NEW YOU, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and supplementary data referred to in this Form 10-Q.
This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning revenue sources and concentration, selling, general and administrative expenses and capital resources, are subject to risks and uncertainties, including, but not limited to, those discussed elsewhere in this Form 10-Q that could cause actual results to differ materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10-Q is as ofJune 30, 2021 , and we undertake no duty to update this information.New You, Inc.'s principal business is the marketing of unique and proprietary cannabidiol ("CBD") products, which include CBD beverage enhancers that can be added to any beverage, CBD infused coffee, and CBD oil tinctures. The Company has five products:
? DROPS - 220 mgs of CBD - odorless, tasteless, flavorless and can be added to
any beverage or liquid.
? CB2 & CBD 2 Plus - A Multi Spectrum Hemp-extracted CBD and Beta-Caryophyllene
(?-Caryophyllene is the primary sesquiterpene contributing to the spiciness of
black pepper; it is also a major constituent of cloves, hops, rosemary,
copaiba, and cannabis), naturally blended coconut-derived MCT oil (made from a
coconut fat called medium-chain triglyceride) and a hint of peppermint.
? Drops for Pets - This 50 mgs CBD product is designed to be used by pets.
? ENDO30 -
? CAFFE CANNA - Caffe Canna is a rich organic CBD-infused non-GMO dark roast
coffee
? ABSORB - Made of a Japanese root and rice flour veggie capsule.
? RELEASE - Made with organic Clove, Cascara Sagrada, Agave Inulin, Rhubarb Root
Extract, Slippery Elm Bark, Aloe Vera and other herbs.
? Drops FX -Our proprietary blend of CBD and Vitamins B3, B6, B9 & B12, that you
can use in any drink or liquid.
? Drops FX Sleep -A blend of CBD, GABA (Gamma-amino butyric acid is an amino
acid in the body that acts as a neurotransmitter in the central nervous
system), Melatonin, Valerian Root.
? NanoX - A water soluble, Full Spectrum DBD made with Purified Water, NanoX™
(from Coconut)), Colloidal Silver (20ppm), Liposomal Methyl B12, Liposomal
CoQ10, Liposomal Curcumin, Stevia Leaf Extract.
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? The Cream - A topical skin cream made with Cannabidiol (1,000 mg of whole
plant CBD isolate per 60 mL), Purified Water (Aqua), Glyceryl Stearate SE,
Cannabis
Macadamiate, Stearic Acid, Cetearyl Alcohol, Pentylene Glycol, Oryza Sativa
(Rice) Bran Extract, Tocopherol, Eucalyptus Globulus Leaf Oil, Origanum
majorana, Potassium Hydroxide, Hydroxypropyl Starch Phosphate, Phenoxyethanol,
Caprylyl Glycol, Tetra- sodium Glutamate Diacetate, Pentanediol.
New You, Inc. through its wholly owned subsidiary,New You LLC , markets and sells its products through a multi-level marketing and direct sales opportunity afforded to independent business owners called "Brand Partners ." Commissions are earned on product sales toBrand Partners and their customers at a rate of 10% for every transaction, plus a specified spread on recurring sales.Brand Partners earn a 5% commission on sales by other team members at lower levels up to nine levels below the Brand Partner.Brand Partners can earn an additional bonus for customer sales and team sales. The team bonus is$400 for each time the team bonus volume reaches a certain amount in a 30 day period.Brand Partners can also earn an initial bonus of 20% of the transaction value for qualifyingBrand Partners in the Brand Partner's first 30 days. There is a risk thatBrand Partners may find it difficult to sell in a network marketing environment.Brand Partners may also find it difficult to sell CBD related products due to the uncertainty surrounding FDA regulations of CBD and hemp related products. Lastly, public perception of CBD products may be negative, as such products are derived from the Hemp plant. The Company does not hold any patents or trademarks and, as a result, may be vulnerable to competition from other companies offering very similar products and product brands The Company purchases inventory fromCarlsbad Naturals, LLC .Carlsbad Naturals, LLC is a principal shareholder ofNew You, Inc. , and is owned by a principal shareholder ofNew You, Inc. As a result, we are dependent on a related party for product inventory and do not have a broad base of unaffiliated suppliers. The officers and directors of the Company own 34.27% of the outstanding common shares. Accordingly, management will have a determinative influence on matters requiring shareholder approval.
