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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 SEPTEMBER 30, 2024

 

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.)

 

706 N Citrus Ave, Los Angeles, CA   90038
(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 November 14, 2024, there were 647,431,696 shares of the registrant’s Class A common stock and zero 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

 

    Page
PART I. FINANCIAL INFORMATION 3
     
ITEM 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023 3
     
  Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023 5
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2024 and 2023 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 38
     
ITEM 4. Controls and Procedures 38
     
PART II. OTHER INFORMATION 39
     
ITEM 1. Legal Proceedings 39
     
ITEM 1A. Risk Factors 39
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
     
ITEM 3. Defaults Upon Senior Securities 39
     
ITEM 4. Mine Safety Disclosures 40
     
ITEM 5. Other Information 40
     
ITEM 6. Exhibits 40
     
SIGNATURES 43

 

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  $1,615,676   $1,761,225 
Accounts receivable, net of allowance for credit losses of $53,479 and $350,112, respectively   6,482,520    7,034,950 
Accounts receivable, related parties   3,106,669    2,625,713 
Prepaid expenses and other assets   4,596,553    3,138,162 
Inventory   13,169,267    10,675,540 
Total Current Assets   28,970,685    25,235,590 
           
Property and equipment, net   267,080    58,159 
Operating lease right-of-use asset   557,530    - 
Intangibles, net   29,302,030    31,362,388 
Goodwill   26,689,391    26,689,391 
           
Total Assets  $85,786,716   $83,345,528 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $15,287,287   $9,630,170 
Accounts payable, related parties   803,848    168,870 
Other payables and accrued liabilities   3,446,654    2,476,186 
Accrued interest, related parties   -    5,681 
Fair value of Share Adjustment   35,547,015    36,931,330 
Treasury stock payable, current   -    65,700 
Notes payable, $2,472,500 and $4,472,500 from related parties, respectively   2,609,396    4,559,219 
Line of Credit   -    3,835,247 
Lease liability, current portion   64,003    - 
Total Current Liabilities   57,758,203    57,672,403 
           
Lease liability, net of current portion   500,210    - 
Revolving loan, net of discounts   5,470,705    - 
Total Liabilities   63,729,118    57,672,403 
           
Commitments and Contingencies (Note 7)   -      
           
Stockholders’ Equity:          
Preferred stock, $.001 par value; 230,000,000 shares authorized; no shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively   -    - 
Class A common stock, $.001 par value; 1,700,000,000 shares authorized; 647,431,696 and 488,926,717 shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively   647,432    488,926 
Class B common stock, $.001 par value; 300,000,000 shares authorized no shares issued and outstanding, at September 30, 2024 and December 31, 2023, respectively   -    - 
           
Additional paid in capital   99,087,928    75,130,223 
Treasury stock at cost   (328,500)   (394,200)
Equity consideration payable   -    5,707,261 
Accumulated deficit   (86,136,555)   (63,769,469)
Total Starco Brands’ Stockholders’ Equity   13,270,305    17,162,741 
           
Non-controlling interest   8,787,293    8,510,384 
Total Stockholders’ Equity   22,057,598    25,673,125 
           
Total Liabilities and Stockholders’ Equity  $85,786,716   $83,345,528 

 

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)

 

   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
   For the Three Months Ended   For the Nine Months Ended 
   September 30, 2024   September 30, 2023   September 30, 2024   September 30, 2023 
                 
Revenue  $14,006,349   $15,209,504   $41,816,348   $38,124,740 
                     
Revenue, related parties   1,480,007    2,463,542    4,731,430    8,201,377 
                     
Cost of goods sold   8,131,015    9,178,845    24,563,628    24,348,693 
                     
Cost of goods sold, related parties   968,934    752,424    2,879,614    1,663,124 
                     
Gross profit  $6,386,407   $7,741,777   $19,104,536   $20,314,300 
                     
Operating Expenses:                    
Compensation expense  $2,185,256   $1,811,832   $7,195,932   $5,285,421 
Professional fees   434,698    1,380,680    2,771,608    4,177,424 
Marketing, general and administrative   4,236,433    4,955,578    14,073,064    12,947,350 
Fair value share adjustment loss (income)   5,105,535    (3,144,411)   15,703,049    2,751,360 
Total operating expenses, net   11,961,922    5,003,679    39,743,653    25,161,555 
                     
