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Sunstock, Inc. – ‘10-Q’ for 3/31/23

On:  Monday, 5/15/23, at 11:08am ET   ·   For:  3/31/23   ·   Accession #:  1493152-23-17042   ·   File #:  0-54830

Previous ‘10-Q’:  ‘10-Q’ on 11/14/22 for 9/30/22   ·   Next:  ‘10-Q’ on 8/14/23 for 6/30/23   ·   Latest:  ‘10-Q’ on 11/13/23 for 9/30/23

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 5/15/23  Sunstock, Inc.                    10-Q        3/31/23   48:2.4M                                   M2 Compliance LLC/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  i 10-Q

(Mark One)

 i ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  i March 31,  i 2023 / 

OR

 i ☐ 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  i 000-54830

 i SUNSTOCK, INC.

(Exact Name of Registrant as Specified in its Charter)

SANDGATE ACQUISITION CORPORATION

(Former Name of Registrant as Specified in its Charter)

 i 111 Vista Creek Circle

 i Sacramento,  i California  i 95835

(Address of principal executive offices) (zip code)

 i 916- i 860-9622

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

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.  i 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).☒  i 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  i 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.

Documents incorporated by reference: None

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

SUNSTOCK, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND CHANGES IN STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of the unaudited condensed and consolidated financial statements

SUNSTOCK, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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, 2022, filed with the Securities and Exchange Commission (“SEC”) on 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.

Going Concern

The Company has not posted operating income and has not generated cash from operations since inception. It has an accumulated deficit of $65,927,624 as of March 31, 2023. The Company did not generate cash flow from operations for the three months ended March 31, 2023 and the year ended December 31, 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, 2022.

Results of Operations

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

The Company generated revenues during the three months ended March 31, 2023 of $3,339,884 as compared to $3,248,983 in revenues posted for the three months ended March 31, 2022. The increase in revenues is due to higher than expected sales in January 2023.

For the three months ended March 31, 2023 and 2022, cost of sales were $3,293,393 and $3,175,167, respectively, which decrease was driven by the decrease in revenues as disclosed above. Professional fees increased to $62,052 from $32,495 for the three months ended March 31, 2023 and 2022, respectively, primarily due to higher audit fees. Compensation decreased to $0 from $374 for the three months ended March 31, 2023 and 2022, respectively. Other operating expenses decreased to $8,248 from $9,173 for the three months ended March 31, 2023 and 2022, respectively.

Interest expense was $1,443 and $1,443 for the three months ended March 31, 2023 and 2022, respectively. Interest expense related party decreased to $469 for the three months ended March 31, 2023 from $2,745 for the three months ended March 31, 2022.

Unrealized gain on investments in precious metals was $14,075 for the three months ended March 31, 2023 compared to an unrealized gain of $45,257 for the three months ended March 31, 2022 due to a lesser increase in the price of bullion.

During the three months ended March 31, 2023, the Company posted a net loss of $11,646 as compared to a net income of $102,893 for the three months ended March 31, 2022. Such change is primarily related to higher gross profit in 2022, higher audit fees in 2023, lower unrealized gain in precious metals in 2023, and a gain on debt extinguishment in 2022 compared to none in 2023.

Liquidity and Capital Resources

As of March 31, 2023, the Company had $4,646 in cash and $1,816,494 in inventory of precious metals and coins compared to $16,691 in cash and $1,751,659 in inventory of precious metals and coins at December 31, 2022.

Net cash used in operating activities totaled $68,545 during the three months ended March 31, 2023 as compared to net cash used in operating activities of $50,051 during the three months ended March 31, 2022. Consolidated net loss was $11,646 for the three months ended March 31, 2023 as compared to consolidated net income of $102,893 for the three months ended March 31, 2022. Explanation of the difference between these three months of 2023 and 2022 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, 2023 and 2022, respectively, consist of unrealized gain or loss on investment in precious metals, depreciation, and gain on extinguishment of debt.

Unrealized gain on investment in precious metals was $14,075 for the three months ended March 31, 2023 and unrealized gain on investment in precious metals was $45,257 for the three months ended March 31, 2022. Deprecation was $55 and $355, respectively, for the three months ended March 31, 2023 and 2022. Gain on extinguishment of debt was $0 and $30,250, respectively, for the three months ended March 31, 2023 and 2022.

Changes in assets and liabilities for inventories, prepaid expenses, and accounts payable and accrued expenses totaled a decrease of $42,879 for the three months ended March 31, 2023 and a decrease of $77,792 for the three months ended March 31, 2022.

No cash was used in investing activities for the three months ended March 31, 2023 and 2022, respectively.

Net cash provided by financing activities was $56,500 for the three months ended March 31, 2023 and net cash provided by financing activities was $57,300 for the three months ended March 31, 2022, both from notes payable related 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.

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 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.

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.

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.

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.

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 owed 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 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. 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 three months ended March 31, 2023, the Company issued no unregistered 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 three 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.

ITEM 6. EXHIBITS

(a) Exhibits

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.

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing		Date		Other Filings
		12/31/23
Filed on:		5/15/23
For Period end:		3/31/23		10-K
		12/31/22		10-K
		3/31/22		10-Q,  NT 10-K
		12/9/21
		11/2/21
		1/4/21
		8/21/20
		12/31/19		10-K,  NT 10-K
		9/19/19
		10/22/18		8-K
		7/18/13		3,  4,  8-K,  8-K/A
		7/23/12
				List all Filings

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Filing Submission 0001493152-23-017042   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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