Starco Brands Inc

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Shareholders and Board of Directors

Starco Brands, Inc.

Santa Monica, Ca

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Starco Brands, Inc. (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ .6(deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit of approximately $63.8 million at December 31, 2023 including the impact of its net loss of approximately $46.4 million for the year ended December 31, 2023. Net cash provided by operating activities was $0.7 million for the year ended December 31, 2023. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt financing is unknown. The obtainment of additional financing and the successful development of the Company’s contemplated plan of operations, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Business Combinations – Fair Value of Acquired Assets and Contingent Consideration

In 2022, the Company completed its acquisition of Skylar Body Inc. and the AOS Group Inc. for total considerations of approximately $21 million and $13 million, respectively. The Company finalized its purchase price allocations in May 2023. In addition, in February 2023, the Company acquired Soylent Nutrition, Inc. (“Soylent”) for total consideration of approximately $66 million. Included in Soylent’s total consideration is a contingent consideration arrangement arising from the acquisition which is based on a share adjustment by which the Company’s share price reaching $0.35 on the first anniversary of the closing price. If the Company’s share price does not reach $0.35, the Company is obligated to provide additional consideration to the former shareholders. The Company determined that the contingent consideration is within the scope of ASC 480 and ASC 815 and classified the contingent consideration as a liability and has been marking such to fair value each reporting period. Auditing the identified business combinations was especially complex and judgmental due to the significant uncertainty of future occurrences related to contingent considerations, complex assumptions and measurement of identifiable assets separate from Goodwill, at fair value and high subjectivity of such identifiable intangible assets.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. Our audit procedures for business combinations included the following, among others:

Assessment for the impairment of Goodwill and Intangible Assets

The Company performs its annual impairment analysis during the fourth quarter, or more frequently if events or circumstances indicate that goodwill might be impaired. An impairment indicator exists when a reporting unit’s carrying value exceeds its fair value. The Company recognized approximately $29.6 million of goodwill impairment and has approximately $26.7 million of goodwill as of December 31, 2023. Auditing the annual goodwill impairment was especially complex and judgmental due to the significant estimation required in determining the fair value of the reporting unit. In particular, the fair value estimates involve judgmental assumptions including the amount and timing of expected future cash flows and revenue growth rates, which are affected by expectations about future market or economic conditions and reporting unit specific risk factors.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. Our audit procedures for impairment of goodwill and intangibles included the following, among others:

/s/Macias, Gini, and O’Connell LLP

We have served as the Company’s auditor since 2022

Irvine, California

April 3, 2024