(Loss) income from operations   (5,575,515)   2,738,098    (20,639,117)   (4,847,255)
                     
Other Expense (Income):                    
Interest expense   303,155    255,775    711,304    617,289 
Other expense (income)   378,418    121,072    739,756    (211,802)
Total other expense, net   681,573    376,847    1,451,060    405,487 
                     
(Loss) income before provision for income taxes  $(6,257,088)  $2,361,251   $(22,090,177)  $(5,252,742)
Provision for income taxes   -    -    -    - 
                     
Net (loss) income  $(6,257,088)  $2,361,251   $(22,090,177)  $(5,252,742)
Net income attributable to non-controlling interest  $87,838   $34,221   $276,909   $160,014 
                     
Net (loss) income attributable to Starco Brands  $(6,344,926)  $2,327,030   $(22,367,086)  $(5,412,756)
                     
(Loss) income per share, basic  $(0.01)  $0.00   $(0.04)  $(0.01)
(Loss) income per share, diluted  $(0.01)  $0.00   $(0.04)  $(0.01)
                     
Weighted Average Shares Outstanding - Basic   647,431,696    469,550,215    617,637,335    439,484,590 
Weighted Average Shares Outstanding - Diluted   647,431,696    873,264,758    617,637,335    439,484,590 

 

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)

 

   Shares   Amount   Shares   Amount   Capital   Stock Payable   Deficit   Interest   Payable   Equity (Deficit) 
   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   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 acquisition adjustments   -    -    -    -    -    -    -    -    (482,380)   (482,380)
                                                   
Net income   -    -    -    -    -    -    (1,721,546)   58,416    -    (1,663,130)
                                                   
Balance at March 31, 2023   469,468,966   $469,469    -   $-   $70,328,793   $-   $(19,299,765)  $152,398   $9,417,847   $60,674,542 
                                                   
Estimated fair value of contributed services and stock-based compensation   81,249    81    -    -    538,957    -    -    -    -    539,038 
                                                   
Soylent acquisition measurement period adjustment   -    -    -    -    (38,041)   -    -    -    -    (38,041)
                                                   
Net income   -    -    -    -    -    -    (6,018,240)   67,377    -    (5,950,863)
                                                   
Balance at June 30, 2023   469,550,215   $469,550    -   $-   $70,829,709   $(394,200)  $(25,318,005)  $219,775   $9,417,847   $55,224,676 
                                                   
Estimated fair value of contributed services and stock-based compensation   81,249    81    -    -    477,319    -    -    -    -    477,400 
                                                   
Soylent acquisition measurement period adjustment   -    -    -    -    1,463,348    -    -    -    -    1,463,348 
                                                   
Net income   -    -    -    -    -    -    2,327,030    34,221    -    2,361,251 
                                                   
Balance at September 30, 2023   469,631,464   $469,631    -   $-   $72,770,376   $(394,200)  $(22,990,975)  $253,996   $9,417,847   $59,526,675 
                                                   
Balance at December 31, 2023   488,926,717   $488,926    -   $-   $75,130,223   $(394,200)  $(63,769,469)  $8,510,384   $5,707,261   $25,673,125 
                                                   
Stock-based compensation   -    -    -    -    483,466    -    -    -    -    483,466 
                                                   
Soylent Share Adjustment   133,087,875    133,088    -    -    17,966,863    -    -    -    -    18,099,951 
                                                   
Equity payable related to Soylent acquisition   16,309,203    16,309    -    -    2,430,071    -    -    -    (2,446,380)   - 
                                                   
Equity payable related to AOS acquisition   4,979,731    4,980    -    -    941,169    -    -    -    (946,149)   - 
                                                   
Share repurchase             -    -    -    65,700    -    -    -    65,700 
                                                   
Net loss   -    -    -    -    -    -    (4,462,678)   192,122    -    (4,270,556)
                                                   
