NOTES
TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE
OF OPERATIONS
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. In July 2013, the Company implemented a change of control by issuing shares to new shareholders, redeeming shares of existing
shareholders, electing new officers and directors and accepting the resignations of its then existing officers and directors. In connection
with the change of control, the shareholders of the Company and its board of directors unanimously approved the change of the Company’s
name from Sandgate Acquisition Corporation to Sunstock, Inc. On July 18, 2013, Jason Chang and Dr. Ramnik S Clair were named as directors
of the Company.
On
October 22, 2018, Sunstock, Inc. acquired all assets and liabilities of Mom’s Silver Shop, Inc. (the “Retail Store”)
located in Sacramento, California.
The
Company’s business plan includes the buying, selling and distribution of precious metals, primarily gold. The Company pursues a
“ground to coin” strategy, whereby it seeks to acquire mining assets as well as rights to purchase mining production and
to sell these metals primarily through retail channels including their own branded coins. The Company emphasizes investment in enduring
assets that we believe may provide ‘resource to retail’ conversion upside. Our goal is to provide our shareholders with an
exceptional opportunity to capture value in the precious metals sector without incurring many of the costs and risks associated with
actual mining operations.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed and consolidated financial statements of Sunstock, Inc. were prepared in accordance with the instructions
to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with U.S. GAAP.
The
accompanying condensed and consolidated balance sheet at December 31, 2021, has been derived from audited consolidated financial statements,
but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The accompanying unaudited condensed and consolidated financial statements as of June 30, 2022 and for the three and six
months ended June 30, 2022 and 2021, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S.
GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related
notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as
filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all material adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been made to the unaudited condensed and consolidated financial
statements. The unaudited condensed and consolidated financial statements include all material adjustments (consisting of all normal
accruals) necessary to make the condensed and consolidated financial statements not misleading as required by Regulation S-X Rule 10-01.
Operating results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year
ended December 31, 2022 or any future periods.
USE
OF ESTIMATES
The
preparation of the unaudited condensed and consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates made by the Company’s management include realizability and valuation of inventories
and value of stock-based transactions.
CONCENTRATION
OF RISK
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its
cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation
limit as of June 30, 2022 and December 31, 2021.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
INVENTORIES
INVENTORY
- COINS
The
Company acquires collectible coins from both companies and individuals and then marks them up for resale. The inventory is recorded at
lower of cost or market or net realizable value. Inventory can fluctuate in relation to when it is purchased and when it is sold. Collectible
coins inventory was $784,100 at June 30, 2022 compared to $669,798 at December 31, 2021.
At
each balance sheet date, the Company evaluates its ending inventory quantities on hand and on order and records a provision for excess
quantities and obsolescence. Among other factors, the Company considers historical demand and forecasted demand in relation to the inventory
on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable
value. In addition, the Company considers changes in the market value of components in determining the net realizable value of its inventory.
Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs
are considered permanent adjustments to the cost basis of the excess or obsolete inventories.
INVENTORY
– PRECIOUS METALS
Inventories
of precious metals and coins held for investment at June 30, 2022 include $671,872 of gold and silver bullion and bullion coins and $722,867
at December 31, 2021 and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins
is comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium
paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the
market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources such as Kitco
and Apmex. The Company’s inventory is subsequently recorded at fair market values on a quarterly basis. The fair value of the inventory
is determined using pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities
inventories are classified in Level 1 of the valuation hierarchy as defined later in this section. The Company has continuously experienced
a shortage of cash and has had significantly past due obligations. While the Company’s preference is to hold the silver and gold
bullion to achieve long-term gains, the bullion is available to pay current obligations should the Company not be able to raise cash
through issuance of stock or notes payable. Thus, the Company believes that including the gold and silver bullion in current assets under
inventory is appropriate.
INVENTORY
– PRECIOUS METALS (CONTINUED)
The
change in fair value of the precious metals was included in the financial statements herein as recorded on the Company’s Statements
of Operations as an unrealized loss in precious metal of $96,253 for the three months ended June 30, 2022, an unrealized gain in precious
metals of $33,883 for the three months ended June 30, 2021, an unrealized loss of $50,996 for the six months ended June 30, 2022, and
an unrealized loss of $26,784 for the six months ended June 30, 2021.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 5 years.
Any leasehold improvements are amortized at the lesser of the useful life of the asset or the lease term.
LONG-LIVED
ASSETS
The
Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition
is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset.
No impairment charges were incurred during the six months ended June 30, 2022 and 2021. There can be no assurance, however, that market
conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets
in the future.
REVENUE
RECOGNITION
The
Company’s principal activities from which it generates revenue are product sales. Revenue is measured based on considerations specified
in a contract with a customer. A contract exists when it becomes a legally enforceable agreement with a customer. These contracts define
each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid at time
of sale via credit card, check, or cash when products are sold direct to consumers.
