Attached files

file filename
EX-32.1 - Sunstock, Inc.ex32-1.htm
EX-31.1 - Sunstock, Inc.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2016

 

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)

 

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 [X] 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). [X] 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 [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

 

  Outstanding at
Class   November 14, 2016
Common Stock, par value $0.0001   15,136,438

 

Documents incorporated by reference: None

 

 

 

   
  

 

TABLE OF CONTENTS

 

Part I Financial Information  
     
Item 1. Financial Statements 3
     
Item 2. Managements's Discussion and Analysis of Financial Condition and Results of Operations 11
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
     
Item 4. Controls and Procedures 13
     
Part II Other Information  
     
Item 1. Legal Proceedings 14
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
Item 3. Defaults Upon Senior Securities 14
     
Item 4. Submission of Matters to a Vote of Security Holders 14
     
Item 5. Other Information 15
     
Item 6. Exhibits 15

 

 2 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Condensed Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 (Audited) 4
   
Unaudited Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 5
   
Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 6
   
Notes to Unaudited Condensed Financial Statements 7-10

 

 

 3 

 

SUNSTOCK, INC.

CONDENSED BALANCE SHEETS

 

   September 30, 2016   December 31, 2015 
   (Unaudited)     
ASSETS          
Current assets          
Cash  $2,246   $13,699 
Other receivable   887    - 
Marketable securities   -    39,570 
Inventory - products   23,800    27,314 
Inventory - silver   428,663    302,429 
Prepaid services   81,000    - 
Prepaid expenses   4,600    2,378 
           
Total Current Assets   541,196    385,390 
           
Property and equipment-net   5,407    7,729 
Security deposits   2,000    2,000 
           
Total assets  $548,603   $395,119 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $40,412   $39,307 
Accrued litigation   82,660    55,200 
Total Current Liabilities   123,072    94,507 
           
Total liabilities   123,072    94,507 
           
Commitments and contingencies          
Stockholders’ equity          
Preferred stock; $0.0001 par value, 20,000,000 shares authorized; zero shares issued and outstanding   -    - 
Common stock, $0.0001 par value, 100,000,000 shares authorized; 15,136,438 and 10,482,103 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively   1,513    1,048 
Additional paid - in capital   2,703,484    1,007,034 
Accumulated deficit   (2,279,466)   (707,470)
           
Total stockholders’ equity   425,531    300,612 
Total liabilities and stockholders’ equity  $548,603   $395,119 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 4 

 

SUNSTOCK, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

   For the three months ended September 30,   For the nine months ended September 30, 
   2016   2015   2016   2015 
                 
Revenues  $9,966   $11,696   $33,476   $48,699 
Cost of revenue   5,335    6,668    17,921    25,036 
Gross profit   4,631    5,028    15,555    23,663 
                     
Operating expenses   1,063,768    39,266    1,706,652    151,376 
                     
Operating loss   (1,059,137)   (34,238)   (1,691,097)   (127,713)
Other income (expense):                    
Unrealized gain (loss) on investments in precious metals   (1,577)   (32,632)   114,055    (32,632)
Realized gain (loss) on investments in marketable securities   -    (2,772)   5,046    6,204 
                     
Loss before income tax   (1,060,714)   (69,642)   (1,571,996)   (154,141)
Income tax   -    -         800 
                     
Net loss  $(1,060,714)  $(69,642)  $(1,571,996)  $(154,941)
                     
Loss per share - basic and diluted  $(0.09)  $(0.01)  $(0.14)  $(0.02)
                     
Weighted average number of common shares outstanding - basic and diluted   11,444,284    10,340,971    11,027,097    10,030,438 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 5 

 

SUNSTOCK, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the nine months ended 
   September 30, 2016   September 30, 2015 
OPERATING ACTIVITIES          
Net loss  $(1,571,996)  $(154,941)
Adjustments to reconcile net loss to net cash used in operating activities          
Realized gain on marketable securities, net   (5,046)   (6,204)
Unrealized (gain) loss on investment in precious metals   (114,055)   32,632 
Depreciation   2,622    1,398 
Common stock issued for services   1,589,138    26,700 
Changes in operating assets and liabilities          
Other receivable   (887)   - 
Inventories - products   3,514    2,361 
Purchases of marketable securities   -    (2,911,799)
Proceeds from sale of marketable securities   44,616    2,876,393 
Prepaid expenses   (2,222)   - 
Accrued litigation   27,460    - 
Accounts payable   1,105    (7,829)
           
