UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(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 | ||
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.
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).
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 ☐ |
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 November 14, 2024, there were shares of the registrant’s Class A common stock and shares of the registrant’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 represent 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 SEPTEMBER 30, 2024
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARCO BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2024 | December 31, 2023 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net of allowance for credit losses of $ | ||||||||
Accounts receivable, related parties | ||||||||
Prepaid expenses and other assets | ||||||||
Inventory | ||||||||
Total Current Assets | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use asset | ||||||||
Intangibles, net | ||||||||
Goodwill | ||||||||
Total Assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accounts payable, related parties | ||||||||
Other payables and accrued liabilities | ||||||||
Accrued interest, related parties | ||||||||
Fair value of Share Adjustment | ||||||||
Treasury stock payable, current | ||||||||
Notes payable, $ | ||||||||
Line of Credit | ||||||||
Lease liability, current portion | ||||||||
Total Current Liabilities | ||||||||
Lease liability, net of current portion | ||||||||
Revolving loan, net of discounts | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (Note 7) | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $ | par value; shares authorized; shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively||||||||
Class A common stock, $ | par value; shares authorized; and shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively||||||||
Class B common stock, $ | par value; shares authorized shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively||||||||
Additional paid in capital | ||||||||
Treasury stock at cost | ( | ) | ( | ) | ||||
Equity consideration payable | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Starco Brands’ Stockholders’ Equity | ||||||||
Non-controlling interest | ||||||||
Total Stockholders’ Equity | ||||||||
Total Liabilities and Stockholders’ Equity | $ | $ |
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)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||
Revenue, related parties | ||||||||||||||||
Cost of goods sold | ||||||||||||||||
Cost of goods sold, related parties | ||||||||||||||||
Gross profit | $ | $ | $ | $ | ||||||||||||
Operating Expenses: | ||||||||||||||||
Compensation expense | $ | $ | $ | $ | ||||||||||||
Professional fees | ||||||||||||||||
Marketing, general and administrative | ||||||||||||||||
Fair value share adjustment loss (income) | ( | ) | ||||||||||||||
Total operating expenses, net | ||||||||||||||||
(Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||
Other Expense (Income): | ||||||||||||||||
Interest expense | ||||||||||||||||
Other expense (income) | ( | ) | ||||||||||||||
Total other expense, net | ||||||||||||||||
(Loss) income before provision for income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Provision for income taxes | ||||||||||||||||
Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Net income attributable to non-controlling interest | $ | $ | $ | $ | ||||||||||||
Net (loss) income attributable to Starco Brands | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
(Loss) income per share, basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
(Loss) income per share, diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
Weighted Average Shares Outstanding - Basic | ||||||||||||||||
Weighted Average Shares Outstanding - Diluted |
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
Class A Common Stock | Class B Common Stock | Additional Paid-in | Treasury | Accumulated | Non-controlling | Equity Consideration | Stockholders’ | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stock Payable | Deficit | Interest | Payable | Equity (Deficit) | |||||||||||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | | |||||||||||||||||||||||||||
Estimated fair value of contributed services and stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||
Issuance of shares from Soylent acquisition | - | |||||||||||||||||||||||||||||||||||||||
Equity payable from Soylent acquisition | - | |||||||||||||||||||||||||||||||||||||||
Skylar purchase price acquisition adjustments | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Net income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||
Estimated fair value of contributed services and stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||
Soylent acquisition measurement period adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Net income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
Estimated fair value of contributed services and stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||
Soylent acquisition measurement period adjustment | - | - | ||||||||||||||||||||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
Soylent Share Adjustment | - | |||||||||||||||||||||||||||||||||||||||
Equity payable related to Soylent acquisition | - | ( | ) | |||||||||||||||||||||||||||||||||||||
Equity payable related to AOS acquisition | - | ( | ) | |||||||||||||||||||||||||||||||||||||
Share repurchase | - | |||||||||||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||
Soylent Share Adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Equity payable related to Skylar acquisition | ( | ) | ||||||||||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
Net (loss) income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
