UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
or
For the transition period from __________ to __________
Commission
file number
(Exact name of registrant as specified in its charter) |
(State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
Indicate
by checkmark whether the issuer (1) 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 issuer was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. ☒
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). ☐Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
☒ | Smaller reporting company | ||||
Emerging growth company |
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
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
☒
As of September 16, 2021, there were shares of the Registrant’s common stock.
TABLE OF CONTENTS
Part I | Financial Information | 3 |
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion And Analysis Of Financial Condition And Results Of Operations | 20 |
Item 3. | Quantitative And Qualitative Disclosures About Market Risk | 24 |
Item 4. | Controls And Procedures | 24 |
Part II | Other Information | 25 |
Item 1. | Legal Proceedings | 25 |
Item 1A. | Risk Factors | 25 |
Item 2. | Unregistered Sale Of Equity Securities And Use Of Proceeds | 25 |
Item 3. | Defaults Upon Senior Securities | 25 |
Item 4. | Mine Safety Disclosures | 25 |
Item 5. | Other Information | 26 |
Item 6. | Exhibits | 26 |
2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
New
You, Inc.
Condensed Consolidated Balance Sheets
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Credit Card Receivable | ||||||||
Inventory | ||||||||
Prepaid Expenses and Other Current Assets | ||||||||
Total Current Assets | ||||||||
Property and Equipment, Net | ||||||||
Investments, Long Term | - | |||||||
Operating Lease Right of Use Asset, Net | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Accounts Payable and Other Accrued Expenses | $ | $ | ||||||
Accounts Payable to Related Parties | ||||||||
Notes Payable, current | ||||||||
Convertible Notes Payable, net of discount | ||||||||
Derivative Liability | ||||||||
Operating Lease Liability, Current | ||||||||
Purchase Consideration Payable | - | |||||||
Related Party Debt | ||||||||
Total Current Liabilities | ||||||||
Noncurrent Liabilities | ||||||||
Notes Payable, Noncurrent | ||||||||
TOTAL LIABILITIES | ||||||||
COMMITMENTS AND CONTINGENCIES - SEE NOTE 5 | ||||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Common stock at $ | par value: shares authorized as of June 30, 2021 and December 31, 2020; and shares issued and outstanding as of June 31, 2021 and December 31, 2020, respectively.||||||||
Series A Perferred Stock at $ | par value: shares authorized as of Jun 30,2020 and authorized December 31,2020; shares issued and outstanding as of June 31, 2021 and December 31, 2020- | - | ||||||
Additional Paid-in Capital | ||||||||
Accumulated Deficit | ( | ) | ( | ) | ||||
TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3 |
New
You, Inc.
Condensed Consolidated Statements of Operations
For The Three Months Ended | For The Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||
Cost of Goods Sold | ||||||||||||||||
Gross Profit | ||||||||||||||||
Selling, General and Administrative Expenses | ||||||||||||||||
Commission Expense | ||||||||||||||||
Stock Based Compensation | ||||||||||||||||
Goodwill Impairment | ||||||||||||||||
Other | ||||||||||||||||
Total Selling, General and Administrative Expenses | ||||||||||||||||
(Loss) Income from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest Expense | ||||||||||||||||
Change in derivative liability | ( | ) | ||||||||||||||
(Loss) before Income Tax Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income Tax Expense | ||||||||||||||||
Net (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net (Loss) Per Common Share | ||||||||||||||||
- Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted Average Common Shares Outstanding | ||||||||||||||||
- Basic and Diluted |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4 |
New
You, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
For the Six Months Ended June 30, 2021
(Unaudited)
Common | Additional Paid | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Par Value | in Capital | Deficit | Deficit | ||||||||||||||||
Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Stock-based Compensation - Consultants | ||||||||||||||||||||
Re-characterization of beneficial conversion feature upon derivative treatment of conversion option | - | ( | ) | ( | ) | |||||||||||||||
Shares Issued in Connection with Notes Payable & Interest | ||||||||||||||||||||
Net Loss | - | ( | ) | ( | ) | |||||||||||||||
Balance as of March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||
Stock-based Compensation - Consultants | ||||||||||||||||||||
Shares issued for partial conversion of Share holder loans for Nish Mehta and Ray Grimm | ||||||||||||||||||||
Shares Issued in Connection with Notes Payable & Interest | ||||||||||||||||||||
Net Loss | - | ( | ) | ( | ) | |||||||||||||||
Balance as of June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) |
5 |
New
You, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
For the Six Months Ended June 30, 2020
(Unaudited)
Common | Additional Paid | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Par Value | in Capital | Deficit | Deficit | ||||||||||||||||
Balance as of December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Stock-based Compensation - Employees | - | |||||||||||||||||||
Stock-based Compensation - Consultants | ||||||||||||||||||||
Shares Issued in Connection with Note Payable Issuance | ||||||||||||||||||||
Net Loss | - | ( | ) | ( | ) | |||||||||||||||
Balance as of March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||
Stock-based Compensation - Employees | - | |||||||||||||||||||
Stock-based Compensation - Consultants | ||||||||||||||||||||
Common Shares Issued for Cash Received in 2019 | ( | ) | ||||||||||||||||||
Shares Issued in Connection with Note Payable Interest Penalties | ||||||||||||||||||||
Net Loss | - | ( | ) | ( | ) | |||||||||||||||
Balance as of June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6 |
New
You, Inc.
