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 endedSeptember 30, 2017 March 31, 2020

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)

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.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

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

Documents incorporated by reference: None

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNSTOCK, INC.

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the financial statements

SUNSTOCK, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of the financial statements.

SUNSTOCK, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of the financial statements

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

The accompanying notes are an integral part of the financial statements

SUNSTOCK, INC.

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

The accompanying notes are an integral part of the financial statements

SUNSTOCK, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of the financial statements

SUNSTOCK, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)(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, 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, operations toInc. On the same date, have been limited to issuing shares of its common stock. Sunstock may attempt to locateJason Chang and negotiate with a business entity for the combination of that target company with Sunstock, (See Note 9). 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 368Dr. Ramnik S Clair were named as directors 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.Company.

In DecemberOn 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 opened in February 2014. The Company opened its second retail store in May 2014. On August 21, 2014 the first store was forced to close due to below code electrical wiring the landlord had provided. Perishable inventory at this store was relocated to the second store as nonperishables were moved into storage along with fixed assets. The Company’s second store was relocated in December of 2015 under lease running through June 2017 and operated on a month to month lease from then until the store was closed in September 2018. The Company purchased 100 ouncescurrently operates no variety retail stores.

On October 22, 2018, Sunstock, Inc. acquired all assets and liabilities of silver. In 2015,Mom’s Silver Shop, Inc. (the “Retail Store”) located in Sacramento, California. Included in the Company purchased additionalassets acquired was approximately $60,000 in precious metals inventory and approximately $13,000 in net fixtures. Also included were any licenses and permits, customer lists, logo, trade names, signs, and websites. Financing of the purchase was by $20,056 cash, $33,000 unsecured note payable with principle payments of $1,000 per week for $302,42933 weeks starting January 1, 2019 with 4.5% annual interest accrued on the unpaid balance (total accrued interest due August 27, 2019), and shifting morethe assumption of its capital to the acquisition of precious metals.liabilities and lease obligations. The Company holds physicalRetail Store specializes in buying and selling gold, silver, and rare coins, and bullion rather than contracts for deliveryis one of the leading precious metals retailers in the greater Sacramento metropolitan area.

The Company’s business plan includes the buying, selling and distribution of precious metals, or certificates. In time of economic crisis, thereprimarily 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 be no guaranteeprovide ‘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 delivery of precious metals as contractscosts 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.risks associated with actual mining operations.

BASIS OF PRESENTATION

The accompanying 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 as ofat December 31, 2016, which2019, has been derived from audited condensed and consolidated financial statements, andbut does not include all disclosures required by accounting principles generally accepted in the interimUnited States of America (“U.S. GAAP). The accompanying unaudited condensed and consolidated financial statements as of June 30, 2017March 31, 2020 and 2016for the three months ended March 31, 2020 and 2019, have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP)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 statementsAccordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these unaudited condensed financial statements, and should be read in conjunction with the Company’s audited condensed and consolidated financial statements and related notes theretoto the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, included in2019 as filed with the Company’s Form 10-K.U.S. Securities and Exchange Commission (SEC) on the opinion of management, all material adjustments (consisting of normal recurring

BASIS OF PRESENTATION (CONTINUED)

adjustments) considered necessary for a fair presentation have been made to the condensed and consolidated financial statements. The condensed and consolidated financial statements included hereininclude all material adjustments (consisting of all normal accruals) necessary to make the condensed and consolidated financial statements not misleading as of andrequired by Regulation S-X Rule 10-01. Operating results for the three months ended June 30, 2017 and 2016 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 June 30, 2017, the condensed results of its operations and cash flows for the three and six months ended June 30, 2017 and 2016 and the condensed cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for three and nine months ended September 30, 2017March 31, 2020 are not necessarilynecessary indicative of the results tothat may be expected for the full year ended December 31, 2020 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 torealizability and valuation of marketable securities, and derivative liabilities, realizability 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 March 31, 2020 and December 31, 2019.

INVENTORIES

Inventories consist of merchandiseCOLLECTIBLE COINS – MOM’S SILVER SHOP

The Company acquired the Retail Store in October 2018 to enter the market for salecollectible coins. The Company acquires collectible coins from both companies and are statedindividuals and then marks them up for resale. The inventory is recorded 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 statedor net realizable value. Inventory can fluctuate in relation to when it is purchased and when it is sold. Collectible coins inventory was $198,632 at average cost.

Inventories – silver consists primarily of silver and small amounts of gold held for sale and are statedMarch 31, 2020 compared to $134,995 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.December 31, 2019.

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 RECOGNITIONPRECIOUS METALS AND COINS HELD FOR INVESTMENT - SUNSTOCK

Inventories of precious metals and coins held for investment at March 31, 2020 also include $336,908 of bullion and bullion coins and $397,873 at December 31, 2019 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. 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. 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 bullion to achieve long-term gains, the bullion is available to pay current obligations

PRECIOUS METALS AND COINS HELD FOR INVESTMENT – SUNSTOCK (CONTINUED)

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 loss in precious metals of $60,965 for the three months ended March 31, 2020 and $2,337 for the three months ended March 31, 2019.

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 recognizes revenuesreviews the carrying values of its long-lived assets for possible impairment whenever events or changes in accordance withcircumstances 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 three months ended March 31, 2020 and 2019. 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 adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Certification (ASC”Codification (“ASC”) Topic 605. Accordingly,606,Revenue from Contracts with Customers(“ASC 606”) on January 1, 2019.The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.

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 recognizes revenuesis 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 there is persuasive evidence that an arrangement exists, product delivery and acceptance have occurred,or as the salescustomer receives the benefit of the performance obligation. The transaction price is fixeddetermined 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.

REVENUE RECOGNITION (CONTINUED)

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 determinable,when a point of sale transaction is completed. Taxes assessed by a governmental authority that are both imposed on and collectabilityconcurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales. The Company does not accept returns.

INCOME TAXES

The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the transactiondeferred 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 assured.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 March 31, 2020 and December 31, 2019.

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per share representsrepresent income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period which excluded unvested restricted stock.period. 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 potentialcommonpotential 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 June 30, 2017,For the three months ended March 31, 2019, there were no potentially dilutive shares that were excluded fromincluded in the diluted earnings (loss)loss per share as their effect would have been antidilutive for each of the periods presented.years then ended.

STOCK BASED COMPENSATIONFor the three months ended March 31, 2020, there were 93,406,593 potentially dilutive shares that were included in the diluted earnings per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 onmeasures 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.

