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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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 000-54830

 

SUNSTOCK, INC.

(Exact Name of Registrant as Specified in its Charter)

 

SANDGATE ACQUISITION CORPORATION

(Former Name of Registrant as Specified in its Charter)

 

Delaware   46-1856372

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

111 Vista Creek Circle

Sacramento, California 95835

(Address of principal executive offices) (zip code)

 

916-860-9622

(Registrant’s telephone number, including area code)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   SSOK   None

 

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. 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). ☒ 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.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if smaller reporting company) Smaller reporting company
   
  Emerging growth company

 

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

 

Class   Outstanding at August 20, 2021
Common Stock, par value $0.0001   4,126,387
Preferred Stock, par value $0.0001   -

 

Documents incorporated by reference: None

 

 

 

 
 

 

TABLE OF CONTENTS

 

Part I Financial Information 3
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
     
Item 4. Controls and Procedures 22
     
Part II Other Information 25
     
Item 1. Legal Proceedings 25
     
Item 1A Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
   
Item 6. Exhibits 25
     
  Signatures 26

 

2
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Condensed and Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 (audited) 4
   
Unaudited Condensed and Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 5
   
Unaudited Condensed and Consolidated Statements of Convertible Preferred Stock and Changes in Stockholders’ Equity for the Three and Six Months Ended as of June 30, 2021 and 2020 6
   
Unaudited Condensed and Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 7
   
Notes to Unaudited Condensed and Consolidated Financial Statements 8 - 18

 

3
 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

 

   June 30, 2021   December 31, 2020 
   (unaudited)   (audited) 
ASSETS        
Current assets          
Cash  $34,737   $47,055 
Accounts receivable   -    219 
Inventory – coins   458,791    333,088 
Inventory – precious metals   655,728    682,511 
Prepaid expenses   4,995    13,456 
           
Total current assets   1,154,251    1,076,329 
           
Property and equipment, net   2,229    3,723 
Right of use lease asset   32,420    38,480 
           
Total assets  $1,188,900   $1,118,532 
           
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $337,287   $316,125 
Operating lease liability – current portion   13,649    12,617 
Loans payable – related parties   7,100    98,500 
           
Total current liabilities   358,036    427,242 
           
PPP loans   30,250    - 
SBA loan. Net of current portion   150,000    150,000 
Operating lease liability, net of current portion   18,771    25,863 
           
Total liabilities   557,057    603,105 
           
Commitments and contingencies   -     -  
           
Series A convertible preferred stock, $0.0001 par value, 1,100,000,000 shares authorized, 0 and 400,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $0 and $5,200,000 as of June 30, 2021 and December 31, 2020, respectively   -    200,000 
           
Stockholders’ equity          
Preferred stock; $0.0001 par value, 400,000,000 shares authorized; 0 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively   -    - 
Common stock, $0.0001 par value, 5,000,000,000 shares authorized; 4,126,387 and 2,941,817 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively   412    294 
Additional paid – in capital   62,778,644    60,567,724 
Receivable from shareholders   (7,500)   (45,100)
Accumulated deficit   (62,139,713)   (60,207,491)
           
Total stockholders’ equity   631,843    315,427 
Total liabilities, convertible preferred stock, and stockholders’ equity  $1,188,900   $1,118,532 

 

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

 

4
 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2021   2020   2021   2020 
   For the three months ended June 30,  

For the six months ended June 30,

 
   2021   2020   2021   2020 
                 
Revenues  $3,114,794   $2,478,688   $6,062,982   $5,207,887 
Cost of revenue   3,077,899    2,437,421    5,992,591    5,105,490 
Gross profit   36,895    41,267    70,391    102,397 
                     
Operating expenses                    
Professional fees   79,922    251,253    151,617    727,979 
Compensation   13,954    180,898    14,353    707,473 
Other operating expenses   12,104    39,142    28,321    67,682 
Total operating expenses   105,980    471,293    194,291    1,503,134 
                     
