New You, Inc. - Quarter Report: 2020 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2020
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 000-52668
| NEW YOU, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 26-3062661 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
3246 Grey Hawk Court, Carlsbad, California 92010
(Address of principal executive offices)
(866) 611-4694
(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 x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | |
| Non-accelerated filer | x | Smaller reporting company | x | |
| 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 x No
As of November 16, 2020, there were 39,326,330 shares of the Registrant's common stock.
| 1 |
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 | 18 |
| Item 3. | Quantitative And Qualitative Disclosures About Market Risk | 21 |
| Item 4. | Controls And Procedures | 21 |
| Part II | Other Information | 22 |
| Item 1. | Legal Proceedings | 22 |
| Item 1A. | Risk Factors | 23 |
| Item 2. | Unregistered Sale Of Equity Securities And Use Of Proceeds | 23 |
| Item 3. | Defaults Upon Senior Securities | 23 |
| Item 4. | Mine Safety Disclosures | 23 |
| Item 5. | Other Information | 23 |
| Item 6. | Exhibits | 24 |
| 2 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
New
You, Inc.
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 56,600 | $ | 1,125 | ||||
| Credit Card Receivable | 2,016 | 23,715 | ||||||
| Inventory | 94,264 | 147,780 | ||||||
| Prepaid Expenses and Other Current Assets | 8,212 | 5,000 | ||||||
| Total Current Assets | 161,092 | 177,620 | ||||||
| Property and Equipment, Net | 20,804 | 25,795 | ||||||
| Operating Lease Right of Use Asset, Net | 59,992 | 96,310 | ||||||
| TOTAL ASSETS | $ | 241,888 | $ | 299,725 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Other Accrued Expenses | $ | 373,993 | $ | 471,507 | ||||
| Accounts Payable to Related Parties | 30,625 | 200,605 | ||||||
| Notes Payable | 84,352 | — | ||||||
| Convertible Notes Payable, net of $96,039 discount | 159,961 | — | ||||||
| Derivative Liability | 319,040 | — | ||||||
| Operating Lease Liability, Current | 94,367 | 63,410 | ||||||
| Related Party Debt | 554,772 | 497,147 | ||||||
| Total Current Liabilities | 1,617,110 | 1,232,669 | ||||||
| Noncurrent Liabilities: | ||||||||
| Operating Lease Liabilities, Noncurrent | — | 38,025 | ||||||
| Notes Payable, Noncurrent | 129,606 | — | ||||||
| Total Noncurrent Liabilities | 129,606 | 38,025 | ||||||
| TOTAL LIABILITIES | 1,746,716 | 1,270,694 | ||||||
| COMMITMENTS AND CONTINGENCIES - SEE NOTE 9 | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock at $0.00001 par value: 1,400,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 39,746,330 and 32,985,200 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 397 | 330 | ||||||
| Additional Paid-in Capital | 3,978,228 | 1,149,005 | ||||||
| Accumulated Deficit | (5,483,453 | ) | (2,120,304 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (1,504,828 | ) | (970,969 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 241,888 | $ | 299,725 | ||||
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 Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue | $ | 462,967 | $ | 776,799 | $ | 1,539,089 | $ | 2,243,365 | ||||||||
| Cost of Goods Sold | 53,019 | 161,177 | 184,869 | 372,666 | ||||||||||||
| Gross Profit | 409,948 | 615,622 | 1,354,220 | 1,870,699 | ||||||||||||
| Selling, General and Administrative Expenses | ||||||||||||||||
| Commission Expense | 95,009 | 255,076 | 404,652 | 729,392 | ||||||||||||
| Stock Based Compensation | 837,452 | — | 2,298,028 | — | ||||||||||||
| Other | 412,252 | 687,683 | 1,182,561 | 1,658,449 | ||||||||||||
| Total Selling, General and Administrative Expenses | 1,344,713 | 942,759 | 3,885,241 | 2,387,841 | ||||||||||||
| (Loss) Income from Operations | (934,765 | ) | (327,137 | ) | (2,531,021 | ) | (517,142 | ) | ||||||||
| Interest Expense | 98,621 | — | 621,954 | — | ||||||||||||
| Change in Fair Value of Derivative Liability | 209,374 | — | 209,374 | — | ||||||||||||
| Net (Loss) Income before Income Tax Expense | (1,242,760 | ) | (327,137 | ) | (3,362,349 | ) | (517,142 | ) | ||||||||
| Income Tax Expense | — | — | 800 | 800 | ||||||||||||
| Net (Loss) Income | $ | (1,242,760 | ) | $ | (327,137 | ) | $ | (3,363,149 | ) | $ | (517,942 | ) | ||||
| Net (Loss) Income Per Common Share | ||||||||||||||||
| - Basic and Diluted | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.02 | ) | ||||
| Weighted Average Common Shares Outstanding | ||||||||||||||||
| - Basic and Diluted | 31,088,956 | 27,401,026 | 29,546,158 | 26,366,482 | ||||||||||||
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 Nine Months Ended September 30, 2020
(Unaudited)
| Common | Additional | Total | ||||||||||||||||||