A
performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of
a product to customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to
the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods
is separately identifiable from other promises in the contract. The Company has concluded the sale of product and related shipping and
handling are accounted for as the single performance obligation.
The
transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer
receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which the Company
will be entitled to receive in exchange for transferring goods to the customer. We do not issue refunds.
The
Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over a product to a customer
when product is shipped based on fulfillment by the Company or when a point of sale transaction is completed. Taxes assessed by a governmental
authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from
a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has
transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales. The Company does not accept
returns.
INCOME
TAXES
The
Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined
based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation
allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred
tax assets. The Company’s income tax provision consists of state minimum taxes.
The
Company recognizes any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a
50% likelihood of being sustained.
There
are no unrecognized tax benefits included in the balance sheet that would, if recognized, affect the effective tax rate.
The
Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had
$0 accrued for interest and penalties on each of the Company’s balance sheets at June 30, 2022 and December 31, 2021.
INCOME
(LOSS) PER COMMON SHARE
Basic
income (loss) per share represents income (loss) available to common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted income (loss) per share reflects additional common shares that would have been outstanding if
dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance.
The Company had no potential common shares as of June 30, 2022.
Effective
July 21, 2021, the Company effected a 1,000 for 1 reverse split of its common shares (see Note 9). The weighted number of shares outstanding
as of the three and six months ended June 30, 2021 on the statements of operations have been adjusted to reflect the reverse split.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company measures the fair value of certain of its financial assets on a recurring basis. A fair value hierarchy is used to rank the quality
and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified
and disclosed in one of the following three categories:
Level
1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar
assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities; and
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities, such as derivative liabilities in relation to the conversion feature of notes payable.
FAIR
VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
At
June 30, 2022 and December 31, 2021, the Company’s financial instruments include cash, precious metals inventory, coins inventory,
PPP loan, SBA loan, and accounts payable and accrued expenses. The carrying amount of cash, precious metals inventory, coins inventory,
PPP loan, SBA loan, and accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments.
PRINCIPLES
OF CONSOLIDATION
We
consolidate entities that we control due to ownership of a majority voting interest. All intercompany balances and transactions have
been eliminated in consolidation.
NOTE
2 - GOING CONCERN
The
Company has not posted annual operating income since inception. It has an accumulated deficit of $62,255,807 as of June 30, 2022. 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. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.
These
unaudited condensed and consolidated financial statements have been prepared on a going concern basis, which implies the Company will
continue 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 unaudited condensed and 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.
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.
NOTE
3 – PROPERTY AND EQUIPMENT
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Furniture and equipment | |
$ | 58,460 | | |
$ | 58,460 | |
| Less – accumulated depreciation | |
| (57,769 | ) | |
| (57,175 | ) |
| Total | |
$ | 691 | | |
$ | 1,285 | |
Depreciation
expense for the three months ended June 30, 2022 and 2021 was $240 and $732, respectively, and for the six months ended June 30, 2022
and 2021 was $594 and $1,493, respectively.
NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Accrued court decision | |
$ | 260,308 | | |
$ | 260,308 | |
| Accrued consultant fees | |
| 139,004 | | |
| 135,336 | |
| Accrued audit fees | |
| 17,762 | | |
| 44,548 | |
| Accrued payroll | |
| 52,006 | | |
| 52,006 | |
| Accrued dividends – preferred stock | |
| 36,326 | | |
| 36,326 | |
| Accrued legal fees | |
| 3,781 | | |
| - | |
| Expenses owed consultant | |
| - | | |
| 22,669 | |
| Accrued interest payable | |
| 11,550 | | |
| 8,664 | |
| Accrued interest payable related party | |
| 8,655 | | |
| 2,071 | |
| Other accrued expenses | |
| 14,847 | | |
| 19,584 | |
| Total | |
$ | 544,239 | | |
$ | 581,512 | |
NOTE
5 - RELATED PARTY ACTIVITY
During
the six months ended June 30, 2022, the Company was provided loans totaling $120,300 by the Company’s chief executive officer.
The loans bear interest at 6% per annum. There was $8,655 in accrued interest at June 30, 2022.
As
of June 30, 2022, the Company has $36,326 in accrued dividends on preferred stock, of which $19,141 is due to the Company’s chief
executive officer.
During
the six months ended June 30, 2021, the Company was provided loans totaling $139,100 by the Company’s chief executive officer.
The loans bear interest at 6% per annum.
During
the six months ended June 30, 2021, $230,500 in notes payable and $4,871 accrued interest to the Company’s chief executive officer
were converted to 784,570 shares of the Company’s common stock valued at $2,011,038 based on the closing price on the grant date.
$1,775,668 was recorded as loss on settlement of related party debt on the accompanying statement of operations as of June 30, 2021.
During
the six months ended June 30, 2021, the Company issued to the chief executive officer 400,000 shares of the Company’s common stock
in exchange for 400,000 shares of the Company’s Series A convertible Preferred Stock.