Loss from operations   (69,085)   (430,026)   (123,900)   (1,400,737)
                     
Other income (expense)                    
Unrealized gain (loss) on investments in precious metals   33,883    84,875    (26,784)   23,910 
Interest expense   (1,443)   (18,302)   (2,892)   (25,342)
Interest expense related party   (316)   (44)   (2,178)   (1,825)
Loss on settlement of related party debt   (430,261)   -    (1,775,668)   (182,032)
Gain from settlement of convertible notes payable   -    -    -    776,315 
Other income   -    1,000    -    1,000 
Changes in fair value of derivative liability   -    -    -    3,240,220 
Total other income (expense), net   (398,137)   67,529    (1,807,522)   3,832,246 
                     
Income (loss) before provision for income taxes   (467,222)   (362,497)   (1,931,422)   2,431,509 
                     
Provision for income taxes   -    -    800    800 
                     
Net income (loss)  $(467,222)  $(362,497)  $(1,932,222)  $2,430,709 
                     
Income (loss) per share - basic  $(0.11)  $(0.16)  $(0.53)  $1.21 
                     
Income (loss) per share - diluted  $(0.11)  $(0.16)  $(0.53)  $0.84 
                     
Weighted average number of common shares outstanding - basic   4,078,947    2,317,205    3,654,566    2,014,932 
                     
Weighted average number of common shares outstanding – diluted   4,078,947    2,317,205    3,654,566    2,908,668 

 

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

 

5
 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 

   Shares   Amount   Shares   Amount   In Capital   Receivable   Deficit   Total 
   Convertible Preferred Stock   Common Stock   Additional Paid-   Shareholders   Accumulated     
   Shares   Amount   Shares   Amount   In Capital   Receivable   Deficit   Total 
Balance at December 31. 2019   -   $-    1,292,136   $129   $58,721,451   $(25,100)  $(62,885,335)  $(4,188,855)
Issuance of common stock for cash and receivables   -    -    206,000    21    40,079    (25,100)   -    15,000 
Estimated difference in fair value of common stock issued for cash   -    -    -    -    421,200    -    -    421,200 
Issuance of common stock for services   -    -    314,000    31    345,369    -    -    345,400 
Issuance of common stock for services related party   -    -    80,000    8    207,992    -    -    208,000 
Issuance of common stock for convertible notes   -    -    24,590    2    14,998    -    -    15,000 
Issuance of common stock for related party notes payable   -    -    229,738    23    232,183    -    -    232,206 
Estimated difference in fair value of common stock issued for related party note payable   -    -    -    -    182,032    -    -    182,032 
Issuance of comm stock for exercise of warrants (noncash transaction)   -    -    98,214    10    (10)   -    -    - 
Beneficial conversion feature of convertible note payable   -    -    -    -    25,000    -    -    25,000 
Net income   -    -    -    -    -    -    2,793,206    2,793,206 
Balance at March 31, 2020 (unaudited)   -   $-    2,244,678   $224   $60,190,294   $(50,200)  $(60,092,129)  $48,189 
Issuance of common stock for cash   -    -    75,000    8    7,492    -    -    7,500 
Net loss   -    -    -    -    -    -    (362,497)   (362,497)
Balance at June 30, 2020 (unaudited)   -   $-    2,319,678   $232   $60,197,786   $(50,200)  $(60,454,626)  $(306,808)
                                         