| Shares | Par Value | Paid in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||
| Balance as of December 31, 2019 | 32,985,200 | $ | 330 | $ | 1,149,005 | $ | (2,120,304 | ) | $ | (970,969 | ) | |||||||||
| Stock-based Compensation | 458,000 | 5 | 764,911 | — | 764,916 | |||||||||||||||
| Shares Issued in Connection with Note Payable Issuance | 50,000 | — | 25,000 | — | 25,000 | |||||||||||||||
| Net Loss | — | — | — | (964,734 | ) | (964,734 | ) | |||||||||||||
| Balance as of March 31, 2020 | 33,493,200 | $ | 335 | $ | 1,938,916 | $ | (3,085,038 | ) | $ | (1,145,787 | ) | |||||||||
| Stock-based Compensation | 3,796,690 | 38 | 695,622 | — | 695,660 | |||||||||||||||
| Common Shares Issued for Cash Received in 2019 | 90,000 | 1 | (1 | ) | — | — | ||||||||||||||
| Shares Issued in Connection with Note Payable Interest Penalties | 900,000 | 9 | 449,991 | — | 450,000 | |||||||||||||||
| Net Loss | — | — | — | (1,155,655 | ) | (1,155,655 | ) | |||||||||||||
| Balance as of June 30, 2020 | 38,279,890 | $ | 383 | $ | 3,084,528 | $ | (4,240,693 | ) | $ | (1,155,782 | ) | |||||||||
| Stock-based Compensation | 1,466,440 | 14 | 837,438 | — | 837,452 | |||||||||||||||
| Beneficial conversion feature in connection with notes payable | 56,262 | 56,262 | ||||||||||||||||||
| Net Loss | — | — | — | (1,242,760 | ) | (1,242,760 | ) | |||||||||||||
| Balance as of September 30, 2020 | 39,746,330 | $ | 397 | $ | 3,978,228 | $ | (5,483,453 | ) | $ | (1,504,828 | ) | |||||||||
New
You, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
For the Nine Months Ended September 30, 2019
(Unaudited)
Paid in Capital Stockholders’ Deficit The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements. New
You, Inc. September
30, The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements. 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 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”). The
Company, through its wholly owned subsidiary New You LLC, markets and sells its products through a multi-level marketing sales
opportunity. 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, 2019, which are included in the Company’s Annual Report on Form 10-K. The results for the nine months ended
September 30, 2020 and 2019 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.
Cash
and Cash Equivalents The Company
considers all highly liquid investments with an original term of three months or less to be cash equivalents. As of September 30,
2020, the Company had no cash equivalents. Credit
Card Receivables Credit
card receivable consists of only the amount due from the credit card processing companies. There is no need for an allowance for
doubtful accounts, since the system and processor makes sure that the transaction is successful prior to the sale being finalized.
Accordingly, no allowance was recorded as of September 30, 2020. Inventory Inventory
consists of finished goods and is valued at the lower of cost or net realizable value. Cost is determined using the first in first
out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory
levels and future sales forecasts. Prepaid
Expenses Prepaid
expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These
prepaid expenses primarily consist of deposits on inventory yet to be delivered or shipped. Property
and Equipment Property
and equipment are stated at cost, net of depreciation provided by use of a straight-line method over the estimated useful lives
of the assets, which is five years. The Company reviews property and equipment for potential impairment whenever events or changes
in circumstances indicate that the carrying amounts of assets may not be recoverable. Impairment
of Long-Lived Assets We evaluate
the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or disposal
of long-lived assets. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. Such impairment is recognized in the event the net book value of such assets
exceeds their fair value. No impairment of long-lived assets occurred in the periods presented. Revenue Recognition Revenue
is recognized in accordance with ASC 606, Contracts with Customers, by analyzing exchanges with the Company’s customers and
Brand Partners using a five-step analysis that includes identifying performance obligations in the contract, estimating the amount
of variable consideration to include in the transaction price and allocating the transaction price to each separate performance
obligation. The Company
recognizes revenue when the customer receives the promised good and all performance obligations are met. Revenue is recognized
at an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. The Company
records sales of finished products once the customer or Brand Partner places and pays for the order and the product is shipped.
