EDGAR 10-K Filing

Company CIK: 1539850
Filing Year: 2021
Filename: 1539850_10-K_2021_0001091818-21-000049.json

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ITEM 1. BUSINESS
Item 1. BUSINESS
Our Business
Starco Brands, Inc. (formerly Insynergy Products, Inc.) (the "Company") was incorporated in the State of Nevada on January 26, 2010. On September 7, 2017 , the Company filed an Amendment to the Articles of Incorporation to change the corporate name to Starco Brands, Inc. The Board determined the change of the Company’s name was in the best interests of the Company due to changes in our current and anticipated business operations. In July 2017, the Company entered into a licensing agreement with The Starco Group, located in Los Angeles, California. The companies pivoted to commercializing novel consumer products manufactured by The Starco Group. The Starco Group is predominantly an aerosol and liquid fill private label manufacturer which manufactures DIY/Hardware, paints, coatings and adhesives, household, hair care, disinfectants, automotive, motorcycle, arts & crafts, personal care cosmetics, personal care FDA, sun care, food, cooking oils, beverage and spirits and wine.
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.
Executive Overview
In July 2017, our Board of Directors entered into a licensing agreement with The Starco Group, located in Los Angeles, California, to pursue a new strategic marketing plan involving commercializing leading edge products with the intent to sell them through brick and mortar retailers as well as through online retailers. Management believes the Company will realize modest earnings from royalties in the short term with a stronger positive outlook over the next 24 months as the Company begins to implement stronger pull through marketing efforts.
Starco Brands, Inc. is a company whose mission is to create behavior-changing products and brands. Our core competency is inventing brands, marketing, building trends, pushing awareness and social marketing. The licensing agreement with The Starco Group provided Starco Brands with certain products on exclusive and royalty-free basis and other products on a non-exclusive and royalty basis; in the following categories: food, household cleaning, air care, spirits and personal care. The Starco Group is predominantly an aerosol and liquid fill private label and branded manufacturer with manufacturing assets in the following verticals: DIY/Hardware, paints, coatings and adhesives, household, air care, disinfectants, automotive, motorcycle, arts & crafts, personal care cosmetics, personal care FDA, sun care, food, cooking oils, beverage, spirits and wine.
The current CEO and owner of The Starco Group, Ross Sklar, was named the CEO of Starco Brands in August of 2017. Mr. Sklar has a long track record of commercializing technology in industrial and consumer markets. Mr. Sklar has built teams of manufacturing personnel, R&D and sales and marketing professionals over the last 20 years and has grown The Starco Group into a successful and diversified manufacturer supplying a wide range of products to some of the largest retailers in the United States.
The Company has conducted extensive research and has identified specific channels to penetrate with its new portfolio of novel technologies. The Company intends to raise capital to assist in launching and marketing these products through debt and equity financing. The Company has begun to execute this vision and has launched the first product line called ‘Breathe ™’, through our manufacturing partner, The Starco Group (“TSG”). Breathe is an environmentally-friendly line of household cleaning aerosol products. It is the world’s first aerosol household cleaning line to be approved by the EPA’s Safer Choice program. This product line is biodegradable and is propelled by nitrogen, which makes up approximately 80% of the earth’s breathable air. Breathe was named Partner of the Year by the EPA’s Safer Choice Program for 2018, a tremendous honor.
The Breathe line is predominantly on 300 to 400 stores serviced through UNFI as well as in almost 500 Home Depots through a distributor called Central Garden Excel (“Central”), one of the largest distributors to the DIY/Hardware retail channel. Central will be handling all of the Company’s distribution to Home Depot. The Breathe Hand Sanitizer Spray was recently name the exclusive hand sanitizer spray at all Home Depots and the 1oz is now at every check out as well.The Breathe line is available on Amazon and Walmart.com and also available at Lowes.
The Company is also the marketer of record for Betterbilts Kleen Out branded drain opener and for the Winona Popcorn Spray. The Company provides marketing services to these brands when needed as per the terms of the agreement. Both products are available in all Walmart stores. Through the Company’s relationship with TSG and their marketing partner Deutsch Marketing, the Company launched a new label in June 2019 for Winona Popcorn Spray throughout all Walmart stores. The Company also launched the Winona Popcorn Spray on Amazon through our strategic partner Patter (formally iServe), who is a shareholder in Starco Brands, Inc. The Company expects sales to continue to grow in this space.
In addition, as long as the Company can continue to raise capital the Company plans to launch other products in hair care, food, personal care, spirits and beverages over the next 60 months. Although the initial market reception to our new lines has been encouraging, the Company may encounter a number of hurdles that could prevent this and future product launches from achieving sustained commercial success. Financing growth and launching of new products is key as the Company’s ability to raise further capital is critical.
We will need to rely on sales of our common stock in order to raise additional capital. The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions to the registration requirements of the Securities Act of 1933. The Company is planning to utilize, as best as possible with limited financing, the services of Deutsch Marketing in order to help support the Company’s plan. The Company will also utilize the marketing capabilities of Hearst Media with its co branding arrangement on some of its products.This is significantly assisting in supporting its current retail and online distribution. The Company is also planning on launching new products over the next year that are viewed as disruptive in their market and leading edge, again as long as their financing plans come to fruition. The Company has now engaged with and contracted with, a financial advisory firm to assist the Company in procuring future financing.
The Company’s ultimate goal is to become a leading brand owner and third-party marketer of cutting edge technologies in the consumer marketplace whose success is expected to increase shareholder value. The Company will continue to evaluate this and other opportunities to further set its strategy for 2021 and beyond.
For more information please visit our website at www.starcobrands.com
Employees
The Company currently has no full-time employees but uses independent contractors on an as needed basis.

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ITEM 1A. RISK FACTORS
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; however, due to the current circumstance we have chosen to include the following risk factor.
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, to date, the Company has not experienced a material impact.
Item 2. PROPERTIES
Our principal offices are located at 250 26th Street, Suite 200, Santa Monica, California, 90402.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed to trade on the OTC Markets Group OTCQB tier under the symbol “STCB.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-downs or commissions, and may not necessarily represent actual transactions.
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 (not including their personal residence) 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 purchaser’s 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 16, 2021, we had 190 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
None
Issuer Purchase of Securities
The Company did not repurchase any of its securities during the fiscal year ended December 31, 2020.
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.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the year ended December 31, 2020 compared to the year ended December 31, 2019
The following information should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Form 10-K.
Revenues
For the year ended December 31, 2020 , the Company recorded royalty revenues of $1,365,360 compared to $240,287 for the year ended December 31, 2019, an increase of $1,125,076 or 468.2%. The royalty rate that Starco Brands is paid varies on a per product basis of wholesale sales of our branded and non-corporate owned licensed products. Revenues are from our marketing licensing agreements with The Starco Group and other affiliated companies, for various products mentioned above. The increase in the current period is due to an increase of sales of our Breathe household cleaning line and Winona Popcorn Spray, and to the launching and scaling of the new Breathe hand sanitizer spray. Future sales are not contractural or guaranteed and are dependant on continuing customer purchases of our products.
Operating Expenses
For the year ended December 31, 2020, compensation expense to Sandy Lang, Marty Goldrod and Rachel Boulds, the only people compensated in the Company, increased $2,212, or 1.2% to $185,537 compared to $183,325 for the year ended December 31, 2019.
For the year ended December 31, 2020, the Company incurred $145,416 in professional fees compared to $45,375 in the prior period, an increase of $100,041, or 220.5%. Professional fees are mainly for accounting, auditing and legal services associated with our quarterly filings as a public company and advisory and valuation services. The increase is primarily due to an increase in legal fees.