Balance at December 31, 2020   400,000    20,000    2,941,817   $294   $60,567,724   $(45,100)  $(60,207,491)  $315,427 
Issuance of common stock for related party notes payable and accrued interest   -    -    640,670    64    1,537,544    -    -    1,537,608 
Issuance of common stock for conversion of preferred stock   (400,000)   (20,000)   400,000    40    199,960    -    -    200,000 
Net loss   -    -    -    -    -    -    (1,465,000)   (1,465,000)
Balance at March 31, 2021 (unaudited)   -   $-    3,982,487   $398   $62,305,228   $(45,100)  $(61,672,491)  $588,035 
Issuance of common stock for related party notes payable and accrued interest   -    -    143,900    14    473,416    -    -    473,430 
Receipts on receivables from shareholders   -    -    -    -    -    37,600    -    37,600 
Net loss   -    -    -    -    -    -    (467,222)   (467,222)
Balance at June 30, 2021 (unaudited)   -   $-    4,126,387   $412   $62,778,644   $(7,500)  $(62,139,713)  $631,843 

 

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

 

6
 

 

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2021   2020 
   For the six months ended June 30, 
   2021   2020 
OPERATING ACTIVITIES          
Net income (loss)  $(1,932,222)  $2,430,709 
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Change in fair value of derivative liability   -    (3,240,220)
Unrealized (gain) loss on investment in precious metals   26,784    (23,910)
Depreciation   1,494    4,098 
Common stock issued for services including amortization of prepaid consulting   -    553,400 
Excess of fair value of common stock issued for cash   -    421,200 
Loss on settlement of related party debt   1,775,668    182,032 
Amortization of beneficial conversion feature   -    25,000 
Gain on settlement of convertible notes payable   -    (776,315)
Changes in operating assets and liabilities          
Accounts receivable   219    20,961 
Inventories – coins   (125,703)   (103,381)
Prepaid expenses   8,461    105,642 
Accounts payable and accrued expenses   26,031    83,505 
Net cash used in operating activities   (219,268)   (317,279)
INVESTING ACTIVITIES          
Net cash used in investing activities   -    - 
           
FINANCING ACTIVITIES          
Proceeds from issuance of common stock   -    22,500 
Proceeds from convertible notes payable   -    25,000 
Payments on convertible notes payable   -    (564,738)
Stock payable   -    400,000 
Proceeds from receivables from shareholders   37,600    - 
Proceeds from SBA loan   -    150,000 
Proceeds from PPP loans   30,250    - 
Proceeds from loan - related parties   139,100    193,838 
Net cash provided by financing activities   206,950    226,600 
           
Net change in cash   (12,318)   (90,679)
Cash and restricted cash, beginning of period   47,055    153,635 
Cash, end of period  $34,737   $62,956 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:          
Interest  $-   $150,335 
Income taxes  $-   $- 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES          
Common stock issued for services  $-   $553,400 
Common stock issued in exchange for convertible notes  $-   $15,000 
Common stock issued in exchange for related party debt  $2,011,039   $- 
Common stock issued for conversion of preferred stock  $200,000   $- 

 

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

 

7
 

 

SUNSTOCK, INC.

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, 2020, 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, 2021 and for the three and six months ended June 30, 2021 and 2020, 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, 2020 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, 2021 are not necessary indicative of the results that may be expected for the year ended December 31, 2021 or any future periods.

 

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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, 2021 and December 31, 2020.

 

INVENTORIES

 

INVENTORY - COINS

 

The Company acquired the Retail Store in October 2018 to enter the market for collectible 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 $458,791 at June 30, 2021 compared to $333,088 at December 31, 2020.

 

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, 2021 include $655,728 of gold and silver bullion and bullion coins and $682,511 at December 31, 2020 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 silver bullion in current assets under inventory is appropriate.

 

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 gain in precious metal of $33,883 for the three months ended June 30, 2021, an unrealized gain of $84,875 for the three months ended June 30, 2020, an unrealized loss of $26,784 for the six months ended June 30, 2021 and an unrealized gain of $23,910 for the six months ended June 30, 2020.

 

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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, 2021 and 2020. 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.

 

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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, 2021 and December 31, 2020.

 

INCOME (LOSS) PER COMMON SHARE

 

Basic income (loss) per share represent 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 potential common shares that may be issued by the Company relate to outstanding stock warrants and have been excluded from the computation of diluted income (loss) per share for the three and six months ended June 30, 2021 and for the three months ended June 30, 2020 because they would reduce the reported loss per share and therefore have an anti-dilutive effect.