Balance at March 31, 2024   643,303,526   $643,303    -   $-   $96,951,792   $(328,500)  $(68,232,147)  $8,702,506   $2,314,732   $40,051,686 
                                                   
Stock-based compensation   -    -              416,821    -    -    -    -    416,821 
                                                   
Soylent Share Adjustment   (7,445,490)   (7,445)   -         (1,005,142)   -    -    -    -    (1,012,587)
                                                   
Equity payable related to Skylar acquisition   11,573,660    11,574    -         2,303,158    -    -    -    (2,314,732)   - 
                                                   
Net loss   -    -    -    -    -    -    (11,559,482)   (3,051)   -    (11,562,533)
                                                   
Balance at June 30, 2024   647,431,696   $647,432    -   $-   $98,666,629   $(328,500)  $(79,791,629)  $8,699,455   $0   $27,893,387 
                                                   
Stock-based compensation   -    -    -    -    421,299    -    -    -    -    421,299 
                                                   
Net (loss) income   -    -    -    -    -    -    (6,344,926)   87,838    -    (6,257,088)
                                                   
Balance at September 30, 2024   647,431,696   $647,432    -   $-   $99,087,928   $(328,500)  $(86,136,555)  $8,787,293   $0   $22,057,598 

 

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)

 

   September 30, 2024   September 30, 2023 
   For the Nine Months Ended 
   September 30, 2024   September 30, 2023 
Cash Flows From Operating Activities:          
Net loss  $(22,090,177)  $(5,252,742)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Contributed services   -    45,450 
Stock-based compensation   1,321,586    1,440,175 
Depreciation   10,729    12,718 
Amortization of intangible assets   2,127,035    1,728,995 
Amortization of debt discount   62,736    70,751 
Loss on stock payable share adjustment   15,703,049    2,751,360 
Changes in operating assets and liabilities:          
Accounts receivable   552,430    (2,327,559)
Accounts receivable, related parties   (480,956)   (70,188)
Prepaid expenses and other assets   (1,458,391)   98,634 
Inventory   (2,493,727)   (1,630,204)
Operating lease right-of-use asset   (557,530)   61,353 
Accounts payable   5,657,117    2,512,173 
Accounts payable, related parties   634,978    - 
Other payables and accrued liabilities   970,468    335,148 
Accrued interest, related parties   (5,681)   (1,279)
Operating lease liability   564,213    (61,605)
           
Net Cash Provided By/(Used In) Operating Activities   517,879    (286,820)
           
Cash Flows From Investing Activities:          
Cash acquired in Acquisition of Business, net of cash paid   -    68,062 
Purchases of intangibles   (66,677)   (233,108)
Purchases of property & equipment   (219,650)   (18,600)
           
Net Cash Used In Investing Activities   (286,327)   (183,646)
           
Cash Flows From Financing Activities:          
Payments to/receipts from related parties   (2,000,000)   800,000 
Proceeds from notes receivable   -    95,640 
Proceeds from notes payable   282,317    115,340 
Payments to notes payable   (232,140)   (62,002)
Issuance of common stock for business acquisition   -    (177,954)
Proceeds from Line of Credit   -    1,220,000 
Payments to Line of Credit   (3,835,247)   (1,356,500)
Proceeds from Revolving Loan   22,875,601    - 
Payments for Revolving Loan   (17,467,632)   - 
Repurchase of common stock   -    (98,550)
           
Net Cash (Used In)/Provided By Financing Activities   (377,101)   535,974 
           
Net (Decrease)/ Increase In Cash   (145,549)   65,508 
           
Cash - Beginning of Period   1,761,225    1,480,371 
           
Cash - End of Period  $1,615,676   $1,545,879 
           
Supplemental Cash Flow Information:          
Cash paid for:          
Interest paid  $648,558   $460,029 
Income taxes  $-   $- 
           
Noncash investing and financing activities:          
Settlement of Soylent share adjustment  $18,099,951   $- 
Estimated fair value of shares issued in acquisitions  $-   $28,118,450 
Estimated fair value of shares payable to be issued for acquisitions  $-   $39,929,075 
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 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 85% of the vested voting interests. There are vested interests not owned by the Company for an additional 15% of the equity which has been issued.