For the year ended December 31, 2020, the Company incurred $507,278 in marketing, general and administrative expense as compared to $159,365 for the year ended December 31, 2019, an increase of $347,913, or 218.3%. The increase can be attributed to an increase of spending on marketing.
Other income and expense
For the year ended December 31, 2020, we had total other income of $16,157 compared to $7,814 for the year ended December 31, 2019. For the year ended December 31, 2020, the Company recorded other income from subleasing its office space of $15,750 and a gain on extinguishment of debt of $37,580. This was offset by interest expense of $37,173. For the year ended December 31, 2019, the Company recorded other income from subleasing its office space of $21,000 and a gain on extinguishment of debt of $19,434. This was offset by interest expense of $32,620.
Net loss
For the year ended December 31, 2020, the Company recorded a net income of $543,286 as compared to a net loss of $139,964 in the prior year. The increase from the net loss to net income is the result of the large increase of our revenue.
Liquidity and Capital Resources
As reflected in the accompanying financial statements, the Company has an accumulated deficit of $16,137,020 at December 31, 2020 due to the release of shares to strategic people and firms at during the Companies start up phase in 2017 and 2018; however, for the year ended December 31, 2020 , the Company had net income of $543,286 and net cash provided by operating activities of $665,770.
We netted $102,798 from financing activities for the year ended December 31, 2020, due to a $100,000 loan from our CEO and funds from other related party cash advances to pay for general operating expenses, compared to $47,415 for the year ended December 31, 2019. A majority of our financing activity consisted of payments to and from related parties.
We currently require cash of about $30,000 a month for operating expenses. Operating expenses include items such as Board Member compensation, administrative costs, insurance, legal and other professional fees, compliance and website maintenance. No cash compensation has ever been paid to the CEO.
We have an outstanding loan of approximately $300,000 from initial invested capital that requires monthly interest payments of $2,545. The loan was used to pay administrative and other operating costs.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years.
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 2 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.
The Company earns its revenue as royalties from the licensing agreements it has with The Starco Group, ("TSG") and other related parties. The Company licenses the right for TSG to manufacture and sell certain Starco Brands products.. The amount of the licensing revenue received varies depending upon the product and is determined beforehand in each agreement. The Company recognizes its revenue only when it receives a report of sales made by TSG to a third party.
The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
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
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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STARCO BRANDS, INC.
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2020 and 2019
Statements of Operations for the Years Ended December 31, 2020 and 2019
Statements of Stockholders’ Equtiy ( Deficit) for the years ended December 31, 2020 and 2019
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Starco Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Starco Brands, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has recurring losses, negative working capital and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain financing, there could be a material adverse effect on the Company.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Related Party Transactions including Revenue Recognition
Description of the Matter:
As discussed in Note 7 to the financial statements, Starco Brands has significant related party transactions involving revenue, loans payable, cash advances, and expenses paid by multiple related parties. Starco Brand’s revenue is based upon royalty agreements with related parties that can be complex and vary based on the product, as discussed in Revenue Recognition, Note 2, to the financial statements. Auditing management’s identification of related parties and the related transactions including recognition of revenue can be complex and is based on a thorough understanding of the Company’s related party relationships, contracts, and business activities.
How We Addressed the Matter in our Audit:
We evaluated the design and implementation of certain controls over the Company’s identification of, and recording of related party transactions, and of the revenue recognition process, including walkthroughs. We confirmed certain balances and transactions with related parties. To evaluate Starco Brand’s satisfaction of performance obligations, our audit procedures included, among others, reviewing contracts and evaluating management’s assumptions used to determine the distinct performance obligations, and reviewing the branding work performed by the Company for various products. We also obtained support from third-party retailers supporting the transactions at the related parties, for which the royalty revenue is based on.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
April 15, 2021
We have served as the Company’s auditor since 2016.
STARCO BRANDS, INC.
BALANCE SHEETS
December 31, 2020
December 31, 2019
ASSETS
Current Assets:
Cash
$
773,322
$
4,754
Accounts receivable, related party
45,517
14,496
Prepaid and other assets
19,917
38,661
Total Current Assets
838,756
57,911
Right of use lease asset, operating, net
-
85,077
Deposit
3,500
3,500
Total Assets
$
842,256
$
146,488
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable
$
207,665
$
188,036
Other payables and accruals
263,230
284,883
Accrued interest - related party
6,346
-
Accrued compensation
72,200
83,900
Lease obligation
-
40,806
Loans payable - related party
546,989
411,862
Notes payable
-
35,629
Total Current Liabilities
1,096,430
1,045,116
Lease obligation - noncurrent portion
-
45,632
Total Liabilities
1,096,430
1,090,748
Stockholders' Deficit:
Preferred Stock, par value $0.001 40,000,000 shares authorized, no shares issued and outstanding
-
-
Common Stock, par value $0.001 300,000,000 shares authorized, 159,140,665 and 159,090,914 shares issued and outstanding, respectively
159,141
159,091
Additional paid in capital
15,723,705
15,576,955
Accumulated deficit
(16,137,020)
(16,680,306)
Total Stockholders' Deficit
(254,174)
(944,260)
Total Liabilities and Stockholders' Deficit
$
842,256
$
146,488
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
Revenues, net, related party
$
1,365,360
$
240,287
Operating Expenses:
Compensation expense
185,537
183,325
Professional fees
145,416
45,375
General and administrative
507,278
159,365
Total operating expenses
838,231
388,065
Gain (loss) from operations
527,129
(147,778)
Other Income (Expense):
Interest expense
(37,173)
(32,620)
Other income
15,750
21,000
Gain on extinguishment of debt
37,580
19,434
Total other income
16,157
7,814
Net Income (Loss)
$
543,286
$
(139,964)
Income (Loss) per Share, Basic & Diluted
$
0.00
$
(0.00)
Weighted Average Shares Outstanding, Basic & Diluted
159,112,859
159,090,914
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
Additional
Shares
Amount
Paid in
Capital
Accumulated Deficit
Total
Balance, December 31, 2018
159,090,914
$
159,091
$
15,530,155
$
(16,540,342)
$
(851,096)
Contributed services
-
-
46,800
-
46,800
Net Loss
-
-
-
(139,964)
(139,964)
Balance, December 31, 2019
159,090,914
159,091
15,576,955
(16,680,306)
(944,260)
Shares issued for services
49,751
99,950
-
100,000
Contributed services
-
-
46,800
-
46,800
Net Income
-
-
-
543,286
543,286
Balance, December 31, 2020
159,140,665
$
159,141
$
15,723,705
$
(16,137,020)
$
(254,174)
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
Cash Flow Activity from Operating Activities:
Net Income (Loss) for the Year
$
543,286
$
(139,964)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock based compensation
100,000
-
Contributed services
46,800
46,800
Change in lease liability operating lease
(1,361)
1,361
Gain on extinguishment of debt
(37,580)
(19,434)
Changes in Operating Assets and Liabilities:
Accounts receivable - related party
(31,021)
3,008
Prepaids & other assets
18,744
(12,688)
Accounts payable
19,629
34,154
Accrued expenses - related party
6,346
-
Accrued expenses
43,381
Net Cash Provided by (Used in) Operating Activities
665,770
(43,382)
Cash Flow Activity from Financing Activities:
Advances from related parties
320,568
103,221
Repayment of advances from related parties
(185,441)
(64,705)
Proceeds from notes payable
-
55,000
Payments on notes payable
(32,329)
(46,101)
Net Cash Provided by Financing Activities
102,798
47,415
Net Increase in Cash
768,568
4,033
Cash at Beginning of Year
4,754
Cash at End of Year
$
773,322
$
4,754
Cash paid during the year for:
Interest
$
33,027
$
30,541
Income taxes
$
-
$
-
Supplemental disclosure of non-cash activities:
Operating lease right of use assets
$
-
$
122,825
Operating lease liability
$
-
$
122,825
Noncash investing & financing activities:
Lease termination
$
54,777
$
-
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Starco Brands, Inc. (the "Company") then operating under a different name, 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. On September 7, 2017 , the Company filed an Amendment to the Articles of Incorporation to change the corporate name to Starco Brands, Inc. The Board determined the change of the Company’s name was in the best interests of the Company due to changes in our current and anticipated business operations. In July 2017, the Company entered into a licensing agreement with The Starco Group
which is owned by the Company’s largest shareholder and CEO, located in Los Angeles, California. The Companies pivoted to commercializing novel consumer products manufactured by The Starco Group. The Starco Group is a private label and branded aerosol and liquid fill manufacturer which manufactures DIY/Hardware, paints, coatings and adhesives, household, hair care, disinfectants, automotive, motorcycle, arts & crafts, personal care cosmetics, personal care, FDA, sun care, food, cooking oils, beverage, spirits and wine.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents for the year ended December 31, 2020 or 2019.
