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 supplemental 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.'sprincipal 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 mg CBD – odorless, tasteless, tasteless and can be added to
any beverage or liquid.
? CB2 & CBD 2 Plus – A multi-spectrum CBD and beta-caryophyllene hemp extract
(? -Karyophyllene is the main sesquiterpene contributing to the spiciness of
black pepper; it is also a major constituent of cloves, hops, rosemary,
copaiba and cannabis), MCT oil derived from naturally blended coconut (made from a
coconut fat called medium-chain triglyceride) and a hint of peppermint.
? Pet Drops – This 50 mg CBD product is designed for use by pets.
? ENDO30 -
? CAFFE CANNA – Caffe Canna is a rich, non-GMO black roast infused with CBD
coffee ? ABSORB - Made of a Japanese root and rice flour veggie capsule.
? RELEASE – Made with Organic Clove, Sacred Cascara, Agave Inulin, and Rhubarb Root
Extract, Slippery Elm Bark, Aloe Vera and other herbs.
? Drops FX – Our proprietary blend of CBD and vitamins B3, B6, B9 and B12, which you
can use in any drink or liquid.
? Drops FX Sleep -A mixture of CBD, GABA (gamma-amino butyric acid is a
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 (20 ppm), methyl B12 liposomal, liposomal
CoQ10, Liposomal Curcumin, Stevia Leaf Extract. 20
? The Cream – A topical skin cream based on Cannabidiol (1000 mg of
Vegetable CBD isolate per 60 ml), Purified water (Aqua), Glyceryl Stearate SE,
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 Partnersand their customers at a rate of 10% for every transaction, plus a specified spread on recurring sales. Brand Partnersearn a 5% commission on sales by other team members at lower levels up to nine levels below the Brand Partner. Brand Partnerscan earn an additional bonus for customer sales and team sales. The team bonus is $400for each time the team bonus volume reaches a certain amount in a 30 day period. Brand Partnerscan also earn an initial bonus of 20% of the transaction value for qualifying Brand Partnersin the Brand Partner's first 30 days. There is a risk that Brand Partnersmay find it difficult to sell in a network marketing environment. Brand Partnersmay 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, LLCis 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 shareholder approval.
May 3, 2021, we entered into an Exchange Agreement with ST Brands, Inc.(STB), a Wyomingcorporation, 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 public offering.
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 $0.00001per 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.
Rank: Series A shares must rank pari passu with respect to the rights of liquidation, liquidation and dissolution with our ordinary shares, par value
Voting Rights: Each Series A share will vote on a basis as converted with common shares or other equity securities, resulting in 100 votes per share of Series A preferred shares.
Risks and Uncertainties In
March 2020, the World Health Organizationdeclared 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 $241,664compared to revenues of $544,600for the three months ending June 30, 2020. Comparing the six months ended June 30, 2021to June 30, 2020, total revenue decreased $439,534with a revenue of $636,589for the six months ended June 30, 2021compared to $1,076,123for 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, 2021was $283,298, a decrease of $211,295compared to the three months ended June 30, 2020. Our gross margin percentage for the three months ended June 30, 2021was 94%, compared to 91% for the three months ended June 30, 2020. The change in gross margin in the three months ended June 30, 2021compared to the three months ended June 30, 2020was due to increased sales of higher margin items during the period. Comparing the six months ended June 30, 2021to June 30, 2020, gross profit decreased $386,573with a gross profit of $557,701during the six months ended June 30, 2021compared to $944,274for the six months ended June 30, 2020. Our gross margin percentage for the six months ended June 30, 2021was 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, 2021compared to
June 30, 2020. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses ("SG&A expenses") for the three months ended June 30, 2021were $9,067,999, an increase of $7,909,151compared 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, 2021of $10,000, compared to $695,660in 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, 2021to June 30, 2020, SG&A expenses were $11,241,331compared 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, 2021of $1,811,619and 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 22
Operating Loss. We realized an operating loss of
$8,784,702before interest and income taxes for the three months ended June 30, 2021compared to operating loss of $664,255for the three months ended June 30, 2020. When comparing the six months ending June 30, 2021to 2020, we realized an operating loss of $10,683,631compared to $1,596,256mainly 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 ended June 30, 2021was $1,863,119compared to $491,400for 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, 2021were $2,116,743compared to $523,333for 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 $10,891,121for the three months ended June 30, 2021compared to net loss of $1,155,655for 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 $11,768,620for the six months ended June 30, 2021compared to a net loss of $2,120,389for 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 $1,593,410and 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 ended
June 30, 2021and had an accumulated deficit of $18,935,635at June 30, 2021. At June 30, 2021, we had a cash balance of $14,577, compared to a cash balance of $45,102at December 31, 2020. At June 30, 2021, we had a working capital deficit of $13,899,734, compared to a working capital deficit of $2,460,718at 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 as to our ability to continue as a business 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, 20202019
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, 2021cash used in operating activities of $718,131primarily 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 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, 2020there was no cash used in investing activities.
Cash provided by fundraising 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 positions
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