Net cash used in operating activities   (25,751)   (141,289)
INVESTING ACTIVITIES          
Inventories - silver   (12,179)   (333,940)
Purchase of property and equipment   (300)   (2,505)
Cash provided by (used in) investing activities   (12,479)   (336,445)
           
FINANCING ACTIVITIES          
Proceeds from issuance of common stock   26,777    478,500 
           
Net cash provided by financing activities   26,777    478,500 
           
Net change in cash   (11,453)   766 
           
Cash, beginning of period   13,699    1,567 
           
Cash, end of period  $2,246   $2,333 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH          
Common stock issued as prepaid consulting and services  $403,500   $26,700 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 6 

 

SUNSTOCK, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF OPERATIONS

 

Sunstock, Inc. (formerly known as Sandgate Acquisition Corporation) (“Sunstock” or “the Company”) was incorporated on July 23, 2012 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. Sunstock operations to date have been limited to issuing shares of its common stock. Sunstock may attempt to locate and negotiate with a business entity for the combination of that target company with Sunstock. The combination will normally take the form of a merger, stock-for-stock exchange or stock-for-assets exchange. In most instances the target company will wish to structure the business combination to be within the definition of a tax-free reorganization under Section 351 or Section 368 of the Internal Revenue Code of 1986, as amended. No assurances can be given that Sunstock will be successful in locating or negotiating with any target company.

 

In December 2014, the Company purchased 100 ounces of silver. In 2015, the Company purchased additional precious metals for $302,429 and shifting more of its capital to the acquisition of precious metals. The Company holds physical coins and bullion rather than contracts for delivery of precious metals or certificates. In time of economic crisis, there may be no guarantee of the delivery of precious metals as contracts and certificates may exceed available stock.

 

Currently, the Company anticipates holding its precious metals as a long term investment. Depending on market conditions, the Company anticipates holding its silver holdings until the market price exceeds $50. Likewise, the Company does not plan to sell its gold holdings unless the market price exceeds $2,500.

 

BASIS OF PRESENTATION

 

The condensed balance sheet as of December 31, 2015, which has been derived from audited financial statements and the interim unaudited condensed financial statements as of September 30, 2016 and 2015 have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8 of SEC Regulation S-X. These condensed financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2015, included in the Company’s Form 10-K.

 

The condensed financial statements included herein as of and for the three and nine months ended September 30, 2016 and 2015 are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of the Company’s management, are necessary to present fairly the condensed financial position of the Company as of September 30, 2016, the condensed results of its operations and cash flows for the three and nine months ended Septmeber 30, 2016 and 2015 and the condensed cash flows for the nine months ended September 30, 2016 and 2015. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with U.S. 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 but are not limited to valuation of marketable securities, realizability of inventories and value of stock-based transactions.

 

 7 

 

INVENTORIES

 

Inventories consist of merchandise for sale and are stated at the lower of cost or market determined on a first-in, first-out (FIFO) method. When a purchase contains multiple copies of the same item, they are stated at average cost.

 

Inventories – silver consists primarily of silver and small amounts of gold held for sale and are stated at cost. Currently, the Company anticipates holding its precious metals as a long term investment. Depending on market conditions, the Company anticipates holding its silver holdings until the market price exceeds $50. Likewise, the Company does not plan to sell its gold holdings unless the market price exceeds $2,500.

 

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.

 

REVENUE RECOGNITION

 

The Company recognizes revenues in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Certification (ASC”) Topic 605. Accordingly, the Company recognizes revenues when there is persuasive evidence that an arrangement exists, product delivery and acceptance have occurred, the sales price is fixed or determinable, and collectability of the transaction is assured.

 

EARNINGS (LOSS) PER COMMON SHARE

 

Basic earnings (loss) per share represent income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period which excluded unvested restricted stock. Diluted earnings (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 options and have been excluded from the computation of diluted earnings (loss) per share because they would reduce the reported loss per share and therefore have an anti-dilutive effect.

 

As of September 30, 2016, there were no potentially dilutive shares that were excluded from the diluted earnings (loss) per share as their effect would have been antidilutive for each of the periods presented.

 

STOCK BASED COMPENSATION

 

ASC 718 “Compensation - Stock Compensation” prescribes accounting and reporting standards for all stock-based payment awards to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction is recognized as a liability; otherwise, the transaction is recognized as equity.