Delivery is considered to have occurred when title and risk of loss have transferred to the customer, which is upon shipment of
the product. The Company treats shipping expenses as costs to fulfill a contract, so that revenue is recognized gross of shipping
expenses. The Company recognizes revenue net of sales taxes. The
Company and its Brand Partners agree to provide customers with a 100% satisfaction guaranteed policy that allows the customer
sixty days from the sales transaction to return the product and receive a 100% refund, and one year for a Brand Partner to
get a 90% refund, as long as the product remains in saleable condition and the Brand Partner or the Company have not
cancelled the Brand Partner agreement. The Company records an estimate for provisions of returns and other adjustments for
each shipment, which is netted with gross sales. The Company accounts for such provisions during the same period in which the
related revenues are earned. The Company has determined that the population of contracts with the Company’s customers
and Brand Partners tends to be homogenous, so that review of the contracts and estimate of various revenue related
adjustments can be applied to the entire population. The Company had customer returns of approximately $50,065 for the nine
months ended September 30, 2020 and approximately $55,675 for the nine months ended September 30, 2019. The Company has not
recorded a reserve for returns at September 30, 2020 or December 31, 2019 since it does not believe such returns will be
material. As of
September 30, 2020, the Company did not have any in-process or prepaid sales orders or transactions that would require the recognition
of a contract liability. Cost
of Revenue Amounts
recorded as cost of revenue relate to direct expenses incurred in order to fulfill orders of our products. Such costs are recorded
as incurred. Our cost of revenue consists primarily of the cost of product, and the cost of product samples. Commission Expense and Contract
Acquisition Costs The Company markets and sells its
products through a direct sales opportunity afforded to Brand Partners through a multi-level marketing sales platform. Commissions
are earned on product sales to Brand Partners and 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 their team
bonus volume reaches a certain amount in a 30 day period. Brand Partners can also earn an initial bonus for qualifying customer
purchases in the Brand Partners’ first 30 days of 20% of the transaction value. The Company expenses commissions
in accordance with ASC 606, Contracts with Customers. Commissions are accrued upon shipment of the product to either the Brand
Partner or the customer. Advertising Expenses The Company expenses advertising
costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses totaled
$8,480 for the nine months ending September 30, 2020 and $12,051 for the nine months ended September 30, 2019. Operating Lease A lease
provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Right
of use (ROU) assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities
represent the Company's obligation to make lease payments arising from the lease. The Company determines if an arrangement is a
lease at inception. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing
market conditions. The lease term used to calculate the ROU asset includes renewal periods or periods subject to termination when
it is reasonably certain that the Company will lease the assets in such periods. The discount
rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when
that is not readily determinable, the estimated incremental secured borrowing rate. ROU assets include any lease payments required
to be made prior to commencement and exclude lease incentives. Both ROU assets and lease liabilities exclude variable payments
not based on an index or rate, which are treated as period costs. The Company's lease agreements do not contain significant residual
value guarantees, restrictions or covenants.
Critical Accounting Estimates The preparation of financial statements
and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make
judgments, assumptions and estimates that have a significant impact on the results that we report in our financial
statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the
need to make estimates regarding matters that are inherently uncertain. Certain of these significant accounting policies
require us to make critical accounting estimates, as defined below. A critical accounting estimate is defined as
one that is both material to the presentation of our financial statements and requires management to make difficult, subjective
or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: Many of our financial instruments are issued
in conjunction with the issuance of debt. At the time of issuance, we allocate the proceeds received to the various financial instruments
and this involves the determination of fair value. From time to time, the fair value of these financial instruments exceeds the
proceeds received. When this occurs, we critically evaluate the validity of the fair value computation. Financial Instruments The Company’s balance sheets include
the following financial instruments: cash, accrued expenses, notes payable and payables to a stockholder. The carrying amounts
of current assets and current liabilities approximate their fair value because of the relatively short period of time between the
origination of these instruments and their expected realization. The carrying values of the notes payable and amounts due
to stockholder approximates fair value based on borrowing rates currently available to the Company for instruments with similar
terms and remaining maturities. FASB Accounting Standards Codification (ASC)
topic, “Fair Value Measurements and Disclosures”, 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 820 also establishes a fair value hierarchy
that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources
(observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Beneficial Conversion Features 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 as
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.
Stock
Compensation Expense ASC
718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions.
Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such
as employee stock ownership plans and stock appreciation rights. Share-based payments to employees and non-employees, including
grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values
at the grant date. That expense is recognized over the period during which an employee is required to provide services in exchange
for the award, known as the requisite service period (usually the vesting period). The
Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC
505-50, Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based
on the fair grant date FV of equity instruments. The fair value of the share-based payment transaction is determined at the earlier
of performance commitment date or performance completion date. Share-based compensation expense for the nine months ended September
30, 2020 and 2019 was $2,298,028 and $0. Basic
and Diluted Net Loss and Income Per Share Basic
net loss or income per share is calculated by dividing the net loss or income 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 or income
per share is computed by dividing the net loss or income attributable to common stockholders by the weighted-average number of
common share equivalents outstanding for the period determined using the treasury-stock method. The following
table presents the computation of basic and diluted net loss or income per common share: Potentially dilutive securities
that are not included in the calculation of diluted net loss or income per share because their effect is anti-dilutive are as follows
(in common equivalent shares): Note
2 – Going Concern We
incurred a net loss for the nine months ended September 30, 2020 and
had an accumulated deficit of $5,483,453 at September 30, 2020 of which $2,298,014
was related to non-cash stock based compensation. At September 30, 2020, we had a
cash balance of approximately $56,600, compared to a cash balance of $1,125 at December 31, 2019. At September 30, 2020,
we had a working capital deficit of $1,456,018 compared to a working capital deficit of $1,055,049 at December 31, 2019. 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. Note
3 – Concentrations of Business and Credit Risk The
Company at times maintains balances in various operating accounts in excess of federally insured limits. The
Company monitors its positions with, and the credit quality of, the financial institutions with which it invests. Substantially
all of the Company’s revenues are to unique customers or Brand Partners. Since the Company sells its products to a large
number of customers, there is no revenue concentration from customers. However, the Company uses merchant processors to charge
customer credit cards and does contain concentration risk between credit card processors. As of September 30, 2020, one credit
card processor accounted for 100% of Credit Card Receivables. We are in the process of adding more processors when they become
available. The
Company also made purchases from and has accounts payable to Carlsbad Naturals, LLC as described in Note 6. Note
4 – Equity September
30, 2020 Restricted Stock Grants The Company
estimated the fair value of restricted stock grants at $0.50 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 September 2020 when the equity instruments were granted. There were no grants of
restricted stock to employees or consultants during the first or second quarter of 2019. The table
below summarizes the activity of the restricted stock during the nine months ended September 30, 2020: For the
nine months ended September 30, 2020 the compensation costs that has been charged to Stock Compensation Expense is $2,298,028.
No portion of the total compensation cost was capitalized. The unrecognized compensation costs as of September 30, 2020 is $2,188,452,
which will be amortized over a weighted average period of 19.45 months. The Company recognizes the cost of these stocks using the
straight line method and forfeitures are recognized as they occur. Note
5 – Notes Payable During
the nine months ended September 30, 2020, the Company received a Paycheck Protection Program loan in the amount of $103,958. The
monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1%. Monthly payments of $5,850
will begin on December 21, 2021; however all or a portion of this loan may be forgiven if the Company satisfies certain criteria
as follows: 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: 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
25% of the amount forgiven can be attributable to non-payroll costs. During
the nine months ended September 30, 2020, the Company received a non-interest bearing advance from the Small Business Administration
under the Emergency Injury Disaster Loan program of $10,000. All or a portion of this loan may be forgiven if the Company satisfies
certain criteria. During
the nine months ended September 30, 2020, the Company received a Paycheck Protection Program loan in the amount of $100,000.The
monthly payments on the note are deferred for a period of 6 months and the notes bear interest of 1%. Monthly payments of $5,628
will begin on January 1, 2021. The proceeds of the requested PPP Loan may be used only for business purposes permitted under
the Paycheck Protection Program, including permitted payroll costs and benefits, interest on business mortgage obligations incurred
before February 15, 2020, rent under a lease entered into before February 15, 2020 and utilities for which service began before
February 15, 2020. Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments,
covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs. Note
6 – Convertible Debt As of September 30, 2020, the Company owed
$256,000 in principal (before a debt discount of $6,000) and $2,732 in accrued interest (included in accounts payable and accrued
expenses) on its outstanding convertible promissory notes. As of December 31, 2019, the Company did not have any outstanding convertible
promissory notes. Note
1 - During the nine months ended September 30, 2020, the Company received loan proceeds of $125,000 pursuant to a promissory note
(“First Convertible Note”), with a maturity date of June 15, 2020 and interest of $4,167 per month. The note’s
