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Starco Brands, Inc. - Quarter Report: 2023 March (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-54892

 

STARCO BRANDS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   27-1781753

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

250 26th Street, Suite 200, Santa Monica, CA   90402
(Address of principal executive offices)   (Zip Code)

 

(323) 266-7111

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered

Class A Common Stock

  STCB   OTC Markets Group OTCQB Tier

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of May 22, 2023, there were 469,468,966 shares of the registrant’s Class A common stock and 0 shares of the issuer’s Class B common stock outstanding. On February 9, 2023, the registrant’s “common stock” was renamed “Class A common stock” and a new class of common stock was created which was referred to as “Class B common stock.” Throughout this report, any reference to common stock prior to February 9, 2023, shall represents the same number of Class A common stock following February 9, 2023.

 

 

 

 
 

 

STARCO BRANDS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

 

TABLE OF CONTENTS

 

  Page  
PART I. FINANCIAL INFORMATION 3
     
ITEM 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Ended March 31, 2023 and 2022 5
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2023 and 2022 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 36
     
ITEM 4. Controls and Procedures 36
     
PART II. OTHER INFORMATION 37
     
ITEM 1. Legal Proceedings 37
     
ITEM 1A. Risk Factors 37
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
     
ITEM 3. Defaults Upon Senior Securities 37
     
ITEM 4. Mine Safety Disclosures 37
     
ITEM 5. Other Information 37
     
ITEM 6. Exhibits 38
     
SIGNATURES 40

 

2
 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

STARCO BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2023   December 31, 2022 
   (Unaudited)     
ASSETS          
           
Current Assets:          
Cash and cash equivalents   1,097,237    1,480,371 
Accounts receivable, net, $2,106,906 and $2,107,015 from related party, respectively   8,590,862    2,555,525 
Prepaid expenses and other assets   1,240,634    902,090 
Inventory   18,194,262    3,033,653 
Total Current Assets   29,122,995    7,971,639 
           
Property and equipment, net   30,722    25,873 
Operating lease right-of-use assets   42,026    61,353 
Intangibles, net   9,001,542    198,403 
Goodwill   82,451,496    32,836,563 
Note receivable, related party   95,640    95,640 
           
Total Assets   120,744,421    41,189,471 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
Current Liabilities:          
Accounts payable   11,625,064    3,245,573 
Other payables and accrued liabilities   1,739,181    1,135,803 
Accrued interest, related party   32,439    6,960 
Stock payable   38,322,515    - 
Treasury stock payable, current   131,400    131,400 
Notes payable, $4,572,500 and $3,047,533 from related party, respectively   4,476,992    3,109,535 
Line of Credit   3,668,500    - 
Lease liability   40,938    61,605 
Total Current Liabilities   60,037,029    7,690,876 
           
Treasury stock payable, net of current portion   32,850    65,700 
Loans payable, net of current portion, related party   -    572,500 
Total Liabilities   60,069,879    8,329,076 
           
Commitments and Contingencies   -    - 
           
Stockholders’ Deficit:          
Preferred stock, $.001 par value; 40,000,000 shares authorized; no shares issued and outstanding, at March 31, 2023 and December 31, 2022, respectively   -    - 
Class A common stock, $.001 par value; 1,700,000,000 shares authorized; 469,468,966 and 291,433,430 shares issued and outstanding, at March 31, 2023 and December 31, 2022, respectively   469,469    291,433 
Class B common stock, $.001 par value; 300,000,000 shares authorized no shares issued and outstanding, at March 31, 2023 and December 31, 2022, respectively   -    - 
Additional paid in capital   70,328,793    43,332,886 
Treasury stock at cost   (394,200)   (394,200)
Equity consideration payable   9,417,847    7,114,513 
Accumulated deficit   (19,299,765)   (17,578,219)
Total Starco Brands’ Stockholders’ Equity (Deficit)   60,522,144    32,766,413 
           
Non-controlling interest   152,398    93,982 
Total Stockholders’ Equity (Deficit)   60,674,542    32,860,395 
           
Total Liabilities and Stockholders’ Equity (Deficit)   120,744,421    41,189,471 

 

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

 

3
 

 

STARCO BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   March 31, 2023   March 31, 2022 
   For the Three Months Ended 
   March 31, 2023   March 31, 2022 
         
Revenue, $2,787,485 and $923,274 from related parties, respectively, net  $11,143,801   $923,274 
           
Cost of goods sold   5,087,750    - 
           
Gross profit  $6,056,051   $923,274 
           
Operating Expenses:          
Compensation expense  $1,425,617   $126,877 
Professional fees   1,399,302    58,506 
Marketing, General and administrative   3,684,666    583,181 
Marketing, related party   -    87,044 
Fair value share adjustment loss   

1,179,154

    - 
Total Operating Expenses   7,688,739    855,608 
           
Income (Loss) from operations   (1,632,688)   67,666 
           
Other Expense (Income):          
Interest expense   97,313    14,855 
Other (income)   (66,871)   - 
Total Other Expense   30,442    14,855 
           
Income (loss) before provisions for income taxes  $(1,663,130)  $52,811 
Provision for income taxes   -    - 
           
Net income (loss)  $(1,663,130)  $52,811 
Net income (loss) attributable to non-controlling interest  $58,416   $(11,862)
           
Net income (loss) attributable to Starco Brands  $(1,721,546)  $40,949 
           
Income (loss) per share, basic  $(0.00)  $0.00 
Income (loss) per share, diluted  $(0.00)  $0.00 
           
Weighted Average Shares Outstanding - Basic   378,433,304    159,140,665 
Weighted Average Shares Outstanding - Diluted   378,433,304    163,069,235 

 

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

 

4
 

 

STARCO BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stock   Deficit   Interest   Payable   (Deficit) 
   Preferred Stock   Class A
Common Stock
   Class B Common Stock   Additional
Paid-in
   Treasury   Accumulated   Non-controlling   Equity Consideration   Stockholders’
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stock   Deficit   Interest   Payable   (Deficit) 
Balance at December 31, 2021         -            -    159,140,665   $159,141         -   $         -    15,950,403    (394,200)   (18,388,186)   (73,909)   -   $(2,746,751)
                                                             
Estimated fair value of contributed services and stock-based compensation   -    -    -    -    -    -    54,862    -    -    -    -    54,862 
                                                             
Estimated fair value of warrants issued   -    -    -    -    -    -    53,741    -    -    -    -    53,741 
                                                             
Net income   -    -    -    -    -    -    -    -    40,949    11,862    -    52,811 
                                                             
Balance at March 31, 2022   -   $-    159,140,665   $159,141    -   $-   $16,059,006   $(394,200)  $(18,347,237)  $(62,047)  $-   $(2,585,337)
                                                             
Balance at December 31, 2022   -    -    291,433,430    291,433    -    -    43,332,886    (394,200)   (17,578,219)   93,982    7,114,513    32,860,395 
Balance    -    -    291,433,430    291,433    -    -    43,332,886    (394,200)   (17,578,219)   93,982    7,114,513    32,860,395 
                                                             
Estimated fair value of contributed services and stock-based compensation   -    -    81,249    81    -    -    480,718    -    -    -    -    480,799 
                                                             
Issuance of shares from Soylent acquisition   -    -    177,954,287    177,955    -    -    26,515,189    -    -    -    -    26,693,144 
                                                             
Equity payable from Soylent acquisition   -    -    -    -    -    -    -    -    -    -    2,785,714    2,785,714 
                                                             
Skylar purchase price acquistion adjustments   -    -    -    -    -    -    -    -    -    -    (482,380)   (482,380)
                                                             
Net income   -    -    -    -    -    -    -    -    (1,721,546)   58,416    -    (1,663,130)
                                                             
Balance at March 31, 2023   -   $-    469,468,966.00   $469,469    -   $-   $70,328,793   $(394,200)  $(19,299,765)  $152,398   $9,417,847   $60,674,542 
Balance    -   $-    469,468,966.00   $469,469    -   $-   $70,328,793   $(394,200)  $(19,299,765)  $152,398   $9,417,847   $60,674,542 

 

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

 

5
 

 

STARCO BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Unaudited)

 

   March 31, 2023   March 31, 2022 
   For the Thre Months Ended 
   March 31, 2023   March 31, 2022 
Cash Flows From Provided by Operating Activities:          
Net income (loss)  $(1,663,130)  $52,811 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Common stock payable for services   81,249    81,249 
Contributed services   24,049    54,862 
Stock based compensation   375,501    53,741 
Depreciation   3,719    - 
Amortization of intangible assets   3,742    - 
Amortization of debt discount   25,733    - 
Loss on stock payable share adjustment   

1,179,154

  - 
Changes in operating assets and liabilities:        
Accounts receivable, related party   109    (386,313)
Accounts receivable   (418,176)   - 
Prepaid expenses and other assets   515,963    130,427 
Inventory   (2,005,702)   - 
Operating lease right of use asset   19,327    - 
Accounts payable   1,819,071    102,275 
Other payables and accrued liabilities, related party   25,479    (127,676)
Other payables and accrued liabilities   (87,232)   (527,469)
Operating lease liability   (20,667)   - 
           
Net Cash Used In Operating Activities   (121,811)   (566,093)
           
Cash Flows From Investing Activities:          
Cash acquired in Acquisition of Business, net of cash paid   172,423    - 
Purchases of intangibles   (38,620)   - 
Notes receivable, related party   -    - 
           
Net Cash Provided by (Used) In Investing Activities   133,803    - 
           
Cash Flows From Financing Activities:          
Advances / loans from related parties   800,000    472,500 
Payments on notes payable   (1,162,276)   (26,762)
Repurchase of common stock   (32,850)   (32,850)
           
Net Cash (Used) Provided By Financing Activities   (395,126)   412,888 
           
Net Increase (Decrease) In Cash   (383,134)   (153,205)
           
Cash - Beginning of Period   1,480,371    338,863 
           
Cash - End of Period  $1,097,237   $185,658 
           
Supplemental Cash Flow Information:          
Cash paid for:          
Interest paid  $74,523   $16,975 
Income taxes  $-   $- 
           
Noncash operating and financing activities:          
Treasury stock payable  $-   $295,650 
Estimated fair value of shares issued in acquisitions  $26,693,143   $- 
Estimated fair value of shares payable to be issued for acquisitions  $39,446,695   $- 
Debt discount on notes payable issued with warrants  $18,282   $- 

 

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

 

6
 

 

STARCO BRANDS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

 

NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Starco Brands, Inc. (STCB) was incorporated in the State of Nevada on January 26, 2010, under the name Insynergy, Inc. On September 7, 2017, STCB filed an Amendment to the Articles of Incorporation to change the corporate name to Starco Brands, Inc. The Board determined the change of STCB’s name was in the best interests of the Company due to changes in its current and anticipated business operations. In July 2017, STCB entered into a licensing agreement with The Starco Group (“TSG”), located in Los Angeles, California. The companies pivoted to commercializing novel consumer products manufactured by TSG. TSG is a private label and branded aerosol and liquid fill manufacturer with manufacturing assets in the following verticals: 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, beverages, and spirits and wine.

 

During the third quarter of 2021, STCB formed two subsidiaries, Whipshots, LLC, a Wyoming limited liability company (“Whipshots LLC”) and Whipshots, LLC, a Delaware limited liability company that was subsequently renamed Whipshots Holdings, LLC (“Whipshots Holdings”). Whipshots LLC was a wholly-owned subsidiary of STCB at formation which was subsequently contributed to Whipshots Holdings. Whipshots Holdings is a majority-owned subsidiary of STCB in which STCB owns 96% of the vested voting interests. There are unvested interests not owned by the Company for an additional 3%   of the equity which has been issued subject to vesting requirements.

 

On September 12, 2022, STCB, through its wholly-owned subsidiary Starco Merger Sub Inc. (“Merger Sub”), completed its acquisition (the “AOS Acquisition”) of The AOS Group Inc., a Delaware corporation (“AOS”). The AOS Acquisition consisted of Merger Sub merging with and into AOS, with AOS being the surviving corporation. AOS is a wholly-owned subsidiary of STCB.