In July 2017, the FASB issued ASU No. 2017-11, which eliminates the requirement to classify financial instruments as derivative liabilities simply because they have down round pricing protection. The Company has often issued warrants with down round pricing protection as partcertain of its financing activities. Currently, the Company has convertible notes payable and warrants with down round pricing protection that are classified as derivative liabilities. The Company revalues these warrant tranches each reporting period and records the valuation differences asfinancial assets on a component of other income in the statement of operations. The adoption of this ASU will allow the Company to classify its remaining warrant derivatives as equity and future warrants that might be issued by the Company with down round price protection will qualify as equity rather than derivative liability for balance sheet presentation purposes. This ASU is effective for annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is determining the financial impact of this ASU.

Fair Value Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. U.S. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The establishedrecurring basis. A fair value hierarchy prioritizesis used to rank the usequality and reliability of inputsthe information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in valuation methodologies intoone of the following three levels:categories:

Level 1:1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.liabilities;

Level 2: Significant other observable inputs2 – Inputs other than Level 1 pricesthat are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets or liabilities;and liabilities, unadjusted quoted prices in the markets that are not active;active, or other inputs that are observable or can be corroborated by observable market data.data for substantially the full term of the assets or liabilities; and

Level 3: Significant unobservable3 – Unobservable inputs that reflect a reporting entity’s own assumptions aboutare supported by little or no market activity and that are significant to the assumptions that market participants would use in pricing an assetfair value of the assets or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.liabilities.

TheAt March 31, 2020 and December 31, 2019, the Company’s financial instruments consistinclude cash, accounts receivable and accounts payable. The carrying amount of cash, accounts payable, accrued expenses, notes payablereceivable and convertible notes payable. The carrying value for all such instrumentsaccounts payable approximates fair value due to the short-term naturematurities of thethese instruments.

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative convertible notes at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of the derivative convertible notes, preferred stock and warrant liabilities.

NOTE 2 - GOING CONCERN

The Company has not posted operating income since inception. It has an accumulated deficit of approximately $36,000,000$60,092,129 as of September 30, 2017.March 31, 2020. 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 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 negotiatingnegotiate with an acquisition target.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 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.

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 has had discussions with a third party in regards to raising funds through a private placement of equity which, if it occurs, will provide the Company with funds to expand its operations and likely eliminate the going concern issue.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”)December 2019, FASB issued Accounting Standards Updates (“ASU”)Update (ASU) No. 2014-09. “Revenue from Contracts with Customers.” This new standard will replace2019-12,Simplifying the existing revenue recognition guidanceAccounting for Income Taxes (Topic 740). The amendments in U.S. GAAP. the update simplify the accounting for income taxes by removing the following exceptions:

The core principle ofamendments in the ASU isupdate also simplify the recognition of revenueaccounting for income taxes by doing the transfer of goods and services equal to the amount an entity expects to receive for those goods and services. This ASU requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changesfollowing:

The amendments in this updateASU are effective for annual reporting periodsfiscal years beginning after December 15, 2017, including2020, and interim periods within fiscal years beginning after December 15, 2021. The Company believes that reporting period. While we are still currently assessing the impactadoption of the new standard, our revenue is generated from the sale of finished product to customers. Those sales predominantly containASU will not have a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer. The timing of revenue recognition for these product sales are not materially impacted by the new standard. We will update certain disclosures, as applicable to meet the requirements of the new guidance.material effect on its financial statements.

In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “LeasesLeases (Topic 842).” This Under the new standard establishes a right-of-use (“ROU”) model that requires a lesseeguidance, lessees will be required to record a ROU asset and a lease liability onrecognize the balance sheetfollowing for all leases (with the exception of short-term leases) at the commencement date: A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with termsthe lessee accounting model and ASC 606, Revenue from Contracts with Customers.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer than 12 months. Leases will be classified as either finance or operating,provided with classification affectinga source of off-balance sheet financing. Public business entities should apply the pattern of expense recognitionamendments in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoptionapplication is permitted. ALessees (for capital and operating leases) must apply a modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.statements. The Company is currently evaluatingmodified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The primary impact to the financial position upon adoption was the recognition, on a discounted basis, of the minimum commitments on the balance sheet under our noncancelable operating lease resulting in the recording of a right of use asset and lease obligation.

The following table summarizes the impact of the adoption of ASU 2016-02 on the Company’s financial statements.

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. As a result of the adoption of this ASU as of January 1, 2017, we have made an entity-wide accounting policy election to account for forfeitures when they occur. There is no cumulative-effect adjustment as a result of the adoption of this ASU as our estimated forfeiture rate prior to adoption of this ASU was 0%. The adoption of this ASU did not have a material impact842 on our condensed financial statements and related disclosures.consolidated balance sheet upon adoption on January 1, 2019:

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. Current U.S. GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS) and are effective for fiscal years after December 15, 2016, including interim periods within those annual periods. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330. Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this ASU more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in IFRS. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU 2014-15 describes how an entity should assess its ability to meet obligations and sets rules for how this information should be disclosed in the condensed consolidated financial statements. The standard provides accounting guidance that will be used along with existing auditing standards. The ASU 2014-15 is effective for the annual period ending after December 15, 2016. Early application is permitted. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.

NOTE 4 – PROPERTY AND EQUIPMENT

Depreciation expense for the three months ended March 31, 2020 and 2019 was $2,196 and $4,081, respectively.

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

NOTE 6 – STOCK PAYABLE

During December 2019, a third party deposited $150,000 in an escrow account in exchange for 200,000,000 shares of Series A Preferred Stock and 100,000,000 common stock warrants. The funds were used as part of the payments of convertible notes payable in January 2020. The preferred stock has not been issued as of the date of this filing.

In January and February 2020, a related party deposited $200,000 in an escrow account in exchange for 400,000,000 shares of Series A Preferred Stock. The funds were used as part of the payments of convertible notes payable in January 2020. The preferred stock has not been issued as of the date of this filing.

In January 2020, a third party deposited $200,000 in an escrow account in exchange for 400,000,000 shares of Series A Preferred Stock and 100,000,000 common stock warrants. The funds were used as part of the payments of convertible notes payable in January 2020. The preferred stock has not been issued as of the date of this filing.

The Series A Preferred Stock have a dividend rate of 8%, which increases to 15% after two years and are cumulative. Upon a liquidation, the shareholders shall receive $0.013 per share before any distribution is made to any junior shares. Shareholders shall have the right to convert any number of their shares into common shares at any time. The conversion shall be equal to the greater of 1) one share of common stock if the market value of the common stock is at or above $0.001 per share, or 2) if the market value of the common stock is below $0.001 per share, then the conversion shall be the number of shares to be converted times the conversion rate of $0.001 divided by the market value.