terms required that the Company issue 50,000 common shares, and allowed the note holder to convert the note into common shares
at a conversion price of $0.50 per share. This note was not paid off as of September 30, 2020. The Company is still making the
agreed upon interest payments of $4,167 per month and there are no penalties for not paying the note off by its maturity date. Note
2 - On June 17, 2020, the Company received $85,000 in loan proceeds, which is net of $3,000 in debt issuance costs, pursuant to
a loan agreement (“Second Convertible Note”), with a maturity date of June 17, 2021 and an interest rate of 8% per
annum from the date of issuance until maturity date. Any amount of principal or interest on this note which is not paid when due
shall bear interest at the rate of 22% per annum from the due date until the full amount is paid. Upon certain events of default,
the Company would be obligated to pay cash equal to the greater of (i) 150% of the outstanding principal and interest, and
(ii) the highest closing price of the Company’s common stock from the date of first default to the date of payment, multiplied
by the number of shares that would be issued if the outstanding principal and interest were converted at 61% of the lowest closing
price in the last 20 trading days prior to the date of payment. The holder may convert the
note to common shares starting 180 days after the issuance date at a conversion price equal to 61% of the lowest trading price
in the last 20 trading days. The Company is required to reserve three (6) times the number of shares necessary for the issuance
of common stock upon conversion. As of September 30, 2020, the Company owed $88,000 in principal and $2,048 in accrued interest
on the note. As of September 30, 2020, the equivalent number of common shares the Company would be required to issue to satisfy
the Note is 1,054,432. Note
3 - On July 20, 2020, the Company received $40,000 in loan proceeds, which is net of $3,000 in debt issuance costs, pursuant to
a loan agreement (“Third Convertible Note”), with a maturity date of July 20, 2021 and an interest rate of 8% per annum
from the date of issuance until maturity date. Any amount of principal or interest on this note which is not paid when due shall
bear interest at the rate of 22% per annum from the due date until the full amount is paid. Upon certain events of default, the
Company would be obligated to pay cash equal to the greater of (i) 150% of the outstanding principal and interest, and (ii)
the highest closing price of the Company’s common stock from the date of first default to the date of payment, multiplied
by the number of shares that would be issued if the outstanding principal and interest were converted at 61% of the lowest closing
price in the last 20 trading days prior to the date of payment. The holder may convert the
note to common shares starting 180 days after the issuance date at a conversion price equal to 61% of the lowest trading price
in the last 20 trading days. The Company is required to reserve three (6) times the number of shares necessary for the issuance
of common stock upon conversion. As of September 30, 2020, the Company owed $40,000 in principal and $684 in accrued interest on
the note. As of September 30, 2020, the equivalent number of common shares the Company would be required to issue to satisfy the
Note is 511,521. Note
7 – 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. 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 Convertible Note 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 September 30, 2020 and 2019, the unamortized beneficial conversion feature associated with the Second Convertible Note was $40,077
and $0, respectively. Note
8 - Derivatives The Company assessed the 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. 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. The following table summarizes the valuations of the default liability
for each note and valuation date. Note Issue Date Maturity Date Derivative Value at Issuance (Level 3) Change in Derivative Value (Level 3) Derivative Value at 9/30/20 (Level 3) 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: The fair value of the default
liability includes the estimated volatility, risk free rate and probability. The higher/lower the estimated volatility, risk free
rate or probability, the higher/lower the value of the default liability for each note at valuation dates.
Note
9 – Commitments and Contingencies Operating
Lease Commitments The Company
leases a warehouse facility under a lease agreement that expires July 31, 2021. The Company does not have any significant capital
leases. The components
of total lease cost were as follows: Cash paid for amounts included in operating
lease liabilities was $55,839 and $55,809 for the nine months ended September 30, 2020 and September 30, 2019 respectively.
Due to COVID-19, the Company was permitted to pay only common area maintenance charges in April through June 2020, totaling $474
each month and during the three months ended September 30, 2020, the Company paid the equivalent of one month’s rent in the
amount of $6,140. The Company is working with the property manager to come to an agreement on how to pay the amount of rent in
arrears, which as of September 30, 2020 is $31,059. The table below presents total operating lease ROU assets and lease liabilities
as of September 30, 2020: The table below presents the maturities
of operating lease liabilities as of September 30, 2020 The table below presents the
weighted average remaining lease term for operating leases and weighted average discount rate used in calculating operating lease
right-of-use assets: 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 September 30, 2020 or 2019, nor were
there any asserted or unasserted material claims for which material losses are reasonably possible. Note
10 – Related Party Transactions During
the nine months ended September 30, 2020 and 2019, directors and members of management provided loans to the Company or paid for
various expenses of the Company. These loans contained no interest, term or due date. As of September 30, 2020, these loans had
a combined balance of $504,772 for the CEO, the President, and two other board members. Total additions to these loans during the