 

On December 29, 2022, STCB, through its wholly-owned subsidiary Starco Merger Sub II. Inc. (“First Merger Sub”), completed its acquisition (the “Skylar Acquisition”) of Skylar Body, Inc. (“Skylar Inc.”). The Skylar Acquisition consisted of First Merger Sub merging with and into Skylar Inc. (“First Merger”) with Skylar being the surviving corporation, and immediately following the First Merger, and as part of the same overall transaction as the First Merger, Skylar Inc. merged with and into Second Merger Sub (the “Second Merger”) with the Second Merger Sub being the surviving entity Skylar Body, LLC (“Skylar”). Skylar is a wholly-owned subsidiary of STCB.

 

On February 15, 2023, the Company, through its wholly-owned subsidiary Starco Merger Sub I, Inc. (“Starco Merger Sub I”), completed its acquisition (the “Soylent Acquisition”) of Soylent Nutrition, Inc., a Delaware corporation (“Soylent”). The Soylent Acquisition consisted of Starco Merger Sub I merging with and into Soylent, with Soylent being the surviving corporation. Soylent is a wholly-owned subsidiary of STCB.

 

The accompanying condensed consolidated financial statements are of STCB and its subsidiaries AOS, Skylar, Soylent, Whipshots Holdings and its wholly owned subsidiary Whipshots LLC (collectively, the “Company”).

 

On January 3, 2023, the board of directors of the Company approved the Amended and Restated Articles of Incorporation of Starco Brands, Inc. (the “Amended and Restated Articles). On January 6, 2023, the stockholders of the Company representing 53.47% of the Company’s outstanding common stock adopted the Amended and Restated Articles. On February 9, 2023, the Company filed the Amended and Restated Articles, which, among other things, (i) increased the authorized shares of common stock, par value $0.001 per share, from 300,000,000 shares (the “Old Common Stock”) to 2,000,000,000 shares, (ii) established two classes of Common Stock, consisting of (y) 1,700,000,000 shares of Class A common stock, par value $0.001 per share (“Class A common stock”), and (z) 300,000,000 shares of Class B common stock, par value $0.001 per share and (iii) reclassified all issued, outstanding or authorized Old Common Stock of the Company into Class A common stock on a one-for-one basis. As a result, following the filing of the Amended and Restated Articles with the Nevada Secretary of State, the Company’s prior “common stock” was renamed Class A common stock on its trading symbol.

 

7
 

 

NOTE 2 GOING CONCERN

 

The accompanying condensed consolidated 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 approximately $19.3 million at March 31, 2023 including the impact of its net loss of approximately $1.7 million for the three months ended March 31, 2023. Net cash used in operating activities was $0.1 million for the three months ended March 31, 2023. The Company’s ability to continue with this trend is unknown. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt financing is unknown. On March 3, 2023, the Company issued Ross Sklar, CEO, a related party, a $800,000 note payable due July 1, 2023 (see Note 7), whereby the entirety of the note was used as a loan payable to Soylent to pay down Soylent’s debt as part of the Soylent Acquisition. 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 consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Consolidation

 

The consolidated financial statements of Starco Brands, Inc. include the accounts of STCB, our wholly owned subsidiary AOS, our wholly owned subsidiary Skylar, our wholly owned subsidiary Soylent, and our 96% owned subsidiary and its wholly owned subsidiaries, which are comprised of voting interest entities in which we have a controlling financial interest in accordance with ASC 810, Consolidation. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation in the consolidated financial statements.

 

Our consolidated subsidiaries at March 31, 2023 include: AOS, Skylar, Soylent, Whipshots Holdings and its wholly owned subsidiary Whipshots LLC. Intercompany accounts and transactions have been eliminated upon consolidation.


Basis of Presentation

 

The condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of the condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and do not contain certain information included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2022. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K.

 


Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and equity-based transactions at the date of the financial statements and the revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. Significant estimates include the timing for revenue recognition, testing goodwill for impairment, recoverability of long-lived assets, income taxes, fair value of contributed services, and assumptions used in the Black-Scholes valuation methods, such as expected volatility, risk-free interest rate and expected dividend rate.

 

8
 

 

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 as of March 31, 2023 or December 31, 2022.

 

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 and was zero as of March 31, 2023 and December 31, 2022.

 

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 consolidated financial assets and liabilities, such as cash, accounts receivable, accounts payable, 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 March 31, 2023 and December 31, 2022.

 

The following table summarized the financial instruments of the Company at fair value based on the valuation approach applied to each class of security as of March 31, 2023:

Schedule of Fair Value Measurements

                 
       Fair Value Measurement at Reporting Date Using 
  

Carrying

Value at

March 31, 2023

  

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
Liabilities:                    
Soylent Share Price Adjustment  $38,322,515   $-   $-   $38,322,515 
Total Liabilities   $38,322,515   $-   $-   $38,322,515 

 

Property and Equipment

 

Property and equipment is recorded at cost. All Property and equipment with a cost of $2,000 or greater are capitalized. Depreciation is computed using straight-line over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed 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.

 

9
 

 

Revenue Recognition

 

STCB and its subsidiaries currently earn a majority of their revenue as royalties from the licensing agreements it has with TSG, a related entity, and other related parties. STCB 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 the royalty percentage is determined beforehand in each agreement. The Company recognizes its revenue under these licensing agreements only when sales are made by TSG or other related parties to a third party.

 

AOS, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of premium body and skincare products. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, including Amazon Fulfillment by Amazon (“Amazon FBA”), is recognized upon shipment of merchandise.

 

Skylar, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of fragrances. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, including Amazon FBA, is recognized upon shipment of merchandise.

 

Soylent, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of nutritional drinks. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, is recognized upon shipment of merchandise.

 

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.

 

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the licensee transferring goods or services to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company’s licensee must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s licensee’s performance obligations are transferred to customers at a point in time, typically upon delivery.

 

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 consolidated 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 consolidated 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 consolidated 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.

 

10
 

 

Stock-based Compensation

 

The Company accounts for stock-based compensation per the provisions of ASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (warrants, options, and restricted stock units). The fair value of each warrant and option is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the future. Expected volatilities are based on the volatility of comparable companies’ common stock. The expected term of awards granted is derived using estimates based on the specific terms of each award. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of a restricted stock unit equals the closing price of our common stock on the trading day of the grant date.

 

Net Income (Loss) Per Common Share

 

Net income (loss) per share of common stock is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the year. All outstanding options are considered potential common stock. The dilutive effect, if any, of stock payable and warrants are calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, outstanding options have been excluded from the Company’s computation of net loss per share of common stock for the three months ended March 31, 2023 and 2022.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the average market price of the common stock:

 

   2023   2022 
   Three Months Ended March 31, 
   2023   2022 
         
Stock Payable   -    - 
Warrants   41,200,000    - 
Acquisition Stock Consideration Payable   283,063,583    - 
Total   324,263,583    - 

 

Intangible Assets

 

Definite-lived intangible assets consist of certain domain names. Definite-lived intangible assets are amortized utilizing the straight-line method over the assets’ estimated useful lives, which approximate 10-16 years.

 

Indefinite-lived intangible assets consist of certain trademarks and formula lists. These intangible assets are not amortized but are tested for impairment annually or whenever impairment indicators exist.

 

The Company assesses potential impairment of its long-lived assets whenever events or changes in circumstances indicate that an asset or asset group’s carrying value may not be recoverable. Factors that are considered important that could trigger an impairment review include a current period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long-lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value, and the estimated fair value of the assets, with such estimated fair values determined using the best information available and in accordance with FASB ASC Topic 820, Fair Value Measurements. During the three months ended March 31, 2023 and 2022, the Company did not record asset impairment charges related to its intangible assets.

 

11
 

 

Royalties and Licenses

 

Royalty-based obligations with content licensors are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations are generally expensed to cost of revenue generally at the greater of the contractual rate or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums. Prepayments made are generally made in connection with the development of a particular product, and therefore, we are generally subject to risk during the product phase. Payments earned after completion of the product (primarily royalty-based in nature) are generally expensed as cost of revenue.

 

Our contracts with some licensors include minimum guaranteed royalty payments, which are initially recorded as an asset and as a liability at the contractual amount when no performance remains with the licensor. When performance remains with the licensor, we record guarantee payments as an asset when actually paid and as a liability when incurred, rather than recording the asset and liability upon execution of the contract.

 

Each quarter, we also evaluate the expected future realization of our royalty-based assets, as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through future revenue. Impairments or losses determined post-launch are charged to cost of revenue. We evaluate long-lived royalty-based assets for impairment using undiscounted cash flows when impairment indicators exist. If an impairment exists, then the related assets are written down to fair value. Unrecognized minimum royalty-based commitments are accounted for as executory contracts, and therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated.

 

Our minimum contractual obligations as of March 31, 2023 are approximately $1,120,000 and $1,670,000 for the years ending December 31, 2023 and 2024, respectively.

 

Leases

 

With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as Right-of-Use (“ROU”) assets and corresponding lease liabilities. ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

 

AOS, the Company’s wholly owned subsidiary leases its corporate office (“AOS Lease”). The AOS Lease is classified as an operating lease and has a term of 2 years, for approximately 1,372 square feet of office space located in West Hollywood, California. The lease expires in September 2023 and has a monthly base rental of $7,564 which increases 4% each year. The remaining weighted average term is 0.5 years. In March 2022, AOS entered into a sublease, whereby, the sublessor will take over the entire AOS Lease office space and the lease payment until the completion of the original AOS Lease term.

 

In accordance with ASC 842, Leases, the Company recognized a ROU asset and corresponding lease liability on the consolidated balance sheet for long-term office leases. See Note 11 – Leases for further discussion, including the impact on the consolidated financial statements and related disclosures.

 

Inventory

 

Inventory consists of premium body and skincare products, fragrances and nutritional products. Inventory is measured using the first-in, first-out method and stated at average cost as of March 31, 2023. The value of inventories is reduced for excess and obsolete inventories. We monitor inventory to identify events that would require impairment due to obsolete inventory and adjust the value of inventory when required. We did not record any inventory impairment losses for the three months ended March 31, 2023 and 2022.

 

12
 

 

Acquisitions, Intangible Assets and Goodwill

 

The condensed consolidated financial statements reflect the operations of an acquired business beginning as of the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assets acquired. Significant judgment is required to determine the fair value of certain tangible and intangible assets and in assigning their respective useful lives. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant tangible and intangible assets. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. The Company typically employs an income method to measure the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Intangible assets are amortized over their estimated lives. Any intangible assets associated with acquired in-process research and development activities (“IPR&D”) are not amortized until a product is available for sale.

 

Segments

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer (“CEO”) is the Company’s chief operating decision maker (“CODM”) and views the Company’s operations and manages its business in three reportable operating segments: (i) Starco Brands, which includes AOS, Whipshots Holdings and Whipshots LLC, (ii) Skylar, and (iii) Soylent. The CODM assesses performance of operating segments and determines the allocation of resources based primarily on gross profit as a whole.

 

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 consolidated 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 4 BUSINESS SEGMENTS

 

The Company has the following reportable segments:

 

Starco Brands. The Starco Brands segments generates revenue through the development and sales of consumer good products. The Starco Brands segment includes STCB, AOS, Whipshots Holdings and Whipshots LLC.

 

Skylar. The Skylar segment generates revenue through the sale of fragrances.

 

Soylent. The Soylent segment generates revenue through the sale of nutritional products, mainly drinks.

 

Balance sheet data are reviewed by the CODM on a consolidated basis; therefore, disaggregated balance sheet data are not presented.