NOTE 7 - RELATED PARTY BALANCESACTIVITY

During the three months ended March 31, 2020, the Company’s chief executive officer purchased 400,000,000 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. The preferred stock has not been issued as of the date of this filing.

During the three months ended March 31, 2020, the Company’s chief executive officer was granted 80,000,000 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 was recorded as employee compensation expense and $104,000 was recorded as prepaid expense.

During the three months ended September 30, 2017March 31, 2020, Ramnik Clair, the Company’s senior VP and a director, purchased 36,000,000 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 three months ended March 31, 2020, the Company was provided loans totaling $151,338 by the Company’s chief executive officer. The loans bear interest at 6% per annum. During the three months ended March 31, 2020, $232,206 in notes payable and accrued interest to the Company’s chief executive officer were converted to 229,737,650 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.

During the year ended December 31, 2016,2019, the Company’s chief executive officer purchased 302,000,000 shares of the Company’s common stock below market price for $172,850. $4,798,150 was recorded as stock-based compensation in the accompanying statement of operations.

During the year ended December 31, 2019, the Company was provided a non-interest bearing, non-secured line of creditloans totaling $78,400 by a shareholder for up to $30,000.the Company’s chief executive officer. The line is due on demand. At September 30, 2017 andloans bear interest at 6% per annum. During the year ended December 31, 2016,2019, the Company had net borrowingsCompany’s chief executive officer received 186,908,000 shares of approximately $0 and $30,000, respectively, and is still available to draw down. At December 31, 2016, the amount is includedcommon stock below market value in accountsexchange for $186,908 in notes payable related party. $346,073 was recorded as a loss from settlement of debt with related party in the accompanying condensed balance sheets. See Note 6 for sharesstatement of stock issued to related parties.operations.

NOTE 7 - RELATED PARTY ACTIVITY (CONTINUED)

During the quarteryear ended June 30, 2017, the Company entered a 19-month lease withDecember 31, 2019, the parents of Jason C. Chang, the Company’s Chief Executive Officer and a director, purchased a combined total of 90,000,000 shares of the Company’s common stock for Corporate office space$25,000 cash. The shares were purchased below market price and $975,000 in stock-based compensation expense was recorded.

During the year ended December 31, 2019, Ramnik Clair, the Company’s senior VP and a director, was awarded 30,000,000 shares of the Company’s common stock for services valued at $1,200 per month running throughan aggregate of approximately $300,000 based on the closing price on the grant date.

In connection with the acquisition of the Retail Store, the Company incurred a $33,000 note payable to the former owner of the Retail Store. During the year ended December 2018.31, 2019, the $33,000 was paid.

The following table is a summary of the activity for Loans payable- related parties for the three months ended March 31, 2020:

NOTE 5 -8 – COMMITMENTS AND CONTINGIENCIESCONTINGENCIES

The Company entered into a lease agreement in December 2015leases space for 2,700 square feet of retail shop space to replace their previous location below.the Retail Store. The lease requires combined monthlyis for five years and runs through September 2023. The lease calls for payments of base rent of $1,950$1,305.60 per month for six months beginning January 2015the first year, with an optiona 3% increase per year for an additional one year runningyears two through June of 2017. This lease is currently on a month to month basis at September 30, 2017.five.

During JuneAs of 2017,March 31, 2020, the Company entered into a three-month consulting agreement with PAG Group, LLC., to help develop business growth opportunities through September 2017maturities of our operating lease were as follows for $20,000.the periods ended December 31:

During the quarter ended June 30, 2017, the Company entered a 19-month lease with the parents of Jason Chang for Corporate office space at $1,200 per month running through December 2018.

LITIGATION

On June 18, 2018, Power Up Lending Group, LTD. (“Power Up”), filed in the Supreme Court of the State of New York that Sunstock and Jason Chang (president and CFO of Sunstock and board member) and Ramnik Clair (board member of Sunstock) materially breached the October 24, 2017, December 19, 2017, and April 16, 2018 notes payable to Power Up by, in June 2018, changing Sunstock’s transfer agent in violation of the Notes and Agreements, and existing letter of instructions and authorizations, refusing to provide a replacement irrevocable letter of instruction from the newly appointed transfer agent and also failing to maintain sufficient reserves of stock so as to permit and accommodate the conversion requests of Power Up to go forward. Power Up has requested judgment against Sunstock for $160,180 with default interest, judgment against Sunstock for reasonable legal fees and costs of litigation, three judgments against Jason Chang and Ramnik Clair for $160,180 and interest for each judgment, and a temporary restraining order and a preliminary and permanent injunction directing Sunstock, Jason Chang, and Ramnik Clair to take all steps necessary and proper to permit the conversion of debt into stock and to deliver the stock to Power Up. The October 24, 2017 note payable was extinguished upon final conversion to common stock in July 2019. The December 19, 2017 note payable was extinguished upon final conversion to common stock in November 2019. The

April 16, 2018 note payable was extinguished upon final conversion to common stock and payment of $24,737.65 in 2020 per below.

On June 22, 2018, EMA Financial, LLC (“EMA”) sent a letter to Sunstock stating that Sunstock was in default on the June 5, 2017 note payable and the October 11, 2017 note payable to EMA. Among other defaults, the letter stated that Sunstock was in default due to refusing to provide a replacement irrevocable letter of instruction from the newly appointed transfer agent and also failing to maintain sufficient reserves of stock. The letter asked for at least $332,884.

On December 26, 2018, EMA filed a lawsuit in Federal Court for breach of contract.

On July 9, 2018, the attorney for Auctus Fund, LLC (“Auctus”) sent a letter to Sunstock stating that Sunstock was in default on the May 24, 2017 note payable and the October 11, 2017 note payable to Auctus. Among other defaults, the letter stated that Sunstock was in default due to changing Sunstock’s transfer agent in violation of the note, and existing letter of instructions and authorizations, refusing to provide a replacement irrevocable letter of instruction from the newly appointed transfer agent and also failing to maintain sufficient reserves of stock so as to permit and accommodate the conversion requests of Auctus to go forward. The letters asked for at least $277,397 regarding the May 24, 2017 note payable and at least $299,247 regarding the October 11, 2017 note payable. On December 26, 2018, Auctus filed a lawsuit in Federal Court for breach of contract.