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 NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2024 | September 30, 2023 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Contributed services | ||||||||
Stock-based compensation | ||||||||
Depreciation | ||||||||
Amortization of intangible assets | ||||||||
Amortization of debt discount | ||||||||
Loss on stock payable share adjustment | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ||||||
Accounts receivable, related parties | ( | ) | ( | ) | ||||
Prepaid expenses and other assets | ( | ) | ||||||
Inventory | ( | ) | ( | ) | ||||
Operating lease right-of-use asset | ( | ) | ||||||
Accounts payable | ||||||||
Accounts payable, related parties | ||||||||
Other payables and accrued liabilities | ||||||||
Accrued interest, related parties | ( | ) | ( | ) | ||||
Operating lease liability | ( | ) | ||||||
Net Cash Provided By/(Used In) Operating Activities | ( | ) | ||||||
Cash Flows From Investing Activities: | ||||||||
Cash acquired in Acquisition of Business, net of cash paid | ||||||||
Purchases of intangibles | ( | ) | ( | ) | ||||
Purchases of property & equipment | ( | ) | ( | ) | ||||
Net Cash Used In Investing Activities | ( | ) | ( | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Payments to/receipts from related parties | ( | ) | ||||||
Proceeds from notes receivable | ||||||||
Proceeds from notes payable | ||||||||
Payments to notes payable | ( | ) | ( | ) | ||||
Issuance of common stock for business acquisition | ( | ) | ||||||
Proceeds from Line of Credit | ||||||||
Payments to Line of Credit | ( | ) | ( | ) | ||||
Proceeds from Revolving Loan | ||||||||
Payments for Revolving Loan | ( | ) | ||||||
Repurchase of common stock | ( | ) | ||||||
Net Cash (Used In)/Provided By Financing Activities | ( | ) | ||||||
Net (Decrease)/ Increase In Cash | ( | ) | ||||||
Cash - Beginning of Period | ||||||||
Cash - End of Period | $ | $ | ||||||
Supplemental Cash Flow Information: | ||||||||
Cash paid for: | ||||||||
Interest paid | $ | $ | ||||||
Income taxes | $ | $ | ||||||
Noncash investing and financing activities: | ||||||||
Settlement of Soylent share adjustment | $ | $ | ||||||
Estimated fair value of shares issued in acquisitions | $ | $ | ||||||
Estimated fair value of shares payable to be issued for acquisitions | $ | $ | ||||||
Debt discount on notes payable issued with warrants | $ | $ |
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
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 of Directors (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
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 Inc. 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 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 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
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 identified that a substantial doubt exists
related to the Company’s ability to meet its obligations as they become due within one year of the date of the financial statements
being issued. Principal conditions that gave rise to this substantial doubt include historical net losses as indicated by the Company’s
accumulated deficit of approximately $
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The
condensed 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
Our consolidated subsidiaries at September 30, 2024 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, 2023. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K.
Reclassification
During the first quarter of 2024, the Company discovered a misclassification of expenses related to outbound shipping, product fulfilment, and warehouse costs; such had been grouped under Marketing, general and administrative expenses (which are part of operating expenses) during the year ended December 31, 2023. Management determined that these expenses should have been classified as Cost of goods sold and the current period financials reflect the appropriate classification. To allow for the conformity of presentation of the prior period financial statements to the current period financial statements, and to maintain comparability among the periods presented in compliance with U.S. GAAP, the Company has reclassified the prior year expenses as presented below:
Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
Account | Previously Recorded Balance | Corrected Balance | Reclassification Made | Previously Recorded Balance | Corrected Balance | Reclassification Made | ||||||||||||||||||
Statement of Operations | ||||||||||||||||||||||||
Cost of goods sold | (1) | (1) | ( | ) | ( | ) | ||||||||||||||||||
Marketing, general and administrative |
(1) |
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.
8 |
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 and related valuation allowances, 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.
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 and 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
Accounts Receivable
We
measure accounts receivable at net realizable value. This value includes an appropriate allowance for credit losses to present the net
amount expected to be collected on the financial asset. We calculate the allowance for credit losses based on available relevant information,
in addition to historical loss information, the level of past-due accounts based on the contractual terms of the receivables, reasonable
and supportable forecasts, and our relationships with, and the economic status of, our partners and customers. The allowance for credit
losses is evaluated quarterly, which is $
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 condensed consolidated financial assets and liabilities, such as cash and cash equivalents, 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 approximate 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 September 30, 2024 and December 31, 2023.