 

The following tables present gross profit by reporting segment:

 

SCHEDULE OF GROSS PROFIT REPORTING SEGMENT

   Starco Brands   Skylar   Soylent   Total 
   Three Months Ended March 31, 2023 
   Starco Brands   Skylar   Soylent   Total 
Total revenues  $3,513,316   $1,914,182   $5,716,303   $11,143,801 
Total cost of revenues   586,343    488,464    4,012,943    5,087,750 
Gross profit  $2,926,973   $1,425,718   $1,703,360   $6,056,051 

 

13
 

 

   Starco Brands   Skylar   Soylent   Total 
   Three Months Ended March 31, 2022 
   Starco Brands   Skylar1   Soylent2   Total 
Total revenues  $923,274   $             -   $            -   $923,274 
Total cost of revenues   -    -    -    - 
Gross profit  $923,274   $-   $-   $923,274 

 

Depreciation expense allocated to the Starco Brands, Skylar and Soylent segments was $0, 3,079 and $640, respectively, for the three months ended March 31, 2023. There was no depreciation expense in the three months ended March 31, 2022 for any of the segments.

 

NOTE 5 ACQUISITIONS

 

AOS Acquisition

 

On September 12, 2022, STCB, through its wholly-owned subsidiary Merger Sub, completed the AOS Acquisition. The AOS Acquisition consisted of Merger Sub merging with and into AOS, with AOS being the surviving corporation. AOS is a maker of premium body and skincare products engineered to power and protect athletes. Starco acquired AOS as STCB is always looking for technologies and brands that have the ability to scale and change behavior. In the world of sport, there are currently no brands that have successfully penetrated multiple categories of consumer products. AOS has historically been a personal care brand – offering products such as body wash, shampoo, deodorant and face wash. Starco Brands, through its relationship with TSG, has access to intellectual property that will allow AOS vertically integrate manufacturing and expand into multiple consumer product categories – OTC, sun care, air care, beverage, etc. The AOS Acquisition was completed through an all-stock deal, where the Company’s shares were issued at $0.19 per share, which amount is equal to the fair value of the stock on the acquisition date. As consideration for the Merger, the Company reserved an aggregate of 61,400,000 restricted shares of Company common stock to issue to the AOS stockholders (such stockholders as of immediately prior to the closing of the Merger, the “AOS Stockholders”), 5,000,000 restricted shares of Company common stock may be issued to the AOS Stockholders after an 18-month indemnification period, and offsetting against these additional shares will be the sole recourse for any indemnity claims by the Company against the AOS Stockholders. An additional 5,000,000 restricted shares of Company common stock may be issued to the AOS Stockholders contingent upon AOS meeting certain future sales metrics. Further, in the event that the AOS Stockholders have any indemnity claims against the Company or Merger Sub, the Company shall satisfy any such indemnity claims solely by the issuance of additional shares of its Company common stock, which shall not exceed, in the aggregate, 5,000,000 additional shares of Company common stock. Notwithstanding the foregoing, under the terms of the Merger Agreement, any AOS Stockholder that is not an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), will receive cash in lieu of shares of Company common stock at a value equal to $0.0982 per share.

 

The 5,000,000 additional restricted shares of Company common stock to be issued after an 18-month indemnification period are deemed to be part of the consideration paid for the acquisition. The 5,000,000 earnout shares of Company common stock to be issued are not deemed to be part of the consideration paid for the acquisition as management determined it not probable that any of the earnout shares would be issued as certain future sales metrics will not be met. The 5,000,000 additional shares of Company common stock that may be issued in the event of an indemnity claim against the Company are not deemed to be part of the consideration paid for the acquisition as the Company does not expect any additional shares will be issued under the indemnity clause.

 

As of March 31, 2023, the Company has paid $1,821 in cash to non-accredited investors. Additionally, the Company has held back $6,137 in cash, the equivalent of 62,499 shares to be paid to non-accredited investors.

 

 

1 The Company does not report results for Skylar for the three months ended March 31, 2022 as Skylar was not yet a subsidiary of the Company.

2 The Company does not report results for Soylent for the three months ended March 31, 2022 as Soylent was not yet a subsidiary of the Company.

 

14
 

 

The AOS Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The preliminary fair values of the acquired assets and liabilities as of the acquisition date were:

 

SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES

      
Consideration1  $12,608,560 
      
Assets acquired:     
Cash and cash equivalents   200,661 
Accounts receivable   153,764 
Prepaid and other assets   167,565 
Inventory   656,447 
PP&E, net   16,622 
Intangibles   17,309 
Right of use asset   85,502 
Total assets acquired   1,297,871 
      
Liabilities assumed:     
Accrued liabilities   562,919 
Accounts payable   128,724 
Right of use liability   87,539 
Total liabilities assumed   779,182 
      
Net assets acquired   518,698 
      
Goodwill  $12,089,871 

 

 

1Consideration consists of the following: $1,821 cash paid to sellers at the acquisition date, $11,654,452 of shares transferred to sellers at the acquisition date, $4,147 of cash to be paid to sellers, $1,990 of cash holdback to be paid to sellers at the end of the holdback period and $946,149 of equity holdback to be paid to sellers at the end of the holdback period.

 

The purchase price allocation is based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed from a final valuation of the AOS Acquisition. The above purchase price allocation is preliminary and subject to change as the Company may further refine the determination of certain assets during the measurement period of one year. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented.

 

The Company incurred approximately $845,000 in transaction costs related to the AOS Acquisition, primarily coming from legal, banking, accounting and other professional service fees.

 

Skylar Acquisition

 

On December 29, 2022, STCB, through its wholly-owned subsidiaries First Merger Sub and Second Merger Sub, completed the Skylar Acquisition. In a two-step process, during the First Merger, First Merger Sub merged with and into Skylar Inc. and as part of the same overall transaction, during the Second Merger, Skylar Inc. merged with and into Second Merger Sub to result in Skylar as the surviving entity. Skylar is a wholly owned subsidiary of STCB. Skylar is a maker of fragrances that are hypoallergenic and safe for sensitive skin. Starco acquired AOS as STCB is always looking for technologies and brands that have the ability to scale and change behavior. In the world of fragrances, there are no other brands that have successfully built a clean, beautiful, premium incredibly well-scented and recyclable fragrance brands for consumers. Starco Brands, through its relationship with TSG and other strong partners, the Company has access to intellectual property that will allow Skylar to vertically integrate manufacturing and expand, positioning Skylar to be the future of fragrance. The Skylar Acquisition was completed through a cash and stock deal, where the Company paid $2,000,000 in cash to settle debt and the Company’s shares were issued at $0.20 per share, which amount is equal to the fair value of the stock on the acquisition date. As consideration for the Skylar Acquisition, the Company reserved an aggregate of 68,622,219 restricted shares of Company common stock to issue to the Skylar stockholders (such stockholders as of immediately prior to the closing of the Second Merger, the “Skylar Stockholders”), 11,573,660 restricted shares of Company common stock may be issued to the Skylar Stockholders after an 18-month indemnification period, and offsetting against these additional shares will be the sole recourse for any indemnity claims by the Company against the Skylar Stockholders. An additional 19,268,162 restricted shares of Company common stock may be issued to the Skylar Stockholders contingent upon Skylar meeting certain future sales metrics. Further, in the event that the Skylar Stockholders have any indemnity claims against the Company or Second Merger Sub, the Company shall satisfy any such indemnity claims solely by the issuance of additional shares of its Company common stock, which shall not exceed, in the aggregate, 11,573,660 additional shares of Company common stock. Notwithstanding the foregoing, under the terms of the Merger Agreement, any Skylar Stockholder that is not an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, will receive cash in lieu of shares of Company common stock at a value equal to $0.17 per share.

 

15
 

 

The 11,573,660 additional restricted shares of Company common stock to be issued after an 18-month indemnification period and the 19,268,162 earnout shares of Company common stock to be issued if certain future sales metrics are met, are deemed to be part of the consideration paid for the acquisition. The 11,573,660 additional shares of Company common stock that may be issued in the event of an indemnity claim against the Company are not deemed to be part of the consideration paid for the acquisition as the Company does not expect any additional shares will be issued under the indemnity clause.

 

As of March 31, 2023, the Company has paid $27,273 in cash to non-accredited investors.

 

The Skylar Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The preliminary fair values of the acquired assets and liabilities as of the acquisition date were:

 

SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES

      
Consideration2  $21,417,681 
      
Assets acquired:     
Cash and cash equivalents   339,679 
Accounts receivable   381,762 
Prepaid and other assets   701,566 
Inventory   2,508,287 
PP&E, net   25,942 
Intangibles   161,693 
Customer relationships   2,091,000 
Trade names and trademarks   6,557,000 
Total assets acquired   12,766,929 
      
Liabilities assumed:     
Accrued liabilities   540,036 
Accounts payable   2,425,524 
Total liabilities assumed   2,965,560 
      
Net assets acquired   9,801,369 
      
Goodwill  $11,616,312 

 

 

2Consideration consists of the following: $2,039,345 cash paid to sellers at the acquisition date, $13,120,924 of shares transferred to sellers at the acquisition date, $571,428 of shares transferred to pay sellers expenses, $2,314,732 of equity holdback to be paid to sellers at the end of the holdback period and $3,371,252 of contingent shares payable.

 

The purchase price allocation is based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed from a final valuation of the Skylar Acquisition. The above purchase price allocation is preliminary and subject to change as the Company may further refine the determination of certain assets during the measurement period of one year. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented.

 

The Company incurred approximately $1,770,000 in transaction costs related to the Skylar Acquisition, primarily coming from legal, banking, accounting and other professional service fees.

 

16
 

 

Soylent Acquisition

 

On February 15, 2023, the Company, through its wholly-owned subsidiary Starco Merger Sub I completed the Soylent Acquisition. The Soylent Acquisition consisted of Starco Merger Sub I merging with and into Soylent, with Soylent being the surviving corporation. Soylent is the maker of a wide range of plant-based “complete nutrition” and “functional food” products with a lineup of plant-based convenience shakes, powders and bars that contain proteins, healthy fats, functional amino acids and essential nutrients. Through its relationship with TSG and other strong partners, the Company has access to intellectual property that will allow Soylent to vertically integrate manufacturing and expand, positioning Soylent to be the future of nutritional products. The Soylent Acquisition was completed through a cash and stock deal, where the Company paid $200,000 in cash as reimbursement of Soylent’s closing expenses and the Company’s shares were issued at $0.15 per share, which amount is equal to the fair value of the stock on the acquisition date. As consideration for the Soylent Acquisition, the Company reserved an (a) aggregate of up to 165,336,430 restricted shares of Class A common stock to Soylent shareholders, (b) 12,617,857 restricted shares of Class A common to satisfy existing Soylent obligations (c) up to 18,571,429 additional restricted shares of Class A common stock based on final determination of calculations of Soylent’s working capital, cash at closing, indebtedness at closing and certain unpaid transaction expenses in excess of the amount reimbursed by Starco, and (d) an adjustment to the shares of Class A common stock received by the Company Holders (as defined in the agreement) in the event that the trading price for STCB’s Class A common stock price per share on the first anniversary of the closing date (the “Adjustment Date”) is below $0.35 per share of Class A common stock. If, on the Adjustment Date, STCB’s Class A common stock is trading below $0.35 per share of Class A common stock, STCB shall issue additional shares of Class A common stock based on the Closing Merger Consideration (as defined in the agreement) after adjustments divided by the trading price (which must be below $0.35 per share for any additional shares to be issued) minus the total share issuance after adjustments. The fair value rights of these shares were estimated by a third-party valuation firm to be $0.189 per share on the acquisition date or an approximate share adjustment value of $37,143,360. The fair value rights of these shares were estimated by a third-party valuation firm to be $0.195 per share on March 31, 2023 or an approximate share adjustment value of $38,322,515.