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

 8 

 

NOTE 2 - GOING CONCERN

 

The Company has not posted operating income since inception. It has an accumulated deficit of approximately $2,279,466 as of September 30, 2016. These matters raise 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 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 negotiating with an acquisition target.

 

There is no assurance that the Company will ever be profitable. The condensed 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.

 

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

 

See Note 1 of our Annual Report on Form 10-K as of and for the year ended December 31, 2015 and our Quarterly Report on Form 10-Q as of and the period ended June 30, 2016 for a description of recent accounting pronouncements, including expected dates of adoption and estimated effects on our unaudited condensed financial statements.

 

NOTE 4 - RELATED PARTY BALANCES

 

The Company has not incurred any salaries and related expenses during the nine months ended September 30, 2016 or 2015. The parents of the Company’s officer have contributed their time without compensation, nor any amounts due. They assist with operating the Company’s store. In addition, the Company receives consulting services from a shareholder without any compensation, nor any amounts due. The Company approximates the quarterly expense would total $15,000 to hire and pay for comparable services. No such amounts have been recorded for the three and nine months ended September 30, 2016 or 2015.

 

In January 2015, the Company’s CEO has provided the Company with a revolving line of credit of up to $120,000. All principal and interest (5%) was due and payable in January 2016. There were no borrowings under the revolving line and it was closed in February 2016.

 

The Company has $30,000 of non-interest bearing, non-secured line of credit with a shareholder. The line is due on demand. At September 30, 2016 and December 31, 2015, the Company had net borrowings of approximately $30,000 and $20,000 respectively, which are included in accounts payable in the accompanying condensed balance sheets. The line expires in December 2016.

 

NOTE 5 - COMMITMENTS AND CONTINGIENCIES

 

On April 8, 2014, the Company entered into a sixty-seven month lease agreement for its second retail store. The lease requires monthly payments of base rent of $4,756, with free rent for months one through four, month seven, month nine and month eleven. The base rent increases gradually over the term of the lease. This store began operations on May 8, 2014.

 

 9 

 

LITIGATION

 

In December 2013, the Company issued 75,000 shares of common stock to a third party (the “Shareholder”) for consideration of $16,000. Such consideration was received directly by Jason Chang, CEO, and was not deposited into the Company’s bank account. As the funds had not been received by the Company, such amounts have been recorded as compensation to Mr. Chang as of December 31, 2014. In April 2014, the Company received notice from the Shareholder that he had filed a lawsuit against the Company and its CEO relating to the delay in the complainants’ stock reaching public listing services. In June, 2016 the Company received a judgement of $82,660, which is due on demand and has reflected this amount in accrued litigation on the accompanying balance sheets as of September 30, 2016 and $55,200 at December 31, 2015.

 

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 sheet.

 

NOTE 6 - STOCKHOLDER’S EQUITY

 

The Company is authorized to issue 100,000,000 shares of common stock and 20,000,000 shares of preferred stock, each having a par value of $0.001 per share.

 

During the first quarter of 2016, the Company issued an aggregate of 180,000 shares of fully vested non-forfeitable shares of common stock to certain consultants of the Company to be earned over a one-year period. The shares were valued at $216,000 (based on the closing market price on the measurement date) and have been recorded as prepaid consulting in the accompanying condensed balance sheet. The Company has amortized approximately $54,000 and $135,000 of such expense during the three and nine months ended September 30, 2016, respectively

 

In February 2016, the Company entered into an agreement with a media consultant to create brand awareness in return for 150,000 shares of fully vested, non-forfeitable common stock valued at $187,500 (based on the market closing price on the measurement date) to be earned over a six-month period and $1,500 per each filming session. The shares are recorded as prepaid consulting expense in the accompanying condensed balance sheet. The Company amortized approximately $49,000 and $188,000 of consulting expense during the three and nine months ended September 30, 2016, respectively.

 

During the nine months ended September 30, 2016, the Company issued an aggregate of 3,860,000 shares of restricted common stock to certain employees for future services. The unearned restricted shares have been excluded from the loss per share calculation. The Company also received proceeds of $2,010 related to such issuances. The total fair value of the shares of restricted common stock issued of $5,005,800 was based on the market price of the restricted stock on date of grant to be amortized to stock-based compensation expense over the term of the requisite service period. During the three and nine months ended September 30, 2016, the Company expensed $930,038 and $1,266,638 respectively related to the vested portion of the shares issued.