 

For the six months ended June 30, 2020 there were 110,000 potentially dilutive shares that were included in the diluted income (loss) per share.

 

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 and June 30, 2020 on the statements of operations have been adjusted to reflect the reverse split.

 

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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.

 

At June 30, 2021 and December 31, 2020, the Company’s financial instruments include cash, accounts receivable, precious metals inventory, coins inventory, PPP loans, SBA loan, and accounts payable and accrued expenses. The carrying amount of cash, accounts receivable, 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.

 

NOTE 2 - GOING CONCERN

 

The Company has not posted operating income since inception. It has an accumulated deficit of $62,139,713 as of June 30, 2021. 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.

 

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.

 

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NOTE 3 – PROPERTY AND EQUIPMENT

 

   June 30, 2021   December 31, 2020 
Furniture and equipment  $58,460   $58,460 
Less – accumulated depreciation   (56,231)   (54,737)
Property and equipment, net  $2,229   $3,723 

 

Depreciation expense for the three months ended June 30, 2021 and 2020 was $732 and $1,902, respectively, and for the six months ended June 30, 2021 and 2020 was $1,493 and $4,098, respectively.

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

   June 30, 2021   December 31, 2020 
Accounts payable  $3,731   $- 
Accrued consultant fees   137,848    140,967 
Accrued audit fees   78,042    71,575 
Accrued payroll   40,006    30,000 
Expenses owed consultant   22,668    22,669 
Accrued dividends – preferred stock   36,326    32,381 
Accrued interest payable   5,778    2,886 
Accrued interest payable related party   160    2,853 
Other accrued expenses   12,728    12,794 
Accounts payable and accrued expenses  $337,287   $316,125 

 

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NOTE 5 - RELATED PARTY ACTIVITY

 

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 $1,584,951 based on the closing price on the grant date. $1,349,580 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.

 

As of June 30, 2021, 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, 2020, the Company’s chief executive officer purchased 400,000 shares of Series A Preferred Stock for $200,000. The funds were used as part of the payments of convertible notes payable in January 2020. This was classified as stock payable on the June 30, 2020 balance sheet.

 

During the six months ended June 30, 2020, the Company’s chief executive officer was granted 80,000 shares of the Company’s common stock for services for the period January 1, 2020 through June 30, 2020. The shares were valued at $208,000 based on the closing price on the grant date. $104,000 and $208,000 were recorded as employee compensation expense in the three months and six months ended June 30, 2020, respectively.

 

During the six months ended June 30, 2020, Ramnik Clair, the Company’s senior VP and a director, purchased 36,000 shares of the Company’s common stock valued at $424,800 based on the closing price on the grant date. $421,200 was recorded as employee compensation expense and $3,600 was recorded as other receivables.

 

During the six months ended June 30, 2020, the Company was provided loans totaling $193,838 by the Company’s chief executive officer. The loans bear interest at 6% per annum. During the six months ended June 30, 2020, $232,206 in notes payable and accrued interest to the Company’s chief executive officer were converted to 229,738 shares of the Company’s common stock valued at $414,238 based on the closing price on the grant dates. $182,032 was recorded as loss on settlement of related party debt.

 

The following table is a summary of the activity for Loans payable- related parties for the six months ended June 30, 2021:

 

Balance at 12/31/2020  $98,500 
Loan increases   139,100 
Loan principal converted to common stock   (230,500)
Balance at 06/30/2021  $7,100 

 

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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, 2021, the future payments of our operating lease were as follows for the periods ended December 31:

 

   Remaining Lease Payments 
2021  $8,431 
2022   17,240 
2023   13,221 
Total remaining lease payments   38,892 
Less: imputed interest   (6,472)
Total operating lease liabilities   32,420 
Less: current portion   (13,649)
Long term operating lease liabilities  $18,771 
      
Weighted average remaining lease term   27 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 maintains that Sunstock owes 87,179 shares of Preferred Stock Warrants and 9,231 shares of Common Stock Warrants. Boustead is also seeking general damages, interest, and costs of the suit. Sunstock believes that Boustead has not fulfilled its obligations in raising equity and plans to vigorously contest the suit. Sunstock has hired an arbitrator and is currently in negotiations with Boustead.