9 |
The following table summarizes the financial instruments of the Company at fair value based on the valuation approach applied to each class of security as of September 30, 2024:
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Carrying Value at September 30, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Liabilities: | ||||||||||||||||
Fair Value of potential Share Adjustment | $ | $ | $ | $ | ||||||||||||
Total Liabilities | $ | $ | $ | $ |
Pursuant to the Soylent Acquisition, the Company may be required to issue the Share Adjustment (as defined in Note 5) to the former owners of Soylent based upon the stock price of the Company on the Adjustment Date (as defined in Note 5). The Company engaged a third-party valuation firm to estimate the fair value of this contingent liability by performing a Monte Carlo simulation to forecast the value of the Company’s stock and the implied value of the Share Adjustment. See NOTE 5 – ACQUISITIONS for further discussion. The fair value of the share adjustment on the Soylent Acquisition date was $ . The inputs to estimate the fair value of the share adjustment were the market price of the Company’s common stock, the option expected term, the volatility of the Company’s common stock price and the risk-free interest rate. Significant changes to any unobservable input may result in a significant change in the fair value measurement.
Fair Value of Share Adjustment | ||||
Balance at December 31, 2023 | $ | |||
Fair Value of Shares Issued | ( | ) | ||
Loss on Fair Value of Share Adjustment | ||||
Balance at September 30, 2024 | $ |
Property and Equipment, net
Property
and equipment are recorded at historical cost, net of depreciation. All property and equipment with a cost of $
Revenue Recognition
STCB, excluding its subsidiaries, earns a majority of its revenues through the sale of food products, primarily through Winona. Revenue from retail sales is recognized at shipment to the retailer.
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 Fulfilment 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.
10 |
Whipshots
Holdings, an
The Company applies the requirements of ASC 606, Revenue from Contracts with Customers, which includes the following five-step model in order to determine the recognition of revenue: (i) Identify the contract with a customer; (ii) Identify the performance obligation in the contract; (iii) determine 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 condensed 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 condensed 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 condensed 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.
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.
11 |
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 warrants have been excluded from the Company’s computation of net loss per share of common stock for the three and nine months ended September 30, 2024 and 2023.
Nine Months Ended September 30, | ||||||||
2024 | 2023 | |||||||
Warrants | ||||||||
Stock options | ||||||||
Acquisition Stock Consideration Payable | ||||||||
Total |
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
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 nine months ended September 30, 2024 and 2023, the Company did not record asset impairment charges related to its intangible assets.
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.
12 |
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 royalty-based obligations remaining as of September 30, 2024 are approximately $
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 leased its corporate office (“AOS Lease”). The AOS Lease was classified as an
operating lease and had a term of
On
May 1, 2024, the Company entered into a three-year lease agreement (the “Citrus Lease”) with a lessor who is a related party
(see Note 8 for additional information) for the rental of the second and third floors of a premise containing approximately
In accordance with ASC 842, Leases, the Company recognized an ROU asset and corresponding lease liability on the condensed consolidated balance sheet for long-term office leases. See Note 11 – Leases for further discussion, including the impact on the condensed 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 September 30, 2024. 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 nine months ended September 30, 2024 and 2023.
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.
13 |
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 a reporting unit’s goodwill is less than its carrying value.
impairment losses related to goodwill were recognized for the nine months ended September 30, 2024 and 2023. As of September 30, 2024
and December 31, 2023 goodwill was $
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
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 4 – SEGMENTS
The Company has the following reportable segments:
Starco Brands. The Starco Brands segments generate 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:
Nine Months Ended September 30, 2024 | ||||||||||||||||
Starco Brands | Skylar | Soylent | Total | |||||||||||||
Gross revenues | $ | $ | $ | $ | ||||||||||||
Gross revenues, related parties | ||||||||||||||||
Cost of revenues | ||||||||||||||||
Cost of revenues, related parties | ||||||||||||||||
Gross profit | $ | $ | $ | $ |
