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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________ to _________________

 

Commission file number 000-54830

 

SUNSTOCK, INC.

(Exact Name of Registrant as Specified in its Charter)

 

SANDGATE ACQUISITION CORPORATION

(Former Name of Registrant as Specified in its Charter)

 

Delaware   46-1856372

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

111 Vista Creek Circle

Sacramento, California 95835

(Address of principal executive offices) (zip code)

 

916-860-9622

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock.   SSOK.   None

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
   
  Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

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 the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

 

Class   Outstanding at May 16, 2022
Common Stock, par value $0.0001   4,126,387
Preferred Stock, par value $0.0001   -

 

Documents incorporated by reference: None

 

 

 

 

 

 

TABLE OF CONTENTS

 

Part I Financial Information 3
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
     
Item 4. Controls and Procedures 19
     
Part II Other Information 21
     
Item 1. Legal Proceedings 21
     
Item 1A Risk Factors 21
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3. Defaults Upon Senior Securities 21
     
Item 4. Mine Safety Disclosures 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 22
     
  Signatures 23

 

2

 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Condensed and Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 (audited) 4
   
Unaudited Condensed and Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 5
   
Unaudited Condensed and Consolidated Statements of Convertible Preferred Stock and Changes in Stockholders’ Equity for the Three Months Ended as of March 31, 2022 and 2021 6
   
Unaudited Condensed and Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 7
   
Notes to Unaudited Condensed and Consolidated Financial Statements 8 - 15

 

3

 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

 

   March 31, 2022   December 31, 2021 
    (unaudited)    (audited) 
ASSETS          
Current assets          
Cash  $37,417   $30,168 
Inventory – coins   735,165    669,798 
Inventory – precious metals   768,124    722,867 
Prepaid expenses   7,239    5,655 
           
Total current assets   1,547,945    1,428,488 
           
Property and equipment, net   931    1,285 
Right of use lease asset   22,369    25,862 
           
Total assets  $1,571,245   $1,455,635 
           
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $570,672   $581,512 
Operating lease liability – current portion   15,324    14,748 
SBA loan – current   2,635    1,845 
Loans payable – related parties   210,400    153,100 
           
Total current liabilities   799,031    751,205 
           
PPP loan   -    30,250 
SBA loan. Net of current portion   147,365    148,155 
Operating lease liability, non-current   7,045    11,114 
           
Total liabilities   953,441    940,724 
           
Commitments and contingencies   -      
           
Series A convertible preferred stock, $0.0001 par value, 1,100,000,000 shares authorized, 0 and 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   -    - 
           
Stockholders’ equity          
Preferred stock; $0.0001 par value, 400,000,000 shares authorized; 0 and 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   -    - 
Common stock, $0.0001 par value, 5,000,000,000 shares authorized; 4,126,387 and 4,126,387 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   412    412 
Additional paid – in capital   62,778,644    62,778,644 
Accumulated deficit   (62,161,252)   (62,264,145)
           
Total stockholders’ equity   617,804    514,911 
           
Total liabilities, convertible preferred stock, and stockholders’ equity  $1,571,245   $1,455,635 

 

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

 

4

 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2022   2021 
   For the three months ended March 31, 
   2022   2021 
         
Revenues  $3,248,983   $2,948,188 
Cost of revenue   3,175,367    2,914,692 
Gross profit   73,616    33,496 
           
Operating expenses          
Professional fees   32,495    71,695 
Compensation   374    399 
Other operating expenses   9,173    16,217 
Total operating expenses   42,042    88,311 
           
Profit (loss) from operations   31,574    (54,815)
           
Other income (expense)          
Unrealized gain (loss) on investments in precious metals   45,257    (60,667)
Gain on debt extinguishment   30,250    - 
Interest expense   (1,443)   (1,449)
Interest expense related party   (2,745)   (1,862)
Loss on settlement of related party debt   -    (1,345,407)
Total other income (expense), net   71,319    (1,409,385)
           
Income (loss) before provision for income taxes   102,893    (1,464,200)
           
Provision for income taxes   -    800 
           
Net income (loss)  $102,893   $(1,465,000)
           
Income (loss) per share – basic and diluted  $0.02   $(0.45)
          
Weighted average number of common shares outstanding – basic and diluted   4,126,387    3,223,330 

 

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

 

5

 

 

SUNSTOCK, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND CHANGES IN

STOCKHOLDERS’ EQUITY

 

