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 June 30,March 31, 20222023

 

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 StockStock.. SSOKSSOK.. 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 AugustMay 15, 20222023
Common Stock, par value $0.0001 4,815,8574,126,387
 
Preferred Stock, par value $0.0001 -

 

Documents incorporated by reference: None

 

 

 

 

TABLE OF CONTENTS

 

Part I Financial Information3
   
Item 1.Financial Statements3
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1716
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk2018
   
Item 4.Controls and Procedures2019
   
Part II Other Information2321
   
Item 1.Legal Proceedings2321
   
Item 1ARisk Factors2321
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2321
   
Item 3.Defaults Upon Senior Securities2321
   
Item 4.Mine Safety Disclosures2321
   
Item 5.Other Information2321
   
Item 6.Exhibits2422
   
 Signatures2523

2

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Condensed and Consolidated Balance Sheets as of June 30, 2022March 31, 2023 (unaudited) and December 31, 20212022 (audited)4
  
Unaudited Condensed and Consolidated Statements of Operations for the Three and Six Months Ended June 30,March 31, 2023 and 2022 and 20215
  
Unaudited Condensed and Consolidated Statements of Convertible Preferred Stock and Changes in Stockholders’ Equity for the Three and Six Months Ended as of June 30,March 31, 2023 and 2022 and 20216
  
Unaudited Condensed and Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2023 and 2022 and 20217
  
Notes to Unaudited Condensed and Consolidated Financial Statements8 - 1615

3

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

 

        
 June 30, 2022 December 31, 2021  March 31, 2023 December 31, 2022 
 (unaudited) (audited)   (unaudited)   (audited) 
ASSETS                
Current assets                
Cash $28,733  $30,168  $4,646  $16,691 
Inventory – coins  784,100   669,798   1,001,398   950,637 
Inventory – precious metals  671,872   722,867   815,096   801,022 
Prepaid expenses  5,492   5,655   18,963   5,155 
                
Total current assets  1,490,197   1,428,488   1,840,103   1,773,505 
                
Property and equipment, net  691   1,285   369   424 
Right of use lease asset  18,770   25,862   7,045   11,114 
                
Total assets $1,509,658  $1,455,635  $1,847,517  $1,785,043 
                
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY        
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities                
Accounts payable and accrued expenses $544,239  $581,512  $501,826  $480,137 
Operating lease liability – current portion  15,918   14,748   7,045   11,114 
SBA loan – current  3,432   1,845   5,866   5,047 
Loans payable – related parties  273,400   153,100   62,500   6,000 
                
Total current liabilities  836,989   751,205   577,237   502,298 
                
PPP loan  -   30,250 
SBA loan. Net of current portion  146,568   148,155   144,134   144,953 
Operating lease liability, non-current  2,852   11,114 
                
Total liabilities  986,409   940,724   721,371   647,251 
                
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 June 30, 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 June 30, 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 June 30, 2022 and December 31, 2021, respectively  412   412 
Preferred stock; $0.0001 par value, 1,500,000,000 shares authorized; 0 and 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively  -   - 
Common stock, $0.0001 par value, 5,000,000,000 shares authorized; 4,815,857 and 4,815,857 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively  481   481 
Additional paid – in capital  62,778,644   62,778,644   67,053,289   67,053,289 
Accumulated deficit  (62,255,807)  (62,264,145)  (65,927,624)  (65,915,978)
                
Total stockholders’ equity  523,249   514,911   1,126,146   1,137,792 
Total liabilities, convertible preferred stock, and stockholders’ equity $1,509,658  $1,455,635 
Total liabilities and stockholders’ equity $1,847,517  $1,785,043 

 

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)

 

                 2023 2022 
 For the three months ended June 30, For the six months ended June 30,  For the three months ended March 31, 
 2022 2021 2022 2021  2023 2022 
              
Revenues $3,270,927  $3,114,794  $6,519,910  $6,062,982  $3,339,884  $3,248,983 
Cost of revenue  3,201,080   3,077,899   6,376,447   5,992,591   3,293,393   3,175,367 
Gross profit  69,847   36,895   143,463   70,391   46,491   73,616 
                        