nine months ended September 30, 2020 were $263,600, including cash loan proceeds of $61,100 and deferred compensation of $202,500
transferred from accounts payable to related parties to related party debt. As of December 31, 2019, these loans had a combined
balance of $497,147 for the CEO, the President, and two other board members. Total additions for the nine months ended September
30, 2019 were $159,975. As
of September 30, 2020 and December 31, 2019, we also owed $3,125 and $78,105 to Carlsbad Naturals, LLC (included in accounts payable
to related parties), which is a principal shareholder of New You, Inc. and is owned by a principal shareholder of New You, Inc.,
for inventory purchases. During the nine months ended September 30, 2020 and nine months ended September 30, 2019, we made purchases
of $106,998 and $238,588 from Carlsbad Naturals, LLC. As of September 30, 2020 and December 31, 2019, we owed $27,500 and $22,500
for consulting payments to a relative of the CEO. During
the nine months ended September 30, 2020, the Company received loan proceeds of $100,000 from a related party pursuant to a promissory
note with a maturity date of April 7, 2020 and interest of $5,000 per month. If the Company defaults on the loan, the note’s
terms require the Company to issue default shares of 100,000 each time the company is late on its interest payment, 250,000 shares
if it is late on principal repayment, and 100,000 shares each subsequent month that repayment has not occurred. The amount of the
foregoing shares is doubled if the stock price falls below $1.00, and may also increase significantly the Company’s outstanding
common shares exceed 40,000,000.In addition, the Company will incur a 15% charge each year that repayment has not occurred. The
terms also lay out a blanket lien on all assets of New You, Inc. including all the shares of New You LLC., all the assets of New
You LLC and all shares of any acquired companies in the future as well as all of their assets. Further, the note requires that
the full balance be repaid in order for a change in control to be consummated. During the nine months ended September 30, 2020,
the amount of penalty shares issued were doubled due to the stock price falling below $1.00. In total, the Company issued a total
of 900,000 shares to the related party during the nine months ended September 30, 2020 per the agreement: 500,000 shares due to
late repayment of the note, and 400,000 shares due to late payment of two months of interest payments. A total of $75,000 has been
repaid, including $25,000 in interest and $50,000 in principal during the nine months ended September 30, 2020. Interest payments
are now $2,500 per month. 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. During
2018 and the first five months of 2019, along with the months of April, May, June, and July 2020, all credit card receivable payments
were processed through the bank account of one of the founding members due to the frequent bank account changes that were occurring
with the Company’s accounts. All funds received into the founder’s bank account was transferred directly to the Company’s
account on a weekly basis and have been accounted for. Between May 31, 2019 and April 4, 2020 and after July 31, 2020, all credit
card receivables were deposited by the credit card processor directly into the Company’s bank account. The balance due from
the related party at September 30, 2020 was $0. Note
11 – Subsequent Events The
Company has evaluated subsequent events through November 16, 2020, which is the date the financial statements were issued. The
Company has determined that there were no subsequent events which required recognition or disclosure in the financial statements,
except as disclosed below. Subsequent to September 30, 2020, the
Company cancelled 420,000 shares for services as a result of services no longer needed by the Company. On November 18, 2020, the Company
entered into a Secured Promissory Note in the amount of $150,000 and maturing on May 18, 2021. The Note accrues interest at a fixed
rate of 2% per month and continues for a period of six months. Interest is due and payable monthly in the amount of $3,000 and
Lender may convert any portion of the debt into shares of common stock of the Company at $0.10 per share or 30% discount to 5 day
VWAP on the day of conversion. In addition to the monthly interest, the Company agreed to transfer 100,000 shares of common stock
(144 Restricted) to the Lender as additional consideration for the Secured Promissory Note. 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 September 30, 2020, 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: 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 43.81% of the outstanding common shares. Accordingly, management will have a
determinative influence on matters requiring shareholder approval. 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 September 30, 2020, we generated revenues of $462,967, a decrease of $313,832 compared to revenues of
$776,799 for the three months ending September 30, 2019. Comparing the nine months ended September 30, 2020 to September 30, 2019,
total revenue decreased $704,276 with revenue of $1,539,089 for the nine months ended September 30, 2020 compared to $2,243,365
for the nine months ended September 30, 2019. The decrease was primarily due to a major systems change and 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 September 30, 2020 was $409,948, a decrease of $205,674 compared to the
three months ended September 30, 2019. Our gross margin percentage for the three months ended September 30, 2020 was 89%, compared
to 79% for the three months ended September 30, 2019. The change in gross margin in the three months ended September 30, 2020 compared
to the three months ended September 30,2019 was due to the sales of lower margin items slowing down and the sales of the Company’s
higher margin items staying flat. Comparing the nine months ended September 30,2020 to September 30, 2019, gross profit decreased
$516,479 with a gross profit of $1,354,220 during the nine months ended September 30, 2020 compared to $1,870,699 for the nine
months ended September 30, 2019. Our gross margin percentage for the nine months ended September 30, 2020 was 88%, compared to