 

The Soylent Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The preliminary fair values of the acquired assets and liabilities as of the acquisition date were:

 

SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES

      
Consideration3  $66,822,218 
      
Assets acquired:     
Cash and cash equivalents   372,423 
Accounts receivable   5,617,270 
Prepaid and other assets   854,506 
Inventory   13,514,907 
PP&E, net   8,568 
Intangibles   120,261 
Total assets acquired   20,127,935 
      
Liabilities assumed:     
Accounts payable   6,560,420 
Accrued liabilities   690,610 
Note payable   4,800,000 
Total liabilities assumed   12,051,031 
      
Net assets acquired   8,076,904 
      
Goodwill  $58,745,313 

 

 

3Consideration consists of the following: $200,000 cash paid for Soylent’s transaction closing costs at the acquisition date, $26,693,143 of shares transferred to sellers at the acquisition date, $2,785,714 of equity holdback to be paid to sellers at the end of the indemnity period and an estimated $37,143,360 of stock payable liability to be paid as part of the $0.35 per share adjustment on the Adjustment Date.

 

The preliminary purchase price allocation is based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed. The Company will utilize recognized valuation techniques as part of its final valuation of the Soylent Acquisition, which is expected to be complete in Q2 2023. The above purchase price allocation is preliminary and subject to change as the Company may further refine the determination of certain assets during the measurement period of one year. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented.

 

17
 

 

Subsequent to the Soylent Acquisition, during the period February 15, 2023 through March 31, 2023, Soylent earned $5,716,303 in revenue and incurred a net loss of approximately $1,129,969. The loss was primarily due to a loss of $1,179,154 from the share adjustment, where the fair value rights of the shares increased from $0.189 to $0.195, increasing the stock payable liability by $1,129,969.

 

The Company incurred approximately $5.7 million in transaction costs related to the Soylent Acquisition in the quarter ended March 31, 2023, primarily coming from legal, banking, accounting and other professional service fees.

 

The following unaudited proforma condensed consolidated results of operations have been prepared, as if the Acquisition had occurred as of January 1, 2023 for the three months ended March 31, 2023:

 

             
   For the Three Months Ended March 31, 2023 
   Starco Brands Inc.   Soylent Nutrition,
Inc.
   Proforma Starco
Brands Inc.
 
             
Revenue  $5,427,498   $11,193,358   $16,620,856 
                
Net Income (Loss)  $(533,159)  $(9,821,470)  $(10,354,629)
Net income attributable to non-controlling interest  $58,416   $-   $58,416 
                
Net Income (Loss) attributable to Starco Brands  $(591,575)  $(9,821,470)  $(10,413,045)

 

A pro forma balance sheet was excluded from this disclosure as the transactions are already reflected in the March 31, 2023 condensed consolidated balance sheets, given there were minimal adjustments to the February 14, 2023 Soylent closing balance sheet and the March 31, 2023 Soylent closing balance sheet.

 

NOTE 6 NOTES PAYABLE

 

In September 2021, the Company received a financing loan for its Directors and Officers Insurance (“D&O Loan #1”). The D&O Loan #1 bears interest at 4.4% and required monthly payments through June 2022. In 2022, the Company paid off the $53,822 principal balance as of December 31, 2021 prior to the maturity date in June 2022.

 

In September 2022, the Company received a second financing loan for its Directors and Officers Insurance (“D&O Loan #2”, collectively with D&O Loan #1 the “D&O Loans”). The D&O Loan #2 bears interest at 5.82% and requires monthly payments through June, 2023. The outstanding balance of the loan is $57,709 as of March 31, 2023.

 

For the three months ended March 31, 2023 and 2022 the D&O Loans incurred approximately $2,327 and $2,000, respectively, of interest expense.

 

See Note 8 - Related Party Transactions for loans to STCB from the Company’s CEO.

 

NOTE 7COMMITMENTS & CONTINGENCIES

 

Whipshots

 

On September 8, 2021, Whipshots LLC, entered into an Intellectual Property Purchase Agreement (the “Whipshots IP Agreement”) effective August 24, 2021, with Penguins Fly, LLC, a Pennsylvania limited liability company (“Seller”). The Whipshots IP Agreement provided that Seller would sell Whipshots LLC (“Buyer”) the trademarks “Whipshotz” and “Whipshots,” the accompanying domain and social media handles of the same nomenclature, and certain intellectual property, documents, digital assets, customer data and other transferable rights under non-disclosure, non-compete, non-solicitation and confidentiality contracts benefiting the purchased intellectual property and documents (collectively, the “Acquired Assets”). The purchase price (“Purchase Price Payment”) for the Acquired Assets is payable to Seller, over the course of seven years, based on a sliding scale percentage of gross revenues actually received by Buyer solely from Buyer’s sale of Whipshots/Whipshotz products. The Purchase Price Payment shall be subject to a minimum amount in each contract year and the maximum aggregate amount payable to Seller under the Whipshots IP Agreement between $140,000 and $2,000,000 based on revenues generated by the products. In connection with this agreement the Company paid $20,000 during 2021 and $38,620 in 2023, which has been recorded as an indefinite-lived intangible asset.

 

On September 14, 2021, the Whipshots LLC entered into a License Agreement (“Whipshots License Agreement”) with Washpoppin Inc., (“Licensor”) a New York corporation. Pursuant to the Whipshots License Agreement, Licensor shall license to the Company certain Licensed Property (as defined in the Whipshots License Agreement) of the recording artist professionally known as “Cardi B” (the “Artist”). As part of the Whipshots License Agreement, in exchange for royalty rates based on Net Sales (as defined in the Whipshots License Agreement) during each applicable contract period, the Licensor warrants to cause the Artist to attend certain in person events, media interviews, participate in the development of the Licensed Products (as defined in the Whipshots License Agreement), and promote the Licensed Products through social media posts on the Artist’s social media platforms. The Company, through Whipshots LLC has committed to a minimum royalty payment under the Whipshots License Agreement of $3,300,000 in aggregate through 2024, subject to Licensor’s satisfaction of its obligations. During three months ended March 31, 2023 and 2022 the Company incurred expenses related to this agreement of approximately $275,000 and $127,000, respectively.

 

18
 

 

AOS Acquisition

 

Following the 18-month hold back period from the date of the AOS Acquisition, the Company expects to issue AOS Stockholders up to an aggregate 4,979,731 shares and $1,990 in cash that is currently being held back.   

 

Skylar Acquisition

 

Following the 18-month hold back period from the date of the Skylar Acquisition, the Company will issue Skylar Stockholders an aggregate 11,573,660 shares that is currently being held back. Additionally, and contingent upon Skylar meeting certain future sales metrics over the earn out period, the Company will issue an additional 19,268,162 shares of its common stock to Skylar Stockholders. As of March 31, 2023, the Company expects to pay the Skylar Stockholders the contingent 19,268,162 shares of its common stock for meeting certain sales metrics. The value of the holdback shares and contingent shares is approximately $2,314,732 and $3,371,252, respectively.  

 

Soylent Acquisition

 

Following the indemnity holding period, the Company will issue Soylent Stockholder an aggregate 18,571,429 Class A common shares that are currently being held back. On the Adjustment Date of the Soylent Acquisition, the Company expects to issue an additional 247,242,030 shares of Class A common shares in the amount of $38,322,515 as recorded as a stock payable.

 

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 $150,000 investment was never returned by the Company and the amount has historically been included in other payables and accruals on the balance sheet. In the year ended December 31, 2022, the Company reclassified the $150,000 investment from other payables and accruals to additional paid in capital on the balance sheet.

 

NOTE 8 RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2017, Sanford Lang, the Company’s former Chairman and CEO, advanced STCB $289,821 to pay for general operating expenses. The advance required a monthly interest payment of $2,545 and was due on demand. In June 2021, Mr. Lang and Mr. Goldrod executed agreements with STCB whereby the advance from Mr. Lang and all other amounts owed to each were repaid and both Mr. Lang and Mr. Goldrod resigned from the Board of Directors. Further, for a period of 36 months beginning in July 2021, STCB will repurchase an aggregate of $10,950 worth of shares each month from Mr. Lang and Mr. Goldrod, with the share price for each purchase to be set according to the volume weighted average trading price of the common stock over the last 10 days of the month. In the three months ended March 31, 2023 and 2022 STCB paid an aggregate of $32,850 and $32,850, respectively, to Mr. Lang and Mr. Goldrod. As of March 31, 2023, the Company has settled repurchase transfers of 967,120 shares, and anticipates that the remaining shares to be transferred will be settled in 2023.

 

Ross Sklar, CEO Notes

 

On January 24, 2020, STCB executed a promissory note (“January 24, 2020 Note”), for $100,000 with Ross Sklar, Chief Executive Officer (“CEO”) of STCB. The January 24, 2020 Note bears interest at 4% per annum, compounds monthly, is unsecured, and matures two years from the original date of issuance. On July 19, 2022, the Company and Ross Sklar, agreed to amend and restate the January 24, 2020 Note. Mr. Sklar agreed to extend the term of the January 24, 2020 Note through the entry into a First Amended and Restated Promissory Note (the “Amended Note”) in exchange for the Company paying the accrued and unpaid interest on the January 24, 2020 Note, including during the period following maturity date of the January 24, 2020 Note, which was from January 24, 2022 to July 19, 2022. In exchange for extending the term, Mr. Sklar waived the default interest rate of ten percent (10%) and agreed to interest accrual at the standard four percent (4%) rate during the period following maturity. The Amended Note carries a guaranteed 4% interest rate, matures on July 19, 2024, and has a 10% interest rate on a default of repayment at maturity. The Company, at its option, may prepay the Amended Note, in whole or in part, without prepayment penalty of any kind, and the obligations under the Amended Note will accelerate in full upon an Event of Default (as defined in the Amended Note).

 

19
 

 

On June 28, 2021, STCB executed an additional promissory note (“June 28, 2021 Note”), with Mr. Sklar in the principal amount of $100,000 with the same terms as the January 24, 2020 Note and a maturity date of June 28, 2023.

 

On September 17, 2021, STCB executed a third promissory note (“September 17, 2021 Note”), with Mr. Sklar in the principal amount of $500,000 with the same terms as the January 24, 2020 Note and a maturity date of September 17, 2023.

 

On December 13, 2021, STCB executed a fourth promissory note (“December 13, 2021 Note”), with Mr. Sklar in the principal amount of $500,000 with the same terms as the January 24, 2020 Note and a maturity date of December 12, 2023.

 

On February 14, 2022, STCB executed a fifth promissory note (“February 14, 2022 Note”), in favor of Mr. Sklar, in the principal sum of $472,500, in exchange for a cash advance in the amount of $300,000 and payment of Company costs in the amount of $172,500. As with the other notes between the Company and our CEO, the February 14, 2022 Note bears interest at 4% per annum, is unsecured, and matures two years from the original date of issuance. This note may also convert into shares of Company common stock at the 10-day volume weighted average trading price of the Company common stock for the 10-day period prior to the issuance of the Note, which was calculated as $0.29 per share.

 

On December 29, 2022, STCB executed a sixth promissory note (“December 29, 2022 Note”), for $2,000,000 with Ross Sklar. The December 29, 2022 Note bears interest at a floating rate comprised of the Wall Street Journal Prime Rate plus 4% (for a current floating interest rate of 11.5% per annum), has a default interest rate equal to the then current interest rate plus 5%, compounds monthly, is secured, and matures seven months from the original date of issuance. The Company, at its option, may prepay the December 29, 2022 Note, in whole or in part, without prepayment penalty of any kind, and the obligations under the December 29, 2022 Note will accelerate in full upon an Event of Default (as defined in the December 29, 2022 Note). In connection with the December 29, 2022 Note, as a funding fee, the Company issued Mr. Sklar 285,714 warrants to purchase common stock at an exercise price of $0.01 per share and was recorded as a discount to the debt.