   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Total 
   Convertible Preferred Stock   Common Stock   Additional 
Paid-In
   Shareholders   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Total 
Balance at December 31. 2020 audited   400,000   $200,000    2,941,817   $294   $60,567,724   $(45,100)  $(60,207,491)  $315,427 
Issuance of common stock for related party notes payable and accrued interest   -    -    640,670    64    1,537,544    -    -    1,537,608 
Issuance of preferred stock for convertible preferred stock payable   (400,000)   (200,000)   400,000    40    199,960         -    200,000 
Net income   -    -    -    -    -    -    (1,465,000)   (1,465,000)
Balance at March 31, 2021 (unaudited)   -   $-    3,982,487   $398   $62,305,228   $(45,100)  $(61,672,491)  $588,035 
                                         
Balance at December 31, 2021 audited   -   $-    4,126,387   $412   $62,778,644   $-   $(62,264,145)  $514,911 
Net loss   -    -    -    -    -    -    102,893    102,893 
Balance at March 31, 2022 (unaudited)   -   $-    4,126,387   $412   $62,778,644   $-   $(62,161,252)  $617,804 

 

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

 

6

 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2022   2021 
   For the three months ended March 31, 
   2022   2021 
OPERATING ACTIVITIES          
Net income (loss)  $102,893   $(1,465,000)
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Unrealized (gain) loss on investment in precious metals   (45,257)   60,667 
Depreciation   355    762 
Gain on extinguishment of debt   (30,250)   - 
Loss on settlement of related party debt   -    1,345,407 
Changes in operating assets and liabilities          
Inventories – coins   (65,367)   (63,002)
Prepaid expenses   (1,584)   6,963 
Accounts payable and accrued expenses   (10,841)   (6,650)
Net cash used in operating activities   (50,051)   (120,853)
INVESTING ACTIVITIES          
Net cash used in investing activities   -    - 
           
FINANCING ACTIVITIES          
Proceeds from PPP loans   -    15,125 
Proceeds from loan - related parties   57,300    119,000 
Net cash provided by financing activities   57,300    134,125 
           
Net change in cash   7,249    13,272 
Cash and restricted cash, beginning of period   30,168    47,055 
Cash, end of period  $37,417   $60,327 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:          
Interest  $-   $- 
Income taxes  $-   $- 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES          
Extinguishment of debt  $30,250   $- 
Common stock issued in exchange for related party debt  $-   $1,537,608 
Common stock issued for conversion of preferred stock  $-   $200,000 

 

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

 

7

 

 

SUNSTOCK, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF OPERATIONS

 

Sunstock, Inc. (“Sunstock” or “the Company”) was incorporated on July 23, 2012, as Sandgate Acquisition Corporation, under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. In July 2013, the Company implemented a change of control by issuing shares to new shareholders, redeeming shares of existing shareholders, electing new officers and directors and accepting the resignations of its then existing officers and directors. In connection with the change of control, the shareholders of the Company and its board of directors unanimously approved the change of the Company’s name from Sandgate Acquisition Corporation to Sunstock, Inc. On July 18, 2013, Jason Chang and Dr. Ramnik S Clair were named as directors of the Company.

 

On October 22, 2018, Sunstock, Inc. acquired all assets and liabilities of Mom’s Silver Shop, Inc. (the “Retail Store”) located in Sacramento, California.

 

The Company’s business plan includes the buying, selling and distribution of precious metals, primarily gold. The Company pursues a “ground to coin” strategy, whereby it seeks to acquire mining assets as well as rights to purchase mining production and to sell these metals primarily through retail channels including their own branded coins. The Company emphasizes investment in enduring assets that we believe may provide ‘resource to retail’ conversion upside. Our goal is to provide our shareholders with an exceptional opportunity to capture value in the precious metals sector without incurring many of the costs and risks associated with actual mining operations.

 

BASIS OF PRESENTATION

 

The accompanying unaudited condensed and consolidated financial statements of Sunstock, Inc. were prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with U.S. GAAP.

 

The accompanying condensed and consolidated balance sheet at December 31, 2021, has been derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed and consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to the unaudited condensed and consolidated financial statements. The unaudited condensed and consolidated financial statements include all material adjustments (consisting of all normal accruals) necessary to make the condensed and consolidated financial statements not misleading as required by Regulation S-X Rule 10-01. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022 or any future periods.