83% for the nine months ended September 30, 2019. The change in gross margin in the nine months ended September 30, 2020 compared
to the nine months ended September 30,2019 was due to the sales of lower margin items slowing down and the sales of the Company’s
higher margin items staying flat. Selling,
General, and Administrative Expenses. Selling, general, and administrative expenses (“SG&A expenses”) for the
three months ended September 30, 2020 were $1,344,713, an increase of $401,954 compared to the three months ended September 30,
2019. For the three months ended September 30, 2020, the components of SG&A expenses were: (i) a reduction in commission expenses;
(ii) a reduction in payroll expenses; and (iii) and an increase in other SG&A expenses. Non-cash stock based compensation for
the three months ended September 30, 2020 was $837,452, while there was no stock based compensation for the three months September
30, 2019. In comparing the nine months ended September 30, 2020 to September 30, 2019, SG&A expenses were $3,885,241 compared
to $2,387,841, an increase of $1,497,400. The main cause of the increase was the non-cash stock based compensation expensed during
the nine months ended September 30, 2020 of $2,298,028. Operating
Loss. We realized an operating loss of $934,765 before interest and income taxes for the three months ended September 30, 2020
compared to operating loss of $327,137 for the three months ended September 30, 2019. For the nine months ended September 30, 2020,
we realized an operating loss of $2,531,021 compared to an operating loss of $517,942 for the nine months ended September 30, 2019. Interest
Expense. Interest expenses for the three months ended September 30, 2020 was $98,621 compared to $0 for the three months ended
September 30, 2019. Interest expense for the nine months ended September 30, 2020 was $621,954 compared to $0 for the nine months
ended September 30, 2020. There were no interest bearing loans in 2019. During the nine months ended September 30, 2020, interest
expense included $450,000 in common stock that was issued as a penalty for late interest payments and for the stock price falling
below $1. Net
Loss. We incurred a net loss of $1,242,760 for the three months ended September 30, 2020 compared to net loss of $327,137 for
the three months ended September 30, 2019. For the nine months ended September 30, 2020 and September 30, 2019, we incurred a net
loss of $3,363,149 and $517,942, respectively. The primary reason for the increase in net loss is due to COVID-19, $450,000 in
interest expenses related to common stock issued as a penalty for late interest payments and the stock price falling below $1,
a total of $2,298,028 of non-cash stock based compensation expenses, and a $209,374 loss in the change in fair value of the derivative
liability associated with our convertible notes payable. 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 nine months ended September 30, 2020 and had an accumulated deficit of $5,483,453 at September 30, 2020. At
September 30, 2020, we had a cash balance of approximately $56,600, compared to a cash balance of $1,125 at December 31, 2019.
At September 30, 2020, we had a working capital deficit of $1,456,018, compared to a working capital deficit of $1,055,049 at December
31, 2019. Our 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: Cash
Used in Operating Activities During
the nine months ended September 30, 2020 cash used in operating activities of $373,483 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, as well as changes in our working capital accounts, primarily consisting of a decrease
in inventory, an increase in prepaid expenses and other current assets, and an increase in accounts payable, an increase in credit
card receivables and an increase in receivables due from a related party. During
the nine months ended September 30, 2019 cash used in operating activities of $466,949 primarily reflected our net losses for the
period, adjusted by non-cash charges such as depreciation, as well as changes in our working capital accounts, primarily consisting
of a decrease in inventory, an increase in credit card receivables, a decrease in prepaid expenses, and a decrease in accounts
payable. In April 2020, our credit card processor requested
that we maintain a minimum balance in our bank account that we could not meet. As a result, the Company temporarily changed the
bank account registered with the credit card processor to one of our board member’s personal bank accounts so that the processor
would continue processing payments. The board member made daily or weekly deposits depending on the days the bank was open. Near
the end of June 2020, there was an issue with the deposits and multiple days were held in transit causing a larger than normal
balance in the credit card receivables account. These deposits were cleared in the beginning of July 2020 and the bank account
with the processor was switched back to the Company’s operating account on July 31, 2020. Cash
Used in Investing Activities During
the nine months ended September 30, 2020 and 2019, there was no cash used in investing activities. Cash
Provided by Financing Activities During
the nine months ended September 30, 2020, cash provided by financing activities was $428,958, which consisted primarily of proceeds
from related party debt, proceeds from a grant, PPP loans, and proceeds from three loans from unrelated parties received in January
2020, June 2020, and July 2020. During
the nine months ended September 30, 2019, cash provided by financing activities was $474,275, which consisted of proceeds from
related party debt and repayments of related party debt and the sale of common stock. Recent Accounting Pronouncements None. Not applicable. Evaluation
of disclosure controls and procedures As
of September 30, 2020, 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 annual report at the reasonable
assurance level. Material
Weakness in Internal Control over Financial Reporting 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,
2020. 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 ass 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 None. Not applicable to smaller reporting companies. None. None. Not applicable. None.