 

On March 3, 2023, STCB executed a seventh promissory note (“March 3, 2023 Note”), for $800,000 with Ross Sklar. The March 3, 2023 Note bears interest at a floating rate comprised of the Wall Street Journal Prime Rate plus 4% (for a current floating interest rate of 11.75% per annum), has a default interest rate equal to the then current interest rate plus 5%, compounds monthly, is secured, and matures four months from the original date of issuance. The Company, at its option, may prepay the March 3, 2023 Note, in whole or in part, without prepayment penalty of any kind, and the obligations under the March 3, 2023 Note will accelerate in full upon an Event of Default (as defined in the March 3, 2023 Note). In connection with the March 3, 2023 Note, as a funding fee, the Company issued Mr. Sklar 114,286 warrants to purchase common stock at an exercise price of $0.01 per share and was recorded as a discount to the debt.

 

As of March 31, 2023 and December 31, 2022, the outstanding principal due to Mr. Sklar was $4,472,500 and $3,672,500, respectively. As of March 31, 2023 and December 31, 2022 there was $32,439 and $6,960 of accrued interest due on these notes, respectively.

 

For the three months ended March 31, 2023 and 2022 the notes to Mr. Sklar incurred interest expense of approximately $80,456 and $5,392, respectively.

 

Other Related Party Transactions

 

During the three months ended March 31, 2023 and 2022, the Company incurred zero and $87,044, respectively, of marketing expense from The Woo while David Dreyer, STCB’s Chief Marketing Officer, was also Managing Director at The Woo. Mr. Dreyer left The Woo in February 2022.

 

20
 

 

During the three months ended March 31, 2023 and 2022, the Company recognized revenue from related parties of $2,787,485 and $923,274, respectively. There were $2,433,364 and $2,107,015 of accounts receivable and accrued accounts receivable from TSG and Temperance Distilling Company (“Temperance”) as of March 31, 2023 and December 31, 2022, respectively. All revenues earned in relation to these accounts receivable is from related parties. Ross Sklar serves as the Chairman of Temperance.

 

During the year ended December 31, 2021, the Company advanced $95,640 to Temperance for its initial production of Whipshots, recorded as note receivable, related party in the Company’s consolidated balance sheets. The note carries no interest and is payable on demand. The balance of the note receivable was $95,640 as of March 31, 2023 and December 31, 2022.

 

During the three months ended March 31, 2023 and 2022, the Company received contributed services at a value of approximately $24,049, and $54,862, respectively. Such costs have been expensed and recorded as additional paid-in capital in the period the services were provided.

 

NOTE 9 STOCK WARRANTS

 

On September 12, 2022, the Company entered into agreements with members of the Board and consultants for services to be performed. As consideration therefor, the Company granted those individuals stock warrants to purchase an aggregate of 33,150,000 shares of common stock. The warrants vest over a three-year term and expire five years from the vesting date. The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

On November 1, 2022, the Company entered into an agreement with a consultant for services to be performed. As consideration therefor, the Company granted the consultant stock warrants to purchase 100,000 shares of common stock. The warrants vest over a one-year term. The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

On November 3, 2022, the Company entered into an agreement with a consultant for services to be performed. As consideration therefor, the Company granted the consultant stock warrants to purchase 5,000,000 shares of common stock. The warrants vest over a three-year term. The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

On December 29, 2022, the Company entered into an agreement with Ross Sklar, for 285,714 warrants to purchase shares of common stock be issued as a funding fee for the $2,000,000 secured promissory note (see Note 7). The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

On March 3, 2023, the Company entered into an agreement with Ross Sklar, for 114,286 warrants to purchase shares of Class A common stock to be issued as a funding fee for the $800,000 secured promissory note (see Note 7). The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

                   Risk-            
   Number of               free            
   Stock   Stock   Strike   Expected   Interest   Dividend   Expected  Fair 
Date  Warrants   Price   Price   Volatility   Rate   Rate   Term  Value 
9/12/2022   33,150,000   $0.19   $0.19    103.09%   3.47%   0.00%  3.0 years  $4,088,769 
11/01/2022   100,000   $0.20   $0.20    102.86%   4.27%   0.00%  1.0 years  $8,116 
11/03/2022   5,000,000   $0.19   $0.19    102.84%   4.36%   0.00%  3.0 years  $618,176 
12/29/2022   285,714   $0.20   $0.01    103.49%   3.94%   0.00%  1.0 years  $54,401 
03/03/2023   114,286   $0.01   $0.01    137.62%   4.26%   0.00%  1.0 years  $18,710 

 

21
 

 

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

 SCHEDULE OF OUTSTANDING STOCK WARRANTS AND CHANGES

   Shares available
to purchase
with warrants
   Weighted
Average
Exercise Price
   Weighted-
Average
Remaining
Contractual
Term (in years)
   Aggregate
Intrinsic Value
 
Outstanding, December 31, 2021   2,550,000   $     1.03   $       0.82   $- 
Issued   -   $-   $-   $- 
Exercised   -   $-   $-   $- 
Cancelled   -   $-   $-   $- 
Expired   -   $-   $-   $- 
Outstanding, March 31, 2022   2,550,000   $1.03   $0.82   $- 
                     
Outstanding, December 31, 2022   41,085,714    0.24    4.64    45,714 
Issued   114,286   $0.01   $4.93   $52,000 
Exercised   -   $-   $-   $- 
Cancelled   -   $-   $-   $- 
Expired   -   $-   $-   $- 
Outstanding, March 31, 2023   41,200,000   $0.19   $4.65   $52,000 
                     
Exercisable, March 31, 2023   4,681,943   $0.24   $4.40   $52,000 

 

The Company granted stock warrants to purchase an aggregate of 114,386 and zero shares of common stock during the three months ended March 31, 2023 and 2022, respectively.

 

The weighted average grant date fair value of stock warrants granted and vested during the three months ended March 31, 2023 was $18,710 and $278,649 respectively. The weighted average grant date fair value of stock warrants granted and vested during the three months ended March 31, 2022, was zero and $14,049 respectively.

 

The following table summarizes information about stock warrants to purchase shares of the Company’s common stock outstanding and exercisable as of March 31, 2023:

 

SCHEDULE OF EXERCISABLE WARRANTS

        Weighted-   Weighted-     
        Average   Average     
Range of   Outstanding   Remaining Life   Exercise   Number 
exercise prices   Warrants   In Years   Price   Exercisable 
$1.05    2,000,000    0.17   $1.05    2,000,000 
 1.00    250,000    1.50    1.00    187,500 
 0.90    300,000    2.50    0.90    150,000 
 0.19    38,150,000    4.65    0.19    1,944,443 
 0.20    100,000    4.59    0.20    - 
 0.01    400,000    4.80    0.01    400,000 
      41,200,000    4.40   $0.24    4,681,943 

 

The compensation expense attributed to the issuance of the stock warrants is recognized as they are vested.

 

Total compensation expense related to the stock warrants was $375,501 and $28,099 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $3,928,566 in future compensation cost related to non-vested stock warrants.

 

22
 

 

The aggregate intrinsic value as of March 31, 2023 is $52,000 for total outstanding and exercisable warrants, which was based on our estimated fair value of the common stock of $0.14, had all warrant holders exercised their warrants as of that date, net of the aggregate exercise price.

 

NOTE 10 STOCKHOLDERS’ EQUITY (DEFICIT)

 

Stock Payable

 

The following summarizes the activity of stock payable during the three months ended March 31, 2023 and 2022:

 

SCHEDULE OF ACTIVITY OF STOCK PAYABLE

   Amount   Shares 
Ending balance - December 31, 2021  $654,166    782,570 
Additions, net   81,249    81,249 
Issuances, net   -    - 
Ending balance - March 31, 2022  $735,415    863,985 

 

   Amount   Shares 
Ending balance - December 31, 2022  $ -     - 
Additions, net   38,403,764    247,323,279 
Issuances, net   (81,249)   (81,249)
Ending balance - March 31, 2023  $38,322,515    247,242,030 

 

NOTE 11 – LEASES

 

The following table presents net lease cost and other supplemental lease information:

 

SCHEDULE OF NET LEASE COST AND OTHER SUPPLEMENTAL LEASE

   Three Months
Ended
March 31, 2023
 
Lease cost    
Operating lease cost (cost resulting from lease payments)  $23,544 
Short term lease cost   - 
Sublease income   (23,544)
Net lease cost  $- 
      
Operating lease – operating cash flows (fixed payments)  $23,544 
Operating lease – operating cash flows (liability reduction)  $20,667 
Current leases – right of use assets  $42,026 
Current liabilities – operating lease liabilities  $40,938 
Non-current liabilities – operating lease liabilities  $- 
      
Operating lease ROU assets  $42,026 
Weighted-average remaining lease term (in years)   0.5 
Weighted-average discount rate   2.1%

 

The Company did not have any leases for the three months ended March 31, 2022.

 

23
 

 

Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended March 31, 2023:

 

SCHEDULE OF NON-CANCELABLE LEASES

Fiscal Year  Operating Leases 
Remainder of 2023   43,320 
Total future minimum lease payments   43,320 
Amount representing interest   2,382 
Present value of net future minimum lease payments  $40,938 

 

NOTE 12 – PROPERTY AND EQUIPMENT

 

Property and equipment, net consist of the following:

 

SCHEDULE OF PROPERTY AND EQUIPMENT

   March 31, 2023 
Computer equipment  $39,480 
Tools and equipment   33,196 
Furniture and equipment   16,918 
Property and equipment, gross   89,595 
Less: Accumulated depreciation   (58,874)
Property and equipment, net  $30,722 

 

The Company did not have property and equipment as of March 31, 2022.

 

NOTE 13 – INTANGIBLE ASSETS AND GOODWILL

 

Intangible assets, net consists of the following:

 

SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL

   March 31, 2023 
   Gross       
   Carrying   Accumulated     
   Amount   Amortization   Net 
Trade names and trademarks  $7,122,637   $388,820   $6,733,817 
Customer relationships   2,091,000    -    2,091,000 
Formulas   135,000                       -    135,000 
Domain names   75,750    34,025    41,725 
Intangible Assets  $9,424,387   $422,845   $9,001,542 

 

   December 31, 2022 
   Gross       
   Carrying   Accumulated     
   Amount   Amortization   Net 
Formulas  $135,000   $-   $135,000 
Domain names   44,002    599    43,403 
Trademark   20,000                     -    20,000 
Intangible Assets  $199,002   $599   $198,403 

 

As of March 31, 2023, future expected amortization expense of Intangible assets was as follows:

 

SCHEDULE OF AMORTIZATION EXPENSES OF INTANGIBLE ASSETS

Fiscal Period:

 

 

 
Remainder of 2023  $623,950 
2024   625,630 
2025   625,630 
2026   625,630 
2027   625,630 
Thereafter   5,596,841 
Total amortization remaining  $8,723,311 

 

24
 

 

The changes in the carrying amounts of goodwill during the three months ended March 31, 2023 were as follows.

 

SCHEDULE OF GOODWILL

Balance at December 31, 2022  $32,836,563 
Acquisition of Soylent   58,745,313 
Measurement period adjustments   (9,130,380)
Balance at March 31, 2023  $82,451,496 

 

As of March. 31, 2023, $12,089,871 of goodwill recognized is allocated to the STCB segment, $11,616,312 of goodwill recognized is allocated to the Skylar segment, and $53,242,593 of goodwill recognized is allocated to the Soylent segment.

 

NOTE 14 – INVENTORY

 

Inventory by major class are as follows:

 

SCHEDULE OF INVENTORY 

   March 31, 2023   December 31, 2022 
Raw materials   7,856,700    1,294,865 
Finished goods   10,337,562    1,738,789 
Total inventory  $18,194,262   $3,033,653 

 

NOTE 15 SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through May 22, 2023, 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 subsequent events other than those noted below exist.