Operating expenses                        
Professional fees  53,518   79,922   86,013   151,617   62,052   32,495 
Compensation  182   13,954   556   14,353   -   374 
Other operating expenses  9,167   12,104   18,340   28,321   8,248   9,173 
Total operating expenses  62,867   105,980   104,909   194,291   70,300   42,042 
                        
Profit (loss) from operations  6,980   (69,085)  38,554   (123,900)  (23,809)  31,574 
                        
Other income (expense)                        
Unrealized gain (loss) on investments in precious metals  (96,253)  33,883   (50,996)  (26,784)  14,075   45,257 
Gain on debt extinguishment  -   30,250 
Interest expense  (1,443)  (1,443)  (2,886)  (2,892)  (1,443)  (1,443)
Interest expense related party  (3,839)  (316)  (6,584)  (2,178)  (469)  (2,745)
Gain on debt extinguishment  -   -   30,250   - 
Loss on settlement of related party debt  -   (430,261)  -   (1,775,668)
Total other income (expense), net  (101,535)  (398,137)  (30,216)  (1,807,522)  12,163   71,319 
                        
Profit (loss) before provision for income taxes  (94,555)  (467,222)  8,338   (1,931,422)
Income (loss) before provision for income taxes  (11,646)  102,893 
                        
Provision for income taxes  -   -   -   800   -   - 
                        
Net income (loss) $(94,555) $(467,222) $8,338  $(1,932,222) $(11,646) $102,893 
                        
Income (loss) per share – basic and diluted $(0.02) $(0.11) $0.00  $(0.53) $(0.00) $0.02 
                        
Weighted average number of common shares outstanding – basic and diluted  4,126,387   4,078,947   4,126,387   3,654,566   4,815,857   4,126,387 

 

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  In Capital  Receivable  Deficit  Total 
  

Convertible

Preferred Stock

  Common Stock  Additional Paid-  Shareholders  Accumulated    
  Shares  Amount  Shares  Amount  In Capital  Receivable  Deficit  Total 
Balance at December 31. 2021  -  $-   4,126,387  $412  $62,778,644  $-  $(62,264,145) $514,911 
Net income  -   -   -   -   -   -   102,893   102,893 
Balance at March 31, 2022 (unaudited)  -  $-   4,126,387  $412  $62,778,644  $-  $(62,161,252) $617,804 
                                 
Balance at December 31, 2022  -  $-   4,815,857  $481  $67,053,289  $-  $(65,915,978) $1,137,792 
Beginning balance, value  -  $-   4,815,857  $481  $67,053,289  $-  $(65,915,978) $1,137,792 
Net loss  -   -   -   -   -   -   (11,646)  (11,646)
Net income (loss)  -   -   -   -   -   -   (11,646)  (11,646)
Balance at March 31, 2023 (unaudited)  -  $-   4,815,857  $481  $67,053,289  $-  $(65,927,624) $1,126,146 
Ending balance, value  -  $-   4,815,857  $481  $67,053,289  $-  $(65,927,624) $1,126,146 

                                 
  Convertible Preferred Stock  Common Stock  Additional Paid-  Shareholders  Accumulated    
  Shares  Amount  Shares  Amount  In 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) $515,427 
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       -   - 
Net loss  -   -   -   -   -   -   (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 
Issuance of common stock for related party notes payable and accrued interest  -   -   143,900   14   473,416   -   -   473,430 
Receipts on receivables from shareholders  -   -   -   -   -   37,600   -   37,600 
Net loss  -   -   -   -   -   -   (467,222)  (467,222)
Balance at June 30, 2021 (unaudited)  -  $-   4,126,387  $412  $62,778,644  $(7,500) $(62,139,713) $631,843 
                                 
Balance at December 31, 2021 (audited)  -  $-   4,126,387  $412  $62,778,644  $-  $(62,264,145) $514,911 
Net income  -   -   -   -   -   -   102,893   102,893 
Balance at March 31, 2022 (unaudited)  -  $-   4,126,387  $412  $62,778,644  $-  $(62,161,252) $617,804 
Net loss      -       -   -   -   (94,555)  (94,555)
Net income (loss)                          (94,555)  (94,555)
Balance at June 30, 2022 (unaudited)  -  $-   4,126,387  $412  $62,778,644  $-  $(62,255,807) $523,249 