 

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 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 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 $86,100,000 at September 30, 2024, which includes the impact of its net losses of $6,257,088 and $22,090,177  for the three and nine months ended September 30, 2024, and total debt on the balance sheet of $8,080,101 as of September 30, 2024, with a small portion of the debt coming due within one year of the date of the financial statements being issued. Management evaluated the principal conditions that initially give rise to the substantial doubt and note that the historical net losses and accumulated deficit impact are justified as they are primarily made up of non-cash expenses or one-time non-recurring expenses, such as goodwill impairment, stock-based compensation expense, fair value share adjustment loss and acquisition transaction expenses. Total debt of $8,080,101 on the balance sheet as of September 30, 2024 includes $2,472,500 of notes payable to Ross Sklar (“Sklar”), who has a large minority ownership of the Company that provides incentive for Mr. Sklar to extend or refinance the notes before the notes become due, as seen historically (see Note 8). Management plans include (i) continuing to increase net cash provided by operating activities, which was $517,879 for the nine months ended September 30, 2024, while decreasing net cash provided by financing activities, and (ii) obtaining an alternative financing source to pay off all current debt outstanding and to provide additional working capital, if needed. To achieve these objectives, management has proposed and approved plans to increase top line revenue for each segment while decreasing overall expenses as a percentage of revenue, as a result of realizing synergies from the acquisitions of AOS, Skylar and Soylent, and utilizing the Company’s back-end shared service model to reduce expenses. 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 condensed consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the aforementioned uncertainties.

 

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 85% owned subsidiary Whipshots Holdings and its wholly owned subsidiary, which are comprised of voting interest entities in which we have a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation in the condensed consolidated financial statements.

 

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:

 

Account  Previously Recorded Balance   Corrected Balance   Reclassification Made   Previously Recorded Balance   Corrected Balance   Reclassification Made 
   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   9,364,322(1)   9,931,269(1)   (566,947)   24,710,535    26,011,817    (1,301,282)
Marketing, general and administrative   5,522,525    4,955,578    566,947    14,248,632    12,947,350    1,301,282 

 

(1)Note that the balance referenced is the sum of the cost of goods sold and the cost of goods sold, related parties accounts.

 

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 no cash equivalents as of September 30, 2024 or December 31, 2023.

 

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 $53,479 and $350,112 as of September 30, 2024 and December 31, 2023.

 

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:

 

  

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)

 
       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  $35,547,015   $          -   $           -   $35,547,015 
Total Liabilities  $35,547,015   $-   $-   $35,547,015 

 

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 $36,715,800. 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.

 

The following table presents a reconciliation of the opening and closing balances of the Fair Value of Share Adjustment for the nine months ended September 30, 2024:

 

   Fair Value of Share Adjustment 
     
Balance at December 31, 2023  $36,931,330 
Fair Value of Shares Issued   (17,087,364)
Loss on Fair Value of Share Adjustment   15,703,049 
Balance at September 30, 2024  $35,547,015 

 

Property and Equipment, net

 

Property and equipment are recorded at historical cost, net of depreciation. 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.

 

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 85% owned subsidiary, earns its revenues as royalties from the licensing agreements it has with Temperance, a related entity. STCB licenses the right for Temperance to manufacture and sell vodka infused whipped cream. The amount of the licensing revenue received varies depending upon the product and the royalty percentage is based on contractual terms. The Company recognizes its revenue under these licensing agreements only when sales are made by Temperance to a third party.

 

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.

 

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.

 

11

 

 

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 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.

 

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:

  

   2024   2023 
   Nine Months Ended September 30, 
   2024   2023 
Warrants   39,350,000    39,350,000 
Stock options   4,760,000    - 
Acquisition Stock Consideration Payable   366,464,075    325,785,637 
Total   410,574,075    365,135,637 

 

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 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 $412,500, and are $20,000 for each of the years ending December 31, 2024, 2025, and 2026.  