 

25
 

 

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

 

THIS QUARTERLY REPORT ON FORM 10-Q INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND OTHER FEDERAL SECURITIES LAWS, PARTICULARLY THOSE ANTICIPATING FUTURE FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, GROWTH, OPERATING STRATEGIES AND SIMILAR MATTERS, INCLUDING WITHOUT LIMITATION, STATEMENTS CONCERNING THE IMPACTS OF THE COVID-19 PANDEMIC ON OUR BUSINESS, OPERATIONS, RESULTS OF OPERATIONS, LIQUIDITY, INVESTMENTS AND FINANCIAL CONDITION. WE HAVE BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT INTENT, EXPECTATIONS AND PROJECTIONS ABOUT FUTURE EVENTS, AND THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND ASSUMPTIONS ABOUT US THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “COULD,” “WOULD,” “INTEND,” “PROJECT,” “CONTEMPLATE,” “POTENTIAL,” “EXPECT,” “PLAN,” “ANTICIPATE,” “BELIEVE,” “ESTIMATE,” “CONTINUE,” OR THE NEGATIVE OF SUCH TERMS OR OTHER SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH A DISCREPANCY INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED IN OUR OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS.

 

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. ANY OF THE FORWARD-LOOKING STATEMENTS THAT WE MAKE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OTHER PUBLIC REPORTS AND STATEMENTS WE MAKE MAY TURN OUT TO BE INACCURATE AS A RESULT OF OUR BELIEFS AND ASSUMPTIONS WE MAKE IN CONNECTION WITH THE FACTORS SET FORTH ABOVE OR BECAUSE OF OTHER UNIDENTIFIED AND UNPREDICTABLE FACTORS. IN ADDITION, OUR BUSINESS AND FUTURE RESULTS ARE SUBJECT TO A NUMBER OF OTHER FACTORS, INCLUDING THOSE FACTORS SET FORTH IN THE “RISK FACTORS” SECTION OF OUR AMENDED ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) ON APRIL 18, 2023. BECAUSE OF THESE AND OTHER UNCERTAINTIES, OUR ACTUAL FUTURE RESULTS MAY BE MATERIALLY DIFFERENT FROM THE RESULTS INDICATED BY THESE FORWARD-LOOKING STATEMENTS, AND YOU SHOULD NOT RELY ON SUCH STATEMENTS. WE UNDERTAKE NO OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF. THESE RISKS COULD CAUSE OUR ACTUAL RESULTS FOR 2023 AND BEYOND TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS BY OR ON BEHALF OF US, AND COULD NEGATIVELY AFFECT OUR FINANCIAL CONDITION, LIQUIDITY AND OPERATING AND STOCK PRICE PERFORMANCE.

 

Business Overview

 

Starco Brands, Inc. (formerly Insynergy Products, Inc.), which we refer to as “the Company,” “our Company,” “STCB”, “we,” “us” or “our,” was incorporated in the State of Nevada on January 26, 2010 under the name Insynergy, Inc. 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 at that time. In July 2017, the Company entered into a licensing agreement with The Starco Group (“TSG”), located in Los Angeles, California. TSG is a private label and branded aerosol and liquid fill manufacturer with manufacturing assets in the following verticals: 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, beverages, and spirits and wine. Upon entering into the licensing agreement with TSG, the Company pivoted to commercializing novel consumer products manufactured by TSG.

 

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During the third quarter of 2021, STCB formed two subsidiaries, Whipshots, LLC, a Wyoming limited liability company (“Whipshots LLC”) and Whipshots, LLC, a Delaware limited liability company that was subsequently renamed Whipshots Holdings, LLC (“Whipshots Holdings”). Whipshots LLC was a wholly-owned subsidiary of STCB at formation which was subsequently contributed to Whipshots Holdings. Whipshots Holdings is a majority-owned subsidiary of STCB in which STCB owns 96% of the vested voting interests. There are unvested interests not owned by the Company for an additional 3% of the equity which has been issued subject to vesting requirements.

 

In 2022 and 2023, the Company embarked on a strategy to grow its consumer product line offerings through the acquisition of multiple subsidiaries with established behavior changing products and brands. With an increased product line and its existing partner relationships, the Company is expanding its verticals and consumer base.

 

On September 12, 2022, STCB, through its wholly-owned subsidiary Merger Sub, completed the AOS Acquisition. The AOS Acquisition consisted of Merger Sub merging with and into AOS, with AOS being the surviving corporation. AOS is a wholly-owned subsidiary of STCB.

 

On December 29, 2022, STCB, through its wholly-owned subsidiaries First Merger Sub and Second Merger Sub, completed the Skylar Acquisition. In a two-step process, during the First Merger, First Merger Sub merged with and into Skylar Inc. and as part of the same overall transaction, during the Second Merger, Skylar Inc. merged with and into Second Merger Sub to result in Skylar as the surviving entity. Skylar is a wholly owned subsidiary of STCB.

 

On February 15, 2023, the Company, through its wholly-owned subsidiary Starco Merger Sub I completed the Soylent Acquisition. The Soylent Acquisition consisted of Starco Merger Sub I merging with and into Soylent, with Soylent being the surviving corporation. Soylent is a wholly-owned subsidiary of STCB.

 

Executive Overview

 

In July 2017, our Board of Directors entered into a licensing agreement with TSG to pursue a new strategic marketing plan involving commercializing leading edge products with the intent to sell them through brick and mortar and online retailers. We are 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 TSG provided STCB with certain products on an exclusive and royalty-free basis and other products on a non-exclusive and royalty basis, in the categories of food, household cleaning, air care, spirits and personal care.

 

The current CEO and owner of TSG, Ross Sklar, was named the CEO of STCB in August of 2017. Mr. Sklar has spent his career commercializing technology in industrial and consumer markets. Mr. Sklar has built teams of manufacturing personnel, research and development, and sales and marketing professionals over the last 20 years and has grown TSG into a successful and diversified manufacturer supplying a wide range of products to some of the largest retailers in the United States. As the Company continues to grow the number of products and brands under the STCB umbrella, it will continue to leverage its relationship with TSG to streamline its product manufacturing.

 

Product Development

 

We have conducted extensive research and have identified specific channels to penetrate with a portfolio of novel technologies. We are now executing on this vision and, since our inception, have launched and /or served as the marketer of record for various product lines.

 

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Winona®

 

STCB is the marketer of record, but not the owner of record of, the Winona® Butter Flavor Popcorn Spray. STCB provides marketing services for Winona pursuant to a licensing agreement, and through its relationship with TSG and their marketing partner Deutsch Marketing, launched a new label in June 2019 for Winona® throughout Walmart stores. Winona Popcorn Spray is also sold in H-E-B grocery stores. STCB also launched the Winona® Popcorn Spray on Amazon through our strategic partner Pattern (formally iServe), who is a stockholder in STCB. Sales grew significantly in 2021 and 2022, the Company expects sales to continue to grow in this space as management plans to increase the Company’s sales personnel in 2023 for this product line.

 

Whipshots®

 

In December 2021, the Company launched a new product line consisting of vodka-infused, whipped-cream aerosols, under the brand name “Whipshots.” The launch event was held at Art Basel in Miami and garnered over 1 billion impressions world-wide. The Company launched the product on whipshots.com with a limited quantity of cans that were to be sold on each day in the month of December 2021. Whipshots® sold out every single day of that month. The Company launched brick and mortar retail distribution in the first quarter of 2022 and signed a distribution agreement with RNDC, one of the largest spirits distributors in the nation. The Company also announced a distribution deal with GoPuff and BevMo. Throughout 2022, STCB entered into Distribution Agreements with various distributors pursuant to which such distributors will act as the exclusive distributors of Whipshots® in various geographic locations. Initially the Company introduced three flavors of Whipshots® to the market – Vanilla, Mocha and Caramel. In November 2022 the Company introduced a new flavor, Peppermint, as a Limited Time seasonal item. The Company plans to continue to offer various additional Limited Time flavors in 2023. Whipshots® is produced by Temperance Distilling Company, of which Sklar is a majority shareholder.

 

Breathe®

 

The Breathe® Household cleaning aerosol line was an environmentally friendly line of household cleaning aerosol products. It was the world’s first aerosol household cleaning line to be approved by the EPA’s Safer Choice program. This 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 and also achieved the Good Housekeeping Seal of approval.

 

STCB also launched the Breathe® Hand Sanitizer Spray in April 2020. The invention was created and patents were filed by Alim Enterprises, LLC, (“AE”) an entity owned by Mr. Sklar. Originally the technology was developed for Blue Cross Laboratories, LLC, (“BCL”) a personal care consumer products manufacturer owned by Mr. Sklar’s TSG. The product was developed as a result of supply chain collapse during the Covid-19 outbreak and increased demand for hand sanitizers. The traditional packaging components used in manufacturing hand sanitizer became very difficult to procure. BCL, located in Santa Clarita, California, is an at scale manufacturer that started approximately 50 years ago with personal care products, including hand sanitizer. Due to the outbreak of Covid-19, many traditional component supply chains became overly stressed and BCL could not source enough bottles and caps. Through Mr. Sklar’s AE, the concept of a spray hand sanitizer was invented.

 

The product was being manufactured by BOV Solutions, a division of TSG that is an at scale FDA, CFR210/211 manufacturer of aerosol and OTC products. The Breathe® Hand Sanitizer Spray could only be made in an FDA facility that had at scale aerosol capabilities. The product was sold through BOV Solutions and TSG’s existing distribution footprints in the United States. STCB launched the product in April 2020 via a press release in partnership with Dollar General, announcing its distribution in each of their 15,000+ stores. STCB also partnered with Wegmans, HLA and J Winkler. The product was distributed through The Home Depot, Lowes, American Pharmacy, AutoZone, The Farm Shop, Harris Teeter, UNFI, Kehe, Macy’s, Smart & Final, Weeks and others.

 

Betterbilt Chemical’s Kleen Out®

 

STCB was also the marketer of record, but not the owner of record of, Betterbilt Chemical’s Kleen Out® branded drain opener and provided marketing services for Betterbilt pursuant to a marketing agreement. In December 2022, STCB and TSG mutually agreed to end the marketing agreement for Betterbilt Chemical’s Kleen Out® drain opener.

 

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Acquisitions

 

In 2022, STCB embarked on a strategy to grow its consumer product line offerings through acquiring existing behavior changing products and brands.

 

On September 12, 2022, STCB, through its wholly-owned subsidiary Merger Sub, completed the AOS Acquisition. The AOS Acquisition consisted of Merger Sub merging with and into AOS, with AOS being the surviving corporation. AOS is a wholly-owned subsidiary of STCB. AOS is the maker of Art of Sport premium body and skincare products engineered to power and protect athletes and brings over the counter respiratory, sun care, women and children, pain management, performance supplements, food, beverage and apparel product lines under STCB auspices.

 

On December 29, 2022, STCB, through its wholly-owned subsidiaries First Merger Sub and Second Merger Sub, completed the Skylar Acquisition. In a two-step process, during the First Merger, First Merger Sub merged with and into Skylar Inc. and as part of the same overall transaction, during the Second Merger, Skylar Inc. merged with and into Second Merger Sub to result in Skylar as the surviving entity. Skylar is a wholly owned subsidiary of STCB. Skylar is the maker of fragrances that are hypoallergenic and safe for sensitive skin.

 

On February 15, 2023, the Company, through its wholly-owned subsidiary Starco Merger Sub I completed the Soylent Acquisition. The Soylent Acquisition consisted of Starco Merger Sub I merging with and into Soylent, with Soylent being the surviving corporation. Soylent is a wholly-owned subsidiary of STCB. Soylent is the maker of a wide range of plant-based “complete nutrition” and “functional food” products with a lineup of plant-based convenience shakes, powders and bars that contain proteins, healthy fats, functional amino acids and essential nutrients.