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. As of December 31, 2020 and 2019, all of the Company’s accounts receivable are due from related parties.
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.
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 unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s 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 Company’s notes payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2020.
Property and equipment
Property and equipment are carried at the lower of cost or net realizable value. All property and equipment 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 estimated useful lives of three years.
Revenue recognition
The Company earns its revenue as royalties from the licensing agreements it has with The Starco Group, ("TSG") and other related parties. The Company licenses the right for TSG to manufacture and sell certain Starco Brands products. The amount of the licensing revenue received varies depending upon the product and is determined beforehand in each agreement. The Company recognizes its revenue only when sales are made by TSG to a third party.
The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
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 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.
Stock-based Compensation
We account for equity-based transactions with nonemployees under the provisions of ASC Topic No. 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). ASC 505-50 establishes that equity-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract.
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. As of December 31, 2020, the Company had 1,904,761 potentially dilutive shares from outstanding warrants. The inclusion of the dilutive shares has no affect on earnings per share.
Recently issued accounting pronouncements
In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815, and Leases (Topic 841). This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. While the Company is continuing to assess the potential impacts of ASU 2019-10, it does not expect ASU 2019-10 to have a material effect on its 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 its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $16,137,020 at December 31, 2020; however, for the year ended December 31, 2020 the Company had net income of $543,286 and net cash provided by operating activities of $665,770. The Company’s ability to continue with this trend is still unknown. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt financing is unknown. The obtainment of additional financing and the successful development of the Company’s contemplated plan of operations, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 4 - NOTES PAYABLE
The Company had a financing loan for its Director and Officer Insurance (“D&O”), that was renewed in September 2019. The new loan bears interest at 6.97%, and required monthly payments through July 2020. The D&O insurance has not been renewed. As of December 31, 2020 and 2019, the loan had a balance of $0 and $32,329, respectively.
During the fourth quarter of 2018 , a third party loaned the Company $3,300 to pay for general operating expenses. The loan was unsecured, non-interest bearing and due on demand. This loan was forgiven year ended December 31, 2020 and a gain on the forgiveness of debt was recognized.
NOTE 5 - OPERATING LEASE
The Company previously occupied office space in Burbank, California. The Company signed a three-year lease starting January 1, 2016. The lease was then extended for an additional three-year term. The lease was being accounted for under ASU 2016-02 Leases (Topic 842). The Company recorded an initial Right of Use of Asset and Lease Obligation of $122,825.
On November 1, 2020, the lease was amended to reduce the monthly lease payment to $1,750. In addition, the lessor agreed to forgive all past due accrued rent. As a result, the Company recognized a gain on the forgiveness of debt of $34,280.
On November 13, 2020, the Company and lessor assigned the lease for the office space in Burbank to Sandy Lang and Marty Goldrod, relieving the Company of any further obligation under the lease.
The lease expense for year ended December 31, 2020 was $34,691, which consisted of amortization expense of $30,297 and interest expense of $4,394.
The lease expense for the year ended December 31, 2019 was $44,908, which consisted of amortization expense of $36,388 and interest expense of $8,520.
The cash paid under this operating lease during the years ended December 31, 2020 and 2019 was $25,918 and $40,923, respectively.
NOTE 6 - COMMITMENTS & CONTINGENCIES
On February 18, 2020, the Company received a demand letter from a law firm representing certain individuals who purchased the Breathe brand home cleaning products. The demand letter alleged that the Company had unlawfully, falsely and misleadingly labeled and marketed the Breathe brand of products to consumers in violation of the Consumer Products Safety Act, the Federal Hazardous Substance Act and the FTC Act as well as various California and New York laws. While the Company denied any wrongdoing, a settlement was been reached and paid in full, with no further obligation required by the Company.
Accrued Liability
On July 9, 2014, the Board of Directors approved an investment arrangement with an individual. Per the terms of the agreement, the investor transferred $150,000 to the Company to be used for the development of a specific product. The product for which the investment was intended was never produced and this agreement is being renegotiated. The investment remains with the Company and is disclosed as an accrued liability on the balance sheet.
NOTE 7 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2017, Sanford Lang, the Company’s Chairman and former CEO, advanced the Company $289,821 to pay for general operating expenses, his and Martin Goldrod’s personal compensation. The advances are uncollateralized, require a monthly interest payment of $2,545 and due on demand.
As of December 31, 2020, the Company owed The Starco Group, (“TSG”) $72,843 for expenses paid by The Starco Group on behalf of the Company for expenses to launch licensed brands. Once royalties exceed $250,000 in the aggregate, and the Company has an adequate cash reserve, TSG will deduct the incurred expenses from the subsequent royalty payments until TSG is paid in full. In addition, the Company owes TSG an additional $47,129 for expenses paid on behalf of the Company or funds advanced to the Company to pay for other operating expenses.
As of December 31, 2020, the Company owes two of its board members $269 and $637, respectively, for cash advances to the Company and accrued compensation of $12,350 and $34,800, respectively.
As of December 31, 2020, the Company has total accrued compensation due to its former CFO of $25,050.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years. As of December 31, 2020, there is $1,256 of accrued interest due on this note.
During the year ended December 31, 2020, the Company incurred $200,000 of marketing expense from The Woo. David Dryer, the EVP of Marketing is a Managing Director at The Woo.
During the years ended December 31, 2020 and 2019, the Company recognized royalty income of $1,365,360 and $270,287, respectively and had a $45,517 and $14,496 receivable, respectively, from The Starco Group.
NOTE 8 - STOCK WARRANTS
The Company has 2,000,000 warrants outstanding that expire June 1, 2023. A summary of the status of the Company’s outstanding stock warrants and changes during the years is presented below:
Shares available to purchase with warrants
Weighted
Average
Price
Weighted
Average
Fair Value
Weighted
Average
Life
Aggregate Intrinsic Value
Outstanding, December 31, 2018
2,000,000
$
1.05
$
0.003
4.42
-
Issued
-
$
-
$
-
-
-
Exercised
-
$
-
$
-
-
-
Cancelled
-
$
-
$
-
-
-
Expired
-
$
-
$
-
-
-
Outstanding, December 31, 2019
2,000,000
$
1.05
$
0.003
3.42
-
Issued
-
$
-
$
-
-
-
Exercised
-
$
-
$
-
-
-
Cancelled
-
$
-
$
-
-
-
Expired
-
$
-
$
-
-
-
Outstanding, December 31, 2020
2,000,000
$
1.05
$
0.003
2.42
1,500,000
Exercisable, December 31, 2020
2,000,000
$
1.05
$
0.003
2.42
1,500,000
NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)
On July 23, 2020, the Company granted 49,751 shares of common stock for services. The shares were valued at $2.01, (the average fourteen closing day price), for total non-cash expense of $100,000.