On July 10, 2018, the attorney for Crown Bridge Partners, LLC (“Crown Bridge”), sent a letter to Sunstock stating that Sunstock was in default on the December 8, 2017 note payable to Crown Bridge. The letter stated that Sunstock was in default due to changing Sunstock’s transfer agent in violation of the note, and existing letter of instructions and authorizations, refusing to provide a replacement irrevocable letter of instruction from the newly appointed transfer agent and also failing to maintain sufficient reserves of stock so as to permit and accommodate the conversion requests of Crown Bridge to go forward. The letter requested that Sunstock immediately contact Crown Bridge to demonstrate compliance with the note. On August 15, 2018, the attorney for Crown Bridge sent another letter to Sunstock stating that Sunstock owed Crown Bridge $221,470, and that if Sunstock did not respond by August 21, 2018 in regards to payment, then a lawsuit would be filed.

On March 7, 2019, the United States Court of Massachusetts issued electronic order 38 stating that the Court granted on the merits summary judgement on violation of contract claims for the plaintiffs (Auctus and EMA) and found Sunstock in default.

On May 6, 2019, the United States District Court of the District of Massachusetts issued an Order to Show Cause in the case of Auctus and EMA Vs. Sunstock, Inc. The Court ordered Auctus to show cause within 21 days why the Court had jurisdiction at the outset of the case and why the Court ought not to vacate its entry of summary judgement for Auctus, EDF No. 38. The Court said that it had taken no action with regard to EMA’s claim.

LITIGATION (CONTINUED)

On May 30, 2019, the United States District Court of Massachusetts issued an order in the case of Auctus vs. Sunstock, Inc. that the Court was satisfied that Auctus compliant raised colorable securities law claims and, accordingly, the Court ruled that it had subject matter jurisdiction to enter summary judgment on Auctus’ contract claims.

On June 20, 2019, Power Up filed a motion with the Supreme Court of the State of New York, County of Nassau, accepting judgement of $160,180 plus interest on the three notes with the Company. The Company believed that the interest would be that applicable to each note. In addition, Power Up included in the motion that the Company establish a reserve of 63,317,183,000 of common shares. The Company believed that Power Up was entitled to either $160,180 plus interest or to common shares, but not both.

On July 29, 2019, Power Up converted $1,180 in principal and $6,480 in accrued interest of its October 21, 2017 debt into 2,070,270 shares of common stock. The total of $7,660 was be applied against the $160,180 plus interest.

In October and November 2019, Power Up converted the remaining principal of $53,000 and $3,180 in accrued interest of its December 19, 2017, debt into 32.586,386 shares of common stock.

In December 2013,2019, Power Up converted the remaining principal of $53,000 of its April 16, 2018 debt into 46,503,498 shares of common stock. On January 9, 2020, $15,000 in accrued interest and default penalty were converted to 24,590,164 shares of common stock. The remaining balance of $24,737.65 was paid by the Company’s CEO, Jason Chang, on January 9, 2020. The Company issued 75,000Jason Chang 24,737,650 shares of common stock in settlement of his payment to Power Up. A Stipulation of Discontinuance was filed with the Supreme Court of the State of New York County of Nassau.

On January 15, 2020, the Company reached a third party (the “Shareholder”)settlement agreement and mutual general release with Auctus and EMA, in which $425,000 cash was paid in total to both on January 31, 2020 whereby both released the Company of all claims. A Stipulation of Dismissal with Prejudice was filed with the United States District Court for considerationthe District of $16,000. Such considerationMassachusetts.

On January 28, 2020, the Company reached a settlement and release agreement with Crown Bridge, in which $90,000 cash was received directly by Jason Chang, CEO, and was not deposited intopaid to them on January 31, 2020, whereby Crown Bridge released the Company’s bank account. As the funds hadCompany of all claims. A Stipulation of Dismissal has not been received byfiled as of the date of this report.

In summary of the settlements, the Company such amounts have been recorded as compensation to Mr. Chang as of December 31, 2014 (see Note 5). In April 2014, the Company received notice$776,315 gain from the Shareholder that he had filed a lawsuit against the Companysettlements, $891,935 reduction in loans and its CEO relating to the delay in the complainants’ stock reaching public listing services. The Company had made efforts to settle this issue, without an agreement being reached. As such, the Company has recorded a loss contingency based on its best estimate of all costs to be incurred for the ultimate settlement of this matter. In June 2016, the Company settled for $82,660 which has been reflectedloan penalties, $424,118 reduction in accrued litigation on the accompanying balance sheet as of September 30, 2017interest, and December 31, 2016. Repayment of which is anticipated in the 4th quarter of 2017.$539,738 cash payments.

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. AboutIn 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. The Company entered into a lease agreement in December 2015 for 2,700 square feet of retail shop space. The lease requires combined monthly payments of base rent of $1,950 for six months beginning January 2015 with an option for an additional one year running through June of 2017. Currently the Company is on a month to month agreement.

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.sheets.

NOTE 69 – OUTSTSANDING DEBTCONVERTIBLE NOTES PAYABLE

Convertible notes payable are as follows as of September 30, 2017:March 31, 2020:

During the three months ended March 31, 2020, the Company recorded $6,944 of beneficial conversion feature interest expense.

On May 24, 2017,February 26, 2020, the Company entered into a Convertible Promissory Note with Auctus Fund, LLC., (“Auctus”)Innovative Digital Technology in the principleprincipal amount of $112,250 (the “Auctus Note”)$25,000. The Auctus Notenote bears interest at the rate of 12%4% per annum (24% upon an event of default) and iswas due and payable on February 24, 2018. The principle amountApril 2, 2020. If the note is not paid prior to maturity date, then the note holder has the right to convert the note into shares of the Auctus Note and all accrued interest is convertibleCompany’s common stock. The right to conversion was changed to June 30, 2020 with the extension of note maturity to June 30, 2020. The conversion may either be for cash at the optionprice of the holder$0.0001 per share or at the lower of (a) 55% multiplied by the average of the two lowest trading prices during the 25 trading days prior to the date of the note and (b) 55%, (a 45% discount) multiplied by the average market price (the trading period preceding 25 days of the conversion date). The variable conversion term was a derivative liability and the Company recorded approximately $100,000 of debt discount upon issuance. The prepayment amount ranges from 135% to 140% of the outstanding principle plus accrued interest of the note, depending on when such prepayment is made. In addition, the Company recognized issuance costs of $12,750 on the funding date and amortized such costs as interest expense over the term of the note.set formula.