 

8

 

 

USE OF ESTIMATES

 

The preparation of the unaudited condensed and consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by the Company’s management include realizability and valuation of inventories and value of stock-based transactions.

 

CONCENTRATION OF RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of March 31, 2022 and December 31, 2021.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

INVENTORIES

 

INVENTORY - COINS

 

The Company acquires collectible coins from both companies and individuals and then marks them up for resale. The inventory is recorded at lower of cost or market or net realizable value. Inventory can fluctuate in relation to when it is purchased and when it is sold. Collectible coins inventory was $735,165 at March 31, 2022 compared to $669,798 at December 31, 2021.

 

At each balance sheet date, the Company evaluates its ending inventory quantities on hand and on order and records a provision for excess quantities and obsolescence. Among other factors, the Company considers historical demand and forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. In addition, the Company considers changes in the market value of components in determining the net realizable value of its inventory. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the excess or obsolete inventories.

 

INVENTORY – PRECIOUS METALS

 

Inventories of precious metals and coins held for investment at March 31, 2022 include $768,124 of gold and silver bullion and bullion coins and $722,867 at December 31, 2021 and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources such as Kitco and Apmex. The Company’s inventory is subsequently recorded at fair market values on a quarterly basis. The fair value of the inventory is determined using pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventories are classified in Level 1 of the valuation hierarchy as defined later in this section. The Company has continuously experienced a shortage of cash and has had significantly past due obligations. While the Company’s preference is to hold the silver and gold bullion to achieve long-term gains, the bullion is available to pay current obligations should the Company not be able to raise cash through issuance of stock or notes payable. Thus, the Company believes that including the silver bullion in current assets under inventory is appropriate.

 

9

 

 

INVENTORY – PRECIOUS METALS (CONTINUED)

 

The change in fair value of the precious metals was included in the financial statements herein as recorded on the Company’s Statements of Operations as an unrealized gain in precious metal of $45,257 for the three months ended March 31, 2022 and an unrealized loss of $60,667 for the three months ended March 31, 2021.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 5 years. Any leasehold improvements are amortized at the lesser of the useful life of the asset or the lease term.

 

LONG-LIVED ASSETS

 

The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment charges were incurred during the three months ended March 31, 2022 and 2021. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.

 

REVENUE RECOGNITION

 

The Company’s principal activities from which it generates revenue are product sales. Revenue is measured based on considerations specified in a contract with a customer. A contract exists when it becomes a legally enforceable agreement with a customer. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid at time of sale via credit card, check, or cash when products are sold direct to consumers.

 

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of a product to customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. The Company has concluded the sale of product and related shipping and handling are accounted for as the single performance obligation.

 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which the Company will be entitled to receive in exchange for transferring goods to the customer. We do not issue refunds.

 

The Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over a product to a customer when product is shipped based on fulfillment by the Company or when a point of sale transaction is completed. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales. The Company does not accept returns.

 

10

 

 

INCOME TAXES

 

The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision consists of state minimum taxes.

 

The Company recognizes any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

 

There are no unrecognized tax benefits included in the balance sheet that would, if recognized, affect the effective tax rate.

 

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties on each of the Company’s balance sheets at March 31, 2022 and December 31, 2021.

 

INCOME (LOSS) PER COMMON SHARE

 

Basic income (loss) per share represent income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance. The potential common shares that may be issued by the Company relate to outstanding stock warrants and have been excluded from the computation of diluted loss per share for the three months ended March 31, 2021. The Company had no potential common shares as of March 31, 2022.

 

Effective July 21, 2021, the Company effected a 1,000 for 1 reverse split of its common shares (see Note 9). The weighted number of shares outstanding as of the three months ended March 31, 2021 on the statements of operations have been adjusted to reflect the reverse split.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company measures the fair value of certain of its financial assets on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, such as derivative liabilities in relation to the conversion feature of notes payable.

 

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FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

 

At March 31, 2022 and December 31, 2021, the Company’s financial instruments include cash, precious metals inventory, coins inventory, PPP loan, SBA loan, and accounts payable and accrued expenses. The carrying amount of cash, precious metals inventory, coins inventory, PPP loan, SBA loan, and accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments.

 

PRINCIPLES OF CONSOLIDATION

 

We consolidate entities that we control due to ownership of a majority voting interest. All intercompany balances and transactions have been eliminated in consolidation.