OnMay 3, 2021 , we entered into an Exchange Agreement with STBrands, Inc. (STB), aWyoming corporation, and the shareholders of STB. Under the Agreement, the Company acquired all of the issued and outstanding common stock of STB in exchange for our issuance to the Shareholders of STB, shares of our newly-designated Series A Preferred Stock. The class of Series A Preferred Stock consists of 4,500,000 shares of preferred stock convertible to our common stock at a ratio of 100 for 1. As a whole, all designated shares of Series A Preferred are convertible to approximately the cumulative equivalent of ninety percent (90%) of our issued and outstanding share capital as ofMay 3, 2021 . The Agreement contemplates that the Company's existing business and assets of the Company will remain and continue under the Company's ownership following the closing of the Closing. Shares of Series A Preferred Stock shall be issuable to the Shareholders under the Agreement upon each of several contemplated Closings, each Closing to take place upon our receipt of audited financial statements reflecting certain levels of annual revenue earned by STB and/or Acquired Material Businesses, as defined in the Exchange Agreement and as described in Exhibit B in the Agreement. Up to 4,500,000 shares of Series A Preferred Stock may be issued to the Shareholders, with all Closings to occur on or beforeApril 30, 2022 . Under the Initial Closing on the date of the Agreement, we issued 500,000 shares of Series A Preferred Stock to the Shareholders of STB. The issuance was exempt under Section 4(a)(2) of the Securities Act as the transaction did not involve a public offering.
On
OnMay 6, 2021 , we filed a Certificate of Designation for our newly-designated Series A Preferred Stock with the Secretary of State of theState of Nevada (the "Secretary of State"). The class of Series A Preferred Stock ("Series A") consists of four million five hundred thousand (4,500,000) shares, par value$0.00001 per share. Key provisions include: Conversion: Each share of Series A shall be convertible at the option of the holders thereof, and without the payment of additional consideration, at any time, into shares of our common stock at a conversion rate of one hundred (100) shares of common stock for every one (1) share of Series A held (the "Conversion Rate"), subject to adjustment as set forth in the Certificate of Designation. The Conversion Rate is subject to pro-rata downward adjustment based on the number of shares of common stock (or common stock equivalents) issued in the future by us for the acquisition of Acquired Material Businesses within the meaning of the Agreement. The Conversion Rate is also subject to adjustment for stock splits, reverse splits, share dividends, and similar corporate actions.
Ranking: Shares of Series A shall, with respect to rights on liquidation,
winding up and dissolution, rank pari passu to our common stock, par value
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Voting Rights: Each share of Series A shall vote on an as-converted basis with the common stock or other equity securities, resulting in 100 votes per one share of Series A Preferred Stock.
Risks and Uncertainties InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughoutthe United States . We are currently negatively impacted through a reduction in sales by the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and continue to monitor its impact on operations, financial position, cash flows, customer purchasing trends, and the industry in general, in addition to the impact on our employees. We have concluded that while it is reasonably possible that the virus could continue to have a negative impact on the results of operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Results of Operations Revenues. For the three months endedJune 30, 2021 , we generated revenues of$302,936 , a decrease of$241,664 compared to revenues of$544,600 for the three months endingJune 30, 2020 . Comparing the six months endedJune 30, 2021 toJune 30, 2020 , total revenue decreased$439,534 with a revenue of$636,589 for the six months endedJune 30, 2021 compared to$1,076,123 for the six months endedJune 30, 2020 . The decrease was primarily due to not yet recovering from the COVID-19 shutdown. At this stage in our development, revenues are not yet sufficient to cover ongoing operating expenses. Gross Profit. Our gross profit for the three months endedJune 30, 2021 was$283,298 , a decrease of$211,295 compared to the three months endedJune 30, 2020 . Our gross margin percentage for the three months endedJune 30, 2021 was 94%, compared to 91% for the three months endedJune 30, 2020 . The change in gross margin in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 was due to increased sales of higher margin items during the period. Comparing the six months endedJune 30, 2021 toJune 30, 2020 , gross profit decreased$386,573 with a gross profit of$557,701 during the six months endedJune 30, 2021 compared to$944,274 for the six months endedJune 30, 2020 . Our gross margin percentage for the six months endedJune 30, 2021 was 88%, compared to 88% for the six months endedJune 30, 2020 . There was no change in overall margin for the period endingJune 30, 2021 compared to