Condensed Consolidated Statements of Cash Flows
For The Six Months Ended | For The Six Months Ended | |||||||
June 30, | June 30, | |||||||
2021 | 2020 | |||||||
(Unaudited) | (Unaudited) | |||||||
Operating Activities | ||||||||
Net (Loss) | $ | ( | ) | $ | ( | ) | ||
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities: | ||||||||
Depreciation and Amortization | ||||||||
Amortization of Operating Lease Right of Use Asset | ||||||||
Goodwill Impairment | ||||||||
Other non-cash interest expense | - | |||||||
Amortization of Debt Issuance Costs | ||||||||
Change in fair value of derivative liability | ( | ) | - | |||||
Shares Issued in Connection with Note Payable Interest Penalties | ||||||||
Stock-based Compensation - Employees | - | |||||||
Stock-based Compensation - Consultants | ||||||||
Changes in Operating Assets and Liabilities: | ||||||||
Credit Card Receivable | ||||||||
Inventory | ||||||||
Prepaid Expenses and Other Current Assets | - | ( | ) | |||||
Accounts Payable and Other Current Liabilities | ( | ) | ||||||
Accounts Payable to Related Parties | ( | ) | ||||||
Operating Lease Liabilities | ( | ) | ( | ) | ||||
Net Cash (Used in) Provided by Operating Activities | ( | ) | ( | ) | ||||
Investing Activities | ||||||||
Purchase of Property and Equipment | ( | ) | - | |||||
Purchase of Investments | ( | ) | - | |||||
Net Cash Used in Investing Activities | ( | ) | - | |||||
Financing Activities | ||||||||
Proceeds from Related Party Debt | ||||||||
Repayments of Related Party Debt | - | ( | ) | |||||
Proceeds from Convertible Notes Payable, Net of Costs | ||||||||
Repayment of convertible notes payable | ( | ) | - | |||||
Loan Proceeds, Net of Issuance Costs | - | |||||||
Loan Repayments | ( | ) | - | |||||
Net Cash Provided by (Used in) Financing Activities | ||||||||
Net Increase (Decrease) in Cash | ( | ) | - | |||||
Cash | ||||||||
Beginning of Period | ||||||||
End of Period | $ | $ | ||||||
Supplemental Disclosures | ||||||||
Cash Paid for Interest | $ | $ | ||||||
Cash Paid for Income Taxes | $ | $ | ||||||
Non-cash Investing and Financing Activities: | ||||||||
Payroll and Other Payables to Related Parties Converted to Related Party Debt | $ | $ | ||||||
Shares Issued in Connection with Note payable Issuance | $ | $ | ||||||
Shares Issued in Connection with Late Interest Payments | $ | $ | ||||||
Conversion of related party notes into equity | $ | $ | ||||||
Unpaid purchase consideration | $ | $ |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
7 |
NEW YOU, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Organization and Summary of Significant Accounting Policies
Nature of Business
New You, Inc., formerly known as The Radiant Creations Group, Inc. (the “Company”) was incorporated in Nevada on December 29, 2005. From inception, the Company’s principal business activity was the acquisition and exploration of mineral resources. On June 20, 2013, following a change of control and subsequent acquisition of an exclusive license agreement, the Company changed its principal business to the development and marketing of cosmetics and over-the-counter personal enhancement products and devices. After a subsequent change in control on July 11, 2018, the Company changed its principal business to selling cannabidiol (“CBD”) hemp oil-based products through independent business owners (called “Brand Partners”).
