NOTE 8– COMMITMENTS & CONTINGENCIES

The Company is not currently involved in any legal proceedings that, in management’s opinion, would have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company regularly assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in its financial statements if it is probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. Based on the Company’s assessment, it currently does not have any amount accrued as it is not a defendant in any claims or legal actions.

Whipshots

In 2021, Whipshots LLC entered into an Intellectual Property Purchase Agreement with Penguins Fly, LLC, acquiring trademarks, domains, social media handles, and other assets related to Whipshots® and Whipshotz®. The purchase price is based on a sliding-scale percentage of gross revenue from product sales solely from the sale of Whipshots® / Whipshotz® products, payable over seven years. The Company has accrued $20,000 during the nine months ended September 30, 2025 to be paid pursuant to the agreement, all of which has been recorded as an indefinite-lived intangible asset for a total of $505,404 as of September 30, 2025.

Separately, in 2021, Whipshots Holdings, LLC entered into a License Agreement with Washpoppin Inc. (“Washpoppin”), licensing certain intellectual property of Cardi B for product promotion and brand collaboration. An amended agreement, effective November 27, 2023, formalized her role in events, media, and social promotions, alongside a minimum aggregate royalty payment of $3.3 million. The revised deal also accelerated the vesting of equity for Washpoppin, resulting in equity-based compensation of $8.63 million in 2023. During the three and nine months ended September 30, 2025, the Company incurred no expenses related to this agreement, and 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, which are recorded under marketing, general and administrative expenses on the statement of operations.

License Agreement with Leah Kateb

Effective July 1, 2025, Skylar entered into a license agreement with BlueUTA – I LLC (“BlueUTA”) granting Skylar the right to use the likeness and trademarks of artist Leah Kateb for commercial purposes, including manufacturing, marketing, promotion, advertising, distribution, and sale of specified products. The agreement permits sub-licensing to third parties, provided all use of the licensed property is approved by the Licensor and limited to licensed products. The agreement is effective through June 30, 2029, unless terminated earlier pursuant to its terms.

Under the agreement, Skylar is obligated to pay BlueUTA base compensation of $240,000 annually, payable in monthly installments of $20,000, which will be recognized as license expense over the term of the agreement. In addition, Skylar will pay royalties at a rate of 4% on annual net sales exceeding $11 million. These royalties will be recognized as variable expenses and accrued when probable and reasonably estimable, regardless of the timing of payment. Skylar also issued 3,000 Class B units to BlueUTA, representing a 30% ownership interest in Skylar. These units are non-voting, subject to time-based and performance-based vesting conditions, and were issued for past and future services rendered, not for cash or property. The units are intended to qualify as Profits Interests under IRS Revenue Procedures 93-27 and 2001-43 and are subject to a distribution threshold.

The agreement also provides for bonus compensation ranging from $400,000 to $600,000 annually for three years following the agreement term, contingent upon the achievement of specified net sales thresholds. These amounts will be recognized when achievement becomes probable and reasonably estimable. Additionally, Skylar granted BlueUTA stock options under the Starco Brand 2023 Equity Incentive Plan for up to 2 million shares of common stock, which vest in equal monthly installments over a four-year period. The fair value of these options have been measured at the grant date and will be recognized as expense over the vesting period.

Skylar’s obligations under this agreement represent future commitments and potential contingent liabilities, subject to the achievement of specified performance conditions and sales thresholds.

Royalties and Licenses

The Company has contracts with some licensors that 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.

Our minimum contractual royalty-based obligations remaining as of September 30, 2025 are approximately $0, $20,000, and $20,000 for each of the years ending December 31, 2025, 2026 and 2027. See Note 3 for further information.

Letter of Intent

On July 29, 2025, the Company announced the execution of a non-binding exclusive Letter of Intent to acquire its contract manufacturers, collectively referred to as The Starco Group. The Starco Group is a middle market private label and co-packing manufacturer operating three facilities across the US with a focus on personal care, household, food and beverage products. The proposed transaction aims to provide shareholders a business that will have greater scale on revenue and efficiencies on margin, through vertical integration for many of its brands. Under the proposed transaction, the Company would be renamed “STARCO” and create two main operating subsidiaries, Starco Brands and Starco Manufacturing. Each will operate as separate business units under the public STARCO umbrella which will continue to be led by Ross Sklar, the Chairman & CEO.