On June 5, 2017, the Company entered a Convertible PromissoryAll convertible notes outstanding as of December 31, 2019 (see LITIGATION in Note with EMA Financial, LLC., (“EMA”)8) were either converted to stock or paid in the principle amount of $115,000 (the “EMA Note”). The EMA Note bears interest at the rate of 10% per annum (24% upon an event of default) and is due and payable on June 5, 2018. The principle amount of the EMA Note and all accrued interest is convertible at the option of the holder at the lower of (a) the closing sales price 50% and (b) (a 50% discount) multiplied by the average market price (the trading period preceding 25 days of the conversion date) or the closing bid price. The variable conversion term was a derivative liability, see Note 7, and the Company recorded approximately $115,000 of debt discount upon issuance. The prepayment amount ranges from 135% to 150% of the outstanding principle plus accrued interest of the note, depending on when such prepayment is made. In addition, the Company recognized issuance costs of $15,000 on the funding date and amortized such costs as interest expense over the term of the note.three months ended March 31, 2020.

NOTE 710 – DERIVATIVE LIABILITIES

The Company evaluates its debt instruments, or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40,Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

Certain of the Company’s embedded conversion features on debt are treated as derivatives for accounting purposes. The Company estimates the fair value of these embedded conversion features using the Black-Scholes Merton option pricing model (“Black-Scholes”). Based on these provisions, the Company has classified all conversion features and warrants as derivative liabilities at September 30, 2017.

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

From time to time, the Company has issued notes with embedded conversion features. Certain of the embedded conversion features contain price protection or anti-dilution features that result in these instruments being treated as derivatives.derivatives for accounting purposes. Accordingly, the Company has estimated the fair value of these embeddedclassified all conversion features using Black-Scholesas derivative liabilities. All convertible notes with the following assumptions:derivative liabilities were either converted to common stock or were settled by payment as of March 31, 2020.

NOTE 10 – DERIVATIVE LIABILITIES (CONTINUED)

The following table presents the changes in fair value of our embedded conversion features measured at fair value on a recurring basis for ninethe three months ended September 30, 2017:March 31, 2020:

NOTE 8 -11- STOCKHOLDER’S EQUITY (DEFICIT)

The Company is authorized to issue 300,000,0005,000,000,000 shares of common stock and 20,000,000 shares1,500,000,000 of preferred stock.

During 2016,the three months ended March 31, 2020, the Company recorded stock receivable in the aggregate of $25,100 from the issuance of 206,000,000 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 three months ended March 31, 2020, the Company issued an aggregate of 330,000314,000,000 shares of fully vested non-forfeitableits common stock for services with a fair market value of $345,400. $172,700 was recorded to consultant comp expense and $172,700 was recorded to prepaid expenses.

During the three months ended March 31, 2020, the Company issued 80,000,000 shares of its common stock to certain consultantsits chief executive officer for services with a fair market value of $208,000. $104,000 was recorded to employee comp expense and $104,000 was recorded to prepaid expenses.

During the three months ended March 31, 2020, the Company issued 24,590,164 shares of its common stock for the conversion of $15,000 of convertible note payable.

During the three months ended March 31, 2020, the Company issued 229,737,650 shares of its common stock for the conversion of $212,080 of related party notes payable and $20,126 accrued interest payable.

During the three months ended March 31, 2020, the Company issued 98,214,286 shares of its common stock for the cashless conversion of warrants exercised.

During the three months ended March 31, 2020, the Company recorded $25,000 in beneficial conversion feature for a convertible note issued in February 2020. $6,944 was expensed to be earned over a one-year period. The shares were valued at $403,500 (based on the closing market price on the measurement date) of which $720 was received in cash and the remaining $402,780 was recorded as prepaid consulting. The Company has amortized the final portion of this prepaid expense of approximately $30,000 during the first quarter of 2017.interest expense.

During the year ended December 31, 2016, the Company issued an aggregate of 6,600,000 shares of restricted stock to certain employees for future services (See Note 7 of our Annual Report on Form 10-K as of and for the year ended December 31, 2016 for details). During the nine months ended September 30, 2017, the Company recorded approximately $2,500,000 in stock based compensation expense related to the vesting terms of such restricted shares.

During the nine months ended September 30, 2017,2019, the Company received an aggregate of $4,460$236,600 from the issuance of 326,000435,750,000 shares of its common stock. In addition, the Company booked proceeds of $60 in relation$43,575 was recorded to the sale of 60,000 shares issued in October 2017 in common stock, payable.$5,966,175 to additional paid-in capital, and $5,773,150 to employee comp expense in general and administrative expense.

During the nine monthsyear ended September 30, 2017,December 31, 2019, the Company converted $186,908 of note payable to an officer into 186,908,000 shares of its common stock, which resulted in a loss from settlement of debt from related party of $346,073. $18,691 was recorded to common stock and $514,290 to additional paid-in capital.

During the year ended December 31, 2019, the Company converted $109,180 of notes payable and $31,049 of accrued interest into 81,160,154 shares of its common stock. $8,116 was recorded to common stock, $253,871 to additional paid-in capital, $26,500 in loan penalty reduction, $430,182 in derivative liability reduction, and $334,924 in gain from settlement.

During the year ended December 31, 2019, the Company issued 8,190,000206,200,000 shares of fully vested non-forfeitable shares of common stock to certain consultants for future services. The fair value of the shares issued was determined to be approximately $9,800,000, of which, $6,000 is included in subscription receivable, and the remaining amount was recorded as prepaid consulting. During the three months and nine months ended September 30, 2017, the Company amortized approximately $4,000,000 and $7,100,000 (based on the closing price on the measurement date), respectively, to stock based compensation expense related to these issuances.

During the nine months ended September 30, 2017, the Company’s CEO, Jason Chang was awarded 18.05 million of the Company’sits common stock for services valued at an aggregatewith a fair market value of approximately $19,500,000 (based on the closing price on the grant date), of which $9,050 was received in cash and the remaining amount will be recorded as stock based compensation expense in the accompanying statement of operations as the amounts are earned through December 31, 2017. During the three months and nine months ended September 30, 2017, the Company recorded approximately $3,200,000 and $16,300,000, respectively, to stock based compensation expense related to these issuances. In addition, the Company booked a common stock payable of $800,000, of which $1,250 was received in cash, for 1,250,000 shares issued to Jason Chang in October 2017 (included in common stock payable at September 31, 2017).$2,062,000.