NOTE 10 - INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets 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. The Company has evaluated Staff Accounting Bulletin No. 118 regarding the impact of the decreased tax rates of the Tax Cuts & Jobs Act. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate of 21% and 5% for state is being used.
Net deferred tax assets consist of the following components as of December 31:
Deferred Tax Assets:
NOL Carryover
$
1,295,500
$
1,295,500
Related party accrual
75,400
75,400
Depreciation
(800)
(5,100)
Payroll accrual
18,800
21,800
Deferred tax liabilities:
Less valuation allowance
(1,388,900)
(1,387,600)
Net deferred tax assets
$
-
$
-
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:
Book income (loss)
$
141,300
$
(36,300)
Meals and entertainment
-
Depreciation
-
(100)
Other nondeductible expenses
2,400
12,100
Accrued payroll
58,900
9,900
Valuation allowance
(202,600)
13,800
$
-
$
-
At December 31, 2020, the Company had net operating loss carry forwards of approximately $4,983,000 that may be offset against future taxable income from the year 2021 to 2041. No tax benefit has been reported in the December 31, 2020 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. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2016.
NOTE 11 - 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 statement were issued, and has determined that no material subsequent events exist.
On February 16, 2021, Rachel Boulds resigned as Chief Financial Officer of Starco Brands, Inc.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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 and Chief 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 SEC’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, these disclosure controls and procedures were not effective.
Management’s 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 and Chief Financial Officer are 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, 2020. 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, 2020, our internal control over financial reporting were not effective at that reasonable assurance level. The following aspects of the Company were noted as potential material weaknesses:
· lack of an audit committee and limited oversight of CFO’s work
· lack of corporate documentation
· Comingling of related parties
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Independent Public Accounting Firm
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 management’s 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 named executive officers. Our bylaws require at least four directors to 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. Our executive officers are appointed by our board of directors and serve at its discretion. There are no family relationships among our directors, executive officers, director nominees.
Name
Age
Position
Term of Director
Ross Sklar
President, CEO, Chairman of the Board and Director
August 2015 until next annual meeting
Sanford Lang
Director
January 2010 until next annual meeting
Martin Goldrod
Director
January 2010 until next annual meeting
Darin Brown
Executive Vice President, Director
June 4, 2020 until next annual meeting
Rachel Boulds (1)
Former Chief Financial Officer
(1) Rachel Boulds resigned her position as CFO on February 16, 2021.
Ross Sklar was appointed to fill a vacancy on our Board on August 13, 2015. Mr. Sklar is the founder and current Chief Executive Officer of The Starco Group, located in Los Angeles, California. On August 9, 2017, Mr. Sklar was appointed President and Chief Executive Officer of Starco Brands. He started The Starco Group in January 2010. The Starco Group is a diversified aerosol and liquid fill producer of private label and branded industrial and consumer products that manufactures for almost every consumer category. For over 15 years Mr. Sklar has developed technology in industrial and consumer markets. He holds a Bachelor’s degree in Political Science from the University of Manitoba.
Sanford Lang was a co-founder of Insynergy Products, Inc., now Starco Brands, and has served as its Chief Executive Officer from January 2010 when the Company was incorporated, to August 9, 2017; and as Chairman of its Board of Directors from January 2010 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 also has approximately 30 years’ experience as an executive in the movie industry.
Martin Goldrod is a co-founder of Insynergy Products, Inc., now Starco Brands, and served as its President and Chief Operating Officer, as well as on the Board of Directors, from January 2010 when the Company was incorporated, until late 2017. From January 2010 until March 2015 , he served as the Company’s Chief Financial Officer. 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. For approximately 30 years Mr. Goldrod was an executive in the music industry.
Darin Brown joined the Company as a Director in June 2020, and was appointed as its Executive Vice President in July 2020. Darin has over 20 years of experience in chemical operations and consumer package goods distribution experience. He also currently serves as Executive Vice President of Operations for The Starco Group, which is a position he has held since February 2012. Darin has exceptional leadership experience, having overseen teams of over 200 people during his time at The Starco Group.
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, 2020, we believe all necessary forms have been filed.
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 Sklar, 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 Company’s last two fiscal years.
SUMMARY COMPENSATION TABLE
Name and
principal position
Year
Salary
($)(1)
Bonus
($)
Stock Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total
($)
Ross Sklar, CEO
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Darin Brown, VP, Director
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Rachel Boulds, former CFO
$36,500
$9,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$36,500
$9,000
(1) Amounts indicated are cash payments. Officers may have accrued unpaid salary
Employment Agreements
We have no formal employment agreements in place at this time.
DIRECTOR COMPENSATION
The following table provides information as to cash compensation of Directors of the Company, for each of the Company’s last two fiscal years.
SUMMARY COMPENSATION TABLE
Name and
principal position
Year
Salary
($)(1)
Bonus
($)
Stock Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total
($)
Ross Sklar, CEO
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sanford Lang,
Director
$79,800
$65,600
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$79,800
$65,600
Martin Goldrod, Director
$18,500
$20,250
$0
$0
$
$0
$0
$0
$0
$0
$0
$0
$0
$0
$18,500
$20,250
Darin Brown, VP, Director
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Under Equity Compensation Plans
The Company does not have any securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders as of December 31, 2020.
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 159,140,665 shares of common stock outstanding as of March 15, 2020.
MANAGEMENT
Title of Class
Name of
Beneficial Owner
Amount of Beneficial Ownership
Percent of Class
Common Stock
Sanford Lang
15,910,176 (1)
10.0%
Common Stock
Martin Goldrod
1,995,417
1.3%
Common Stock
Ross Sklar
93,316,226
58.6%
Common Stock
Darin Brown
2,000,000
1.3%
Directors and executive officers as a group(4 persons)
112,890,153
71%
(1) 16,667 shares held by his spouse and 333 shares held by a child living with him.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
The following information summarizes transactions we have either engaged in for the past two fiscal years or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. These transactions were negotiated between related parties without “arm’s length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.
During the year ended December 31, 2017, Sanford Lang, the Company’s Chairman and former CEO, advanced the Company $289,821 to pay for general operating expenses, his and Martin Goldrod’s personal compensation. The advances are uncollateralized, require a monthly interest payment of $2,545 and due on demand.
As of December 31, 2020, the Company owed The Starco Group, (“TSG”) $72,843 for expenses paid by The Starco Group on behalf of the Company for expenses to launch licensed brands. Once royalties exceed $250,000 in the aggregate, and the Company has an adequate cash reserve, TSG will deduct the incurred expenses from the subsequent royalty payments until TSG is paid in full. In addition, the Company owes TSG an additional $47,129 for expenses paid on behalf of the Company or funds advanced to the Company to pay for other operating expenses.
As of December 31, 2020, the Company owes two of its board members $269 and $637, respectively, for cash advances to the Company and accrued compensation of $12,350 and $34,800, respectively.
As of December 31, 2020, the Company has total accrued compensation due to its former CFO of $25,050.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years. As of December 31, 2020, there is $1,256 of accrued interest due on this note.
During the year ended December 31, 2020, the Company incurred $200,000 of marketing expense from The Woo. David Dryer, the EVP of Marketing is a Managing Director at The Woo.