 

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 2 years, for approximately 1,372 square feet of office space located in West Hollywood, California. The lease expired in September 2023 and had a monthly base rental of $7,564 which increased 4% each year. At the end of the lease term in September 2023, the Company did not renew the lease. In March 2022, AOS entered into a sublease, whereby, the sublessor took over the entire AOS Lease office space and the lease payment until the completion of the original AOS Lease term.

 

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 3,000 square feet located at 706 N. Citrus Ave, Los Angeles, CA 90038. The lease was classified as an operating lease and has a monthly base rent of $10,000 per month, with a base rent increase of 5% each year. There is an option for the Company to renew for an additional three years with notice given within 90 days before the end of the term.

 

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.

 

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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.

 

No 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 $26,689,391 and $26,689,391, respectively.

 

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:

 

   Starco Brands   Skylar   Soylent   Total 
   Nine Months Ended September 30, 2024 
   Starco Brands   Skylar   Soylent   Total 
Gross revenues  $4,288,376   $7,160,264   $30,367,708   $41,816,348 
Gross revenues, related parties   4,731,430    -    

-

    4,731,430 
Cost of revenues   

569,540

    2,750,835    21,243,253    24,563,628 
Cost of revenues, related parties   2,879,614    -    -    2,879,614 
Gross profit  $5,570,652   $4,409,429   $9,124,455   $19,104,536 

 

   Starco Brands   Skylar   Soylent1   Total 
   Nine Months Ended September 30, 2023 
   Starco Brands   Skylar   Soylent1   Total 
Gross revenues  $3,124,878   $7,438,654   $27,561,208   $38,124,740 
Gross revenues, related parties   8,201,377    -    -    8,201,377 
Cost of revenues   898,223    3,138,661    20,311,809    24,348,693 
Cost of revenues, related parties   1,663,124    -    -    1,663,124 
Gross profit  $8,764,908   $4,299,993   $7,249,399   $20,314,300 

 

1 The Company does not report results for Soylent prior to the date of acquisition, February 15, 2023, as Soylent was not yet a subsidiary of the Company.

 

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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 $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 was 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 change in control 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 the Company (the “Opening Balance Holdback”), 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 (February 14, 2024, or 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 Soylent Acquisition merger agreement (the “Soylent Merger 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 (such additional shares, the “Share Adjustment”).

 

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 $0.35 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 92.7% 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 $0.189 per share on the acquisition date or an approximate share adjustment value of $36,715,800. At the time of filing the Company’s Form 10-K for the year ended December 31, 2023, the Consenting Shareholders were assumed to represent approximately 85.3% of the total shares held by all former stockholders of Soylent issued pursuant to the Soylent Merger Agreement. As such, for the former Soylent shareholders (the “Soylent Shareholders”) that were not expected to join the Stockholder Agreement, the fair value of the rights to receive these shares were $0.136 per share on December 31, 2023, or the Company’s stock price as of February 14, 2024, the “Adjustment Date”, or a share adjustment value of $6,101,455. For the assumed Consenting Stockholders, the fair value of the rights to receive these shares was estimated by a third-party valuation firm to be $0.186 per share on December 31, 2023 or an approximate share adjustment value of $30,829,876. Included in the Consenting Stockholders approximate share adjustment value of $30,829,876 as of the same date, were the fair value rights to receive shares on the First Adjustment Date in the Stockholder Agreement of $15,506,101, or $0.16 per share, the VWAP of the Company’s stock price as of February 14, 2024.

 

Effective February 14, 2024, the First Adjustment Date, the Company settled $18,099,951 of the $36,931,330 fair value liability outstanding on December 31, 2023 by issuing 133,087,875 shares of Class A common stock to the Soylent Shareholders as outlined in the Soylent Merger Agreement and Stockholder Agreement, as applicable. The total share adjustment value as of March 31, 2024 was $20,753,328. The settlement amount of $18,099,951 included an adjustment for additional shareholders that agreed to amend their Stockholders Agreement subsequent to the filing of the December 31, 2023 financials. As a result of the additional signers, approximately 7.0 million fewer shares were issued by the Company than were expected as of the filing date of the Form 10-K for the year ended December 31, 2023.