 

During the nine months ended September 30, 2016, the Company received an aggregate of $24,767 from the issuance of 464,335 shares of common stock.

 

The following table summarizes the restricted stock activity during the nine months ended September 30, 2016:

 

   Shares   Weighted-Average Remaining Vesting Life (Years)   Weighted-Average Per Share Fair Value 
             
Balance, December 31, 2015   -    -    - 
Granted   3,860,000    -   $1.30 
                
Balance, September 30, 2016   3,860,000    0.74   $1.30 
                
Vested, end of period   996,250    -   $1.27 

 

Awards of restricted stock vest ratably over the term of the respective employment agreements.

 

As of September 30, 2016, the total unrecognized compensation costs related to non-vested stock-based compensation arrangements was $3,739,163 and the weighted average period of years expected to recognize those costs was 0.74 years.

 

NOTE 7 - SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the filing date of this Form 10-Q and determined that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosures in the notes thereto other than as disclosed in the accompanying notes to the condensed financial statements.

 

 10 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Sunstock, Inc., formerly Sandgate Acquisition Corporation (“Sunstock”) was incorporated on July 23, 2012 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.

 

Management intends to develop the Company for the acquisition and operation of hotels, discount retail stores, and residential properties in the high demand areas of California, particularly Southern California and the San Francisco Bay Area. In December 2014, the Company commenced their investment in precious metals. At September 30, 2016 the Company has $428,663 in the investment account. In September 2013, new management developed plans to open and operate two retail stores in Sacramento, California. On October 30, 2013, the Company entered into a Purchase Agreement with Dollar Store Services, Inc. to develop, design and build out a retail store which the Company began operating in February 2014. Additionally, the Company entered into a lease agreement on October 30, 2013 for 2,239 square feet of retail shop space for this store in Sacramento, California. The lease requires monthly payments for rent and maintenance of $3,733 for thirty six months beginning February 2014.

 

Management opened an additional retail store in Sacramento, California in May of 2014 and entered into a retail shop lease for sixty-seven months beginning May 2014 for approximately 4,756 square feet. The monthly base rent for this location is currently $4,756, with seven months of free rent throughout the first eleven months. The base rent will gradually increase until the term expires in 2019. This store began operations on May 8, 2014 until December 2015 at which time the Company entered into a lease agreement for 2,700 square feet of retail shop space to replace their previous location above. The lease requires combined monthly payments of base rent of $1,950 for six months beginning January 2016 with a one year option.

 

Silver and other precious metals, may be used as an investment. A traditional way of investing in silver is by buying actual bullion bars. In some countries, like Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks. Another means of buying and trading silver is through silver coins. Silver coins include the one ounce 99.99% pure Canadian Silver Maple Leaf and the one ounce 99.93% pure American Silver Eagle. Likewise, an increasing popular method of trading in silver and precious metals is through exchange-traded products, such as exchange-traded funds, exchange-traded notes and closed-end funds that aim to track the price of silver. Silver exchange-traded products are traded on the major stock exchanges including the London and New York Stock Exchanges.

 

The Company believes that monetary policies adopted by the United States, the European Union, China and Japan may cause an increase in inflation. Gold and silver have traditionally served as a hedge against economic uncertainty and high inflation.

 

Going Concern

 

As of September 30, 2016, The Company has not posted operating income since inception. It has an accumulated deficit of ($2,279,466) since inception. These matters raise 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.

 

 11 

 

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, 2015.

 

Results of Operations

 

Discussion of the Three Months ended September 30, 2016 and 2015

 

The Company generated revenues during the three months ended September 30, 2016 of $9,966 as compared to $11,696 in revenues posted for the three months ended September 30, 2015. The decrease in revenues is primarily due to the closing of one of the stores in August 2014 and sales at the new store not at pace with the third quarter of 2015.

 

For the three months ended September 30, 2016 and 2015 cost of sales was $5,335 and $6,668, respectively, which was driven by the decrease in revenues as disclosed above. Operating expenses increased to $1,063,768 for the three months ended September 30, 2016 from $39,666 for the same period of 2015 primarily as a result of share-based compensation and amortization of prepaid services.

 

During the three months ended September 30, 2016, the Company posted an operating loss of $1,059,137 as compared to an operating loss of $34,238 for the three months ended September 30, 2015, such increase is primarily related to an increase in expenses related to increase operating expenses, share-based compensation and amortization of prepaid services.

