Starco Brands, Inc. - Quarter Report: 2017 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q

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

ACT OF 1934

For the quarterly period ended MARCH 31, 2017

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

ACT OF 1934

Commission file number:  0-54892

INSYNERGY PRODUCTS, INC

 (Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (818) 260-9370

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  [X]        No  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [  ]        No  [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of April 27, 2017, the issuer had 36,263,534 shares of its common stock issued and outstanding.

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TABLE OF CONTENTS

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 PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

INSYNERGY PRODUCTS, INC.

INDEX TO FINANCIAL STATEMENTS

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

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INSYNERGY PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Insynergy Products, Inc. (the "Company") was incorporated in the State of Nevada on January 26, 2010, to engage in Direct Response marketing of consumer products with the goal of producing sales through television and/or retail.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending December 31, 2017. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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.

Recently issued accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 3 – GOING CONCERN

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $15,495,898 at March 31, 2017, had a net loss of $125,910 and net cash used in operating activities of $61,492 for the three months ended March 31, 2017. This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company currently has no revenue from current operations, with liabilities exceeding its assets. Management is analyzing new potential growth paths and the potential for a restructuring; however, there is still substantial doubt about the Company’s ability to continue as a going concern. The Company is currently performing its due diligence for a corporate reorganization. This due diligence phase, involving counsel and other qualified professionals is necessary in order to cautiously explore appropriate steps to restructure the Company for the purposes of executing a new business model within the Company’s core competencies.  

NOTE 4 – NOTES PAYABLE

As of March 31, 2017, the Company owes $21,400 on a loan payable. The loan is uncollateralized, non-interest bearing and is due on demand.

NOTE 5 – COMMITMENTS & CONTIGENCIES

The Company currently occupies office space in Burbank, California. The Company signed a three-year lease starting January 1, 2016. Current monthly lease payments are $3,527 with yearly increases.  The lease required a deposit of $3,500 which was paid on December 10, 2015. Minimum lease payments over the next two years are as follows: 

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Investment Agreement

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

NOTE 6 – RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2017, Sanford Lang, CEO advanced the company $91,453 to pay for general operating expenses; $27,142 of which was paid back. The advances are uncollateralized, non-interest bearing and due on demand. As of March 31, 2017 $64,311 is due to Mr. Lang.

During the three months ended March 31, 2017, Marty Goldrod, COO advanced the company $340 to pay for general operating expenses. The advance is uncollateralized, non-interest bearing and due on demand. As of March 31, 2017 $340 is due to Mr. Goldrod.

As of March 31, 2017, the Company owed its officers $2,449 for expense reimbursement.

NOTE 7 – STOCK WARRANTS

Pursuant to a binding Letter of Intent with Ross Sklar (“Sklar”), a related party, dated August 13, 2015, the Company granted warrants to purchase 35,000,000 shares of common stock to Sklar on September 15, 2015.  The warrants have an exercise price of $0.23 and a term of ten years.  The aggregate fair value of the warrants totaled $6,501,715 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.23, 2.28% risk free rate, 65.24% volatility and expected life of the options of 10 years. Mr. Sklar was also appointed to the Board of Directors designating him a related party.

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

 NOTE 8– SUBSEQUENT EVENTS

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

On April 4, 2017, the Company’s Board of Directors determined it was in the best interest of the Company to issue additional shares to Paul Bershin and Alan Diamante in consideration for funds previously loaned to the Company. Accordingly, the Company issued 3,811,594 shares of common stock to Paul Bershin at $0.03 per share and issued 4,846,376 shares of common stock to Alan Diamante at $0.03 per share.

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

The following information should be read in conjunction with our financial statements and related notes thereto included in Part I, Item 1, above. We also urge you to review and consider our disclosures describing various risks that may affect our business, which are set forth under the heading "Risk Factors," below.

Forward Looking Statements

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

        - our future operating results;

        - our business prospects;

        - our contractual arrangements and relationships with third parties;

        - the dependence of our future success on the general economy;

        - our possible future financings; and

       - the adequacy of our cash resources and working capital.