 

Effective May 20, 2024, it was determined, in accordance with the Soylent Merger Agreement, that 7,445,490 shares of the 18,571,429 shares of Class A common stock held back from the Soylent Shareholders were not due, the effect of which resulted in an adjustment to the liability of $1,012,587; in conjunction with an increase in the fair value of the derivative liability at period end, the total share adjustment value on the balance sheet as of June 30, 2024 was $30,441,480. The Company recorded an additional increase in the fair value of the derivative liability for the period ended September 30, 2024 to arrive at a total share adjustment value on the balance sheet of $35,547,015.

 

Effective February 14, 2024, the Company settled the Soylent Opening Balance Holdback by issuing 16,309,203 shares of Class A common stock to the Soylent Shareholders as outlined in the Soylent Merger Agreement. The Soylent Opening Balance Holdback was recorded as equity consideration payable on the December 31, 2023 balance sheet in the amount of $2,446,380.

 

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, 19,286,162 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 11,573,660 shares of Class A common stock, for which it recorded an equity consideration payable on the balance sheet, which totaled $2,314,732 as of June 30, 2024. Effective June 30, 2024, the Company settled the equity payable by issuing 11,573,660 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 $136,896. For the three months ended September 30, 2024 and 2023, these insurance loans incurred approximately $982 and $0, respectively, of interest expense, and for the nine months ended September 30, 2024 and 2023, these insurance loans incurred approximately $5,754 and $1,057, respectively, of interest expense.

 

Soylent Revolver

 

On February 10, 2023, the Company’s subsidiary Soylent entered into a line of credit with a revolving credit commitment of $5,000,000. The revolving credit commitment bore interest at a rate per annum equal to the greater of (a) two and half percent (2.5%) and (b) prime rate plus one percent (1%) (the “Soylent Revolver”). The Soylent Revolver had a maturity date of February 10, 2024. If the Company defaults on the revolving credit commitment, the default interest rate will bear an additional interest at a fluctuating rate equal to five percent (5%) per annum higher than the applicable interest rate.

 

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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 $57,590 and payment of accrued interest of $10,009.

 

During April and May 2024, the Company made two principal payments totaling $3,063,995 to pay off the loan and as of June 30, 2024, the outstanding balance on the Soylent Revolver and the related accrued interest account are closed and are zero. During 2024, the Soylent Revolver incurred $125,578 of interest expense.

 

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 $12.5 million at any one time, or the Revolving Loan Commitment Amount in return for a first priority security interest in the Collateral. The Revolving Commitment Amount is supplemented by a Permitted Overadvance Amount of $1.5 million. The first $1.5 million in Revolving Loans drawn on this line will be considered permitted overadvances, and the Permitted Overadvance Amount shall be reduced by $125,000 beginning on June 1, 2024, and the first day of each month thereafter. The aggregate principal balance of all Revolving Loans outstanding at any time shall not exceed the Revolving Loan Availability, which is equal to the lesser of the Revolving Loan Commitment Amount or the Borrowing Base Amount; if the aggregate principal balance does exceed the availability, the Company shall immediately make a repayment to eliminate such excess. The Revolving Line matures on May 24, 2026, and such Maturity Date will be automatically extended for one (1) year, subject to the satisfaction of certain terms and conditions described in the Loan and Security Agreement.

 

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 (2.00%) per annum. Revolving Loans may be repaid at any time and reborrowed up to, but not including the Maturity Date. On the Maturity Date, the outstanding aggregate principal balance of all Revolving Loans shall be due and payable. The interest rate for the revolving loan was 10.00% as of September 30, 2024. 

 

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 $1 million not exceeding $2.5 million. Such request may be accepted by Lender in its sole and absolute discretion.

 

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 $5.8 million.

 

CEO Notes

 

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, 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 $20,000 during 2021, zero in 2022, $38,620 in 2023 and $135,000 in 2024, and the Company has accrued $229,725 to be paid pursuant to this agreement in 2024 and 2025, all of which has been recorded as an indefinite-lived intangible asset.