During the years ended December 31, 2020 and 2019, the Company recognized royalty income of $1,353,852 and $270,287, respectively and had a $34,009 and $14,496 receivable, respectively, from The Starco Group.
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 three 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 Company’s management as the members of the board of director’s increases after implementation of the Company’s business plan.
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 Haynie & Company, our Independent Registered Public Accounting Firm, in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
Audit fees
$
37,500
$
31,000
Audit-related fees
$
-
$
-
Tax fees
$
2,500
$
2,500
All other fees
$
-
$
-
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 Starco Brands, Inc. are included in this report under Item 8.
(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)*
By-laws of Starco Brands, Inc., as amended August 13, 2015 (incorporated by reference to exhibit 3(ii) Form 8-K filed August 20, 2015
10.1*
Memorandum of Understanding regarding the launch of Breathe Hand Sanitizer ( incorporated by reference to exhibit 10.1 of the Form 8-K filed June 12, 2020
10.2*
License Agreement by and between Hearst Magazine Media, Inc., and Starco Brands, Inc. executed April 24, 2020 ( incorporated by reference to exhibit 99.1 of the Form 8-K filed November 20, 2020)
10.3*
License Agreement by and between Hearst Magazine Media, Inc., and Starco Brands, Inc. executed October 15, 2020 ( incorporated by reference to exhibit 99.2 of the Form 8-K filed November 20, 2020)
10.4*
License Agreement by and between Winona Pure, Inc. and Starco Brands, Inc. executed April 1, 2018 ( incorporated by reference to exhibit 99.1 of the Form 8-K filed February 19, 2021)
10.5*
License Agreement by and between Sklar Holdings, Inc., and Starco Brands, Inc. executed April 1, 2018 ( incorporated by reference to exhibit 99.2 of the Form 8-K filed February 19, 2021)
31.1
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer
31.2
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer
32.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350. As adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
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
* Previously Filed
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.
Starco Brands, Inc.
By:
/s/ Ross Sklar
Ross Sklar
Chief Executive Officer and Interim Chief Financial Officer (Principal Executive Officer, Principal Accounting Officer and Principal Financial 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/ Ross Sklar
Ross Sklar
Chief Executive Officer, Director
April 15, 2021
/s/ Martin Goldrod
Martin Goldrod
Director and Secretary/Treasurer
April 15, 2021
/s/ Sandford Lang
Sanford Lang
Director
April 15, 2021
/s/ Darin Brown
Darin Brown
Director
April 15, 2021
Exhibit 31.1
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer
I, Ross Sklar, hereby certify that:
(1) I have reviewed this annual report on Form 10-K for the year ended December 31, 2020 (the “report”) of Starco Brands, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) As the registrant's sole certifying officer I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) As the registrant's sole certifying officers I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: April 15, 2021
/s/Ross Sklar
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer
I, Ross Sklar, hereby certify that:
(1) I have reviewed this annual report on Form 10-K for the year ended December 31, 2020 (the “report”) of Starco Brands, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) As the registrant's sole certifying officers I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) As the registrant's sole certifying officer I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: April 15, 2021
/s/ Ross Sklar
Interim Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350
In connection with the Annual Report of Starco Brands, Inc. on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ross Sklar, Chief Executive Officer and Interim Chief Financial Officer of Starco Brands, Inc., certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
• the annual report on Form 10-K of the Company for the year ended December 31, 2020, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
• the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 15, 2021
/s/Ross Sklar
Ross Sklar
Chief Executive Officer
/s/Ross Sklar
Ross Sklar
Interim Chief Financial Officer

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
Item 2. PROPERTIES
Our principal offices are located at 250 26th Street, Suite 200, Santa Monica, California, 90402.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. LEGAL PROCEEDINGS
None.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed to trade on the OTC Markets Group OTCQB tier under the symbol “STCB.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-downs or commissions, and may not necessarily represent actual transactions.
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 (not including their personal residence) 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 purchaser’s 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 16, 2021, we had 190 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
None
Issuer Purchase of Securities
The Company did not repurchase any of its securities during the fiscal year ended December 31, 2020.

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ITEM 6. SELECTED FINANCIAL DATA
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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the year ended December 31, 2020 compared to the year ended December 31, 2019
The following information should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Form 10-K.
Revenues
For the year ended December 31, 2020 , the Company recorded royalty revenues of $1,365,360 compared to $240,287 for the year ended December 31, 2019, an increase of $1,125,076 or 468.2%. The royalty rate that Starco Brands is paid varies on a per product basis of wholesale sales of our branded and non-corporate owned licensed products. Revenues are from our marketing licensing agreements with The Starco Group and other affiliated companies, for various products mentioned above. The increase in the current period is due to an increase of sales of our Breathe household cleaning line and Winona Popcorn Spray, and to the launching and scaling of the new Breathe hand sanitizer spray. Future sales are not contractural or guaranteed and are dependant on continuing customer purchases of our products.
Operating Expenses
For the year ended December 31, 2020, compensation expense to Sandy Lang, Marty Goldrod and Rachel Boulds, the only people compensated in the Company, increased $2,212, or 1.2% to $185,537 compared to $183,325 for the year ended December 31, 2019.
For the year ended December 31, 2020, the Company incurred $145,416 in professional fees compared to $45,375 in the prior period, an increase of $100,041, or 220.5%. Professional fees are mainly for accounting, auditing and legal services associated with our quarterly filings as a public company and advisory and valuation services. The increase is primarily due to an increase in legal fees.
For the year ended December 31, 2020, the Company incurred $507,278 in marketing, general and administrative expense as compared to $159,365 for the year ended December 31, 2019, an increase of $347,913, or 218.3%. The increase can be attributed to an increase of spending on marketing.
Other income and expense
For the year ended December 31, 2020, we had total other income of $16,157 compared to $7,814 for the year ended December 31, 2019. For the year ended December 31, 2020, the Company recorded other income from subleasing its office space of $15,750 and a gain on extinguishment of debt of $37,580. This was offset by interest expense of $37,173. For the year ended December 31, 2019, the Company recorded other income from subleasing its office space of $21,000 and a gain on extinguishment of debt of $19,434. This was offset by interest expense of $32,620.
Net loss
For the year ended December 31, 2020, the Company recorded a net income of $543,286 as compared to a net loss of $139,964 in the prior year. The increase from the net loss to net income is the result of the large increase of our revenue.
Liquidity and Capital Resources
As reflected in the accompanying financial statements, the Company has an accumulated deficit of $16,137,020 at December 31, 2020 due to the release of shares to strategic people and firms at during the Companies start up phase in 2017 and 2018; however, for the year ended December 31, 2020 , the Company had net income of $543,286 and net cash provided by operating activities of $665,770.
We netted $102,798 from financing activities for the year ended December 31, 2020, due to a $100,000 loan from our CEO and funds from other related party cash advances to pay for general operating expenses, compared to $47,415 for the year ended December 31, 2019. A majority of our financing activity consisted of payments to and from related parties.
We currently require cash of about $30,000 a month for operating expenses. Operating expenses include items such as Board Member compensation, administrative costs, insurance, legal and other professional fees, compliance and website maintenance. No cash compensation has ever been paid to the CEO.
We have an outstanding loan of approximately $300,000 from initial invested capital that requires monthly interest payments of $2,545. The loan was used to pay administrative and other operating costs.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years.
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 2 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.
The Company earns its revenue as royalties from the licensing agreements it has with The Starco Group, ("TSG") and other related parties. The Company licenses the right for TSG to manufacture and sell certain Starco Brands products.. The amount of the licensing revenue received varies depending upon the product and is determined beforehand in each agreement. The Company recognizes its revenue only when it receives a report of sales made by TSG to a third party.
