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, 2020, filed with the Securities and Exchange Commission ("SEC") on April 15, 2021, 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.





Going Concern

The Company has not posted operating income and has not generated cash from operations since inception. It has an accumulated deficit of $62,470,672 as of September 30, 2021. The Company did not generate cash flow from operations for the nine months ended September 30, 2021 and the year ended December 31, 2020. 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.





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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, 2020.





Results of Operations

Discussion of the Three Months ended September 30, 2021 and 2020

The Company generated revenues during the three months ended September 30, 2021 of $4,135,437 as compared to $2,533,963 in revenues posted for the three months ended September 30, 2020. 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 September 30, 2021 and 2020, cost of sales were $4,069,093 and $2,485,634, respectively, which increase was driven by the increase in revenues as disclosed above. Professional fees increased to $63,196 from $23,299 for the three months ended September 30, 2021 and 2020, respectively, primarily due to legal fees for the Boustead trial. Compensation increased to $14,051 from $3,423 for the three months ended September 30, 2021 and 2020, respectively. Lawsuit judgment of $260,308 was in regards to the loss in the court decision in the Boustead trial. Other operating expenses decreased to $9,247 from $19,730 for the three months ended September 30, 2021 and 2020, respectively.

Interest expense was $1,443 for the three months ended September 30, 2021 and also for the three months ended September 30, 2020. Interest expense related party decreased to $472 for the three months ended September 30, 2021 from $1,520 for the three months ended September 30, 2020.

Unrealized loss on investments in precious metals was $48,586 for the three months ended September 30, 2021 compared to an unrealized gain of $95,964 for the three months ended September 30, 2020 due to the drop in price of bullion.

During the three months ended September 30, 2021, the Company posted a net loss of $330,959 as compared to net income of $94,878 for the three months ended September 30, 2020. Such change is primarily related to legal fees, unrealized loss on investment in precious metals, and judgement in the Boustead lawsuit.





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Discussion of the Nine Months ended September 30, 2021 and 2020

The Company generated revenues during the nine months ended September 30, 2021 of $10,198,419 as compared to $7,741,850 in revenues posted for the nine months ended September 30, 2020. The increase in revenues is due to more aggressive by Sunstock in order to increase revenues and more customers seeking a safe haven in uncertain times.

For the nine months ended September 30, 2021 and 2020, cost of sales were $10,061,684 and $7,591,124, respectively, which increase was driven by the increase in revenues as disclosed above. Professional fees decreased to $214,813 from $751,278 for the nine months ended September 30, 2021 and 2020, respectively, of which $445,400 in the nine months ended September 30, 2020 was due to stock for services performed and $61,605 was for payments to Boustead Securities to raise additional funds. Compensation decreased to $28,404 from $710,896 for the nine months ended September 30, 2021 and 2020, respectively, of which $629,200 in the nine months ended September 30, 2020 were for shares issued to the chief executive officer and Ramnik Clair, board member, below market price for cash. No such shares were issued in the nine months ended September 30, 2021. Lawsuit judgment of $260,308 was in regards to the loss in the court decision in the Boustead trial. Other operating expenses decreased to $37,568 from $87,412 for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense decreased to $4,335 for the nine months ended September 30, 2021 from $26,785 for the nine months ended September 30, 2020. Interest expense related party decreased to $2,650 for the nine months ended September 30, 2021 from $3,345 for the nine months ended September 30, 2020. Loss on settlement of related party debt increased to $1,775,668 for the nine months ended September 30, 2021 from $182,032 for the nine months ended September 30, 2020 due to more common shares issued and at a greater discount to market value in the nine months ended September 30, 2021. Gain from settlement decreased to $0 for the nine months ended September 30, 2021 from $776,315 for the nine months ended September 30, 2020 due to settlement of convertible notes payable in the nine months ended September 30, 2020. Change in fair value of derivative liability was $0 for the nine months ended September 30, 2021 compared to a decrease of $3,240,220 for the nine months ended September 30, 2020. All derivative liability was reversed in the nine months ended September 30, 2020 due to all related convertible debt converted to common stock or settled in January 2020.