 

NOTE 2 - GOING CONCERN

 

The Company has not posted annual operating income since inception. It has an accumulated deficit of $62,161,252 as of March 31, 2022. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and /or obtain additional financing from its stockholders and/or other third parties. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.

 

These unaudited condensed and consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue is dependent upon financial support from its stockholders, the ability of the Company to obtain necessary equity financing to continue operations, successfully locating and negotiate with a business entity for the combination of that target company with the Company.

 

There is no assurance that the Company will ever be profitable. The unaudited condensed and consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

The Company intends to initiate discussions with an undetermined third party in regards to raising funds through a private placement of equity which, if it occurs, will provide the Company with funds to expand its operations and likely eliminate the going concern issue.

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

     March 31, 2022     December 31, 2021 
Furniture and equipment  $58,460   $58,460 
Less – accumulated depreciation   (57,529)   (57,175)
Total  $931   $1,285 

 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $354 and $762, respectively.

 

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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

     March 31, 2022     December 31, 2021 
Accrued court decision  $260,308   $260,308 
Accrued consultant fees   130,000    135,336 
Accrued audit fees   35,517    44,548 
Accrued payroll   52,006    52,006 
Accrued dividends – preferred stock   36,326    36,326 
Accrued legal fees   3,781    - 
Expenses owed consultant   22,668    22,669 
Accrued interest payable   10,107    8,664 
Accrued interest payable related party   4,816    2,071 
Other accrued expenses   15,143    19,584 
Total  $570,672   $581,512 

 

NOTE 5 - RELATED PARTY ACTIVITY

 

During the three months ended March 31, 2022, the Company was provided loans totaling $57,300 by the Company’s chief executive officer. The loans bear interest at 6% per annum. There was $4,816 in accrued interest at March 31, 2022.

 

As of March 31, 2022, the Company has $36,326 in accrued dividends on preferred stock, of which $19,141 is due to the Company’s chief executive officer.

 

During the three months ended March 31, 2021, the Company was provided loans totaling $119,000 by the Company’s chief executive officer. The loans bear interest at 6% per annum.

 

During the three months ended March 31, 2021, $187,500 in notes payable and $4,701 accrued interest to the Company’s chief executive officer were converted to 640,670 shares of the Company’s common stock valued at $1,537,608 based on the closing price on the grant date. $1,345,407 was recorded as loss on settlement of related party debt on the accompanying statement of operations as of March 31, 2021.

 

During the three months ended March 31, 2021, the Company issued to the chief executive officer 400,000 shares of the Company’s common stock in exchange for 400,000 shares of the Company’s Series A convertible Preferred Stock.

 

The following table is a summary of the activity for Loans payable- related parties principal for the nine months ended March 31, 2022:

 

Balance at 12/31/2021  $153,100 
Loan advances   57,300 
Balance at 03/31/22  $210,400 

 

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NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

The Company leases space for the Retail Store. The lease is for five years and runs through September 2023. The lease calls for payments of $1,305.60 per month for the first year, with a 3% increase per year for years two through five.

 

As of March 31, 2022, the future payments of our operating lease were as follows for the periods ended December 31:

 

   Remaining Lease Payments 
2020  $- 
2021   - 
2022  12,962 
2023   13,221 
Total remaining lease payments   26,183 
Less: imputed interest   (3,814)
Total operating lease liabilities   22,369 
Less: current portion   (15,324)
Long term operating lease liabilities  $7,045 
      
Weighted average remaining lease term   18 months  
Weighted average discount rate   12%

 

LITIGATION

 

On August 21, 2020, Boustead Securities, LLC (“Boustead”) filed suit against Sunstock, Inc. (“Sunstock”) in the County of Orange, California. Boustead is an investment banking firm engaged by Sunstock on September 19, 2019 to raise equity. Boustead maintained that Sunstock owes it 87,179 shares of Preferred Stock Warrants and 9,231 shares of Common Stock Warrants. Boustead also sought general damages, interest, and costs of the suit. Sunstock believed that Boustead had not fulfilled its obligations in raising equity and vigorously contested the suit. Sunstock hired an arbitrator but there was no resolution between Sunstock and Boustead. The matter went to trial in September 2021 and on November 2, 2021 the Court determined that Sunstock owed Boustead $260,308 for warrants issued that Sunstock did not honor. $260,308 was accrued and is shown in operating expenses in the unaudited condensed and consolidated statement of operations. The warrants are no longer outstanding (see Note 9). All other monetary claims by Boustead were dismissed by the Court. The $260,308 is to be paid in cash. The Company filed an appeal of the judgment on December 9, 2021.