 

The unrealized loss on investments in precious metals of $1,577 during the three months ended September 30, 2016, is related to the decrease in the market value of the underlying assets held as of September 30, 2016.

 

Discussion of the Nine Months ended September 30, 2016 and 2015

 

The Company generated revenues during the nine months ended September 30, 2016 of $33,476 as compared to $48,699 in revenues posted for the nine ended September 30, 2015. The decrease in revenues is primarily due to the closing of one of the stores in August 2014 and sales at the new store not at pace with the first nine months of 2015.

 

For the nine months ended September 30, 2016 and 2015 the cost of sales was $17,921 and $25,036 respectively, as sales for the periods declined as well.

 

Operating expenses increased to $1,706,652 for the nine months ended September 30, 2016 from $151,376 for the same period of 2015 as a result of share-based compensation and amortization of prepaid services.

 

During the nine months ended September 30, 2016, the Company posted an operating loss of $1,691,097 as compared to an operating loss of $127,713 for the nine months ending September 30, 2015, such increase is primarily related to an increase in expenses related to operating expenses, stock-based compensation and amortization of prepaid services.

 

The unrealized gain on investments in precious metals of $114,055 during the nine months ended September 30, 2016, is related to the increase in the market value of the underlying assets held as of September 30, 2016.

 

For the nine months ended September 30, 2016, the Company used cash in operating activities of $25,751, which was attributable to net loss of $1,571,996, common stock issued for services of $1,589,138 offset by unrealized gain of $114,055 in the period. During such period, the Company also used cash from investing activities in the amount of $12,479 for the purchase of silver inventory.

 

During the nine months ended September 30, 2016, the Company had cash provided by financing activities which was attributable to cash proceeds of $26,777 from the sale of common stock.

 

Liquidity and Capital Resources

 

As of September 30, 2016, the Company had $2,246 in cash and $23,800 in inventory – products, and $428,663 in inventory - silver.

 

During the nine months ended September 30, 2016, the Company received proceeds of $26,777 from the sale of common stock.

 

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.

 

 12 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information not required to be filed by Smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Pursuant to Rules adopted by the Securities and Exchange Commission, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of the end of the fiscal year under the supervision and with the participation of the Company’s principal executive officer (who is also the principal financial officer). There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. Based upon that evaluation, he believes that the Company’s disclosure controls and procedures are not effective in gathering, analyzing and disclosing information needed to ensure that the information required to be disclosed by the Company in its periodic reports is recorded, summarized and processed timely. The principal executive officer is directly involved in the day-to-day operations of the Company.

 

Management’s Report of Internal Control over Financial Reporting

 

The Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with the Rule 13a-15 of the Securities Exchange Act of 1934. The Company’s officer, its president, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2016 based on the criteria establish in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2016, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.

 

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. Inadequate number of personnel that could accurately and timely record and report the Company’s financial statements in accordance with GAAP;

 

We did not employ an adequate number of people to ensure a control environment that would allow for the accurate and timely reporting of the financial statements.

 

2. Ineffective controls to ensure that the accounting for transactions are recorded in accordance with GAAP financial statements;

 

During the nine months ended September 30, 2016, adjustments were made to the general ledger, which collectively could have a material effect on the financial statements.

 

Notwithstanding the existence of these material weaknesses in internal control over financial reporting, we believe that the financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition in conformity with U.S. generally accepted accounting principles (GAAP). Further, we do not believe the material weaknesses identified had an impact on prior financial statements.

 

 13 

 

Remediation:

 

As part of our ongoing remedial efforts, we have and will continue to, among other things:

 

1. Expanded our accounting policy and controls organization by recently 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; and

 

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. We intend to perform such procedures and commit such resources as necessary to continue to allow us to overcome or mitigate these material weaknesses such that we can make timely and accurate quarterly and annual financial filings until such time as those material weaknesses are fully addressed and remediated.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during its current fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In April 2014, the Company received notice that a shareholder had filed a lawsuit against the Company. The Company has settled the cost of this lawsuit at $82,660, and has reflected this amount in accrued litigation in the accompanying balance sheet as of September 30, 2016.

 

There are no other litigation pending or threatened by or against the Company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In the quarter ended September 30, 2016, the Company has issued 2,283,335 shares of securities which were not registered.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable.

 

 14 

 

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 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32 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

 

 15 

 

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: November 14, 2016 By: /s/ Jason C. Chang
    Jason C. Chang
    President, Chief Financial Officer
    (Principal Executive and Accounting Officer)  

 

 16