 

Corporate

 

On January 3, 2023, the board of directors of the Company approved the Amended and Restated Articles of Incorporation of Starco Brands, Inc. (the “Amended and Restated Articles). On January 6, 2023, the stockholders of the Company representing 53.47% of the Company’s outstanding common stock adopted the Amended and Restated Articles. On February 9, 2023, the Company filed the Amended and Restated Articles, which, among other things, (i) increased the authorized shares of common stock, par value $0.001 per share, from 300,000,000 shares (the “Old Common Stock”) to 2,000,000,000 shares, (ii) established two classes of Common Stock, consisting of (y) 1,700,000,000 shares of Class A common stock, par value $0.001 per share (“Class A common stock”), and (z) 300,000,000 shares of Class B common stock, par value $0.001 per share and (iii) reclassified all issued, outstanding or authorized Old Common Stock of the Company into Class A common stock on a one-for-one basis. As a result, following the filing of the Amended and Restated Articles with the Nevada Secretary of State, the Company’s prior “common stock” was renamed Class A common stock on its trading symbol.

 

Competition

 

The household, personal care and beverage consumer products market in the U.S. is mature and highly competitive. Our competitive set has grown with our recent acquisitions and consists of consumer products companies, including large and well-established multinational companies as well as smaller regional and local companies. These competitors include Johnson & Johnson, The Procter & Gamble Company, Unilever, Diageo, CytoSport, Inc., Abbott Nutrition, Nestlé, Owyn, Clean Reserve, The 7 Virtues and others. Within each product category, most of our products compete with other widely advertised brands and store brand products.

 

Competition in our product categories is based on a number of factors including price, quality and brand recognition. We benefit from the strength of our brands, a differentiated portfolio of quality branded and store brand products, as well as significant capital investment in our manufacturing facilities. We believe the strong recognition of the Whipshots® brand and Soylent brand among U.S. consumers gives us a competitive advantage.

 

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Growth Strategy

 

As long as the Company can raise capital, the Company plans to launch other products in spray foods and condiments, over the counter respiratory, air care, skin care, sun care, hair care, personal care, pain management, performance supplements, plant-based convenience shakes, powders and bars, apparel, fragrances, spirits and beverages over the next 36 months. Financing growth and launching of new products through our key subsidiaries is key to the Company’s ability to raise further capital.

 

We will need to rely on sales of our Class A common stock and other sources of financing to raise additional capital. The purchasers and manner of any share issuance will be determined according to our financial needs and the available exemptions to the registration requirements of the Securities Act. The Company will utilize the marketing capabilities of Hearst Media with its co-branding arrangement on some of its products. This provides significant support for our current retail and online distribution. We also plan to raise capital in the future through a compliant offering.

 

We continue to strive towards becoming a leading brand owner and third-party marketer of cutting edge technologies in the consumer products marketplace whose success is expected to increase stockholder value. The Company will continue to evaluate this and other opportunities to further set its strategy for 2023 and beyond.

 

For more information and to view our products, you may visit our websites at www.starcobrands.com, www.breathecleaning.com, www.breathesanitizer.com, www.whipshots.com, www.bingeworthyflavor.com, www.artofsport.com, www.skylar.com and www.soylent.com.

 

Offices

 

Our principal executive offices are located at 250 26th Street, Suite 200, Santa Monica, California, 90402, and our telephone number is (323) 266-7111. Our website is www.starcobrands.com and the Company makes its SEC reports available on the website. Our internet website and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report.

 

Results of Operations

 

Comparison of the three months ended March 31, 2023 compared to the three months ended March 31, 2022

 

   March 31,   March 31,     
   2023   2022   Change 
Revenues  $11,143,801   $923,274   $10,220,527 
Cost of goods sold   5,087,750    -    5,087,750 
Gross profit   6,056,051    923,274    5,132,777 
Operating expenses:               
Compensation expense   1,425,617    126,877    1,298,740 
Professional fees   1,399,302    58,506    1,340,796 
Marketing, General and administrative   3,684,666    583,181    3,101,485 
Marketing, related party   -    87,044    (87,044)
Fair value share adjustment loss   

1,179,154

    

-

    

1,179,154

 
Total operating expense   7,688,739    855,608    6,833,131 
Income (loss) from operations   (1,632,688)   67,666    (1,700,354)
Other expense (income):               
Interest expense   97,313    14,855    82,458 
Other (income)   (66,871)   -    (66,871)
Total other (income) expense   1,209,596    14,855    1,194,741
Income (loss) before provisions for income taxes   (1,663,130)   52,811    (1,715,941)
Provision for income taxes   -    -    - 
Net income (loss)   (1,663,130)   52,811    (1,715,941)
Net income attributable to non-controlling interest   58,416    (11,862)   70,278 
Net income (loss) attributable to Starco Brands  $(1,721,546)  $40,949   $(1,762,495)

 

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Revenues

 

For the three months ended March 31, 2023, the Company recorded revenues of $11,143,801 compared to $923,274 for the three months ended March 31, 2022, an increase of $10,220,527 or 1,107%. The increase in the current period was largely due to sales from acquired businesses AOS, Skylar and Soylent from the date of their acquisitions and growth in royalty revenues. Royalty revenue represented 25% and 100%, or $2.8 million and $0.9 million, respectively. The increase in royalty revenue in the current period was largely due to growth in royalties from sales of Whipshots® which was experiencing its initial market rollout during the same period last year. The royalty rate that the Company 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 TSG and other affiliated companies for various products mentioned above. The increase in the current period is primarily due to initial volume sales of our Whipshots®, partially offset by declines in sales of Breathe cleaning and sanitizer products.

 

Operating Expenses

 

For the three months ended March 31, 2023, compensation expense increased $1,298,740, or 1,024% to $1,425,617 compared to $126,877 for the three months ended March 31, 2022. The increase is a result of increases in warrant-based spending on independent contractors and contributed services to support the acquisitions of AOS, Skylar and Soylent.

 

For the three months ended March 31, 2023, the Company incurred $1,399,302 in professional fees compared to $58,506 in the prior period, an increase of $1,340,796, or 2,292%. Professional fees are mainly for accounting, auditing and legal services associated with the acquisition of AOS, Skylar and Soylent, our merger activity, and our quarterly filings as a public company, and advisory and valuation services. The increase in the current period ended March 31, 2023 is primarily due to an increase in banking, acquisition legal, and audit fees related to the acquisition of Soylent, and to a lesser extent, corporate legal and audit fees.

 

For the three months ended March 31, 2023, the Company incurred $3,684,666 in marketing, general and administrative expense as compared to $583,181 for the three months ended March 31, 2022, an increase of $3,101,485, or 532%. The increase can be attributed to an increase in spending on marketing, including license payments related to Whipshots®.

 

For the three months ended March 31, 2023, the Company incurred no related-party marketing expenses as compared to $87,044 for the three months ended March 31, 2022, a decrease of $87,044 or 100%. The decrease for the period can be attributed to us no longer classifying marketing expense from a third-party firm as “related party” once our executive vice president of marketing joined the Company full time in February 2022 and ceased being affiliated with the third-party firm.

 

For the three months ended March 31, 2023, the Company incurred a fair value share adjustment loss of $1,179,154. This was due to the fair values of the rights of Starco shares increasing from $0.189 per share to $0.195 per share, resulting in an increased stock payable liability of $1,179,154.

 

Other Income and Expense

 

For the three months ended March 31, 2023, we had total other expense of $30,442 compared to other expense of $14,855 for the three months ended March 31, 2022. For the three months ended March 31, 2023, the Company had interest expense of $97,313 compared to interest expense of 14,855 for the three months ended March 31, 2022.

 

Net Income (Loss)

 

For the three months ended March 31, 2023, the Company recorded a net loss of $1,663,130 as compared to net income of $52,811 for the three months ended March 31, 2022. The change from net income to a net loss is primarily due to a loss on the change in fair value of the stock payable for shares due to Soylent Stockholders, which is partially offset by increases in expenses related to the acquisitions of AOS, Skylar and Soylent.

 

Liquidity and Capital Resources

 

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $19.3 million at March 31, 2023. We used net cash of $395,126 from financing activities for the three months ended March 31, 2023, due primarily to $1.2 million of repayments of notes payable and $0.8 million of loan advances from Ross Sklar. This compared to net cash received from financing activities of $412,888, primarily from related party advances of $0.5 million for the three months ended March 31, 2022. A majority of our financing activity consisted of payments to and from related parties.

 

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Our net cash used in operating activities was $121,811 for the year three months ended March 31, 2023. Operating expenses for the three months ended March 31, 2023 totaling $6,509,585 include items such as marketing and administrative costs, consultant compensation, insurance, legal and other professional fees, compliance and website maintenance.

 

On January 24, 2020, STCB executed a promissory note for $100,000 with Ross Sklar, CEO. The note bears interest at 4% per annum, compounds monthly, is unsecured, and matures two years from the original date of issuance. This loan was subsequently amended to mature on July 19, 2023. On June 28, 2021, STCB executed an additional promissory note with Ross Sklar in the principal amount of $100,000 with the same terms as the January 24, 2020 note and a maturity date of June 28, 2023. On September 17, 2021, STCB executed a third promissory note with Ross Sklar in the principal amount of $500,000 with the same terms as the prior notes and a maturity date of September 17, 2023. On December 13, 2021, STCB executed a fourth promissory note with Ross Sklar in the principal amount of $500,000 with the same terms as the prior notes and a maturity date of December 12, 2023. On February 14, 2022, STCB executed a fifth promissory note with Ross Sklar in the principal amount of $472,500 with the same terms as the prior notes and a maturity date of February 14, 2024. This note is also convertible into the Company’s common stock at the lender’s option and a conversion price of $0.29 per share. On December 29, 2022, STCB executed a sixth promissory note with Ross Sklar in the principal amount of $2,000,000. This note bears interest at Prime + 4% per annum, compounds monthly, is secured, matures on August 1, 2023, and included warrants to purchase 285,714 shares of the Company’s common stock at a price of $0.01 per share. On March 3, 2023, STCB executed a seventh promissory note with Ross Sklar in the principal amount of $800,000. This note bears interest at Prime + 4% per annum, compounds monthly, is secured, matures on July 1, 2023, and included warrants to purchase 114,286 shares of the Company’s common stock at a price of $0.01 per share. As of March 31, 2023 the loans outstanding to Ross Sklar had a principal amount of $4,472,500 and accrued interest of $7,211.

 

Going Concern

 

The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q 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 approximately $19.3 million at March 31, 2023 including the impact of its net income of approximately $1.7 million for the three months ended March 31, 2023. Net cash used in operating activities was $0.1 million for the three months ended March 31, 2023. The Company’s ability to continue with this trend is unknown. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt financing is unknown. On March 3, 2023, the Company issued Ross Sklar, CEO, a related party, a $800,000 note payable due July 1, 2023 (see Note 7), whereby the entirety of the note was used as a loan payable to Soylent to pay down Soylent’s debt as part of the Soylent acquisition. 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 consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

Working Capital Surplus (Deficiency)

 

   March 31,   December 31, 
   2023   2022 
Current assets  $29,122,994   $7,971,639 
Current liabilities   60,037,029    7,690,876 
Working capital surplus (deficiency)  $ (30,914,035)  $280,763 

 

The increase in current assets is primarily due to the increase in inventory on hand of $15,160,609, as well as an increase in accounts receivable of $6,035,337. Both the increase of inventory and accounts receivable are related to the Soylent acquisition. The increase in current liabilities is primarily a result of the increase in stock payable of $38,322,515, an increase of $8,379,491 in accounts payable and an increase in notes payable to related party of $4,935,957. The increase of stock payable, accounts payable and notes payable are a result primarily due to the Soylent acquisition.

 

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Cash Flows

 

  

Three Months Ended

March 31,

 
   2023   2022 
Net cash provided by (used in) operating activities  $(121,811)  $(566,093)
Net cash provided by investing activities   133,803    - 
Net cash (used) provided by financing activities   (395,126)   412,888 
Increase (decrease) in cash  $(383,134)  $(153,205)

 

Operating Activities

 

Net cash used in operating activities was $121,811 for the three months ended March 31, 2023 was primarily due to an increase of inventory of $2,005,702, which was partially offset by a decrease of accounts payable of $1,891,071.