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)

 

         2023 2022 
 For the six months ended June 30,  For the three months ended March 31, 
 2022 2021  2023 2022 
OPERATING ACTIVITIES                
Net income (loss) $8,338  $(1,932,222) $(11,646) $102,893 
Adjustments to reconcile net income (loss) to net cash used in operating activities                
Unrealized loss on investment in precious metals  50,996   26,784 
Unrealized gain (loss) on investment in precious metals  (14,075)  (45,257)
Depreciation  594   1,494   55   355 
Gain on extinguishment of debt  (30,250)  -   -   (30,250)
Loss on settlement of related party debt  -   1,775,668 
Changes in operating assets and liabilities                
Accounts receivable  -   219 
Inventories – coins  (114,302)  (125,703)  (50,761)  (65,367)
Prepaid expenses  163   8,461   (13,808)  (1,584)
Accounts payable and accrued expenses  (37,274)  26,031   21,690   (10,841)
Net cash used in operating activities  (121,735)  (219,268)  (68,545)  (50,051)
        
INVESTING ACTIVITIES                
Net cash used in investing activities  -   -   -   - 
                
FINANCING ACTIVITIES                
Proceeds from PPP loans  -   30,250 
Proceeds from loan – related parties  120,300   139,100   56,500   57,300 
Proceeds from receivable from shareholders  -   37,600 
Net cash provided by financing activities  120,300   206,950   56,500   57,300 
                
Net change in cash  (1,435)  (12,318)  (12,045)  7,249 
Cash, beginning of period  30,168   47,055   16,691   30,168 
Cash, end of period $28,733  $34,737  $4,646  $37,417 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:                
Interest $-  $-  $-  $- 
Income taxes $-  $-  $-  $- 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                
Extinguishment of debt $30,250  $-  $-  $30,250 
Common stock issued in exchange for related party debt $-  $2,011,039 
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, 2021,2022, 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 June 30, 2022March 31, 2023 and for the three and six months ended June 30,March 31, 2023 and 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, 20212022 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 sixthree months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 20222023 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 June 30, 2022March 31, 2023 and December 31, 2021.2022.

 

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 $784,1001,001,398 at June 30, 2022March 31, 2023 compared to $669,798950,637 at December 31, 2021.2022.

 

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 June 30, 2022March 31, 2023 include $671,872815,096 of gold and silver bullion and bullion coins and $722,867801,022 at December 31, 20212022 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 gold and 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 lossgain in precious metal of $96,25314,075 for the three months ended June 30, 2022,March 31, 2023 and an unrealized gain in precious metals of $33,88345,257 for the three months ended June 30, 2021, an unrealized loss of $50,996 for the six months ended June 30, 2022, and an unrealized loss of $26,784 for the six months ended June 30, 2021.March 31, 2022.

 

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. NaNNo impairment charges were incurred during the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. 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 salepoint-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 June 30, 2022March 31, 2023 and December 31, 2021.2022.

 

INCOME (LOSS) PER COMMON SHARE

 

Basic income (loss) per share represents 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 Company had no potential common shares as of June 30,March 31, 2023 and 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 and six months ended June 30, 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.

 

11

FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

At June 30, 2022March 31, 2023 and December 31, 2021,2022, 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. Inventory – precious metals is at fair value measured under the Level 1 category.

 

11

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 $62,255,80765,927,624 as of June 30, 2022.March 31, 2023. 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

 

SCHEDULE OF PROPERTY AND EQUIPMENT

 June 30, 2022 December 31, 2021  March 31, 2023 December 31, 2022 
Furniture and equipment $58,460  $58,460  $58,460  $58,460 
Less – accumulated depreciation  (57,769)  (57,175)  (58,091)  (58,036)
Total $691  $1,285  $369  $424 

 

Depreciation expense for the three months ended June 30,March 31, 2023 and 2022 and 2021 was $24055 and $732, respectively, and for the six months ended June 30, 2022 and 2021 was $594 and $1,493355, respectively.