NOTE 9 -12 – SUBSEQUENT EVENTS

The Company follows the guidance in FASB ASC Topic 855,Notes Payable:Subsequent Events

On October 11, 2017, Sunstock, Inc. (the “Company” (“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 “we”) entered intoare available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a securities purchase agreement (“SPA”) with Auctus Fund, LLC, upon the terms and subject to the conditions of SPA, we issued a convertible promissory notereporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the principal amount of $85,000.00 (the “Note”) to Auctus. The Company received proceeds of $74,250.00 in cash from Auctus. Interest accrues onconsolidated financial statements, (ii) the outstanding principal amount of the Note at the rate of 12% per year. The Note is due and payable on July 11, 2018. The Note is convertible into common stock, subject to Rule 144, at any timecircumstances under which an entity should recognize events or transactions occurring after the issuebalance sheet date at the lower of (i) the lowest trading price during the previous twenty-five trading days prior to the date of the Note, and (ii) 50% multiplied by the lowest trading price during the twenty-five trading days prior to the conversion date. If the shares are not delivered to Auctus within three business days of the Company’s receipt of the conversion notice, the Company will pay Auctus a penalty of $2,000 per day for each day that the Company fails to deliver such common stock through willful acts designed to hinder the delivery of common stock to Auctus. Auctus does not have the right to convert the Note, to the extent that it would beneficially own in excess of 4.99% of our outstanding common stock. The Company shall have the right, exercisable on not less than three (3) trading days’ prior written notice to Auctus, to prepay the outstanding balance on this Note for (i) 135% of all unpaid principal and interest if paid within 90 days of the issue date and (ii) 150% of all unpaid principal and interest starting on the 91st day following the issue date. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the Auctus Note becomes immediately due and payable. Regarding the Note, the Company paid Auctus $10,750.00 for its expenses and legal fees.

The Note is a short-term debt obligation that is material to the Company. The Note also contains certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings withconsolidated financial statements, and (iii) the SEC, and increases in the amount of the principal and interest rates under the Note in the event of such defaults. In the event of default, at the option of Auctus and in Auctus’s sole discretion, Auctus may consider the Note immediately due and payable.

On October 11, 2017, the “Company” entered into a securities purchase agreement (“SPA2”) with EMA Financial, LLC (“EMA), upon the terms and subject to the conditions of SPA2, we issued a convertible promissory note in the principal amount of $85,000.00 (the “Note2”) to EMA. The Company received proceeds of $74,295.00 in cash from EMA. Interest accrues on the outstanding principal amount of the Note2 at the rate of 12% per year. The Note2 is due and payable on October 11, 2018. The Note2 is convertible into common stock, subject to Rule 144, at any timedisclosures that an entity should make about events or transactions that occurred after the issue date, at the lower of (i) the closing sale price of the common stock on the on the trading day immediately preceding the closing date, and (ii) 50% of the lowest sale price for the common stock during the twenty (25) consecutive trading days immediately preceding the conversionbalance sheet date. If the closing sale price at any time fall below $0.17 or less. (as appropriately and equitably adjusted for stock splits, stock dividends, stock contributions and similar events), then such 50% figure mentioned above shall be reduced to 35%. If the shares are not delivered to EMA within three business days of the Company’s receipt of the conversion notice, the Company will pay EMA a penalty of $1,000 per day for each day that the Company fails to deliver such common stock through willful acts designed to hinder the delivery of common stock to EMA. EMA does not have the right to convert the note, to the extent that it would beneficially own in excess of 4.9% of our outstanding common stock. The Company shall have the right, exercisable on not less than five (5) trading days’ prior written notice to EMA, to prepay the outstanding balance on this Note for (i) 135% of all unpaid principal and interest if paid within 90 days of the issue date and (ii) 150% of all unpaid principal and interest starting on the 91st day following the issue date. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the Note2 becomes immediately due and payable. In connection with the Note2, the Company paid EMA $10,605.00 for its expenses and legal fees.

The Note2 is a short-term debt obligation that is material to the Company. The Note2 also contains certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the SEC, and increases in the amount of the principal and interest rates under the Note2 in the event of such defaults. In the event of default, at the option of EMA and in EMA’s sole discretion, EMA may consider the Note2 immediately due and payable.

On October 24, 2017, the “Company” entered into a securities purchase agreement (“SPA3”) with Powerup Lending Group, LTD (“POWER), upon the terms and subject to the conditions of SPA3, we issued a convertible promissory note in the principal amount of $108,000.00 (the “Note3”) to POWER. The Company received proceeds of $105,000 in cash from POWER. Interest accrues on the outstanding principal amount of the Note3 at the rate of 12% per year. The Note3 is due and payable on July 30, 2018. The Note3 is convertible into common stock, subject to Rule 144, at any time after the issue date, at 61% of the lowest sale price for the common stock during the twenty (15) consecutive trading days immediately preceding the conversion date. If the shares are not delivered to POWER within three business days of the Company’s receipt of the conversion notice, the Company will pay POWER a penalty of $2,000 per day for each day that the Company fails to deliver such common stock through willful acts designed to hinder the delivery of common stock to POWER. POWER does not have the right to convert the note, to the extent that it would beneficially own in excess of 4.99% of our outstanding common stock. The Company shall have the right, exercisable on not less than three (3) trading days’ prior written notice to POWER, to prepay the outstanding balance on this Note for (i) 115% of all unpaid principal and interest if paid within 30 days of the issue date and (ii) 120% up to 140% of all unpaid principal and interest starting on the 31st day up to the 180th day following the issue date. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 22% of all unpaid principal and interest per annum and the Note3 becomes immediately due and payable. In connection with the Note3, the Company paid POWER $3,000.00 for its expenses and legal fees.

The Note3 is a short-term debt obligation that is material to the Company. The Note3 also contains certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the SEC, and increases in the amount of the principal and interest rates under the Note3 in the event of such defaults. In the event of default, at the option of POWER and in POWER’s sole discretion, POWER may consider the Note3 immediately due and payable.

Potential Acquisitions:

On October 23, 2017April 3, 2020, the Company entered into escrowissued 75,000,000 shares of its common stock for $7,500 cash.

The full impact of the COVID-19 outbreak continues to purchaseevolve 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 2020. However, to date there has not been a 100 room hotel locateddecrease in Kern County, California for $4,100,000. This hotel acquisitionsales. The Company believes that in this time of uncertainty, individuals are buying collectible coins as a safe haven. The Company is scheduledunable to close by January 12, 2018.predict if such buying will continue during this time of uncertainty or if the buying will decrease as events change and evolve.

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

The following information should be read in conjunction with the condensed 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, 2016,2019, filed with the Securities and Exchange Commission (“SEC”) on April 27, 2017,2020, as well as the 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., formerly Sandgate Acquisition Corporation (“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.

Management continueOn 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 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 for the acquisition and operation of hotels, discountopened in February 2014. The Company opened its second retail stores, and residential propertiesstore in the high demand areas of California, particularly Southern California and the San Francisco Bay Area. In DecemberMay 2014. On August 21, 2014 the first store was forced to close due to below code electrical wiring the landlord had provided. Perishable inventory at this store was relocated to the second store as nonperishables were moved into storage along with fixed assets. The Company’s second store was relocated in December of 2015 under lease running through June 2017 and operated on a month to month lease from then until the store was closed in September 2018. The Company commenced their investment in precious metals. At September 30, 2017, the Company has $378,704 in the inventory - silver.currently operates no variety retail stores.