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 shares of preferred stock convertible to our
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.
The
Company initially recorded $
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 ( ) shares, par value $ 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
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 $ per share, and any other classes of capital stock.
Voting
Rights:
The Company, through its wholly owned subsidiary New You LLC, markets and sells its products through a multi-level marketing sales opportunity.
8 |
Basis of Presentation
The unaudited condensed consolidated financial statements include the operations of New You, Inc. and its wholly-owned subsidiary, New You LLC. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 10 of Securities and Exchange Commission (SEC) Regulation S-X for Interim Reporting. All intercompany transactions, accounts and profits, if any, have been eliminated in the unaudited condensed consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair statement have been included.
These unaudited condensed consolidated financial statements do not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the more detailed audited financial statements of New You, Inc. for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K.
The results for the six months ended June 30, 2021 and 2020 are not necessarily indicative of results to be expected for a full year, any other interim periods, or any future year or period.
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.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The Company’s significant estimates include estimates for future charge-backs and allowance for slow moving or obsolete inventory.
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, the Company currently does not have any common share equivalents; therefore, its basic and diluted net loss per share calculations is the same.
9 |
For The Three Months Ended | For The Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Historical net (loss) income per share | ||||||||||||||||
Numerator | ||||||||||||||||
Net (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Denominator | ||||||||||||||||
Weighted-average common shares outstanding | ||||||||||||||||
Less: Weighted-average shares subject to repurchase | ( | ) | ( | ) | ||||||||||||
Denominator for basic and diluted net loss per share | ||||||||||||||||
Basic and diluted net (loss) income per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
For The Three Months Ended | For The Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Restricted shares | ||||||||||||||||
Convertible notes |
Recently Issued Accounting Pronouncements
FASB ASU No. 2019-12 Income Taxes - In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this guidance as of its first quarter ended March 31, 2021. Such adoption did not have an impact to the Company’s financial position, results of operations, or cash flows.
ASU 2020-06: In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.
Note 2 – Going Concern
We
incurred a net loss of $
We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. 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 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.
10 |
Note 3 – Concentrations of Business and Credit Risk
The Company at times maintains balances in various operating accounts in excess of federally insured limits.
Since
The Company also made purchases from and has accounts payable to Carlsbad Naturals, LLC as described in Note 10.
Note 4 – Investments in Future Subsidary
During
the six months ended June 30, 2021, there were investments in the amounts of $
Herring
Creek is a pharmaceutical research and development (“R&D”) firm that provides services to ST brands. In April 2021, ST
Brands entered into an agreement with Herring Creek to develop a synthetic CBD “cold crystal” molecule to be utilized as
a sweetener additive in CBD drinks that ST Brands seeks to manufacture and distribute through its strategic partners. The Company
made an advance payment of $
On
6/28/2021, ST brands entered into an agreement to acquire F-Squared Management. The specifics of the acquisition included ST Brands paying
F-Squared Management $
Investments
in unconsolidated affiliates are accounted for under the cost or the equity method of accounting, as appropriate. The Company accounts
for investments in limited partnerships or limited liability corporations, whereby the Company owns a minimum of
Note 5 – Equity
Restricted Stock Grants
The Company estimated the fair value of restricted stock grants at $ per share based on the price at which the Company issued common shares for cash in 2019 and not based on the amount that shares were trading for on the OTC “Pink” market since shares were thinly traded on the market from August 2019 to June 30, 2021 when the equity instruments were granted.
The table below summarizes the activity of the restricted stock during the six months ended June 30, 2021:
Number of Shares | Weighted Average Fair Value per Share | |||||||
Non-vested as of January 1, 2021 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ||||||||
Non-vested as of June 30, 2021 | $ |
For
the six months ended June 30, 2021 the compensation costs include $of stock based compensation.