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Plan of Operations

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

The Company is currently performing its due diligence for a corporate reorganization. This due diligence phase, involving counsel and other qualified professionals is necessary in order to cautiously explore appropriate steps to restructure the Company for the purposes of executing a new business model within the Company’s core competencies.  

The Company has taken some preliminary steps in executing this vision; however, there are several hurdles the Company expects to encounter that may prevent this reorganization from coming to fruition.  

The reorganization may include restructuring the Company’s capital structure and a change or evolution in the Company's business model.  This potential reorganization may also include consummating new strategic relationships in manufacturing, marketing and sales and may also include licensing existing brands. Through these potential new partnerships, the Company intends to explore the commercialization of key products that may have a competitive advantage in the consumer products space.  In the event of this potential reorganization, the Company is in discussions with new personnel that may become part of the senior management to assist the Company going forward. 

If this reorganization occurs the projected timeline is for the reorganization to occur during the first half of 2017 and would include a change in name. Although the strategy is evolving, the Company’s goals are to again become a cutting-edge supplier in the consumer market place with the ultimate goal of increasing shareholder value.  

The Company will continue to evaluate this and other opportunities to further set its strategy for 2017 and 2018.

Results of Operation for the Three Months Ended March 31, 2017 and 2016

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Revenues

For the three months ended March 31, 2017 the Company recorded no revenue, compared to revenue net of sales returns of $15,399 for the three months ended March 31, 2016. Cost of goods sold was $0 compared to $91,601 of cost of goods sold in the prior period.

Operating Expenses

For the three months ended March 31, 2017, the Company incurred compensation expense of $66,250 compared to $72,710 for the three months ended March 31, 2016; a decrease of $6,460 or 8.8%. The decrease is due to the elimination of a part time employee in early 2016.

For the three months ended March 31, 2017, the Company incurred $0 in advertising and promotional expense as compared to $2,664 for three months ended March 31, 2016. The decrease is in conjunction with our decreased business activities as we pursue a potential restructuring.

For the three months ended March 31, 2017, the Company incurred $21,384 in professional fees compared to $41,044 for the same period in the prior year. Professional fees are mainly for accounting, auditing and legal services associated with our quarterly filings as a public company. The decrease is due to decreased audit fees.

For the three months ended March 31, 2017, the Company incurred $37,412 in general and administrative expense as compared to $81,714 for the same period in the prior year; a decrease of $44,302 or 54.2%. The decrease is in conjunction with our decreased business activities as we pursue a potential restructuring.

Other Income and Expense

For the three months ended March 31, 2017 we had total other expense from interest of $864 compared to total other income of $887 for the same period in the prior year. For the three months ended March 31, 2016, the Company recorded interest expense of $752 which was offset by a gain on forgiveness of debt of $1,639.

Net Loss

For the three months ended March 31, 2017 we realized a net loss of $125,910 as compared to $273,447 for the same period in the prior year.

Liquidity and Capital Resources

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $15,495,898 at March 31, 2017, had a net loss of $125,910 and net cash used in operating activities of $61,492 for the three months ended March 31, 2017. This raises substantial doubt about the Company’s ability to continue as a going concern.

Net cash flows from financing activities for the three months ended March 31, 2017 were $65,706 compared to $(2,837) for the three months ended March 31, 2016.

The Company currently has no revenue from current operations, with liabilities exceeding its assets. Management is analyzing new potential growth paths and the potential for a restructuring; however, there is still substantial doubt about the Company’s ability to continue as a going concern.

Critical Accounting Estimates and Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 1 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

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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.

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.

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

In June 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force.” The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including interim periods within those fiscal years. An entity that elects early adoption must adopt all of the amendments in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on the Company’s consolidated cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.  Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, they concluded that our disclosure controls and procedures were not effective for the quarterly period ended March 31, 2017.  The following aspects of the Company were noted as potential material weaknesses:

·

timely and accurate reconciliation of accounts

·

lack of segregation of duties

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·

complex accounting transaction expertise

·

lack of corporate documentation

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

Changes in Internal Controls

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINING SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS

Part I Exhibits

Part II Exhibits

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SIGNATURES

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

INSYNERGY PRODUCTS, INC.

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