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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 June 30, 2022 December 31, 2021  March 31, 2023 December 31, 2022 
Accrued court decision $260,308  $260,308  $260,308  $260,308 
Accrued consultant fees  139,004   135,336   130,000   131,500 
Accrued audit fees  17,762   44,548   34,118   8,089 
Accrued payroll  52,006   52,006 
Accrued dividends – preferred stock  36,326   36,326   36,326   36,326 
Accrued legal fees  3,781   - 
Expenses owed consultant  -   22,669 
Expenses owed related party  -   4,631 
Accrued interest payable  11,550   8,664   15,879   14,436 
Accrued interest payable related party  8,655   2,071   16,645   16,176 
Other accrued expenses  14,847   19,584   8,550   8,671 
Total $544,239  $581,512  $501,826  $480,137 

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NOTE 5 - RELATED PARTY ACTIVITY

 

During the sixthree months ended June 30, 2022,March 31, 2023, the Company was provided loans totaling $120,30056,500 by the Company’s chief executive officer. The loans bear interest at 6% per annum. There was $8,65516,645 in accrued interest at June 30, 2022.

As of June 30, 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.March 31, 2023.

 

During the sixthree months ended June 30, 2021,March 31, 2022, the Company was provided loans totaling $139,10057,300 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.

 

DuringAs of March 31, 2023, the six months ended June 30, 2021,Company had $230,50036,326 in notes payable andaccrued dividends on preferred stock, of which $4,87119,141 accrued interestwas due to the Company’s chief executive officer were converted to 784,570 shares of the Company’s common stock valued at $2,011,038 based on the closing price on the grant date. $1,775,668 was recorded as loss on settlement of related party debt on the accompanying statement of operations as of June 30, 2021.

During the six months ended June 30, 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.officer.

 

The following table is a summary of the activity for Loans payable- related parties principal for the sixthree months ended June 30,March 31, 2023 and March 31, 2022:

 

SUMMARY OF THE ACTIVITY FOR LOANS PAYABLE-PAYABLE - RELATED PARTIES

Balance at 12/31/2021 $153,100 
Loan advances  120,300 
Balance at 06/30/22 $273,400 

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Balance at 12/31/2021 $153,100 
Loan advances  57,300 
Balance at 03/31/2022 $210,700 
     
Balance at 12/31/2022 $6,000 
Loan advances  56,500 
Balance at 03/31/2023 $62,500 

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 June 30, 2022,March 31, 2023, the future payments of our operating lease were as follows for the periods ended December 31:

SCHEDULE OF FUTURE PAYMENTS OF OPERATING LEASE PAYMENTS

 Remaining Lease Payments  Remaining Lease Payments 
2022 $8,684 
2023  13,221  $8,815 
Total remaining lease payments  21,905   8,815 
Less: imputed interest  (3,135)  (1,770)
Total operating lease liabilities  18,770   7,045 
Less: current portion  (15,918)  (7,045)
Long term operating lease liabilities $2,852  $- 
        
Weighted average remaining lease term  15 months   6 months 
Weighted average discount rate  12%  12%

 

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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 owesowed 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 as part of accounts payable and accrued expenses in the balance sheet. See detail in Note 4 above. 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. There has been no change as of the date of this report.

 

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.

 

CONTINGENCIES

 

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 2022.2023. 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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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.

 

SCHEDULE OF FUTURE PAYMENTS OF DEBT

 Remaining Loan Payments  Remaining Loan Payments 
2022 $5,215 
2023  8,940  $14,155 
2024  8,940   8,940 
2025  8,940   8,940 
2026  8,940   8,940 
2027  8,940 
thereafter  209,345   200,405 
Total remaining loan payments  250,320   250,320 
Less: unrecognized interest  (100,320)
Less: imputed interest  (100,320)
Total loan liability  150,000   150,000 
Less: current portion  (3,432)  (5,866)
Long term loan liability $146,568  $144,134 
    
Weighted average remaining note term  28.0 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.were forgiven in the first three months of 2022.