June 30, 2020 . Selling, General, and Administrative Expenses. Selling, general, and administrative expenses ("SG&A expenses") for the three months endedJune 30, 2021 were$9,067,999 , an increase of$7,909,151 compared to the three months endedJune 30, 2020 . For the three months endedJune 30, 2021 , the SG&A expenses included: (i) a reduction in commission expenses; (ii) a reduction in payroll expenses; (iii) incremental expenses resulting from the ST Brands merger; (iiii) and an decrease in other SG&A expenses. Including non-cash stock based compensation for the three months endedJune 30, 2021 of$10,000 , compared to$695,660 in stock based compensation for the three monthsJune 30, 2020 ; and (iv) an increase in goodwill impairment of$8,138,045 . In Comparing the six months endedJune 30, 2021 toJune 30, 2020 , SG&A expenses were$11,241,331 compared to$2,540,530, an increase of$8,700,801 . The main cause of the increase was the non-cash stock based compensation expensed during the six months endedJune 30, 2021 of$1,811,619 and the merger of ST Brands with a goodwill impairment of$8,138,045 . For the three For the three For the six For the six months ended months ended months ended months ended June 30, June 30, June 30, June 30, 2021 2020 2021 2020 Staff and Overhead Expenses 687,482 284,259 889,366 688,857 Accounting/Legal 152,567 16,975 239,274 81,453 Commission Expense 79,906 161,954 163,028 309,644 Goodwill Imparment 8,138,045 - 8,138,045 -
Non-Cash Stock Based Compensation 10,000 695,660
1,811,619 1,460,576
9,067,999 1,158,848 11,241,331 2,540,530
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Operating Loss. We realized an operating loss of$8,784,702 before interest and income taxes for the three months endedJune 30, 2021 compared to operating loss of$664,255 for the three months endedJune 30, 2020 . When comparing the six months endingJune 30, 2021 to 2020, we realized an operating loss of$10,683,631 compared to$1,596,256 mainly due to expensing the remaining amount of Stock Based Compensation and impairing the goodwill relating to the ST Brand acquisition. Interest Expense. Interest expenses for the three months endedJune 30, 2021 was$1,863,119 compared to$491,400 for the three months endedJune 31, 2020 . The increase is a reflection of the addition of financing in the current period verses the prior period endingJune 30, 2020 . Interest expenses for the six months endedJune 30, 2021 were$2,116,743 compared to$523,333 for the six months endedJune 30, 2020 . The increase is a reflection of the addition of financing in the current period verses the prior period endingJune 30, 2020 . Net Loss. We incurred a net loss of$10,891,121 for the three months endedJune 30, 2021 compared to net loss of$1,155,655 for the three months endedJune 30, 2020 . The primary reason for the increase in net loss is due to an increase in interest expense from the addition of financing and impairing the goodwill relating to the ST Brand acquisition. The company incurred a net loss of$11,768,620 for the six months endedJune 30, 2021 compared to a net loss of$2,120,389 for the six months endedJune 30, 2020 . The primary reason for the increase in net loss is due to an increases in interest expenses in the amount of$1,593,410 and impairing the goodwill relating to the ST Brand acquisition. Management will continue to make an effort to lower operating expenses and increase revenue.
Liquidity and Capital Resources
We incurred a net loss for the six months endedJune 30, 2021 and had an accumulated deficit of$18,935,635 atJune 30, 2021 . AtJune 30, 2021 , we had a cash balance of$14,577 , compared to a cash balance of$45,102 atDecember 31, 2020 . AtJune 30, 2021 , we had a working capital deficit of$13,899,734 , compared to a working capital deficit of$2,460,718 atDecember 31, 2020 . The Company's existing and available capital resources are not expected to be sufficient to satisfy our funding requirements through one year from the date of this filing in the absence of share issuances or other sources of financing. We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of preferred stock, common stock, and debt securities. We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support its operations.
Based on the above factors, substantial doubt exists about our ability to continue as a going concern for one year from the issuance of these financial statements.
The issuance of additional securities may result in a significant dilution in
the equity interests of our current stockholders. Obtaining loans, assuming
these loans would be available, will increase our liabilities and future cash
commitments. There is no assurance that we will be able to obtain further funds
required for our continued operations or that additional financing will be
available for use when needed or, if available, that it can be obtained on
commercially reasonable terms.
The effect of existing or probable government regulations on our business is not
known at this time. Due to the nature of our business, it is anticipated that
there may be increasing government regulation that may cause us to have to take
serious corrective actions or make changes to the business plan.
Cash Flow
The following table summarizes our cash flows for the periods indicated below:
For the six For the Six
Months Ended Months Ended
June 30 , June 31,
2020 2019Cash used in (provided by) operating activities (718,131 ) (114,458 ) Cash provided by (used in) investing activities (457,500 ) - Cash provided by (used in) financing activities 1,145,106
114,458
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Cash Used in Operating Activities
During the six months endedJune 30, 2021 cash used in operating activities of$718,131 primarily reflected our net losses for the period, adjusted by non-cash charges such as depreciation and stock-based compensation, accretion of debt discounts, changes in the fair value of derivative liabilities, and additional goodwill impairment.
Cash Used by Investing Activities
During the six months endedJune 30, 2021 , cash used in investing activities was$457,500 , which consisted of the purchase of investments and property and equipment from the merger of ST Brands. During the six months endedJune 30, 2020 there was no cash used in investing activities.
Cash Provided by Financing Activities
During the six months endedJune 30, 2021 , cash provided by financing activities was$1,145,106 , which consisted of proceeds from convertible notes payable received throughout the second quarter of 2021 offset by repayment of related party debt and debt added from the merger of ST Brands.
Recent Accounting Pronouncements
None.
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