 

In December 2020, a former employee of Sunstock filed a claim with the California Labor Commission regarding claimed back pay owed. A preliminary hearing was held on January 4, 2021 and the Company is currently awaiting the next step.

 

INDEMNITIES AND GUARANTEES

 

The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility leases, the Company has agreed to indemnify its lessors for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying balance sheets.

 

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NOTE 7 – SBA LOAN

 

In June 2020, the Company received a $150,000 loan (less $100 expense) from the Small Business Administration (“SBA”). The loan is for thirty years, interest is 3.75% per annum, and payments of $731 are monthly beginning twenty-four months after closing.

 

   Remaining Loan Payments 
2022  $5,215 
2023   8,940 
2024   8,940 
2025   8,940 
2026   8,940 
thereafter   209,345 
Total remaining loan payments   250,320 
Less: imputed interest   (100,320)
Total loan liability   150,000 
Less: current portion   (2,635)
Long term loan liability  $147,365 
      
Weighted average remaining lease term   28.1 years  

 

NOTE 8 – PPP LOAN

 

In February and May 2021, the Company received a $15,125 loan and a $15,125 loan from the federal Paycheck Protection Program (“PPP”), respectively. The loans are for five years, interest is 1.0% per annum, and no payments are due until maturity. The loans have been forgiven.

 

NOTE 9- STOCKHOLDER’S EQUITY

 

COMMON STOCK

 

The Company is authorized to issue 5,000,000,000 shares of common stock and 1,500,000,000 of preferred stock.

 

Effective July 21, 2021, the Company effected a 1,000 for 1 reverse split of its common shares. The weighted number of shares outstanding as of the three months ended March 31, 2021 on the unaudited condensed and consolidated statements of operations have been adjusted to reflect the reverse split. The number of common shares and the dollar amounts of common shares and additional paid-in capital for all periods on the unaudited condensed and consolidated statements of stockholders’ equity (deficit) for all periods have been adjusted to reflect the reverse split.

 

During the three months ended March 31, 2022, the Company issued no shares of its common stock.

 

During the three months ended March 31, 2021, the Company issued 640,670 shares of its common stock to its chief executive officer for the conversion of $187,500 of related party notes payable and $4,701 accrued interest payable.

 

During the three months ended March 31, 2021, the Company issued 400,000 shares of its common stock to its chief executive officer for the conversion of 400,000 shares of Series A convertible Preferred Stock.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the unaudited condensed and consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its condensed and consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the global situation on its financial condition, liquidity operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition or liquidity for the fiscal year 2021. However, to date there has not been a decrease in sales. The Company believes that in this time of uncertainty, individuals are buying collectible coins as a safe haven. The Company is unable to predict if such buying will continue during this time of uncertainty or if the buying will decrease as events change and evolve.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following information should be read in conjunction with the unaudited condensed and consolidated financial statements and notes thereto appearing elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the discussion and analysis included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on April 18, 2022, as well as the unaudited condensed and consolidated financial statements and related notes contained therein.

 

Forward Looking Statements

 

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.

 

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the SEC. You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

Overview

 

Sunstock, Inc. (“Sunstock” or “the Company”) was incorporated on July 23, 2012, as Sandgate Acquisition Corporation, under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.

 

On July 18, 2013, the Company changed its’ name from Sandgate Acquisition Corporation to Sunstock, Inc. On the same date, Jason Chang and Dr. Ramnik S Clair were named as directors of the Company.

 

On October 22, 2018, the Company acquired all assets and liabilities of the Retail Store of Sacramento, California. The Retail Store specializes in buying and selling gold, silver, and rare coins, and is one of the leading precious metals retailers in the greater Sacramento metropolitan area.

 

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Going Concern

 

The Company has not posted operating income and has not generated cash from operations since inception. It has an accumulated deficit of $62,161,252 as of March 31, 2022. The Company did not generate cash flow from operations for the three months ended March 31, 2022 and the year ended December 31, 2021. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and /or obtain additional financing from its stockholders and/or other third parties.

 

These unaudited condensed and consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from its stockholders, the ability of the Company to obtain necessary equity financing to continue operations, successfully locating and negotiate with a business entity for the combination of that target company with the Company.