 

NOTE 9- STOCKHOLDERS’ 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 ofDuring the three and six months ended June 30, 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 six months ended June 30, 2022,March 31, 2023, the Company issued 0no shares of its common stock.

 

During the sixthree months ended June 30, 2021,March 31, 2022, the Company issued 784,570no shares of its common stock to its chief executive officer for the conversion of $230,500 of related party notes payable and $4,871 accrued interest payable.stock.

PREFERRED STOCK

During the six months ended June 30, 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.

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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 Company has no subsequent events as of the date of this report.

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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, 2021,2022, filed with the Securities and Exchange Commission (“SEC”) on April 18, 2022,March 31, 2023, 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 $62,255,807$65,927,624 as of June 30, 2022.March 31, 2023. The Company did not generate cash flow from operations for the sixthree months ended June 30, 2022March 31, 2023 and the year ended December 31, 2021.2022. 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, 2021.2022.

 

Results of Operations

 

Discussion of the Three Months ended June 30,March 31, 2023 and 2022 and 2021

 

The Company generated revenues during the three months ended June 30, 2022March 31, 2023 of $3,270,927$3,339,884 as compared to $3,114,794$3,248,983 in revenues posted for the three months ended June 30, 2021.March 31, 2022. The increase in revenues is due to more aggressive pricing by Sunstockhigher than expected sales in order to increase revenues and more customers seeking a safe haven in uncertain times.January 2023.

 

For the three months ended June 30,March 31, 2023 and 2022, and 2021, cost of sales were $3,201,080$3,293,393 and $3,077,899,$3,175,167, respectively, which increasedecrease was driven by the increasedecrease in revenues as disclosed above. Professional fees decreasedincreased to $53,518$62,052 from $79,922$32,495 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively, primarily due to lower consultant fees andhigher audit fees. Compensation decreased to $182$0 from $13,954$374 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Other operating expenses decreased to $9,167$8,248 from $12,104$9,173 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively.

 

Interest expense was $1,443 and $1,443 for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Interest expense related party increaseddecreased to $3,839$469 for the three months ended June 30, 2022March 31, 2023 from $316$2,745 for the three months ended June 30, 2021.March 31, 2022.

 

Unrealized lossgain on investments in precious metals was $96,253$14,075 for the three months ended June 30, 2022March 31, 2023 compared to an unrealized gain of $33,883$45,257 for the three months ended June 30, 2021March 31, 2022 due to a lesser increase in the decrease in price of bullion.

18

Loss on settlement of related party debt was $0 for the three months ended June 30, 2022 compared to $430,261 for the three months ended June 30, 2021.

 

During the three months ended June 30, 2022,March 31, 2023, the Company posted a net loss of $94,555$11,646 as compared to a net lossincome of $467,222$102,893 for the three months ended June 30, 2021.March 31, 2022. Such change is primarily related to greaterhigher gross profit and less operating expenses in 2022, and loss on settlement of related party debthigher audit fees in 2021, offset by a loss on investment2023, lower unrealized gain in precious metals in 2022 compared to a gain in 2021.

Discussion of the Six Months ended June 30, 2022 and 2021

The Company generated revenues during the six months ended June 30, 2022 of $6,519,910 as compared to $6,062,982 in revenues posted for the six months ended June 30, 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 six months ended June 30, 2022 and 2021, cost of sales were $6,376,447 and $5,992,591, respectively, which increase was driven by the increase in revenues as disclosed above. Professional fees decreased to $86,013 from $151,617 for the six months ended June 30, 2022 and 2021, respectively, primarily due to lower consultant fees and audit fees. Compensation decreased to $556 from $14,353 for the six months ended June 30, 2022 and 2021, respectively. Other operating expenses decreased to $18,340 from $28,321 for the six months ended June 30, 2022 and 2021, respectively.

Interest expense was $2,886 and $2,892 for the six months ended June 30, 2022 and 2021, respectively. Interest expense related party increased to $6,584 for the six months ended June 30, 2022 from $2,178 for the six months ended June 30, 2021.