The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
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
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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STARCO BRANDS, INC.
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2020 and 2019
Statements of Operations for the Years Ended December 31, 2020 and 2019
Statements of Stockholders’ Equtiy ( Deficit) for the years ended December 31, 2020 and 2019
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Starco Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Starco Brands, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has recurring losses, negative working capital and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain financing, there could be a material adverse effect on the Company.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Related Party Transactions including Revenue Recognition
Description of the Matter:
As discussed in Note 7 to the financial statements, Starco Brands has significant related party transactions involving revenue, loans payable, cash advances, and expenses paid by multiple related parties. Starco Brand’s revenue is based upon royalty agreements with related parties that can be complex and vary based on the product, as discussed in Revenue Recognition, Note 2, to the financial statements. Auditing management’s identification of related parties and the related transactions including recognition of revenue can be complex and is based on a thorough understanding of the Company’s related party relationships, contracts, and business activities.
How We Addressed the Matter in our Audit:
We evaluated the design and implementation of certain controls over the Company’s identification of, and recording of related party transactions, and of the revenue recognition process, including walkthroughs. We confirmed certain balances and transactions with related parties. To evaluate Starco Brand’s satisfaction of performance obligations, our audit procedures included, among others, reviewing contracts and evaluating management’s assumptions used to determine the distinct performance obligations, and reviewing the branding work performed by the Company for various products. We also obtained support from third-party retailers supporting the transactions at the related parties, for which the royalty revenue is based on.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
April 15, 2021
We have served as the Company’s auditor since 2016.
STARCO BRANDS, INC.
BALANCE SHEETS
December 31, 2020
December 31, 2019
ASSETS
Current Assets:
Cash
$
773,322
$
4,754
Accounts receivable, related party
45,517
14,496
Prepaid and other assets
19,917
38,661
Total Current Assets
838,756
57,911
Right of use lease asset, operating, net
-
85,077
Deposit
3,500
3,500
Total Assets
$
842,256
$
146,488
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable
$
207,665
$
188,036
Other payables and accruals
263,230
284,883
Accrued interest - related party
6,346
-
Accrued compensation
72,200
83,900
Lease obligation
-
40,806
Loans payable - related party
546,989
411,862
Notes payable
-
35,629
Total Current Liabilities
1,096,430
1,045,116
Lease obligation - noncurrent portion
-
45,632
Total Liabilities
1,096,430
1,090,748
Stockholders' Deficit:
Preferred Stock, par value $0.001 40,000,000 shares authorized, no shares issued and outstanding
-
-
Common Stock, par value $0.001 300,000,000 shares authorized, 159,140,665 and 159,090,914 shares issued and outstanding, respectively
159,141
159,091
Additional paid in capital
15,723,705
15,576,955
Accumulated deficit
(16,137,020)
(16,680,306)
Total Stockholders' Deficit
(254,174)
(944,260)
Total Liabilities and Stockholders' Deficit
$
842,256
$
146,488
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
Revenues, net, related party
$
1,365,360
$
240,287
Operating Expenses:
Compensation expense
185,537
183,325
Professional fees
145,416
45,375
General and administrative
507,278
159,365
Total operating expenses
838,231
388,065
Gain (loss) from operations
527,129
(147,778)
Other Income (Expense):
Interest expense
(37,173)
(32,620)
Other income
15,750
21,000
Gain on extinguishment of debt
37,580
19,434
Total other income
16,157
7,814
Net Income (Loss)
$
543,286
$
(139,964)
Income (Loss) per Share, Basic & Diluted
$
0.00
$
(0.00)
Weighted Average Shares Outstanding, Basic & Diluted
159,112,859
159,090,914
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
Additional
Shares
Amount
Paid in
Capital
Accumulated Deficit
Total
Balance, December 31, 2018
159,090,914
$
159,091
$
15,530,155
$
(16,540,342)
$
(851,096)
Contributed services
-
-
46,800
-
46,800
Net Loss
-
-
-
(139,964)
(139,964)
Balance, December 31, 2019
159,090,914
159,091
15,576,955
(16,680,306)
(944,260)
Shares issued for services
49,751
99,950
-
100,000
Contributed services
-
-
46,800
-
46,800
Net Income
-
-
-
543,286
543,286
Balance, December 31, 2020
159,140,665
$
159,141
$
15,723,705
$
(16,137,020)
$
(254,174)
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
Cash Flow Activity from Operating Activities:
Net Income (Loss) for the Year
$
543,286
$
(139,964)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock based compensation
100,000
-
Contributed services
46,800
46,800
Change in lease liability operating lease
(1,361)
1,361
Gain on extinguishment of debt
(37,580)
(19,434)
Changes in Operating Assets and Liabilities:
Accounts receivable - related party
(31,021)
3,008
Prepaids & other assets
18,744
(12,688)
Accounts payable
19,629
34,154
Accrued expenses - related party
6,346
-
Accrued expenses
43,381
Net Cash Provided by (Used in) Operating Activities
665,770
(43,382)
Cash Flow Activity from Financing Activities:
Advances from related parties
320,568
103,221
Repayment of advances from related parties
(185,441)
(64,705)
Proceeds from notes payable
-
55,000
Payments on notes payable
(32,329)
(46,101)
Net Cash Provided by Financing Activities
102,798
47,415
Net Increase in Cash
768,568
4,033
Cash at Beginning of Year
4,754
Cash at End of Year
$
773,322
$
4,754
Cash paid during the year for:
Interest
$
33,027
$
30,541
Income taxes
$
-
$
-
Supplemental disclosure of non-cash activities:
Operating lease right of use assets
$
-
$
122,825
Operating lease liability
$
-
$
122,825
Noncash investing & financing activities:
Lease termination
$
54,777
$
-
The accompanying notes are an integral part of these financial statements.
STARCO BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Starco Brands, Inc. (the "Company") then operating under a different name, 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. On September 7, 2017 , the Company filed an Amendment to the Articles of Incorporation to change the corporate name to Starco Brands, Inc. The Board determined the change of the Company’s name was in the best interests of the Company due to changes in our current and anticipated business operations. In July 2017, the Company entered into a licensing agreement with The Starco Group
which is owned by the Company’s largest shareholder and CEO, located in Los Angeles, California. The Companies pivoted to commercializing novel consumer products manufactured by The Starco Group. The Starco Group is a private label and branded aerosol and liquid fill manufacturer which manufactures DIY/Hardware, paints, coatings and adhesives, household, hair care, disinfectants, automotive, motorcycle, arts & crafts, personal care cosmetics, personal care, FDA, sun care, food, cooking oils, beverage, spirits and wine.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents for the year ended December 31, 2020 or 2019.
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. As of December 31, 2020 and 2019, all of the Company’s accounts receivable are due from related parties.
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.
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 unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s 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 Company’s notes payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2020.
Property and equipment
Property and equipment are carried at the lower of cost or net realizable value. All property and equipment 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 estimated useful lives of three years.
Revenue recognition
The Company earns its revenue as royalties from the licensing agreements it has with The Starco Group, ("TSG") and other related parties. The Company licenses the right for TSG to manufacture and sell certain Starco Brands products. The amount of the licensing revenue received varies depending upon the product and is determined beforehand in each agreement. The Company recognizes its revenue only when sales are made by TSG to a third party.
The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
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 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.
Stock-based Compensation
We account for equity-based transactions with nonemployees under the provisions of ASC Topic No. 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). ASC 505-50 establishes that equity-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract.
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. As of December 31, 2020, the Company had 1,904,761 potentially dilutive shares from outstanding warrants. The inclusion of the dilutive shares has no affect on earnings per share.