 

There is no assurance that the Company will ever be profitable. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

In the first quarter of 2020, outstanding convertible notes payable balances as of December 31, 2019, were either converted to common stock or paid off. In relation to that, the Company had discussions with a third party in regards to raising funds through a private placement of equity. Those discussions with that third party have since been terminated. The Company intends to initiate discussions with an undetermined third party in regards to raising funds through a private placement of equity which, if it occurs, will provide the Company with funds to expand its operations and likely eliminate the going concern issue.

 

Critical Accounting Policies

 

There have been no material changes from the critical accounting policies as previously discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Results of Operations

 

Discussion of the Three Months ended March 31, 2022 and 2021

 

The Company generated revenues during the three months ended March 31, 2022 of $3,248,983 as compared to $2,948,188 in revenues posted for the three months ended March 31, 2021. The increase in revenues is due to more aggressive pricing by Sunstock in order to increase revenues and more customers seeking a safe haven in uncertain times.

 

For the three months ended March 31, 2022 and 2021, cost of sales were $3,175,167 and $2,914,692, respectively, which increase was driven by the increase in revenues as disclosed above. Professional fees decreased to $32,495 from $71,695 for the three months ended March 31, 2022 and 2021, respectively, primarily due to lower consultant fees and audit fees. Compensation decreased to $374 from $399 for the three months ended March 31, 2022 and 2021, respectively. Other operating expenses decreased to $9,173 from $16,217 for the three months ended March 31, 2022 and 2021, respectively.

 

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Interest expense was $1,443 and $1,449 for the three months ended March 31, 2022 and 2021, respectively. Interest expense related party increased to $2,745 for the three months ended March 31, 2022 from $1,862 for the three months ended March 31, 2021.

 

Unrealized gain on investments in precious metals was $45,257 for the three months ended March 31, 2022 compared to an unrealized loss of $60,667 for the three months ended March 31, 2021 due to the increase in price of bullion.

 

$30,250 in other income in the three months ended March 31, 2022 was in regards to the forgiveness of PPP loans.

 

During the three months ended March 31, 2022, the Company posted a net income of $102,893 as compared to a net loss of $1,465,000 for the three months ended March 31, 2021. Such change is primarily related to greater gross profit, less operating expenses, unrealized gain on investment in precious metals, a loss on settlement of related party debt in 2021, and a gain on debt extinguishment.

 

Liquidity and Capital Resources

 

As of March 31, 2022, the Company had $37,417 in cash and $1,503,289 in inventory of precious metals and coins compared to $30,168 in cash and $1,392,665 in inventory of precious metals and coins at December 31, 2021.

 

Net cash used in operating activities totaled $50,051 during the three months ended March 31, 2022 as compared to net cash used in operating activities of $120,853 during the three months ended March 31, 2021. Consolidated net income was $102,893 for the three months ended March 31, 2022 as compared to consolidated net loss of $1,465,000 for the three months ended March 31, 2021. Explanation of the difference between these three months of 2022 and 2021 are explained above in the results of operations of the Company.

 

Changes in the adjustments to reconcile net income(net loss) for the three months ended March 31, 2022 and 2021, respectively, consist of unrealized gain or loss on investment in precious metals, depreciation, gain on extinguishment of debt, and loss on settlement of related party debt.

 

Unrealized gain on investment in precious metals was $45,257 for the three months ended March 31, 2022 and unrealized loss on investment in precious metals was $60,667 for the three months ended March 31, 2021. Deprecation was $355 and $762, respectively, for the three months ended March 31, 2022 and 2021. Gain on extinguishment of debt was $30,250 and $0, respectively, for the three months ended March 31, 2022 and 2021. Loss on settlement of related party debt was $0 and $1,345,407, respectively, for the three months ended March 31, 2022 and 2021.

 

Changes in assets and liabilities for inventories, prepaid expenses, and accounts payable and accrued expenses totaled a decrease of $77,792 for the three months ended March 31, 2022 and a decrease of $62,689 for the three months ended March 31, 2021.

 

No cash was used in investing activities for the three months ended March 31, 2022 and 2021, respectively.