No portion of the total compensation cost was capitalized. The unrecognized compensation costs as of June 30, 2021 is $
11 |
Other Equity issuances:
There
were
Note 6 – Commitments and Contingencies
Operating Lease Commitments
The
Company leases a warehouse facility under a lease agreement that expires
The components of total lease costs are as follows:
For The Six Months Ended June 30, | For The Six Months Ended June 30, | |||||||
2021 | 2020 | |||||||
Operating lease cost | ||||||||
Total lease cost | $ | $ |
Cash
paid for amounts included in operating lease liabilities was $
Operating lease ROU assets | $ | |||
Operating lease liabilities | $ |
The table below presents the maturities of operating lease liabilities as of June 30,
2021 | $ | |||
2022 | $ | |||
Total Lease Payments | $ | |||
Less: Discount | $ | ( | ) | |
Operating Lease Liability | $ |
Three
Months Ended | ||||
Weighted average remaining lease term (years) | ||||
Weighted average discount rate | % |
Litigation and Claims
The Company may be involved in lawsuits and claims arising in the ordinary course of business from time to time. The Company reviews any such legal proceedings and claims on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the Company’s financial statements not to be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, the Company determined that there were no matters that required an accrual as of June 30, 2021 or 2020, nor were there any asserted or unasserted material claims for which material losses are reasonably possible.
12 |
Note 7 – Notes Payable
In
April 2020, the Company’s subsidiary received a non-interest bearing advance from the Small Business Administration under the Emergency
Injury Disaster Loan program of $
In
May, 2020, the Company’s subsidiary received a Paycheck Protection Program loan in the amount of $
The Company may apply for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of first disbursement of this loan:
a. | Payroll costs | |
b. | Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) | |
c. | Any payment on a covered rent obligation | |
d. | Any covered utility payment |
The
amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program,
including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more
than
In
July, 2020, the Company’s subsidiary received a Paycheck Protection Program loan in the amount of $
In
June, 2021, the Company received a loan in the amount of $
In
June 2021, the Company received a loan in the amount of $
During
the six months ended June 30, 2021, directors and members of management converted
deferred payroll to related party debt in the amount
of $
During
the six months ended June 30, 2021, the Company received loan proceeds of $
During
the six months ended June 30, 2021, the Company received loan proceeds in the amount $
During
the six months ended June 30, 2021, the Company received loan proceeds in the amount $
13 |
Note 8 – Convertible Debt
As of June 30, 2021, the Company owed $1,354,500 in principal (before a debt discount of $960,837 and $33,106 in accrued interest (included in accounts payable and accrued expenses) on its outstanding convertible promissory notes. As of December 31, 2020, the Company owed $406,000 in principal (before a debt discount of $177,798) and $9,549 in accrued interest.
June 30, 2021 | December 31, 2020 | |||||||
Principal | $ | $ | ||||||
Debt discount | ( | ) | ( | ) | ||||
Total Principal | $ | $ |
Note
1 - On January 2, 2020, the Company received loan proceeds of $
Note
2 - On June 17, 2020, the Company received $
Note
3 - On July 20, 2020, the Company received $
Note
4 – On November 18, 2020, the Company entered into a Secured Promissory Note (“Fourth Convertible Note”) with a third
party, receiving $
14 |
Note
5 – On March 18, 2021, the Company received $
Note
6 - On April 7, 2021, the Company received $
Note
7 - On April 8, 2021, the Company received $
Note
8 - On April 16, 2021, the Company received $
Note
9 - On May 1, 2021, the Company received $
15 |
Note
10 - On May 11, 2021, the Company received $
Note
11 - On May 13, 2021, the Company received $
Note
12 - On June 2, 2021, the Company received $
Note
13 - On June 23, 2021, the Company received $
Note
14 - On June 23, 2021, the Company received $
The Company is currently in default of the non-financial covenant relating to timely filing of periodic SEC reports.
Note 9 – Beneficial Conversion Feature
ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date at its intrinsic value; that being the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. This amount is recorded as a debt discount and amortized over the life of the debt. ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument.
