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.
19
Going Concern
The Company has not posted operating income and has not generated cash from
operations since inception. It has an accumulated deficit of $62,139,713 as of
June 30, 2021. The Company did not generate cash flow from operations for the
six months ended June 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.
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 June 30, 2021 and 2020
The Company generated revenues during the three months ended June 30, 2021 of
$3,114,794 as compared to $2,478,688 in revenues posted for the three months
ended June 30, 2020. The increase in revenues is due to increased business at
Mom's Silver Shop, which was acquired in October 2018.
For the three months ended June 30, 2021 and 2020, cost of sales were $3,077,899
and $2,437,421, respectively, which was driven by the increase in revenues as
disclosed above. Professional fees decreased to $79,922 from $251,253 for the
three months ended June 30, 2021 and 2020, respectively, of which $172,700 in
the three months ended June 30, 2020 was due to stock for services performed.
Compensation decreased to $13,954 from $180,898 for the three months ended June
30, 2021 and 2020, respectively, of which $104,000 in the three months ended
June 30, 2020 were for shares issued to the chief executive officer below market
price for cash. Other operating expenses decreased to $12,104 from $39,142 for
the three months ended June 30, 2021 and 2020, respectively.
Interest expense decreased to $1,443 for the three months ended June 30, 2021
from $18,302 for the three months ended June 30, 2020. Interest expense related
party increased to $316 for the three months ended June 30, 2021 from $44 for
the three months ended June 30, 2020. Loss on settlement of related party debt
increased to $430,261 for the three months ended June 30, 2021 from $0 for the
three months ended June 30, 2020 due to more common shares issued and at a
greater discount to market value in the three months ended June 30, 2021.
Unrealized gain on investments in precious metals decreased to $33,883 for the
three months ended June 30, 2021 from $84,875 for the three months ended June
30, 2020 due to the drop in price of bullion at June 30, 2021 from March 31,
2021. Other income decreased to $0 for the three months ended June 30, 2021 from
$1,000 for the three months ended June 30, 2020.
20
During the three months ended June 30, 2021, the Company posted a net loss of
$467,222 as compared to net loss of $362,497 for the three months ended June 30,
2020. Such change is primarily related to decreases in professional fees
expenses and compensation expenses.
Discussion of the Six Months ended June 30, 2021 and 2020
The Company generated revenues during the six months ended June 30, 2021 of
$6,062,982 as compared to $5,207,887 in revenues posted for the six months ended
June 30, 2020. The increase in revenues is due to increased business at Mom's
Silver Shop, which was acquired in October 2018.
For the six months ended June 30, 2021 and 2020, cost of sales were $5,992,591
and $5,105,490, respectively, which was driven by the increase in revenues as
disclosed above. Professional fees decreased to $151,617 from $727,979 for the
six months ended June 30, 2021 and 2020, respectively, of which $445,400 in the
six months ended June 30, 2020 was due to stock for services performed.
Compensation decreased to $14,353 from $707,473 for the six months ended June
30, 2021 and 2020, respectively, of which $629,200 in the six months ended June
30, 2021 were for shares issued to the chief executive officer and Ramnik Clair,
board member, below market price for cash. Other operating expenses decreased to
$28,321 from $67,682 for the six months ended June 30, 2021 and 2020,
respectively.
Interest expense decreased to $2,892 for the six months ended June 30, 2021 from
$25,342 for the six months ended June 30, 2020. Interest expense related party
increased to $2,178 for the six months ended June 30, 2021 from $1,825 for the
six months ended June 30, 2020. Loss on settlement of related party debt
increased to $1,775,668 for the six months ended June 30, 2021 from $182,032 for
the six months ended June 30, 2020 due to more common shares issued and at a
greater discount to market value in the six months ended June 30, 2021. Gain
from settlement decreased to $0 for the six months ended June 30, 2021 from
$776,315 for the six months ended June 30, 2020 due to settlement of convertible
notes payable in the six months ended June 30, 2020. Change in fair value of
derivative liability was $0 for the six months ended June 30, 2021 compared to a
decrease of $3,240,220 for the six months ended June 30, 2020. All derivative
liability was reversed in the six months ended June 30 31, 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 $26,784 for the
six months ended June 30, 2021 from an unrealized gain of $23,910 for the six
months ended June 30, 2020 due to the drop in price of bullion at June 30, 2021
from December 31, 2020. Other income decreased to $0 for the six months ended
June 30, 2021 from $1,000 for the six months ended June 30, 2020.
During the six months ended June 30, 2021, the Company posted a net loss of
$1,932,222 as compared to net income of $2,430,709 for the six months ended June
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, and loss
on settlement of related party debt of $1,775,668 in 2021 compared to $182,032
in 2020, offset by stock for services of $1,074,600 in 2020 compared to $0 in
2021.
Liquidity and Capital Resources
As of June 30, 2021, the Company had $34,737 in cash and $1,114,519 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 $219,268 during the six months
ended June 30, 2021 as compared to net cash used in operating activities of
$317,279 during the six months ended June 30, 2020. Consolidated net loss was
$1,932,222 for the six months ended June 30, 2021 as compared to consolidated
net income of $2,430,709 for the six months ended June 30, 2020. Explanation of
the difference between these six 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 six months
ended June 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.
21
Change in fair value of derivative liability were $0 and ($3,240,220),
respectively, for the six months ended June 30, 2021 and 2020. Unrealized loss
on investment in precious metals was $26,784 for the six months ended June 30,
2021 and unrealized gain on investment in precious metals was $23,910 for the
six months ended June 30, 2020. Deprecation was $1,494 and $4,098, respectively,
for the six months ended June 30, 2021 and 2020. Common stock issued for
services including amortization of prepaid consulting was $0 and $553,400,
respectively, for the six months ended June 30, 2021 and 2020. Excess of fair
value of common stock issued for cash was $0 and $421,200, respectively, for the
six months ended June 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 six months ended June 30, 2021 and 2020.
Amortization of beneficial conversion feature was $0 and $25,000, respectively,
for the six months ended June 30, 2021 and 2020. Gain on settlement of
convertible notes payable was $0 and $776,315, respectively, for the six months
ended June 30, 2021 and 2020.
Changes in assets and liabilities for accounts receivable, inventories, prepaid
expenses, stock payable, and accounts payable and accrued expenses totaled
decrease of $90,992 for the six months ended June 30, 2021 and an increase of
$106,727 for the six months ended June 30, 2020.
No cash was used in investing activities for the six months ended June 30, 2021
and 2020, respectively.
Net cash provided by financing activities was $206,950 for the six months ended
June 30, 2021 and net cash provided by financing activities was $226,600 for the
six months ended June 30, 2020. Proceeds of $0 and $25,000 were received from
the issuance of convertible notes payable for the six months ended June 30, 2021
and 2020, respectively. Payments on convertible notes payable were $0 and
$564,738, respectively, for the six months ended June 30, 2021 and 2020.
Proceeds of $0 and $400,000 were received from stock payable, respectively, for
the six months ended June 30, 2021 and 2020. Proceeds of $0 and $22,500 were
received from the issuance of common stock, respectively, for the six months
ended June 30, 2021 and 2020. $139,100 and $193,838, respectively were received
from notes payable related party for the six months ended June 30, 2021 and
2020. Proceeds of $30,250 and $0, respectively, were received from PPP loans for
the six months ended June 30, 2021 and 2020. Proceeds of $0 and $150,000,
respectively, were received from an SBA loan for the six months ended June 30,
2021 and 2020. Proceeds of $37,600 and $0, respectively, were received from
shareholders for receivables for the six months ended June 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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