Nine Months Ended September 30, 2023 | ||||||||||||||||
Starco Brands | Skylar | Soylent1 | Total | |||||||||||||
Gross revenues | $ | $ | $ | $ | ||||||||||||
Gross revenues, related parties | ||||||||||||||||
Cost of revenues | ||||||||||||||||
Cost of revenues, related parties | ||||||||||||||||
Gross profit | $ | $ | $ | $ |
1 |
14 |
NOTE 5 – ACQUISITIONS
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 $
On March 15, 2024, the Company and certain former stockholders of Soylent and current stockholders of the Company’s Class A common stock (the “Consenting Stockholders”), entered into a stockholder agreement (“Stockholder Agreement”) with the Company, which modified the treatment of certain terms of the Soylent Merger Agreement with respect to the Consenting Stockholders. The Stockholder Agreement (i) revises the calculation for the Consenting Stockholders’ respective pro rata share of the Share Adjustment (as defined in the Soylent Merger Agreement) to utilize a customary 30-day moving volume-weighted average price (“VWAP”) in calculating the price per share of the Class A common stock at each adjustment date, and (ii) bifurcates the calculation for Consenting Stockholders’ respective pro rata share of the Share Adjustment into two adjustments, the first adjustment calculable based on the VWAP ending February 14, 2024 (“First Adjustment Date”), and the second adjustment calculable based on the VWAP ending May 15, 2025 (“Second Adjustment Date”). Generally, if the trading price of the Acquiror Common Stock (as defined in the Soylent Merger Agreement) based on the VWAP, is below $ per share on each of February 14, 2024 and May 15, 2025, then, at no additional cost to the Consenting Stockholders, additional shares of Acquiror Common Stock are issuable based on the calculation methodology set forth in the Stockholder Agreement. As of the date of this filing, and including joinders to the Stockholder Agreement signed subsequent to March 15, 2024, the Consenting Stockholders represent approximately % of the total shares held by all former stockholders of Soylent issued pursuant to the Soylent Merger Agreement. Certain other former stockholders of Soylent may sign joinders to the Stockholder Agreement following the date of this filing.
15 |
The
fair value of the rights to receive these shares was estimated by a third-party valuation firm to be $
Effective
February 14, 2024, the First Adjustment Date, the Company settled $
Effective
May 20, 2024, it was determined, in accordance with the Soylent Merger Agreement, that
Effective
February 14, 2024, the Company settled the Soylent Opening Balance Holdback by issuing
The Soylent Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations.
Sklyar 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. On December 31, 2023, shares were issued to the former shareholders of Skylar (the “Skylar Shareholders”) as Skylar reached all earnout sales metrics outlined in the merger agreement (the “Skylar Merger Agreement”).
Following the 18-month holdback period from the date of the Skylar Acquisition on December 29, 2022, the Company issued Skylar Shareholders an aggregate amount of shares of Class A common stock, for which it recorded an equity consideration payable on the balance sheet, which totaled $ as of June 30, 2024. Effective June 30, 2024, the Company settled the equity payable by issuing shares of Class A common stock to the Skylar Shareholders.
NOTE 6 – NOTES PAYABLE
Insurance Loans
The
Company has several financing loans for general liability, directors and officers insurance and other insurance liabilities, which
bear interest at varying percentages and require monthly payments. As of September 30, 2024, the remaining balance of these loans
was $
Soylent Revolver
On
February 10, 2023, the Company’s subsidiary Soylent entered into a line of credit with a revolving credit commitment of $
16 |
The
Soylent Revolver matured on February 10, 2024 and was in default under the loan documents for failing to pay off the balance at maturity.
The Company entered into an agreement with the bank to forbear the bank’s rights to exercise its rights and remedies under the
loan documents until June 10, 2024, for a forbearance fee of $
During
April and May 2024, the Company made two principal payments totaling $
Gibraltar Loan and Security Agreement
On May 24, 2024, (i) Starco Brands, Inc., a Nevada corporation (“Starco” or the “Company”), (ii) and each of Starco’s subsidiaries, Whipshots Holdings, LLC, a Delaware limited liability company (“Whipshots Holdings”), Whipshots, LLC, a Wyoming limited liability company (“Whipshots”), The AOS Group Inc., a Delaware corporation (“AOS Group”), Skylar Body, LLC, a Delaware limited liability company (“Skylar”), Soylent Nutrition, Inc., a Delaware corporation (“Soylent”; and together with Starco, Whipshots Holdings, Whipshots, AOS Group, Skylar, each individually, a “Borrower” and collectively, the “Borrowers”), and (iii) Gibraltar Business Capital, LLC, a Delaware limited liability company (the “Lender”) entered into a Loan and Security Agreement (the “Loan and Security Agreement”), allowing Starco Brands to reduce a portion of its long term debt (including retiring the Soylent Revolver) and expand its access to working capital. Capitalized terms not otherwise defined will have the meanings set forth in the Loan and Security Agreement.