The
following table is a summary of the activity for Loans payable- related parties principal for the six months ended June 30, 2022:
SUMMARY OF THE ACTIVITY FOR LOANS PAYABLE- RELATED PARTIES
| Balance at 12/31/2021 | |
$ | 153,100 | |
| Loan advances | |
| 120,300 | |
| Balance at 06/30/22 | |
$ | 273,400 | |
NOTE
6 – COMMITMENTS AND CONTINGENCIES
The
Company leases space for the Retail Store. The lease is for five years and runs through September 2023. The lease calls for payments
of $1,305.60 per month for the first year, with a 3% increase per year for years two through five.
As
of June 30, 2022, the future payments of our operating lease were as follows for the periods ended December 31:
SCHEDULE OF FUTURE PAYMENTS OF OPERATING LEASE PAYMENTS
| | |
Remaining Lease Payments | |
| 2022 | |
$ | 8,684 | |
| 2023 | |
| 13,221 | |
| Total remaining lease payments | |
| 21,905 | |
| Less: imputed interest | |
| (3,135 | ) |
| Total operating lease liabilities | |
| 18,770 | |
| Less: current portion | |
| (15,918 | ) |
| Long term operating lease liabilities | |
$ | 2,852 | |
| | |
| | |
| Weighted average remaining lease term | |
| 15 months | |
| Weighted average discount rate | |
| 12 | % |
LITIGATION
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 owes it 87,179 shares of Preferred Stock Warrants and 9,231 shares of Common Stock Warrants.
Boustead also sought 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 (see Note 9). 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.
INDEMNITIES
AND GUARANTEES
The
Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party,
in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under
the laws of the State of Delaware. In connection with its facility leases, the Company has agreed to indemnify its lessors for certain
claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life
of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company
could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore,
no liabilities have been recorded for these indemnities and guarantees in the accompanying balance sheets.
CONTINGENCIES
The
full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the global
situation on its financial condition, liquidity operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19
outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its
results of operations, financial condition or liquidity for the fiscal year 2022. However, to date there has not been a decrease in sales.
The Company believes that in this time of uncertainty, individuals are buying collectible coins as a safe haven. The Company is unable
to predict if such buying will continue during this time of uncertainty or if the buying will decrease as events change and evolve.
NOTE
7 – SBA LOAN
In
June 2020, the Company received a $150,000 loan (less $100 expense) from the Small Business Administration (“SBA”). The loan
is for thirty years, interest is 3.75% per annum, and payments of $731 are monthly beginning twenty-four months after closing.
SCHEDULE OF FUTURE PAYMENTS OF DEBT
| | |
Remaining Loan Payments | |
| 2022 | |
$ | 5,215 | |
| 2023 | |
| 8,940 | |
| 2024 | |
| 8,940 | |
| 2025 | |
| 8,940 | |
| 2026 | |
| 8,940 | |
| thereafter | |
| 209,345 | |
| Total remaining loan payments | |
| 250,320 | |
| Less: unrecognized interest | |
| (100,320 | ) |
| Total loan liability | |
| 150,000 | |
| Less: current portion | |
| (3,432 | ) |
| Long term loan liability | |
$ | 146,568 | |
| | |
| | |
| Weighted average remaining note term | |
| 28.0 years | |
NOTE
8 – PPP LOAN
In
February and May 2021, the Company received a $15,125 loan and a $15,125 loan from the federal Paycheck Protection Program (“PPP”),
respectively. The loans are for five years, interest is 1.0% per annum, and no payments are due until maturity. The loans have been forgiven.
NOTE
9- STOCKHOLDERS’ EQUITY
COMMON
STOCK
The
Company is authorized to issue 5,000,000,000 shares of common stock and 1,500,000,000 of preferred stock.
Effective
July 21, 2021, the Company effected a 1,000 for 1 reverse split of its common shares. The weighted number of shares outstanding as of
the three and six months ended June 30, 2021 on the unaudited condensed and consolidated statements of operations have been adjusted
to reflect the reverse split. The number of common shares and the dollar amounts of common shares and additional paid-in capital for
all periods on the unaudited condensed and consolidated statements of stockholders’ equity (deficit) for all periods have been
adjusted to reflect the reverse split.
During
the six months ended June 30, 2022, the Company issued no shares of its common stock.
During
the six months ended June 30, 2021, the Company issued 784,570 shares of its common stock to its chief executive officer for the conversion
of $230,500 of related party notes payable and $4,871 accrued interest payable.
PREFERRED
STOCK
During
the six months ended June 30, 2021, the Company issued 400,000 shares of its common stock to its chief executive officer for the conversion
of 400,000 shares of Series A convertible Preferred Stock.
NOTE
10 – SUBSEQUENT EVENTS
The
Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish
general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial
statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management
of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the unaudited condensed
and consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring
after the balance sheet date in its condensed and consolidated financial statements, and (iii) the disclosures that an entity should
make about events or transactions that occurred after the balance sheet date.
The
Company has no subsequent events as of the date of this report.