In analyzing prospective business opportunities, Sunstock may consider such matters asOn October 22, 2018, the available technical, financialCompany acquired all assets and managerial resources; working capitalliabilities of the Retail Store of Sacramento, California. Included in the assets acquired was approximately $60,000 in precious metals inventory and other financial requirements; historyapproximately $13,000 in net fixtures. Also included were any licenses and permits, customer lists, logo, trade names, signs, and websites. Financing of operations, if any; prospectsthe purchase was by $20,056 cash, $33,000 unsecured note payable with principle payments of $1,000 per week for 33 weeks starting January 1, 2019 with 4.5% annual interest accrued on the future; nature of present and expected competition; the quality and experience of management services which may be availableunpaid balance (total accrued interest due August 27, 2019), and the depthassumption of that management; the potential for further research, development, or exploration; specific risk factors not now foreseeable but which may be anticipated; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services, or trades; name identification;liabilities and other relevant factors. This discussionlease obligations. The Retail Store specializes in buying and selling gold, silver, and rare coins, and is one of the proposed criteria is not meant to be restrictive ofleading precious metals retailers in the virtually unlimited discretion of Sunstock to search for and enter potential business opportunities.greater Sacramento metropolitan area.

Going Concern

The Company has not posted operating income since inception. It has an accumulated deficit of approximately $36,000,000$60,092,129 as of September 30, 2017.March 31, 2020. 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 /orand/or obtain additional financing from its stockholders and/or other third parties.

These Condensedcondensed 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.

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 has had discussions with a 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, 2016.

Recently Adopted Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. As a result of the adoption of this ASU as of January 1, 2017, we have made an entity-wide accounting policy election to account for forfeitures when they occur. There is no cumulative-effect adjustment as a result of the adoption of this ASU as our estimated forfeiture rate prior to adoption of this ASU was 0%. The adoption of this ASU did not have a material impact on our condensed financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. Current U.S. GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS) and are effective for fiscal years after December 15, 2016, including interim periods within those annual periods. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330. Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this ASU more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in IFRS. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU 2014-15 describes how an entity should assess its ability to meet obligations and sets rules for how this information should be disclosed in the condensed consolidated financial statements. The standard provides accounting guidance that will be used along with existing auditing standards. The ASU 2014-15 is effective for the annual period ending after December 15, 2016. Early application is permitted. The adoption of this ASU as of January 1, 2017 did not have a material impact on our condensed financial statements and related disclosures.2019.

Results of Operations

Discussion of the Three Months ended September 30, 2017March 31, 2020 and 20162019

The Company generated revenues during the three months ended September 30, 2017March 31, 2020 of $1,601$2,729,199 as compared to $9,966$867,438 in revenues posted for the three months ended September 30, 2016.March 31, 2019. The decreaseincrease in revenues is primarily due to the reduced emphasis on retail sales to hotel management focus.increased business at Mom’s Silver Shop, which was acquired in October 2018.

For the three months ended September 30, 2017March 31, 2020 and 20162019, cost of sales was $1,137$2,668,069 and $5,335,$813,913, respectively, which increase was driven by the decreaseincrease in revenues as disclosed above. Operating expensesProfessional fees increased to $10,294,883$476,726 from $447,088 for the three months ended September 30, 2017March 31, 2020 and 2019, respectively, of which $172,700 was due to services performed in the quarter for stock issued in February 2020. Compensation decreased to $526,575 from $1,063,768$4,037,870 for the same periodthree months ended March 31, 2020 and 2019, respectively, of 2016which $525,200 in the three months ended March 31, 2020 were for shares issued to the chief executive officer below market price for services and for shares sold to the senior VP below market price and $4,025,650 for the three months ended March 31, 2019 were for the fair value of shares purchased by the chief executive officer below market prices. Other operating expenses decreased to $28,540 from $32,036 for the three months ended March 31, 2020 and 2019, respectively.

Interest expense decreased to $8,821 for the three months ended March 31, 2020 from $77,096 for the three months ended March 31, 2019, primarily becausedue to the conversion to common stock and the settlement of share-based compensationall convertible debt as of March 31, 2019 during the rest of 2019 and amortizationthe three months ended March 31, 2020. Fair value of prepaid services.derivative liability decreased by $3,240,220 for the three months ended March 31, 2020 compared to an increase of $6,721,498 for the three months ended March 31, 2019. All derivative liability was reversed in the three months ended March 31, 2020 due to all related convertible debt converted to common stock or settled in the three months ended March 31, 2020.

Stock issued below market increased to $182,032 for the three months ended March 31, 2020 from $0 for the three months ended March 31, 2019. That represents shares issued below market value to the Company’s chief financial officer in exchange for related party debt.

Gain from settlement increased to $776,315 for the three months ended March 31, 2020 from $0 for the three months ended March 31, 2019. That is the result of settlements of the outstanding December 31, 2019 convertible notes in which the settlements were less than the recorded totals of principal, loan penalties, and accrued interest.

Unrealized loss on investments in precious metals increased to $60,965 for the three months ended March 31, 2020 from $2,337 for the three months ended March 31, 2019. The March 31, 2020 price of silver was 21% less than the price at December 31, 2019.

During the three months ended September 30, 2017,March 31, 2020, the Company posted a net lossincome of $3,613,118$2,793,206 as compared to a net loss of $1,060,714$11,265,200 for the three months ended September 30, 2016, such increaseMarch 31, 2019. Such change is primarily related to an increasethe writeoff of derivative liabilities, the gain from settlements of convertible notes payable, and the net decreases in expenses related to increase operating expenses, share-based compensation, interest expense and amortization of prepaid services.

The unrealized gain on investments in precious metals of $1,042 during the three months ended September 30, 2017, is related to the increase in the marketfair value of the underlying assets held asstock issued to our CEO and consultants, offset by loss on settlement of September 30, 2017.

Discussion of the Nine Months ended September 30, 2017 and 2016

The Company generated revenues during the nine months ended September 30, 2017 of $8,386 as compared to $33,476 in revenues posted for the nine months ended September 30, 2016. The decrease in revenues is primarily due to the reduced emphasis on retail sales to hotel management focus.

For the nine months ended September 30, 2017 and 2016 cost of sales was $5,948 and $17,921 respectively, which was driven by the decrease in revenues as disclosed above. Operating expenses increased to $29,038,076 for the nine months ended September 30, 2017 from $1,706,652 for the same period of 2016 primarily because of share-based compensation and amortization of prepaid services.