The
Loan and Security Agreement provides for a revolving line of credit in the amount not to exceed $
Each
Revolving Loan advanced under the Revolving Loan Commitment bears interest at a rate per annum equal to One Month Term SOFR plus the
Applicable Margin. If a Revolving Loan or any portion thereof is considered a part of the Permitted Overadvance Amount under the Loan
and Security Agreement, the Applicable Margin for such loan shall be increased by an additional two percent (
17 |
Accrued and unpaid interest on the unpaid principal balance of the Revolving Loans shall be due and payable commencing on June 1, 2024 and on the first date of each calendar month thereafter. All accrued and unpaid interest shall be due and payable on the maturity date.
Subject
to the satisfaction of certain terms and conditions described in the Loan and Security Agreement, the Borrowers may request to increase
the Revolving Loan Commitment by an aggregate amount not less than $
The Loan and Security Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption, payment or prepayment of other debt, and transactions with affiliates. We are also subject to financial covenants, including a minimum EBITDA covenant and a maximum Unfinanced Capital Expenditures covenant.
The
Loan and Security Agreement also contains customary events of default, including nonpayment of principal, interest, fees, or other amounts
when due, violation of covenants, breaches of representations or warranties, cross defaults, change of control, insolvency, bankruptcy
events, and material judgments. Some of these events of default allow for grace periods or are qualified by materiality concepts. Upon
the occurrence of an event of default, the outstanding obligations under the Loan and Security Agreement may be accelerated and become
due and payable immediately. As of September 30, 2024, the Company was in compliance with all loan covenants relating to the agreement
and the available borrowing amount was approximately $
CEO Notes
See Note 8 - Related Party Transactions for loans to STCB from the Company’s CEO.
NOTE 7– COMMITMENTS & CONTINGENCIES
Whipshots
On
September 8, 2021, Whipshots LLC, a Wyoming limited liability company (“Whipshots LLC”) entered into an Intellectual Property
Purchase Agreement, effective August 24, 2021, with Penguins Fly, LLC, a Pennsylvania limited liability company (“Penguins”).
The agreement provided that Penguins would sell 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”) to Whipshots LLC. The purchase price for the Acquired
Assets will be payable to Penguins, over the course of seven years, based on a sliding scale percentage of gross revenues actually received
by the Company solely from the sale of Whipshots/Whipshotz Products. The payment are subject to a minimum amount in each contract year
and a maximum aggregate amount. In connection with this agreement the Company paid $
On
September 14, 2021, Whipshots Holdings, LLC (formerly Whipshots, LLC) a Delaware limited liability company (“Whipshots Holdings”),
entered into a License Agreement (the “Washpoppin License Agreement”) with Washpoppin Inc., a New York corporation (“Washpoppin”).
Pursuant to the Washpoppin License Agreement, Washpoppin licensed certain Licensed Property (as defined therein) of the recording artist
professionally known as “Cardi B” (the “Artist”) to us. Whipshots Holdings and Washpoppin entered into an amended
and restated Washpoppin License Agreement (“A&R Washpoppin License Agreement”), with an effective date of November 27,
2023. As part of the A&R Washpoppin License Agreement, in exchange for royalty rates based on Net Sales (as defined therein) during
each applicable contract period, the Washpoppin warrants to cause the Artist to attend certain in person events, media interviews, participate
in the development of the Licensed Products (as defined therein), and promote the Licensed Products through social media posts on the
Artist’s social media platforms. We have committed to a minimum royalty payment under the A&R Washpoppin License Agreement
of an aggregate of $
18 |
NOTE 8 – RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2017, Sanford Lang, the Company’s former Chairman and CEO, advanced STCB $
Ross Sklar, CEO Notes
On
August 11, 2023, the Company issued to Sklar a consolidated secured promissory note (the “Consolidated Secured Promissory Note”)
in the principal sum of $
Original | Original | Original | Revised | Revised | ||||||||||||
Balance | maturity | rate | maturity | rate | ||||||||||||
January 24, 2020 Amended Note | $ | % | Prime
+ | % | ||||||||||||
June 28, 2021 Note | % | Prime
+ | % | |||||||||||||
September 17, 2021 Note | % | Prime
+ | % | |||||||||||||
December 13, 2021 Note | % | Prime
+ | % | |||||||||||||
December 29, 2022 Note | Prime
+ | % | Prime
+ | % | ||||||||||||
March 3, 2023 Note | Prime
+ | % | Prime
+ | % | ||||||||||||
$ | (1) |
(1) |
The restructuring is accounted for as a debt modification. On May 31, 2024, the Consolidated Secured Promissory Note was amended by that certain Amendment to Consolidated Secure Promissory Note, by and between STCB and Mr. Sklar, dated May 31, 2024 (the “2024 Consolidated Note Amendment” and together with the Consolidated Secured Promissory Note, the “Amended Consolidated Secured Promissory Note”). The 2024 Consolidated Note Amendment, among other things, extended the maturity date to August 31, 2026, provided that to the extent amounts remain due and payable on the maturity date, it will be extended until August 31, 2027.
