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.
18
Going Concern
The Company has not posted operating income and has not generated cash from
operations since inception. It has an accumulated deficit of $61,672,491 as of
March 31, 2021. The Company did not generate cash flow from operations for the
three months ended March 31, 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 March 31, 2021 and 2020
The Company generated revenues during the three months ended March 31, 2021 of
$2,948,188 as compared to $2,729,199 in revenues posted for the three months
ended March 31, 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 March 31, 2021 and 2020, cost of sales was $2,914,692
and $2,668,069, respectively, which was driven by the increase in revenues as
disclosed above. Professional fees decreased to $71,695 from $476,726 for the
three months ended March 31, 2021 and 2020, respectively, of which $272,700 in
the three months ended March 31, 2020 was due to stock for services performed.
Compensation decreased to $399 from $526,575 for the three months ended March
31, 2021 and 2020, respectively, of which $525,200 in the three months ended
March 31, 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 $16,217 from $28,540 for the three months ended March 31, 2021 and
2020, respectively.
Interest expense decreased to $1,449 for the three months ended March 31, 2021
from $7,040 for the three months ended March 31, 2020. Interest expense related
party increased to $1,862 for the three months ended March 31, 2021 from $1,781
for the three months ended March 31, 2020. Loss on settlement of related party
debt increased to $1,345,407 for the three months ended Mach 31, 2021 from
$182,032 for the three months ended March 31, 2020 due to more common shares
issued and at a greater discount to market value in the three months ended March
31, 2021. Gain from settlement decreased to $0 for the three months ended March
31, 2021 from $776,315 for the three months ended March 31, 2020 due to
settlement of convertible notes payable in the three months ended March 31,
2020. Change in fair value of derivative liability was $0 for the three months
ended March 31, 2021 compared to a decrease of $3,240,220 for the three months
ended March 31, 2020. All derivative liability was reversed in the three months
ended March 31, 2020 due to all related convertible debt converted to common
stock or settled in January 2020.
19
Unrealized loss on investments in precious metals decreased to $60,667 for the
three months ended March 31, 2021 from an unrealized loss of $60,965 for the
three months ended March 31, 2020 due to the drop in price of bullion at March
31, 2021 from December 31, 2020.
During the three months ended March 31, 2021, the Company posted a net loss of
$1,465,000 as compared to net income of $2,793,206 for the three months ended
March 31, 2020. Such change is primarily related to change in the fair value of
derivative liabilities in 2020 and a gain from settlement of notes payable in
2020 offset by stock for services in 2020 compared to $0 for all three items in
the three months ended March 31, 2021.
Liquidity and Capital Resources
As of March 31, 2021, the Company had $60,327 in cash, $219 in accounts
receivable, and $1,017,934 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 $120,853 during the three months
ended March 31, 2021 as compared to net cash used in operating activities of
$153,791 during the three months ended March 31, 2020. Consolidated net loss was
$1,465,000 for the three months ended March 31, 2021 as compared to consolidated
net income of $2,793,206 for the three months ended March 31, 2020. Explanation
of the difference between these three 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 three
months ended March 31, 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.
Change in fair value of derivative liability were $0 and ($3,240,220),
respectively, for the three months ended March 31, 2021 and 2020. Unrealized
losses on investment in precious metals were $60,667 and $60,965, respectively,
for the three months ended March 31, 2021 and 2020. Depreciation was $762 and
$2,196, respectively, for the three months ended March 31, 2021 and 2020. Common
stock issued for services including amortization of prepaid consulting was $0
and $553,400, respectively, for the three months ended March 31, 2021 and 2020.
Excess of fair value of common stock issued for cash was $0 and $421,200,
respectively, for the three months ended March 31, 2021 and 2020. Excess of fair
value of common stock issued to related party upon conversion of note payable
was $1,345,407 and $182,032, respectively, for the three months ended March 31,
2021 and 2020. Amortization of beneficial conversion feature was $0 and $6,944,
respectively, for the three months ended March 31, 2021 and 2020. Gain on
settlement of convertible notes payable was $0 and $776,937, respectively, for
the three months ended March 31, 2021 and 2020.
Changes in assets and liabilities for accounts receivable, inventories, prepaid
expenses, stock payable, and accounts payable and accrued expenses totaled
decreases of $62,689 and $166,577, respectively, for the three months ended
March 31, 2021 and 2020, respectively.
No cash was used in investing activities for the three months ended March 31,
2021 and 2020, respectively.
Net cash provided by financing activities was $134,125 for the three months
ended March 31, 2021 and net cash provided by financing activities was $51,600
for the three months ended March 31, 2020. Proceeds of $0 and $25,000 were
received from the issuance of convertible notes payable for the three months
ended March 31, 2021 and 2020, respectively. Payments on convertible notes
payable were $0 and $539,738, respectively, for the three months ended March 31,
2021 and 2020. Proceeds of $0 and $400,000 were received from stock payable,
respectively, for the three months ended March 31, 2021 and 2020. Proceeds of $0
and $15,000 were received from the issuance of common stock, respectively, for
the three months ended March 31, 2021 and 2020. $119,000 and $151,338,
respectively were received from notes payable related party for the three months
ended March 31, 2021 and 2020. Proceeds of $15,125 and $0, respectively, were
received from a PPP loan for the three months ended March 31, 2021 and 2020.
20
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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