June 30, 2016, had a net loss of $709,558 and net cash used in operating activities of $11,405 for the six months ended June 30, 2016.

 

Net cash flows from financing activities for the six months ended June 30, 2016 were $20,631 used by financing activities compared to $526,706 provided by financing activities for the six months ended June 30, 2015. The Company now recognizes its cash position does not support the Company's daily operations. Management is analyzing future potential opportunities for the business including the potential of a restructuring; however, there is still substantial doubt about the Company's ability to continue as a going concern.

 

Obligations and Commitments

 

During the year ended December 31, 2015, the Company received short term loans from three creditors for a total of $354,000. The loans are uncollateralized, non-interest bearing and are due on demand. During the six months ended June 30, 2016, the Company added $1,400 to the balance due and repaid $35,000 for a balance due as of June 30, 2016 of $320,400.

 

The Company also has a financing loan for its Director and Officer Insurance. As of June 30, 2016 the balance on this loan is $23,840.

 

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 Financial Statements describes the significant accounting policies and methods used in the preparation of the 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 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.

 



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The Company follows paragraph 605-15-25 of the FASB Accounting Standards Codification for revenue recognition when the right of return exists.  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) The seller's price to the buyer is substantially fixed or determinable at the date of sale, (ii) The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. If the buyer does not pay at time of sale and the buyer's obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met., (iii) The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product, (iv) The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition relates primarily to buyers that exist on paper, that is, buyers that have little or no physical facilities or employees. It prevents entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose of recognizing such sales revenue, (v) The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (vi) The amount of future returns can be reasonably estimated.

 

The Company records an allowance for sales returns. The allowance is based on multiple criteria, including type of store, history of returns, length of time since product was sold to the customer and inventory remaining with customer (if known). The allowance will be evaluated and adjusted accordingly on a quarterly basis

 

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 November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations, or cash flows.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share Based Payment Accounting, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its consolidated financial statements.

 

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 our financial position or results of operations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, they concluded that our disclosure controls and procedures were not effective for the quarterly period ended June 30, 2016.  The following aspects of the Company were noted as potential material weaknesses:



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·

timely and accurate reconciliation of accounts

·

lack of timely document preparation

·

lack of segregation of duties

·

complex accounting transaction expertise

·

lack of corporate documentation

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.

 

Changes in Internal Controls

 

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

 


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

There are not presently any material pending legal proceedings to which the Company is a party or as to which any of our property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

 

ITEM 1A. RISK FACTORS


We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

ITEM 4. MINING SAFETY DISCLOSURES

 

Not applicable.

ITEM 5. OTHER INFORMATION.

 

None.



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ITEM 6. EXHIBITS

 

Part I Exhibits

No.

Description

31.1

Chief Executive Officer Section 302 Certification

31.2

Chief Financial Officer Section 302 Certification

32.1

Section 1350 Certification

 

Part II Exhibits

No.

Description

3(i)

Articles of Incorporation, as amended August 13, 2015 (Incorporated by reference  to exhibit 3(ii) to Form 8-K, filed August 20, 2015)

3 (ii)

Bylaws of Insynergy Products, Inc.  (Incorporated by reference to exhibit 3.2 to Form S-1,

filed January 31, 2010)

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



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SIGNATURES


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

 

INSYNERGY PRODUCTS, INC.

 

 

 Dated: September 8, 2016

By:  /s/ Sanford Lang

Sanford Lang

Chief Executive Officer

 

By: /s/Rachel Boulds

Rachel Boulds

Chief Financial Officer




 




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