 

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.

 

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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 twelve months after closing. The SBA extended first payments from twelve months after closing to twenty-four months after closing due to the Covid-19 pandemic.

 

NOTE 8 – PPP LOANS

 

In February 2021, the Company received a $15,125 loan from the federal Paycheck Protection Program (“PPP”). The loan is for five years, interest is 1.0% per annum, and no payments are due until maturity. The Company may apply for forgiveness of the loan in the future and no more than 40% of the loan may be used for non-payroll costs.

 

In May 2021, the Company received a $15,125 loan from the federal Paycheck Protection Program (“PPP”). The loan is for five years, interest is 1.0% per annum, and no payments are due until maturity. The Company may apply for forgiveness of the loan in the future and no more than 40% of the loan may be used for non-payroll costs.

 

NOTE 9- STOCKHOLDER’S 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 number of shares listed under common stock, and the dollar amounts for common stock and additional paid-in capital for both June 30, 2021 and December 31, 2020 on the balance sheet have been adjusted to reflect the reverse split. The weighted number of shares outstanding as of the three and six months ended June 30, 2021 and June 30, 2020 on the 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 statements of stockholders’ equity (deficit) for all periods have been adjusted to reflect the reverse split.

 

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.

 

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.

 

During the six months ended June 30, 2020, the Company recorded stock receivable in the aggregate of $25,100 from the issuance of 206,000 shares of its common stock. $20,600 was recorded to common stock and $19,500 to additional paid-in capital. $15,000 cash was received.

 

During the six months ended June 30, 2020, the Company issued 2,500 shares of its common stock for $15,000 in cash at a price of $0.006 per share.

 

During the six months ended June 30, 2020, the Company issued 75,000 shares of its common stock for $7,500 in cash at a price of $0.0001 per share.

 

During the six months ended June 30, 2020, the Company issued 314,000 shares of its common stock for services with a fair market value of $345,400.

 

During the six months ended June 30, 2020, the Company issued 80,000 shares of its common stock to its chief executive officer for services with a fair market value of $208,000. $104,000 and $208,000 were recorded to employee comp expense for the three and six months ended June 30, 2020, respectively.

 

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COMMON STOCK (CONTINUED)

 

During the six months ended June 30, 2020, the Company issued 24,590 shares of its common stock for the conversion of $15,000 of convertible note payable.

 

During the six months ended June 30, 2020, the Company issued 229,738 shares of its common stock for the conversion of $212,080 of related party notes payable and $20,126 accrued interest payable.

 

During the six months ended June 30, 2020, the Company issued 98,214 shares of its common stock for the cashless conversion of warrants exercised.

 

During the six months ended June 30, 2020, the Company recorded $25,000 in beneficial conversion feature for a convertible note issued in February 2020. $6,944 was expensed to interest expense.

 

WARRANTS

 

The following table is a summary of the activity for warrants for the six months ended June 30, 2021:

 

   preferred stock warrants   common stock warrants 
Balance at 12/31/20   100,000    10,000 
           
Warrants added   -    - 
           
Warrants exercised   -    - 
          
Balance at 06/30/21   100,000    10,000 

 

The preferred stock and common stock warrants can be exercised at a purchase price of $0.50/share and $0.30/share after the reverse stock split, respectively. All warrants expire on January 31, 2025. Warrants are shown after the effect of the reverse split.

