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.
18
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.
20
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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