 

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 $3,300,000 subject to Washpoppin’s satisfaction of its obligations. During the three and nine months ended September 30, 2024, the Company incurred expenses related to this agreement of approximately $412,500 and $1,237,500, respectively, and during the three and nine months ended September 30, 2023, the Company incurred expenses related to this agreement of approximately $275,000 and $825,000, respectively.

 

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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. Further, for a period of 36 months beginning in July 2021, STCB agreed to 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 September 30, 2024 and 2023, STCB paid an aggregate of zero and $32,850, respectively, to Mr. Lang and Mr. Goldrod. In the nine months ended September 30, 2024 and 2023, STCB paid an aggregate of zero and $65,700, respectively, to Mr. Lang and Mr. Goldrod. As of March 31, 2024, the Company settled final repurchase transfers of 1,862,154 shares in the amount of $328,500. The share repurchases were recorded as treasury stock payable on the balance sheet. The foregoing agreements have been terminated and are no longer in force or effect.

 

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 $4,000,000, with a maturity date of December 31, 2024. The Consolidated Secured Promissory Note carries a floating interest rate comprised of the Wall Street Journal Prime Rate (re-assessed on the first date of each month (plus 2%), and is secured by an amended and restated consolidated security agreement (the “Amended and Restated Consolidated Security Agreement”), by and between the Company and Sklar, dated August 11, 2023, The Consolidated Secured Promissory Note consolidated the outstanding loan obligations of the Company to Sklar evidenced pursuant to (i) the January 24, 2020 Amended Note, (ii) the June 28, 2021 Note, (iii) the September 17, 2021 Note, (iv) the December 13, 2021 Note, (v) the December 29, 2022 Note, and (vi) the March 3, 2023 Note, as summarized in the table below. The Amended and Restated Consolidated Security Agreement merged and integrated the December 29, 2022 Security Agreement and the March 3, 2023 Security Agreement, and provides a security interest in the Collateral (as defined in the Amended and Restated Consolidated Security Agreement) to secure the repayment of all principal, interest, costs, expenses and other amounts then or thereafter due under the Consolidated Secured Promissory Note until by the maturity date. Sklar was authorized to file financing statements to perfect the security interest in the Collateral without authentication by the Company. The following table represents Prior Notes that were part of the restructuring and related prior and updated terms (under the Consolidated Secured Promissory Note): 

 

   Original   Original  Original   Revised  Revised 
   Balance   maturity  rate   maturity  rate 
January 24, 2020 Amended Note  $100,000   7/19/2023   4%  12/31/2024   Prime + 2%
June 28, 2021 Note   100,000   6/28/2023   4%  12/31/2024   Prime + 2%
September 17, 2021 Note   500,000   9/17/2023   4%  12/31/2024   Prime + 2%
December 13, 2021 Note   500,000   12/13/2023   4%  12/31/2024   Prime + 2%
December 29, 2022 Note   2,000,000   8/1/2023   Prime + 4%  12/31/2024   Prime + 2%
March 3, 2023 Note   800,000   7/1/2023   Prime + 4%  12/31/2024   Prime + 2%
   $4,000,000 (1)                

 

(1) Note that $1,527,500 of this total was repaid to Mr. Sklar from proceeds under the Gibraltar Loan (see Loan Security Agreement – Related Party below).

 

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 $472,500 that was not included in the note consolidation. On May 10, 2024, the Company and Sklar entered into an amendment to the February 14, 2022 Note to extend the maturity date of the February 14, 2022 Note to December 31, 2024.

 

The February 14, 2022 Note bore interest at 4% per annum, was unsecured, and was to mature 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. The February 14, 2022 Note was repaid in full from proceeds under the Gibraltar Loan and the Company has no further obligations under such note.

 

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, $2,000,000 of the revolving loan available cash under the Loan and Security Agreement was used to repay the February 14, 2022 Note in its entirety and to pay down the interest and a portion of principal balance on the Amended Consolidated Secured Promissory Note. As of September 30, 2024 and December 31, 2023, the outstanding principal due to Mr. Sklar under outstanding notes was $2,472,500 and $4,472,500, respectively. As of September 30, 2024 and December 31, 2023, there was no accrued interest due on these notes.