 

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NOTE 10 – TEMPORARY EQUITY

 

Shares of Series A convertible preferred stock hold conversion features providing that, at the holder’s election, the holder may convert the preferred stock into common stock. Upon conversion, the Company may be required to deliver a variable number of equity shares that is determined by using a formula based on the market price of the Company’s common stock. The right of the preferred shareholder to convert into common shares shall commence as of the date the shares are issued to the shareholder. In the event the preferred shareholder elects to convert, the preferred shareholder shall have 60 days from the date of such notice in which to render his shares of preferred stock to the Company. The conversion rate shall be the greater of (i) one fully paid and nonassessable share of common stock if the market value of the common stock is at or above $1.00 per share, or (ii) if the market value of the common stock is below $1.00, a number of fully paid and nonassessable shares of common stock equal to an amount of preferred shares multiplied by the conversion ratio of $1.00 divided by the market value, at the discretion of the preferred shareholder. Market value shall mean the closing bid price for the common stock on such previous day’s close of the common stock. The conversion rate and conversion price may be adjusted upon subdivision (by any share split, share dividend, recapitalization, for example), combination (by combination, reverse share split, for example), or any recapitalization, reorganization, reclassification, consolidation, merger, or other similar transaction. There is no contractual cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to common stock. Accordingly, Series A preferred stock has been classified as temporary equity.

 

400,000 shares of Series A convertible preferred stock were converted to 400,000 shares of common stock during the six months ended June 30, 2021. As of June 30, 2021, there were no convertible Series A Preferred Shares outstanding.

 

There is, as of June 30, 2021, $36,326 in accrued dividends on the preferred stock.

 

The liquidation preference was $0 and $5,200,000 as of June 30, 2021 and December 31, 2020, respectively.

 

NOTE 11 – 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 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 2021. 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.

 

On July 21, 2021, the Company effected a 1,000 for 1 reverse stock split of its common shares. The reverse split has been reflected in the financial statements and notes for the current period ended June 30, 2021 and all prior periods.

 

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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, 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.

 

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 June 30, 2021, 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.

 

22
 

 

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 Annual Report on Form 10-K 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.

 

23
 

 

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.

 

24
 

 

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 maintains that Sunstock owes it 87,179 shares of Preferred Stock Warrants and 9,231 shares of Common Stock Warrants. Boustead is also seeking general damages, interest, and costs of the suit. Sunstock believes that Boustead has not fulfilled its obligations in raising equity and plans to vigorously contest the suit. Sunstock has hired an arbitrator and is currently in negotiations with Boustead.

 

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 six months ended June 30, 2021, we issued the following unregistered securities:

 

We issued 784,570,000 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.

 

We issued 400,000,000 shares of its common stock to its chief executive officer for the conversion of 400,000,000 shares of Series A convertible Preferred Stock.

 

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 quarter 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

 

31.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

25
 

 

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.

 

  SUNSTOCK, INC.
     
Dated: August 20, 2021 By:  /s/ Jason C. Chang
    Jason C. Chang
    President, Chief Executive Officer, Chief Financial Officer

 

Dated: August 20, 2021 By:  /s/ Ramnik Clair
    Ramnik Clair
    Vice President, Board Member

 

26

EX-31.1 2 ex31-1.htm

 

EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO SECTION 302

 

I, Jason C. Chang, certify that:

 

1. I have reviewed this Form 10-Q for the period ended June 30, 2021 of Sunstock, Inc.

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
   
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
   
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
   
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 20, 2021 By: /s/ Jason C. Chang
    Jason C. Chang
    President, Chief Financial Officer
    (Principal Executive and Accounting Officer)

 

 

 

EX-32.1 3 ex32-1.htm

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO SECTION 906

 

Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned officer of Sunstock Inc. (the “Company”), hereby certify to my knowledge that:

 

The Report on Form 10-Q for the period ended June 30, 2021 of the Company fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Dated: August 20, 2021 By: /s/ Jason C. Chang
    Jason C. Chang
    President, Chief Financial Officer
    (Principal Executive and Accounting Officer)

 

 

 

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