16 |
The
effective conversion prices were compared to the market prices on the dates of each convertible note and they were deemed to be less
than the inception date fair value of the underlying common stock for the Second Convertible Note. The Company recognized a debt discount
as a reduction (contra-liability) to the Second and Fourth, and Fifth Convertible Notes with an increase to paid in capital. The debt
discounts are being amortized over the life of the notes. The Company recognized financing costs for charges by the lender for original
issue discounts and other applicable administrative costs, normally withheld from proceeds, which are being amortized as finance costs
over the life of the loan. As of June 30, 2021 and December 31, 2020, the unamortized beneficial conversion feature associated with our
convertible notes was $
During
the first quarter of 2021, an active market developed for the Company’s stock. Accordingly, the Company began recording the conversion
features of its convertible notes payable as embedded derivatives. As a result, the Company re-characterized the beneficial conversion
feature recorded on Note 4 as a discount related to the derivative liability, resulting in a decrease to additional paid in capital in
the amount of $
Note 10 - Derivatives
The Company assessed its convertible notes for purposes of determining the associated embedded default derivatives. The Company relied on ASC 820-10-35-37 Fair Value in Financial Instruments and ASC 815 Accounting for Derivative Instruments and Hedging Activities. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance and at every balance sheet thereafter and in determining which valuation method is most appropriate for the instrument, the expected volatility, the implied risk-free interest rate, as well as the expected dividend rate, if any.
During the six months ended June 30, 2021, the Company had convertible notes payable outstanding in which the conversion rate was variable and undeterminable. The Company determined that the embedded conversion options met the definition of a derivative. The effective conversion price was compared to the market price on the date of the note and was deemed to be less than the market value of underlying common stock at the inception of the note. The Company recognized a debt discount on the notes as a reduction (contra-liability) to the Convertible Notes Payable. The debt discounts are being amortized over the life of the notes. The Company recognized financing costs for charges by the lender applicable administrative costs, normally withheld from proceeds, which are being amortized as finance costs over the life of the loan.
The Company evaluated the terms of the convertible notes in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying is indexed to the Company’s common stock. The Company determined that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company then evaluated the conversion feature for the embedded conversion option. Since these notes contain conversion price adjustment provisions (i.e. down round, true-up, or ratchet provisions), the Company determined that the embedded conversion options met the definition of a derivative. The Monte Carlo model was used to estimate the fair values of the embedded derivatives on the conversion features of our convertible notes. The values are based on simulating stock volatility, risk free interest rates, and the conversion stock prices on the date of measurement.
The Company is subject to significant cash penalties in the event that the Company defaults on its convertible notes. The default penalties vary based on the type of default and range from incurring a default interest rate of 22% to a penalty of 50% of the amount due, to a parity value based on the effective conversion of the note on the date of payment of the default and the maximum stock value during the period between the default date and the settlement date. The Company determined that certain of the default provisions should be bifurcated from the debt host and treated as a liability, since they involve the contingent payment of a substantial premium on the convertible notes. The Company used a Monte Carlo model that values the embedded default derivatives based on simulating the stock price, the default likelihood, and the default liability.
Fair Value
ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the convertible notes. At June 30, 2021, all of the Company’s derivative liabilities were categorized as Level 3 fair value liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
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Level 3 Valuation Techniques
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. At the date of the original transaction, we valued the convertible note that contains down round provisions using a Black-Scholes model, with the assistance of a valuation consultant, for which management understands the methodologies. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior. ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the convertible notes. At December 31, 2020, all of the Company’s derivative liabilities were categorized as Level 3 fair value liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The following table summarizes the valuations of the default liability for each note and valuation date.