 

Net cash provided by financing activities was $57,300 for the three months ended March 31, 2022 and net cash provided by financing activities was $134,125 for the three months ended March 31, 2021. $57,300 and $119,000, respectively were received from notes payable related party for the three months ended March 31, 2022 and 2021. Proceeds of $0 and $15,125, respectively, were received from a PPP loan for the three months ended March 31, 2022 and 2021

 

Off-Balance Sheet Arrangements

 

The Company has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be considered material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information not required to be filed by Smaller reporting companies.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Management must evaluate its internal controls over financial reporting, as required by Sarbanes-Oxley Act, Section 404 (a). The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles or GAAP.

 

As of March 31, 2022, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of the Company’s internal controls over financial reporting that adversely affected its internal controls and that may be considered to be material weaknesses.

 

Material Weaknesses:

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weaknesses identified are:

 

1. the Company does not have accounting personnel that have adequate technical accounting skills to identify terms in agreements that would have material accounting implications on the Company’s consolidated financial statements in accordance with US GAAP, such as permanent vs. temporary equity treatment of the Company’s preferred stock in accordance with ASC 480.

 

2.the Company does not obtain and retain supporting documentation over the precious metal trade dates and quantities traded and does not properly record the realized gain/loss on the trade according to the fair market value of the items traded on a given date.

 

3.the Company has an inadequate number of personnel that could accurately and timely record and report the Company’s consolidated financial statements in accordance with US GAAP.

 

4. the Company does not perform formal risk assessments over financial reporting and does not evaluate its internal control processes.

 

Notwithstanding the existence of these material weaknesses in internal control over financial reporting, we believe that the financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition in conformity with U.S. generally accepted accounting principles (GAAP). Further, we do not believe the material weaknesses identified had an impact on prior financial statements.

 

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ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)

 

Material Weaknesses:

 

Remediation:

 

As part of our ongoing remedial efforts, we have and will continue to, among other things:

 

1. Expand our accounting policy and controls organization by hiring qualified accounting and finance personnel;

 

2. Increase our efforts to educate both our existing and expanded accounting policy and control organization on the application of the internal control structure;

 

3. Emphasize with management the importance of our internal control structure;

 

4. Seek outside consulting services where our existing accounting policy and control organization believes the complexity of the existing exceeds our internal capabilities.

 

5. Plan to implement improved accounting systems.

 

We believe that the foregoing actions will improve our internal control over financial reporting, as well as our disclosure controls and procedures. When funds permit, we intend to perform such procedures and commit such resources as necessary to continue to allow us to overcome or mitigate these material weaknesses such that we can make timely and accurate quarterly and annual financial filings until such time as those material weaknesses are fully addressed and remediated.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during its current fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On August 21, 2020, Boustead Securities, LLC (“Boustead”) filed suit against Sunstock, Inc. (“Sunstock”) in the County of Orange, California. Boustead is an investment banking firm engaged by Sunstock on September 19, 2019 to raise equity. Boustead maintained that Sunstock owes it 87,179 shares of Preferred Stock Warrants and 9,231 shares of Common Stock Warrants. Boustead also sought seeking general damages, interest, and costs of the suit. Sunstock believed that Boustead has not fulfilled its obligations in raising equity and vigorously contested the suit. Sunstock hired an arbitrator but there was no resolution between Sunstock and Boustead. The matter went to trial in September 2021 and on November 2, 2021 the Court determined that Sunstock owed Boustead $260,308 for warrants issued that Sunstock did not honor. $260,308 was accrued and is shown in operating expenses in the unaudited condensed and consolidated statement of operations. The warrants are no longer outstanding. All other monetary claims by Boustead were dismissed by the Court. The $260,308 is to be paid in cash. The Company filed an appeal of the judgment on December 9, 2021.

 

In December 2020, a former employee of Sunstock filed a claim with the California Labor Commission regarding claimed back pay owed. A preliminary hearing was held on January 4, 2021 and the Company is currently awaiting the next step.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended March 31, 2022, the Company issued no unregistered securities:

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

(a) Not applicable.

 

(b) Item 407(c)(3) of Regulation S-K:

 

During the quarter covered by this Report, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

 

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ITEM 6. EXHIBITS

 

(a) Exhibits

 

31.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   Inline XBRL Instance Document
     
101.SCH   Inline XBRL Taxonomy Extension Schema
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  SUNSTOCK, INC.
   
Dated May 16, 2022 By:  /s/ Jason C. Chang
    Jason C. Chang
    President, Chief Executive Officer, Chief Financial Officer
     
Dated May 16, 2022 By: /s/ Ramnik Clair
    Ramnik Clair
    Vice President, Board Member

 

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