 

Net cash used in operating activities was $566,093 for the three months ended March 31, 2022 and was primarily due to a decrease of other payables and accrued liabilities of $527,5469.

 

Investing Activities

 

Net cash used in investing activities was $133,803 for the three months ended March 31, 2023 and was primarily due to cash paid in acquisition of business, net of $172,423 and was partially offset by the purchase of intangibles in the amount of $38,620.

 

The Company did not have any net cash used in investing activities during the three months ended March 31, 2022.

 

Financing Activities

 

For the year three months ended March 31, 2023 net cash used by financing activities was $395,126, which primarily includes $1,162,276 of repayments on notes payable and $800,000 from advances from related parties.

 

For the year three months ended March 31, 2022, net cash provided by financing activities was $412,888 which primarily includes $472,500 from advances from related parties.

 

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.

 

Effects of Inflation

 

Inflationary factors such as increases in the costs to acquire goods and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of revenues if the selling prices of our services do not increase with these increased costs.

 

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Critical Accounting Policies and Estimates

 

Our Consolidated Financial Statements have been prepared in conformity with US GAAP. The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs, expense and related disclosures. These estimates and assumptions are often based on historical experience and judgements that we believe to be reasonable under the circumstances at the time made. However, all such estimates and assumptions are inherently uncertain and unpredictable, and actual results may differ. It is possible that other professionals, applying their own judgement to the same facts and circumstances, could develop and support alternative estimates and assumptions that could result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis.

 

We consider our critical accounting estimates to include the assumptions and estimates associated with timing for revenue recognition, testing goodwill for impairment, recoverability of long-lived assets, income taxes, fair value of contributed services, and assumptions used in the Black-Scholes valuation methods, such as expected volatility, risk-free interest rate and expected dividend rate. Our significant accounting policies are more fully described in the notes to our Consolidated Financial Statements. We believe that the following accounting policies and estimates are critical to our business operations and understanding our financial results.

 

Acquisition Accounting

 

We account for acquisitions in accordance with the acquisition method of accounting pursuant to ASC 805, Business Combinations. Accordingly, for each acquisition, we record the fair value of the assets acquired and liabilities assumed as of the acquisition date, and recognize the excess of the consideration paid over the fair value of the net assets acquired as goodwill. For each acquisition, the fair value of assets acquired and liabilities assumed is determined based on assumptions that reasonable market participants would use to value the assets in the principal (or most advantageous) market.

 

In determining the fair value of the assets acquired and the liabilities assumed in connection with acquisitions, management engages third-party valuation experts. Management is responsible for these internal and third-party valuations and appraisals.

 

Revenue Recognition

 

STCB and its subsidiaries currently earn a majority of their revenue as royalties from the licensing agreements it has with TSG, a related entity, and other related parties. STCB 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 the royalty percentage is determined beforehand in each agreement. The Company recognizes its revenue under these licensing agreements only when sales are made by TSG or other related parties to a third party.

 

AOS, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of premium body and skincare products. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, including Amazon Fulfillment by Amazon (“Amazon FBA”), is recognized upon shipment of merchandise.

 

Skylar, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of fragrances. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, including Amazon Fulfillment by Amazon (“Amazon FBA”), is recognized upon shipment of merchandise.

 

Soylent, one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of nutritional drinks. Revenue from retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, is recognized upon shipment of merchandise.

 

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.

 

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The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the licensee transferring goods or services to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company’s licensee must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s licensee’s performance obligations are transferred to customers at a point in time, typically upon delivery.

 

Goodwill Impairment

 

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

 

We review goodwill for impairment at least annually or more frequently if indicators of impairment exist. Our goodwill impairment test may require the use of qualitative judgements and fair-value techniques, which are inherently subjective. Impairment loss, if any, is recorded when the fair value of goodwill is less than its carrying value for each reporting unit.

 

No impairment losses related to goodwill were recognized for the three months ended March 31, 2023 and 2022.

 

Recoverability of Long-Lived Assets

 

We review intangible assets, property, equipment and software with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted cash flows that the asset or asset group is expected to generate. If assets are determined to be impaired, the impairment loss to be recognized equals the amount by which the carrying value of the asset or group of assets exceeds its fair value. Significant estimates include but are not limited to future expected cash flows, replacement cost and discount rates. There were no impairment losses related to long-lived assets for the three months ended March 31, 2023 and 2022.

 

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 consolidated 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 consolidated 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 consolidated 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.

 

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Contributed Services

 

The Company uses contributed services from related parties on an as needed basis for a portion of Company operations. Depending on the amount of time related parties spend working on STCB, the Company allocates a percentage of the related parties’ salaries to be accounted for as contributed services expense.

 

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 consolidated 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 consolidated financial position or results of operations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable as we are a “smaller reporting company.”

 

ITEM 4. 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 Interim 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 Interim Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that, as of March 31, 2023, these disclosure controls and procedures were not effective.

 

A material weakness, as defined in the standards established by the Sarbanes-Oxley, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

 

The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses:

 

Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner;

 

Lack of segregation of duties; and

 

Lack of sufficient formal procedures and controls to achieve complete and accurate financial reporting, including controls over the preparation and review of journal entries and account reconciliations.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

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. For a list of risk factors, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 18, 2023.

 

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

 

Issuer Purchase of Securities.

 

On June 13, 2021, the Company entered into Separation Agreements (the “Separation Agreements”) with Sanford Lang (“Mr. Lang”) and Martin Goldrod (“Mr. Goldrod”) whereas, effective as of June 16, 2021, Mr. Lang and Mr. Goldrod each resigned from their positions as members of the Board of Directors in exchange for certain separation benefits (the “Separation Benefits”). As consideration for the Separation Benefits, and not in addition to the same, the Company agreed to purchase an amount of the shares of the Company per month from Mr. Lang and Mr. Goldrod at a price per share that when aggregated with all shares purchased in each month would equal monthly Separation Benefit payments of $7,950 to Mr. Lang and monthly Separation Benefit payments of $3,000 to Mr. Goldrod (the “Repurchases”). The Repurchases made during the first quarter of 2023 are set forth below.

 

Period  Total Number of
Shares Purchased
   Average Price
Paid Per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs
 
1/1/2023 - 1/31/2023   63,206   $0.17    1,030,326   $186,150 
2/1/2023 - 2/28/2023   73,236   $0.15    1,103,562   $175,200 
3/1/2023 - 3/31/2023   56,721   $0.19    1,160,283   $164,250 

 

Issuer Sale of Securities.

 

On February 15, 2023, the STCB completed the Soylent Acquisition pursuant to which up to 196,525,715 shares of Class A common stock may be issuable. The issuances were made in reliance upon Section 4(a)(2) of the Securities Act.

 

Date  Shares of Common Stock
Issuable4
   Cash Proceeds / Value in
Kind from Shares Issuable
   Recipient(s) of Shares
February 15, 2023   196,525,715   $68,784,000   21 entities
4 individuals

 

On March 3, 2023, the Company entered into an agreement with Ross Sklar, for 114,286 warrants to purchase shares of Class A common stock to be issued as a funding fee for the $800,000 secured promissory note issued to Mr. Sklar on March 3, 2023.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINING SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None

 

 

4 Shares calculated are initial closing plus indemnification holdback plus contingent shares.

 

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ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

Exhibit No.   Exhibit Description
3.1 (*)   Amended and Restated Articles of Incorporation of Starco Brands, Inc., filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the Commission on April 18, 2023.
3.2 (*)   Amended and Restated Bylaws of Starco Brands, Inc., filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 1, 2022.
10.1 (*)   Registration Rights Agreement, by and between Starco Brands, Inc., a Nevada corporation, and the Investors listed on Schedule A thereto, dated September 12, 2022, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 15, 2022.
10.2 (*)   Registration Rights Agreement, by and between Starco Brands, Inc., a Nevada corporation, and the Investors listed on Schedule A thereto, dated December 29, 2022, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 4, 2023.
10.3 (*)   Registration Rights Agreement, by and between Starco Brands, Inc., and Hamilton Start, LLC in its capacity as Stockholder Representative on behalf of the Investors (as defined therein) dated February 15, 2023, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on February 21, 2023.
10.4 (*)(+)   Brand License Agreement, by and between Starco Brands, Inc. and The Starco Group, effective as of July 12, 2017, filed as Exhibit 6.2 to the Company’s Regulation A+ offering statement filed with the Commission on August 31, 2021.
10.5 (*)(+)   License Agreement by and between Sklar Holdings, Inc., and Starco Brands, Inc. executed April 1, 2018, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Commission on February 19, 2021.
10.6 (*)(+)   License Agreement by and between Winona Pure, Inc. and Starco Brands, Inc. executed April 1, 2018, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 19, 2021
10.7 (*)(+)   License Agreement, by and between Whipshots LLC, Washpoppin Inc., and “Cardi B,” dated as of September 14, 2021.
10.8 (*)(+)   Intellectual Property Purchase Agreement, by and between Whipshots LLC and PENGUINS FLY, LLC, dated as of August 24, 2021, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 14, 2021.
10.9 (*)   Separation Agreement dated June 13, 2021 between Starco Brands, Inc. and Sanford Lang, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on July 22, 2021.
10.10 (*)   Separation Agreement dated June 13, 2021 between Starco Brands, Inc. and Martin Goldrod, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed with the Commission on July 22, 2021.
10.11 (*)   First Amended and Restated Promissory Note issued in favor of Ross Sklar, dated July 19, 2022, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2022.
10.12 (*)   Promissory Note issued in favor of Ross Sklar, dated June 28, 2021, filed as Exhibit 6.12 to the Company’s Regulation A+ offering statement filed with the Commission on October 20, 2021.
10.13 (*)   Promissory Note issued in favor of Ross Sklar, dated September 17, 2021, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 23, 2021.
10.14 (*)   Promissory Note issued in favor of Ross Sklar, dated December 13, 2021, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 15, 2021.
10.15 (*)   Promissory Note issued in favor of Ross Sklar, dated February 14, 2021, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 22, 2022.
10.16 (*)   Secured Promissory Note issued in favor of Ross Sklar, dated December 29, 2022, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2023.
10.17 (*)   Secured Promissory Note issued in favor of Ross Sklar, dated March 3, 2023, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 9, 2023.

 

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10.18 (*)   Security Agreement, by and between Starco Brands, Inc. and Ross Sklar, dated December 29, 2022, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2023.
10.19 (*)   Security Agreement, by and between Starco Brands, Inc. and Ross Sklar, dated March 3, 2023, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 9, 2023.
10.20 (*)   Warrant to Purchase Common Stock, issued to Ross Sklar, dated December 29, 2022, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2023.
10.21 (*)   Warrant to Purchase Class A Common Stock, issued to Ross Sklar, dated March 3, 2023, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 9, 2023.
10.22 (*)   License Agreement by and between Starco Brands, Inc. and Temperance Distilling Company, executed January 24, 2022, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 18, 2023.
31.1 (#)   Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2 (#)   Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1 (#)(##)   Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
32.2 (#)(##)   Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.INS   Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

(#) Filed herewith.
   
(*) Incorporated by reference to the filing indicated.
   
(+)

In accordance with Item 601(a)(5) of Regulation S-K, certain schedules (or similar attachments) to this exhibit may have been omitted from this filing. The Registrant will provide a copy of any omitted schedule to the SEC or its staff upon request.

 

In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain provisions or terms of the Agreement may have been redacted. The Registrant will provide an unredacted copy of the exhibit on a supplemental basis to the SEC or its staff upon request.

   
(##) The certifications attached as Exhibits 32.1 and 32.2 that accompany this report, are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Starco Brands, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report irrespective of any general incorporation language contained in such filing.

 

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SIGNATURES

 

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

 

  STARCO BRANDS, INC
  (Registrant)
     
  By: /s/ Ross Sklar
    Ross Sklar
   

Chief Executive Officer (Principal Executive Officer)

Interim Chief Financial Officer (Principal Financial and Accounting Officer)

    May 22, 2023

 

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