 

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For the three months ended September 30, 2024 and 2023, the outstanding notes held by Mr. Sklar incurred interest expense of $65,437 and $105,105, respectively; for the nine months ended September 30, 2024 and 2023, the outstanding notes held by Mr. Sklar incurred interest expense of $266,261 and $283,088, respectively.

 

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 3,000 square feet located at 706 N. Citrus Ave, Los Angeles, CA 90038. The lease was classified as an operating lease and has a monthly base rent of $10,000 per month, with a base rent increase of 5% each year. There is an option for the Company to renew for an additional three years with notice given within 90 days before the end of the term.

 

In accordance with ASC 842 - Leases, the Company recognized an ROU asset and corresponding lease liability for $587,914 on the condensed consolidated balance sheet for long-term office leases, as well as lease expense of $34,010 and $56,683 for the three and nine months ended September 30, 2024, respectively. See Note 11 – Leases for further discussion, including the impact on the condensed consolidated financial statements and related disclosures.

 

Other Related Party Transactions

 

During the three months ended September 30, 2024 and 2023, the Company recognized revenue from related parties of $1,480,007 and $2,463,542, respectively; during the nine months ended September 30, 2024 and 2023, the Company recognized revenue from related parties of $4,731,430 and $8,201,377, respectively. There were $3,106,669 and $2,625,713 of accounts receivable and accrued accounts receivable from TSG and Temperance Distilling Company (“Temperance”) as of September 30, 2024 and December 31, 2023, respectively. All revenues earned in relation to these accounts receivable is from related parties, TSG and Temperance. Sklar serves as the Chairman of Temperance.

 

During the three months ended September 30, 2024 and 2023, the Company received contributed services at a value of approximately zero and $6,672, respectively; during the nine months ended September 30, 2024 and 2023, the Company received contributed services at a value of approximately zero and $45,450, 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 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 38,400,000 shares of common stock. The warrants vest over various terms for periods from one to five years. The warrants were valued using the Black-Scholes option pricing model under the assumptions as found in the table below.

 

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 $2,800,000 in secured promissory notes (see Note 7). The warrants were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.

 

The table below summarizes the grants of stock warrants and includes the assumptions used for valuation under the Black-Scholes option pricing model. 

 

Date  Number of Stock Warrants   Stock Price   Strike Price   Expected Volatility   Interest Rate   Warrants and Rights Outstanding, Measurement Input   Expected Term   Fair Value 
   Number of                       Expected     
   Stock   Stock   Strike   Expected   Interest   Dividend   Term   Fair 
Date  Warrants   Price   Price   Volatility   Rate   Rate   (years)   Value 
9/12/2022   33,150,000   $0.19   $0.19    103.09%   3.47%   0.00%   3.0   $4,088,769 
11/1/2022   100,000   $0.20   $0.20    102.86%   4.27%   0.00%   1.0   $8,116 
11/3/2022   5,000,000   $0.19   $0.19    102.84%   4.36%   0.00%   3.0   $618,176 
12/29/2022   285,714   $0.20   $0.01    103.49%   3.94%   0.00%   1.0   $54,401 
3/3/2023   114,286   $0.17   $0.01    137.62%   4.26%   0.00%   1.0   $18,710 
6/1/2023   150,000   $0.12   $0.19    150.24%   3.70%   0.00%   3.0   $14,013 

 

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   39,350,000   $0.20    3.87   $50,800 
Issued   -    -    -    - 
Exercised   -    -    -    - 
Cancelled   -    -    -    - 
Expired   -    -    -    - 
Outstanding, September 30, 2024   39,350,000   $0.20    3.12   $31,040 
                     
Exercisable, September 30, 2024   26,656,923   $0.20    3.11   $31,040 
                     
Outstanding, December 31, 2022   41,085,714   $0.24    4.64   $45,714 
Issued   264,286    0.11    5.13    14,857 
Exercised   -    -    -    - 
Cancelled   -    -    -    - 
Expired   (2,000,000)   1.05    -    - 
Outstanding, September 30, 2023   39,350,000   $0.20    4.12   $52,000 
                     
Exercisable, September 30, 2023   14,316,664   $