Unrealized loss on investments in precious metals increased to $75,370 for the nine months ended September 30, 2021 from an unrealized gain of $119,874 for the nine months ended September 30, 2020 due to the drop in price of bullion. Other income decreased to $0 for the nine months ended September 30, 2021 from $1,000 for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, the Company posted a net loss of $2,263,181 as compared to net income of $2,525,587 for the nine months ended September 30, 2020. Such change is primarily related to $3,240,220 decrease in the fair value of derivative liabilities in 2020 compared to $0 in 2021, a gain from settlement of notes payable of $776,315 in 2020 compared to $0 in 2021, loss on settlement of related party debt of $1,775,668 in 2021 compared to $182,032 in 2020, and $260,308 of losses incurred in the court judgment in the Boustead trail in 2021, offset by stock for services of $1,074,600 in 2020 compared to $0 in 2021.

Liquidity and Capital Resources

As of September 30, 2021, the Company had $37,469 in cash and $1,133,453 in inventory of precious metals and coins compared to $47,055 in cash, $219 in accounts receivable, and $1,015,599 in inventory of precious metals and coins at December 31, 2020.

Net cash used in operating activities totaled $287,936 during the nine months ended September 30, 2021 as compared to net cash used in operating activities of $359,560 during the nine months ended September 30, 2020. Consolidated net loss was $2,263,181 for the nine months ended September 30, 2021 as compared to consolidated net income of $2,525,587 for the nine months ended September 30, 2020. Explanation of the difference between these nine months of 2021 and 2020 are explained above in the results of operations of the Company.

Changes in the adjustments to reconcile net income/(net loss) for the nine months ended September 30, 2021 and 2020, respectively, consist primarily of change in fair value of derivative liability, unrealized loss on investment in precious metals, depreciation, loss on settlement of related party debt, estimated fair value of common stock issued for cash, and gain on settlements of convertible notes payable.





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Change in fair value of derivative liability were $0 and ($3,240,220), respectively, for the nine months ended September 30, 2021 and 2020. Unrealized loss on investment in precious metals was $75,370 for the nine months ended September 30, 2021 and unrealized gain on investment in precious metals was $119,874 for the nine months ended September 30, 2020. Deprecation was $2,226 and $4,912, respectively, for the nine months ended September 30, 2021 and 2020. Common stock issued for services including amortization of prepaid consulting was $0 and $553,400, respectively, for the nine months ended September 30, 2021 and 2020. Excess of fair value of common stock issued for cash was $0 and $421,200, respectively, for the nine months ended September 30, 2021 and 2020. Excess of fair value of common stock issued to related party upon conversion of note payable was $1,775,668 and $182,032, respectively, for the nine months ended September 30, 2021 and 2020. Amortization of beneficial conversion feature was $0 and $25,000, respectively, for the nine months ended September 30, 2021 and 2020. Gain on settlement of convertible notes payable was $0 and $776,315, respectively, for the nine months ended September 30, 2021 and 2020.

Changes in assets and liabilities for accounts receivable, inventories, prepaid expenses, and accounts payable and accrued expenses totaled increase of $121,981 for the nine months ended September 30, 2021 and an increase of $64,718 for the nine months ended September 30, 2020.

No cash was used in investing activities for the nine months ended September 30, 2021 and 2020, respectively.

Net cash provided by financing activities was $278,350 for the nine months ended September 30, 2021 and net cash provided by financing activities was $226,600 for the nine months ended September 30, 2020. Proceeds of $0 and $25,000 were received from the issuance of convertible notes payable for the nine months ended September 30, 2021 and 2020, respectively. Payments on convertible notes payable were $0 and $564,738, respectively, for the nine months ended September 30, 2021 and 2020. Proceeds of $0 and $400,000 were received from stock payable, respectively, for the nine months ended September 30, 2021 and 2020. Proceeds of $0 and $22,500 were received from the issuance of common stock, respectively, for the nine months ended September 30, 2021 and 2020. $203,000 and $303,838, respectively were received from notes payable related party for the nine months ended September 30, 2021 and 2020. Payments on notes payable related party were $0 and $110,000, respectively, for the nine months ended September 30, 2021 and 2020. Proceeds of $30,250 and $0, respectively, were received from a PPP loan for the nine months ended September 30, 2021 and 2020. Proceeds of $0 and $150,000, respectively, were received from an SBA loan for the nine months ended September 30, 2021 and 2020. Proceeds of $45,100 and $0, respectively, were received from shareholders for receivables for the nine months ended September 30, 2021 and 2020.

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.

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