Recently issued accounting pronouncements
In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815, and Leases (Topic 841). This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. While the Company is continuing to assess the potential impacts of ASU 2019-10, it does not expect ASU 2019-10 to have a material effect on its 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 its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $16,137,020 at December 31, 2020; however, for the year ended December 31, 2020 the Company had net income of $543,286 and net cash provided by operating activities of $665,770. The Company’s ability to continue with this trend is still unknown. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt financing is unknown. The obtainment of additional financing and the successful development of the Company’s contemplated plan of operations, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE 4 - NOTES PAYABLE
The Company had a financing loan for its Director and Officer Insurance (“D&O”), that was renewed in September 2019. The new loan bears interest at 6.97%, and required monthly payments through July 2020. The D&O insurance has not been renewed. As of December 31, 2020 and 2019, the loan had a balance of $0 and $32,329, respectively.
During the fourth quarter of 2018 , a third party loaned the Company $3,300 to pay for general operating expenses. The loan was unsecured, non-interest bearing and due on demand. This loan was forgiven year ended December 31, 2020 and a gain on the forgiveness of debt was recognized.
NOTE 5 - OPERATING LEASE
The Company previously occupied office space in Burbank, California. The Company signed a three-year lease starting January 1, 2016. The lease was then extended for an additional three-year term. The lease was being accounted for under ASU 2016-02 Leases (Topic 842). The Company recorded an initial Right of Use of Asset and Lease Obligation of $122,825.
On November 1, 2020, the lease was amended to reduce the monthly lease payment to $1,750. In addition, the lessor agreed to forgive all past due accrued rent. As a result, the Company recognized a gain on the forgiveness of debt of $34,280.
On November 13, 2020, the Company and lessor assigned the lease for the office space in Burbank to Sandy Lang and Marty Goldrod, relieving the Company of any further obligation under the lease.
The lease expense for year ended December 31, 2020 was $34,691, which consisted of amortization expense of $30,297 and interest expense of $4,394.
The lease expense for the year ended December 31, 2019 was $44,908, which consisted of amortization expense of $36,388 and interest expense of $8,520.
The cash paid under this operating lease during the years ended December 31, 2020 and 2019 was $25,918 and $40,923, respectively.
NOTE 6 - COMMITMENTS & CONTINGENCIES
On February 18, 2020, the Company received a demand letter from a law firm representing certain individuals who purchased the Breathe brand home cleaning products. The demand letter alleged that the Company had unlawfully, falsely and misleadingly labeled and marketed the Breathe brand of products to consumers in violation of the Consumer Products Safety Act, the Federal Hazardous Substance Act and the FTC Act as well as various California and New York laws. While the Company denied any wrongdoing, a settlement was been reached and paid in full, with no further obligation required by the Company.
Accrued Liability
On July 9, 2014, the Board of Directors approved an investment arrangement with an individual. Per the terms of the agreement, the investor transferred $150,000 to the Company to be used for the development of a specific product. The product for which the investment was intended was never produced and this agreement is being renegotiated. The investment remains with the Company and is disclosed as an accrued liability on the balance sheet.
NOTE 7 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2017, Sanford Lang, the Company’s Chairman and former CEO, advanced the Company $289,821 to pay for general operating expenses, his and Martin Goldrod’s personal compensation. The advances are uncollateralized, require a monthly interest payment of $2,545 and due on demand.
As of December 31, 2020, the Company owed The Starco Group, (“TSG”) $72,843 for expenses paid by The Starco Group on behalf of the Company for expenses to launch licensed brands. Once royalties exceed $250,000 in the aggregate, and the Company has an adequate cash reserve, TSG will deduct the incurred expenses from the subsequent royalty payments until TSG is paid in full. In addition, the Company owes TSG an additional $47,129 for expenses paid on behalf of the Company or funds advanced to the Company to pay for other operating expenses.
As of December 31, 2020, the Company owes two of its board members $269 and $637, respectively, for cash advances to the Company and accrued compensation of $12,350 and $34,800, respectively.
As of December 31, 2020, the Company has total accrued compensation due to its former CFO of $25,050.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years. As of December 31, 2020, there is $1,256 of accrued interest due on this note.
During the year ended December 31, 2020, the Company incurred $200,000 of marketing expense from The Woo. David Dryer, the EVP of Marketing is a Managing Director at The Woo.
During the years ended December 31, 2020 and 2019, the Company recognized royalty income of $1,365,360 and $270,287, respectively and had a $45,517 and $14,496 receivable, respectively, from The Starco Group.
NOTE 8 - STOCK WARRANTS
The Company has 2,000,000 warrants outstanding that expire June 1, 2023. A summary of the status of the Company’s outstanding stock warrants and changes during the years is presented below:
Shares available to purchase with warrants
Weighted
Average
Price
Weighted
Average
Fair Value
Weighted
Average
Life
Aggregate Intrinsic Value
Outstanding, December 31, 2018
2,000,000
$
1.05
$
0.003
4.42
-
Issued
-
$
-
$
-
-
-
Exercised
-
$
-
$
-
-
-
Cancelled
-
$
-
$
-
-
-
Expired
-
$
-
$
-
-
-
Outstanding, December 31, 2019
2,000,000
$
1.05
$
0.003
3.42
-
Issued
-
$
-
$
-
-
-
Exercised
-
$
-
$
-
-
-
Cancelled
-
$
-
$
-
-
-
Expired
-
$
-
$
-
-
-
Outstanding, December 31, 2020
2,000,000
$
1.05
$
0.003
2.42
1,500,000
Exercisable, December 31, 2020
2,000,000
$
1.05
$
0.003
2.42
1,500,000
NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)
On July 23, 2020, the Company granted 49,751 shares of common stock for services. The shares were valued at $2.01, (the average fourteen closing day price), for total non-cash expense of $100,000.
NOTE 10 - INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets 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. The Company has evaluated Staff Accounting Bulletin No. 118 regarding the impact of the decreased tax rates of the Tax Cuts & Jobs Act. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate of 21% and 5% for state is being used.
Net deferred tax assets consist of the following components as of December 31:
Deferred Tax Assets:
NOL Carryover
$
1,295,500
$
1,295,500
Related party accrual
75,400
75,400
Depreciation
(800)
(5,100)
Payroll accrual
18,800
21,800
Deferred tax liabilities:
Less valuation allowance
(1,388,900)
(1,387,600)
Net deferred tax assets
$
-
$
-
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:
Book income (loss)
$
141,300
$
(36,300)
Meals and entertainment
-
Depreciation
-
(100)
Other nondeductible expenses
2,400
12,100
Accrued payroll
58,900
9,900
Valuation allowance
(202,600)
13,800
$
-
$
-
At December 31, 2020, the Company had net operating loss carry forwards of approximately $4,983,000 that may be offset against future taxable income from the year 2021 to 2041. No tax benefit has been reported in the December 31, 2020 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. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2016.
NOTE 11 - 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 statement were issued, and has determined that no material subsequent events exist.
On February 16, 2021, Rachel Boulds resigned as Chief Financial Officer of Starco Brands, Inc.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None

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ITEM 9A. CONTROLS AND PROCEDURES
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 and Chief 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 SEC’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, these disclosure controls and procedures were not effective.
Management’s 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 and Chief Financial Officer are 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, 2020. 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, 2020, our internal control over financial reporting were not effective at that reasonable assurance level. The following aspects of the Company were noted as potential material weaknesses:
· lack of an audit committee and limited oversight of CFO’s work
· lack of corporate documentation
· Comingling of related parties
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Independent Public Accounting Firm
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 management’s report in this annual report.