The
Company also issued a February 14, 2022 Note to Sklar in the principal amount of $
The
February 14, 2022 Note bore interest at
Loan Security Agreement – Related Party
On May 24, 2024, the Company entered into the Loan and Security Agreement, which allowed the Company to reduce long-term debt and expand its access to working capital (see Note 6). In connection with the Loan and Security Agreement, the Lender required Mr. Sklar to enter into a subordination agreement pursuant to which Mr. Sklar’s rights under (i) the February 14, 2022 Note, as amended and (ii) the Consolidated Secured Promissory Note would be subordinated to the lender’s rights under the Loan and Security Agreement.
In
exchange for the subordination of and the maturity extension reflected in the Amended Consolidated Secured Promissory Note, $
19 |
For
the three months ended September 30, 2024 and 2023, the outstanding notes held by Mr. Sklar incurred interest expense of $
Operating Lease – Related Party
On
May 1, 2024, the Company entered into the Citrus Lease with a lessor who is a related party (see Note 3 and Note 11 for additional information)
for the rental of the second and third floors of a premise containing approximately
In
accordance with ASC 842 - Leases, the Company recognized an ROU asset and corresponding lease liability for $
Other Related Party Transactions
During
the three months ended September 30, 2024 and 2023, the Company recognized revenue from related parties of $
During
the three months ended September 30, 2024 and 2023, the Company received contributed services at a value of approximately
NOTE 9 – STOCK WARRANTS
On
each of September 12, 2022, November 1, 2022, November 3, 2022, and June 1, 2023, the Company entered into agreements with members of
the Board and consultants for services to be performed. As consideration therefore, the Company granted those individuals stock warrants
to purchase an aggregate of
On
December 29, 2022 and March 3, 2023, the Company entered into agreements with Sklar, for warrants to purchase shares of common stock
to be issued as a funding fee for an aggregate principal amount of $
The table below summarizes the grants of stock warrants and includes the assumptions used for valuation under the Black-Scholes option pricing model.
Number of | Expected | |||||||||||||||||||||||||||||||
Stock | Stock | Strike | Expected | Interest | Dividend | Term | Fair | |||||||||||||||||||||||||
Date | Warrants | Price | Price | Volatility | Rate | Rate | (years) | Value | ||||||||||||||||||||||||
9/12/2022 | $ | $ | % | % | % | $ | ||||||||||||||||||||||||||
11/1/2022 | $ | $ | % | % | % | $ | ||||||||||||||||||||||||||
11/3/2022 | $ | $ | % | % | % | $ | ||||||||||||||||||||||||||
12/29/2022 | $ | $ | % | % | % | $ | ||||||||||||||||||||||||||
3/3/2023 | $ | $ | % | % | % | $ | ||||||||||||||||||||||||||
6/1/2023 | $ | $ | % | % | % | $ |
A summary of the status of the Company’s outstanding stock warrants and changes during the periods is presented below:
Shares available to purchase | Weighted Average | Weighted Average Remaining Contractual | Aggregate | |||||||||||||
with warrants | Exercise Price | Term (in years) | Intrinsic Value | |||||||||||||
Outstanding, December 31, 2023 | $ | $ | ||||||||||||||
Issued | ||||||||||||||||
Exercised | - | - | - | |||||||||||||
Cancelled | - | - | - | |||||||||||||
Expired | - | - | ||||||||||||||
Outstanding, September 30, 2024 | $ | $ | ||||||||||||||
Exercisable, September 30, 2024 | $ | $ | ||||||||||||||
Outstanding, December 31, 2022 | $ | $ | ||||||||||||||
Issued | ||||||||||||||||
Exercised | - | - | - | |||||||||||||
Cancelled | - | - | - | |||||||||||||
Expired | ( | ) | - | - | ||||||||||||
Outstanding, September 30, 2023 | $ | $ | ||||||||||||||
Exercisable, September 30, 2023 | $ |