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 of June 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
? 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™
Liposomal Hemp Complex (Hemp Extracts, Purified Water, Gum Acacia, MCT Oil
(from Coconut)), Colloidal Silver (20ppm), Liposomal Methyl B12, Liposomal
CoQ10, Liposomal Curcumin, Stevia Leaf Extract.
? 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 Sativa (Hemp) Seed Oil, Cocos Nucifera (Coconut) Oil, Ethyl
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 to Brand 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
qualifying Brand Partners in the Brand Partner's first 30 days. There is a risk
that Brand 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 from Carlsbad Naturals, LLC. Carlsbad Naturals, LLC is a
principal shareholder of New You, Inc., and is owned by a principal shareholder
of New 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
On May 3, 2021, we entered into an Exchange Agreement with ST Brands, Inc.
(STB), a Wyoming 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 of May 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 before April 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
On May 6, 2021, pursuant to the terms of the Agreement, the Board of Directors
(the "Board") of the Company appointed Jason Frankovich to serve as the new
Executive Chairman of the Board.
On May 6, 2021, we filed a Certificate of Designation for our newly-designated
Series A Preferred Stock with the Secretary of State of the State 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
$0.00001 per share, and any other classes of capital stock.
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
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic which continues to spread throughout the
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 ended June 30, 2021, we generated revenues of
$302,936, a decrease of $241,664 compared to revenues of $544,600 for the three
months ending June 30, 2020. Comparing the six months ended June 30, 2021 to
June 30, 2020, total revenue decreased $439,534 with a revenue of $636,589 for
the six months ended June 30, 2021 compared to $1,076,123 for the six months
ended June 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 ended June 30, 2021 was
$283,298, a decrease of $211,295 compared to the three months ended June 30,
2020. Our gross margin percentage for the three months ended June 30, 2021 was
94%, compared to 91% for the three months ended June 30, 2020. The change in
gross margin in the three months ended June 30, 2021 compared to the three
months ended June 30, 2020 was due to increased sales of higher margin items
during the period. Comparing the six months ended June 30, 2021 to June 30,
2020, gross profit decreased $386,573 with a gross profit of $557,701 during the
six months ended June 30, 2021 compared to $944,274 for the six months ended
June 30, 2020. Our gross margin percentage for the six months ended June 30,
2021 was 88%, compared to 88% for the six months ended June 30, 2020. There was
no change in overall margin for the period ending June 30, 2021 compared to
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses ("SG&A expenses") for the three months ended June 30,
2021 were $9,067,999, an increase of $7,909,151 compared to the three months
ended June 30, 2020. For the three months ended June 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 ended June 30, 2021 of $10,000, compared to
$695,660 in stock based compensation for the three months June 30, 2020; and
(iv) an increase in goodwill impairment of $8,138,045. In Comparing the six
months ended June 30, 2021 to June 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 ended
June 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
9,067,999 1,158,848 11,241,331 2,540,530
Operating Loss. We realized an operating loss of $8,784,702 before interest and
income taxes for the three months ended June 30, 2021 compared to operating loss
of $664,255 for the three months ended June 30, 2020. When comparing the six
months ending June 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
Interest Expense. Interest expenses for the three months ended June 30, 2021 was
$1,863,119 compared to $491,400 for the three months ended June 31, 2020. The
increase is a reflection of the addition of financing in the current period
verses the prior period ending June 30, 2020. Interest expenses for the six
months ended June 30, 2021 were $2,116,743 compared to $523,333 for the six
months ended June 30, 2020. The increase is a reflection of the addition of
financing in the current period verses the prior period ending June 30, 2020.
Net Loss. We incurred a net loss of $10,891,121 for the three months ended June
30, 2021 compared to net loss of $1,155,655 for the three months ended June 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 ended June 30, 2021 compared to a net loss of
$2,120,389 for the six months ended June 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
Liquidity and Capital Resources
We incurred a net loss for the six months ended June 30, 2021 and had an
accumulated deficit of $18,935,635 at June 30, 2021. At June 30, 2021, we had a
cash balance of $14,577, compared to a cash balance of $45,102 at December 31,
2020. At June 30, 2021, we had a working capital deficit of $13,899,734,
compared to a working capital deficit of $2,460,718 at December 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
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.
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,
Cash 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
Cash Used in Operating Activities
During the six months ended June 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
Cash Used by Investing Activities
During the six months ended June 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 ended June 30,
2020 there was no cash used in investing activities.
Cash Provided by Financing Activities
During the six months ended June 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
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