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ITEM 9B. OTHER INFORMATION
Item 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 named executive officers. Our bylaws require at least four directors to 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. Our executive officers are appointed by our board of directors and serve at its discretion. There are no family relationships among our directors, executive officers, director nominees.
Name
Age
Position
Term of Director
Ross Sklar
President, CEO, Chairman of the Board and Director
August 2015 until next annual meeting
Sanford Lang
Director
January 2010 until next annual meeting
Martin Goldrod
Director
January 2010 until next annual meeting
Darin Brown
Executive Vice President, Director
June 4, 2020 until next annual meeting
Rachel Boulds (1)
Former Chief Financial Officer
(1) Rachel Boulds resigned her position as CFO on February 16, 2021.
Ross Sklar was appointed to fill a vacancy on our Board on August 13, 2015. Mr. Sklar is the founder and current Chief Executive Officer of The Starco Group, located in Los Angeles, California. On August 9, 2017, Mr. Sklar was appointed President and Chief Executive Officer of Starco Brands. He started The Starco Group in January 2010. The Starco Group is a diversified aerosol and liquid fill producer of private label and branded industrial and consumer products that manufactures for almost every consumer category. For over 15 years Mr. Sklar has developed technology in industrial and consumer markets. He holds a Bachelor’s degree in Political Science from the University of Manitoba.
Sanford Lang was a co-founder of Insynergy Products, Inc., now Starco Brands, and has served as its Chief Executive Officer from January 2010 when the Company was incorporated, to August 9, 2017; and as Chairman of its Board of Directors from January 2010 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 also has approximately 30 years’ experience as an executive in the movie industry.
Martin Goldrod is a co-founder of Insynergy Products, Inc., now Starco Brands, and served as its President and Chief Operating Officer, as well as on the Board of Directors, from January 2010 when the Company was incorporated, until late 2017. From January 2010 until March 2015 , he served as the Company’s Chief Financial Officer. 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. For approximately 30 years Mr. Goldrod was an executive in the music industry.
Darin Brown joined the Company as a Director in June 2020, and was appointed as its Executive Vice President in July 2020. Darin has over 20 years of experience in chemical operations and consumer package goods distribution experience. He also currently serves as Executive Vice President of Operations for The Starco Group, which is a position he has held since February 2012. Darin has exceptional leadership experience, having overseen teams of over 200 people during his time at The Starco Group.
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, 2020, we believe all necessary forms have been filed.
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 Sklar, act as our nominating and audit committee.
Code of Ethics
The Company has not adopted a Code of Ethics.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION
The following table provides information as to cash compensation of all executive officers of the Company, for each of the Company’s last two fiscal years.
SUMMARY COMPENSATION TABLE
Name and
principal position
Year
Salary
($)(1)
Bonus
($)
Stock Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total
($)
Ross Sklar, CEO
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Darin Brown, VP, Director
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Rachel Boulds, former CFO
$36,500
$9,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$36,500
$9,000
(1) Amounts indicated are cash payments. Officers may have accrued unpaid salary
Employment Agreements
We have no formal employment agreements in place at this time.
DIRECTOR COMPENSATION
The following table provides information as to cash compensation of Directors of the Company, for each of the Company’s last two fiscal years.
SUMMARY COMPENSATION TABLE
Name and
principal position
Year
Salary
($)(1)
Bonus
($)
Stock Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total
($)
Ross Sklar, CEO
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sanford Lang,
Director
$79,800
$65,600
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$79,800
$65,600
Martin Goldrod, Director
$18,500
$20,250
$0
$0
$
$0
$0
$0
$0
$0
$0
$0
$0
$0
$18,500
$20,250
Darin Brown, VP, Director
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Under Equity Compensation Plans
The Company does not have any securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders as of December 31, 2020.
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 159,140,665 shares of common stock outstanding as of March 15, 2020.
MANAGEMENT
Title of Class
Name of
Beneficial Owner
Amount of Beneficial Ownership
Percent of Class
Common Stock
Sanford Lang
15,910,176 (1)
10.0%
Common Stock
Martin Goldrod
1,995,417
1.3%
Common Stock
Ross Sklar
93,316,226
58.6%
Common Stock
Darin Brown
2,000,000
1.3%
Directors and executive officers as a group(4 persons)
112,890,153
71%
(1) 16,667 shares held by his spouse and 333 shares held by a child living with him.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
The following information summarizes transactions we have either engaged in for the past two fiscal years or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. These transactions were negotiated between related parties without “arm’s length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.
During the year ended December 31, 2017, Sanford Lang, the Company’s Chairman and former CEO, advanced the Company $289,821 to pay for general operating expenses, his and Martin Goldrod’s personal compensation. The advances are uncollateralized, require a monthly interest payment of $2,545 and due on demand.
As of December 31, 2020, the Company owed The Starco Group, (“TSG”) $72,843 for expenses paid by The Starco Group on behalf of the Company for expenses to launch licensed brands. Once royalties exceed $250,000 in the aggregate, and the Company has an adequate cash reserve, TSG will deduct the incurred expenses from the subsequent royalty payments until TSG is paid in full. In addition, the Company owes TSG an additional $47,129 for expenses paid on behalf of the Company or funds advanced to the Company to pay for other operating expenses.
As of December 31, 2020, the Company owes two of its board members $269 and $637, respectively, for cash advances to the Company and accrued compensation of $12,350 and $34,800, respectively.
As of December 31, 2020, the Company has total accrued compensation due to its former CFO of $25,050.
On January 24, 2020, the Company executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounded monthly, is unsecured and matures in two years. As of December 31, 2020, there is $1,256 of accrued interest due on this note.
During the year ended December 31, 2020, the Company incurred $200,000 of marketing expense from The Woo. David Dryer, the EVP of Marketing is a Managing Director at The Woo.
During the years ended December 31, 2020 and 2019, the Company recognized royalty income of $1,353,852 and $270,287, respectively and had a $34,009 and $14,496 receivable, respectively, from The Starco Group.
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 three 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 Company’s management as the members of the board of director’s increases after implementation of the Company’s business plan.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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 Haynie & Company, our Independent Registered Public Accounting Firm, in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
Audit fees
$
37,500
$
31,000
Audit-related fees
$
-
$
-
Tax fees
$
2,500
$
2,500
All other fees
$
-
$
-
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

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The audited financial statements of Starco Brands, Inc. are included in this report under Item 8.
(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)*
By-laws of Starco Brands, Inc., as amended August 13, 2015 (incorporated by reference to exhibit 3(ii) Form 8-K filed August 20, 2015
10.1*
Memorandum of Understanding regarding the launch of Breathe Hand Sanitizer ( incorporated by reference to exhibit 10.1 of the Form 8-K filed June 12, 2020
10.2*
License Agreement by and between Hearst Magazine Media, Inc., and Starco Brands, Inc. executed April 24, 2020 ( incorporated by reference to exhibit 99.1 of the Form 8-K filed November 20, 2020)
10.3*
License Agreement by and between Hearst Magazine Media, Inc., and Starco Brands, Inc. executed October 15, 2020 ( incorporated by reference to exhibit 99.2 of the Form 8-K filed November 20, 2020)
10.4*
License Agreement by and between Winona Pure, Inc. and Starco Brands, Inc. executed April 1, 2018 ( incorporated by reference to exhibit 99.1 of the Form 8-K filed February 19, 2021)
10.5*
License Agreement by and between Sklar Holdings, Inc., and Starco Brands, Inc. executed April 1, 2018 ( incorporated by reference to exhibit 99.2 of the Form 8-K filed February 19, 2021)
31.1
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer
31.2
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer
32.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350. As adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
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
* Previously Filed