Unrealized loss on investments in precious metals was $50,996 for the six months ended June 30, 2022 compared to an unrealized loss of $26,784 for the six months ended June 30, 2021 due to the increase in price of bullion.

Loss on settlement of related party debt was $0 for the six months ended June 30, 2022 compared to $1,775,668 for the six months ended June 30, 2021.

$30,250 in other income in the six months ended June 30, 2022 was in regards to the forgiveness of PPP loans.

During the six months ended June 30, 2022, the Company posted a net income of $8,338 as compared to a net loss of $1,932,222 for the six months ended June 30, 2021. Such change is primarily related to greater gross profit and less operating expenses in 2022, a loss on settlement of related party debt in 2021,2023, and a gain on debt extinguishment in 2022.2022 compared to none in 2023.

 

17

Liquidity and Capital Resources

 

As of June 30, 2022,March 31, 2023, the Company had $28,733$4,646 in cash and $1,455,972$1,816,494 in inventory of precious metals and coins compared to $30,168$16,691 in cash and $1,392,665$1,751,659 in inventory of precious metals and coins at December 31, 2021.2022.

 

Net cash used in operating activities totaled $121,735$68,545 during the sixthree months ended June 30, 2022March 31, 2023 as compared to net cash used in operating activities of $219,268$50,051 during the sixthree months ended June 30, 2021.March 31, 2022. Consolidated net incomeloss was $8,338$11,646 for the sixthree months ended June 30, 2022March 31, 2023 as compared to consolidated net lossincome of $1,932,222$102,893 for the sixthree months ended June 30, 2021.March 31, 2022. Explanation of the difference between these sixthree months of 20222023 and 20212022 are explained above in the results of operations of the Company.

 

Changes in the adjustments to reconcile net income (net loss) for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively, consist of unrealized gain or loss on investment in precious metals, depreciation, and gain on extinguishment of debt, and loss on settlement of related party debt.

 

Unrealized lossgain on investment in precious metals was $50,996$14,075 for the sixthree months ended June 30, 2022March 31, 2023 and unrealized lossgain on investment in precious metals was $26,784$45,257 for the sixthree months ended June 30, 2021.March 31, 2022. Deprecation was $594$55 and $1,494,$355, respectively, for the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. Gain on extinguishment of debt was $30,250$0 and $0,$30,250, respectively, for the sixthree months ended June 30, 2022March 31, 2023 and 2021. Loss on settlement of related party debt was $0 and $1,775,668, respectively, for the six months ended June 30, 2022 and 2021.2022.

19

 

Changes in assets and liabilities for inventories, prepaid expenses, and accounts payable and accrued expenses totaled a decrease of $151,413$42,879 for the sixthree months ended June 30, 2022March 31, 2023 and a decrease of $90,992$77,792 for the sixthree months ended June 30, 2021.March 31, 2022.

 

No cash was used in investing activities for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively.

 

Net cash provided by financing activities was $120,300$56,500 for the sixthree months ended June 30, 2022March 31, 2023 and net cash provided by financing activities was $206,950$57,300 for the sixthree months ended June 30, 2021. $120,300 and $139,100, respectively were receivedMarch 31, 2022, both from notes payable related party for the six months ended June 30, 2022 and 2021. Proceeds of $0 and $30,250, respectively, were received from a PPP loan for the six months ended June 30, 2022 and 2021. $0 and $37,600, respectively, were received from receivables from shareholders for the six months ended June 30, 2022 and 2021.party.

 

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 June 30, 2022,March 31, 2023, 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.

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ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)

 

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 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.

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ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)

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 owesowed 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 hashad 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 as part of accounts payable and accrued expenses in the balance sheet. See detail in Note 4 above. 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. There has been no change as of the date of this report.

 

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 sixthree months ended June 30, 2022,March 31, 2023, the Company issued no unregistered securities: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 sixthree months 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
104Cover 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 AugustMay 15, 20222023By:/s/ Jason C. Chang
  Jason C. Chang
  President, Chief Executive Officer, Chief Financial Officer

Dated AugustMay 15, 20222023By:/s/ Ramnik Clair
  Ramnik Clair
  Vice President, Board Member

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