For the nine months ended September 30, 2017, the Company posted a net loss of $29,227,405 as compared to a net loss of $1,571,996 for the nine months ended September 30, 2016, such increase is primarily related to an increase in expenses related to increase operating expenses, share-based compensation, interest expense and amortization of prepaid services.

The unrealized gain on investments in precious metals of $17,050 during the nine months ended September 30, 2017, is related to the year to date increase in the market value of the underlying assets held as of September 30, 2017.party debt.

Liquidity and Capital Resources

As of September 30, 2017,March 31, 2020, the Company had $7,228$51,444 in cash, $50,419 in accounts receivable, and $8,716$535,540 in inventory – productsof precious metals and $378,704coins compared to $153,635 in cash, $46,280 in accounts receivable, and $532,868 in inventory - silver.at December 31, 2019.

For nineNet cash used in operating activities totaled $153,791 during the three months ended September 30, 2017,March 31, 2020 as compared to net cash used in operating activities of $104,391 during the Company received proceedsthree months ended March 31, 2019. Consolidated net income was $2,793,206 for the three months ended March 31, 2020 as compared to consolidated net loss of $13,570 from$11,265,200 for the salethree months ended March 31, 2019. Explanation of the difference between these three months of 2020 and 2019 are explained above in the results of operations of the Company.

Changes in the adjustments to reconcile net income/(net loss) for the three months ended March 31, 2020 and 2019, respectively, consist primarily of change in fair value of derivative liability, unrealized loss on investment in precious metals, depreciation, estimated fair value of common stock (including $1,310issued for shares payable)services, estimated fair value of common stock issued for cash, and a grossgain on settlements of $227,250convertible notes payable.

Change in fair value of derivative liability were ($3,240,220) and $6,721,498, respectively, for the three months ended March 31, 2020 and 2019. Operating lease liability was $0 and ($2,142), respectively, for the three months ended March 31, 2020 and 2019. Unrealized losses on investment in precious metals were $60,965 and $2,337, respectively, for the three months ended March 31, 2020 and 2019. Depreciation was $2,196 and $4,081, respectively, for the three months ended March 31, 2020 and 2019. Amortization of debt discount and issuance costs was $0 and $5,889, respectively, for the three months ended March 31, 2020 and 2019. Estimated fair value of common stock issued for services was $553,400 and $4,025,650, respectively, for the three months ended March 31, 2020 and 2019. Excess of fair value of common stock issued for cash was $421,200 and $0, respectively, for the three months ended March 31, 2020 and 2019. Excess of fair value of common stock issued to related party upon conversion of note payable was $182,032 and $0, respectively, for the three months ended March 31, 2020 and 2019. Amortization of beneficial conversion feature was $6,944 and $0, respectively, for the three months ended March 31, 2020 and 2019. Gain on settlement of convertible notes payable was $766,937 and $0, respectively, for the three months ended March 31, 2020 and 2019.

Changes in assets and liabilities for accounts receivable, inventories, prepaid expenses, stock payable, and accounts payable and accrued expenses totaled ($166,577) and $403,496, respectively, for the three months ended March 31, 2020 and 2019, respectively.

No cash was used in investing activities for the three months ended March 31, 2020 and 2019, respectively.

Net cash provided by financing activities was $51,600 for the three months ended March 31, 2020 and net cash provided by financing activities was $67,624 for the three months ended March 31, 2019. Proceeds of $25,000 and $0 were received from the issuance of convertible notes payable.payable for the three months ended March 31, 2020 and 2019, respectively. Payments on convertible notes payable were $539,738 and $0, respectively, for the three months ended March 31, 2020 and 2019. Proceeds of $400,000 and $0 were received from stock payable, respectively, for the three months ended March 31, 2020 and 2019. Proceeds of $15,000 and $79,350 were received from the issuance of common stock, respectively, for the three months ended March 31, 2020 and 2019. $151,338 and $0, respectively were received from notes payable related party for the three months ended March 31, 2020 and 2019. Payments of $0 and $11,726 were made on notes payable related party for the three months ended March 31, 2020 and 2019, respectively.

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

Pursuant to Rules adopted by the Securities and Exchange Commission, the Company carried out an evaluationThe management 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. 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 the Rule 13a-15U.S. generally accepted accounting principles or GAAP.

ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)

As of the Securities Exchange Act of 1934. The Company’s officer, its president, conducted an evaluation ofMarch 31, 2020, management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017 based on the criteria establishfor 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.Commission and SEC guidance on conducting such assessments. Based on thisthat evaluation, managementthey 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 controlcontrols over financial reporting was not effective as of September 30, 2017, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are metadversely affected its internal controls and no evaluation of controls can provide absolute assurance that all control issues have been detected.may be considered to be material weaknesses.

Material Weaknesses: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;GAAP.

2. 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.

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

During the period ended September 30, 2017, adjustments were made4. We have not performed a risk assessment and mapped our processes to the general ledger, which collectively could have a material effect on the financial statements.control objectives.

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.

Remediation:

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

1. ExpandedExpand 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; andcapabilities.

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. WeWhen 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.

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 March 31, 2020 based on the criteria establish in Internal Control Integrated Framework issued by the 2013 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 March 31, 2020, 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.

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, 2017.None.

ThereITEM 1A. RISK FACTORS

As a smaller reporting company, we are no other litigation pending or threatenednot required to provide the information required by or against the Company.this Item.

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

During the three months ended September 30, 2017,March 31, 2020, we issued the following unregistered securities:

DuringWe recorded stock receivable in the quarter ended September 30, 2017 we issued an aggregate of 5,320,000$25,100 and received $15,000 cash from the issuance of 206,000,000 shares of our common stock.

We issued 314,000,000 shares of our common stock of which 80,000 shares were issued for $80 in cash and an additional 5,240,000 shares were issued for a combination of $1,250 in cash and $798,750 valued at the closing price on the date of grant for services $5,320 fromwith a previousfair market value of $345,400.

We issued 80,000,000 shares of our common stock subscription. The issuance were exempt from registration pursuant to section 4(a) (2) of the Securities Act of 1993, due to the fact the investors are sophisticated investors, known to our managementchief executive officer for services with a fair market value of $208,000.

We issued 24,590,164 shares of our common stock for the conversion of $15,000 of convertible note payable.

We issued 229,737,650 shares of our common stock for the conversion of $212,080 of related party notes payable and familiar with$20,126 accrued interest payable.

We issued 98,214,286 shares of our operations.common stock for the cashless conversion of warrants exercised.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

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.