Level 3 | ||||||||||||||||||||
Note | Issue Date | Maturity Date | Derivative Value at Issuance | Derivative Value at 12/31/2020 | Change in Derivative Value | Derivative Value at 6/30/2021 | ||||||||||||||
Second Convertible Note | ( | ) | ||||||||||||||||||
Third Convertible Note | ( | ) | ||||||||||||||||||
Fourth Convertible Note | ||||||||||||||||||||
Fifth Convertible Note | ( | ) | ||||||||||||||||||
Sixth Convertible Note | ||||||||||||||||||||
Seventh Convertible Note | ||||||||||||||||||||
Eighth Cinvertable Note | ||||||||||||||||||||
Ninth Convertible Note | ||||||||||||||||||||
Tenth Convertible Note | ||||||||||||||||||||
Eleventh Convertible Note | ||||||||||||||||||||
Twelth Convertible Note | ||||||||||||||||||||
Thirteenth Convertible Note | ( | ) | ||||||||||||||||||
Fourteenth Convertible Note | ||||||||||||||||||||
Totals: | $ | $ | $ | ( | ) | $ |
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Valuation of the default liability involves subjective judgments and requires forecasting future stock price movement and estimating the probability of default and the amount of time that passes between the date of default and the date of settlement. The following table summarizes the significant assumptions used to estimate the fair value of the default liability:
At issuance | At 6/30/21 | |||
Default probability | ||||
Volatility | to | to | ||
Risk free rate | to | to |
The Company used a Monte Carlo model that values the embedded default derivatives based on simulating the stock price, the default likelihood, and the default liability.
The following table sets forth a summary of the changes in the fair value of the company’s Level 3 derivative instruments:
Balance at December 31,2020 | $ | |||
Issuance of convertible notes | ||||
Change in fair value | ( | ) | ||
Balance at March 31, 2021 | ||||
Issuance of convertible notes | ||||
Change in fair value | ||||
Balance at June 30, 2021 | $ |
During
the six months ended June 30, 2021 the Company had a fair value of the level 3 derivative instruments of $
Note 11– Related Party Transactions
During
the six months ended June 30, 2021 and 2020, directors and members of management provided loans to the Company or paid for various expenses
of the Company.
As
of June 30, 2021 and 2020, we owed $
The Company leases and pays for a warehouse facility where it shares space with Carlsbad Naturals, LLC. In exchange, Carlsbad Naturals, LLC leases and pays for an office facility where it shares space with the Company. As a result of this arrangement, the Company has recorded rent expense in the accompanying statements of operations for the lease that it is responsible for paying.
Note 12 – Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were issued. There were no subsequent events as of the date the financial statements were issued.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (β-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™ 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. |
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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 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 shareholder approval.
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 public offering.
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.
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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
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 June 30, 2020.
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 months ended | For the three months ended | For the six months ended | For the six 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 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 acquisition.
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 increase revenue.
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 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 Months Ended | For the Six Months Ended | |||||||
June 30, | June 31, | |||||||
2020 | 2019 | |||||||
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 | 114,458 |
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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 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, 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
None.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
As of June 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and Chief Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report at the reasonable assurance level.
Material Weakness in Internal Control over Financial Reporting
☐ | The Company lacks an effective control environment since there are insufficient personnel to exercise appropriate oversight of accounting judgments and estimates. |
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☐ | Due to limited accounting and financial reporting resources, the Company lacks formal processes to identify, update, and assess risks to the Company’s financial reporting. |
☐ | Due to limited accounting and financial reporting resources, the Company has not implemented significant monitoring controls. |
☐ | Due to limited accounting and financial reporting resources, authorization, approval, and review controls over the Company’s financial statements and accounting records have not been implemented or have not been applied consistently. This includes controls over the identification, approval, and disclosure of related party transactions. In certain cases, formal documentation does not exist regarding the design of controls, evidence of implementation of controls, or evidence of occurrence of certain transactions. In addition, certain of the Company’s processes lack segregation of duties. |
Changes in Internal Control over Financial Reporting
Other than with respect to the remediation efforts discussed below, there was no change in our internal control over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Remediation of Previous Material Weaknesses
We have implemented and will continue to implement a number of measures to address the Material Weaknesses identified as of June 30, 2021. We plan on updating internal policies and procedures and create an effective control environment, add outside consultants as needed to bolster technical accounting needs, and add more personnel as needed to segregate duties.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
PART II - OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
None.
ITEM 1A. | RISK FACTORS |
Not applicable to smaller reporting companies.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
The following exhibits are included as part of this report:
31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS | XBRL Instance Document(1) |
101.SCH | XBRL Taxonomy Extension Schema Document(1) |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document(1) |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document(1) |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document(1) |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Definition(1) |
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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.
Dated: September 16, 2021
NEW YOU, INC. | ||
By: | /S/ Ray Grimm, Jr. | |
Ray Grimm, Jr. | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /S/ John Driscoll | |
John Driscoll | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
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