| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 Our
consolidated subsidiaries at June 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: SCHEDULE
OF RECLASSIFIED PRIOR YEAR EXPENSES
Account Previously Recorded Balance Corrected Balance Reclassification Made Previously Recorded Balance Corrected Balance Reclassification Made
Three Months Ended June 30, 2023 Six Months Ended June 30, 2023
Account Previously Recorded Balance Corrected Balance Reclassification Made Previously Recorded Balance Corrected Balance Reclassification Made
Statement of Operations
Cost of goods sold 10,258,463 10,640,297 (381,834 ) 15,346,213 16,080,548 (734,335 )
Marketing, general and administrative 5,041,441 4,659,607 381,834 8,726,107 7,991,772 734,335 Use
of Estimates The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and equity-based transactions at the date of the financial statements and the revenues and
expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience, and various
other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the condensed consolidated financial statements. Significant estimates include the timing for revenue recognition, testing goodwill
for impairment, recoverability of long-lived assets, income taxes 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 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 $ 431,380 350,112 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 June 30, 2024 and December 31, 2023. 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 June 30, 2024: SCHEDULE OF FAIR VALUE MEASUREMENTS
Carrying Value at June 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 June 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 $ 30,441,480 $ - $ - $ 30,441,480
Total Liabilities $ 30,441,480 $ - $ - $ 30,441,480 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
following table presents a reconciliation of the opening and closing balances of the Fair Value of Share Adjustment for the six months
ended June 30, 2024: SCHEDULE OF FAIR VALUE OF SHARE ADJUSTMENT
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 10,597,514
Balance at June 30, 2024 $ 30,441,480 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 Revenue
Recognition STCB,
excluding its subsidiaries, earns a majority of its revenue as royalties from the licensing agreements it has with TSG, a related entity,
and other related parties. STCB licenses the right for TSG to manufacture and sell certain Starco Brands products. The amount of the
licensing revenue received varies depending upon the product and the royalty percentage is determined beforehand in each agreement. The
Company recognizes its revenue under these licensing agreements only when sales are made by TSG or other related parties to a third party. AOS,
one of STCB’s wholly owned subsidiaries, earns its revenues through the sale of premium body and skincare products. Revenue from
retail sales is recognized at shipment to the retailer. Revenue from eCommerce sales, including Amazon 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. Whipshots
Holdings, an 85 The
Company applies the requirements of ASC 606, Revenue from Contracts with Customers 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. 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 six months ended June 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: SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF NET LOSS PER SHARE
2024 2023
Six Months Ended June 30,
2024 2023
Warrants 39,350,000 39,350,000
Stock options 4,760,000 -
Stock Options [Member] 4,760,000 -
Acquisition Stock Consideration Payable 264,708,523 430,885,271
Total 308,818,523 470,235,271
Antidilutive securities 308,818,523 470,235,271 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 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 six months ended June 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. 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 June 30, 2024 are approximately $ 825,000 20,000 20,000 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 1,372 7,564 4 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 10,000 5 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 June 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 six months ended June 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. 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 26,689,391 26,689,391 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. |