The following exhibits are included as part of this report: (1)
Filed Herewith 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: December 7, 2020
Common
Additional
Total
Shares
Par
Value
Accumulated
Deficit
Balance as of December 31, 2018
15,974,558
$ 160
$ 126,840
$ (428,006 )
$ (301,006 )
Effect of Reverse Recapitalization Transaction
10,772,587
108
(16,677 )
—
(16,569 )
Shares Issued Pursuant to Anti-dilution Provision
409,605
4
(4 )
—
—
Net Income
—
—
—
22,271
22,271
Balance as of March 31, 2019
27,156,750
$ 272
$ 110,159
$ (405,735 )
$ (295,304 )
Sales of Common Shares
179,758
2
79,998
—
80,000
Net Loss
—
—
—
(213,076 )
(213,076 )
Balance as of June 30, 2019
27,336,508
$ 274
$ 190,157
$ (618,811 )
$ (428,380 )
Sales of Common Shares
465,692
4
234,296
—
234,300
Stock-based Compensation
875,000
9
(9 )
—
—
Net Loss
—
—
—
(327,137 )
(327,137 )
Balance as of September 30, 2019
28,677,200
$ 287
$ 424,444
$ (945,948 )
$ (521,217 ) 5
Condensed Consolidated Statements of Cash Flows
For
The Nine Months Ended
For
The Nine Months Ended
September 30,
2020
2019
(Unaudited)
(Unaudited)
Operating Activities
Net (Loss) Income
$ (3,363,149 )
$ (517,942 )
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities:
Depreciation and Amortization
4,991
9,913
Amortization of Operating Lease Right of Use Asset
36,318
—
Amortization of Debt Discount
58,326
—
Other Non-cash Interest Expense
42,563
—
Change in Fair Value of Derivative Liability
209,374
—
Shares Issued in Connection with Note Payable Interest Penalties
450,000
—
Stock-based Compensation
2,298,028
—
Changes in Operating Assets and Liabilities:
Credit Card Receivable
(88,177 )
—
Trade and Other Receivables
—
10,605
Inventory
53,516
(69,217 )
Prepaid Expenses and Other Current Assets
(3,212 )
25,200
Accounts Payable and Other Current Liabilities
104,987
74,492
Accounts Payable to Related Parties
(169,980 )
—
Operating Lease Liabilities
(7,068 )
—
Net Cash (Used in) Provided by Operating Activities
(373,483 )
(466,949 )
Investing Activities
Purchase of Property and Equipment
—
—
Net Cash Used in Investing Activities
—
—
Financing Activities
Proceeds from Related Party Debt
161,100
159,975
Repayments of Related Party Debt
(196,100 )
—
Sale of Shares
—
314,300
Proceeds from Convertible Notes, Net of Issuance Costs
250,000
—
Proceeds from Notes, Net of Issuance Costs
213,958
—
Net Cash Provided by (Used in) Financing Activities
428,958
474,275
Net Increase (Decrease) in Cash
55,475
7,326
Cash, Beginning of Period
1,125
27,310
Cash, End of Period
$ 56,600
$ 34,636
Supplemental Disclosures
Cash Paid for Interest
$ 68,333
$ —
Cash Paid for Income Taxes
$ 800
$ 800
Non-cash Investing and Financing Activities:
Payroll and Other Payables to Related Parties Converted to Related Party Debt
$ 202,500
$ 124,364
Related Party Debt Adjusted Against Credit Card Receivables
$ 109,876
$ 118,692
Shares Issued in Connection with Note Payable Issuance
$ 25,000
$ —
Shares Issued in Connection with Late Interest Payments
$ 450,000
$ — 6 7 8 9
· we are required to make assumptions about matters that are highly uncertain at the time of the
estimate; and
· different estimates we could reasonably have used, or changes in the estimate that are reasonably
likely to occur, would have a material effect on our financial condition or results of operations.
· Level 1 - Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or liabilities
· Level 2 - Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than
quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from
or corroborated by observable market data by correlation or other means.
· Level 3 - Inputs that are both significant to the fair value measurement
and defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
See Note 8 for valuation inputs and assumptions and rollforward of the value of derivative instruments. 10
For The Three Months Ended
For The Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Historical net loss per share
Numerator
Net loss
(1,242,760 )
(327,137 )
(3,363,149 )
(517,942 )
Denominator
Weighted-average common shares outstanding
39,118,321
27,640,296
35,943,565
26,424,522
Less: Weighted-average restricted shares
(8,029,365 )
(239,270 )
(6,397,407 )
(88,040 )
Denominator for basic and diluted net loss per share
31,088,956
27,401,026
29,546,158
26,336,482
Basic and diluted net loss per share
$ (0.04 )
$ (0.01 )
$ (0.11 )
$ (0.02 )
For The Three Months Ended
For The Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Restricted shares
8,029,365
239,270
6,397,407
88,040
Convertible debt
1,151,801
—
515,505
— 11
Number of Shares
Weighted Average Fair Value per Share
Non-vested as of January 1, 2020
5,151,000
$0.50
Granted
5,241,130
0.50
Vested
(1,411,000)
0.50
Forfeited
-
-
Non-vested as of September 30, 2020
8,981,130
$0.50 12
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
September 30, 2020
December 31, 2019
Principal
$ 256,000
$ —
Debt discount
(96,039 )
—
Total Principal
$ 159,961
$ —
13
Second Convertible Note
6/17/2020
6/17/2021
27,103
198,612
225,715
Third Convertible Note
7/20/2020
7/20/2021
82,563
10,762
93,325
Totals:
109,666
209,374
319,040
At issuance
At 9/30/20
Default probability
5% to 30%
30%
Volatility
306.4% to 310.1%
328.5% to 348.8%
Risk free rate
1.62%
1.61% 14
Operating Lease Cost
Nine Months Ended September 30,
Nine Months Ended September 30,
2020
2019
Operating lease cost
55,839
55,809
Total lease cost
$ 55,839
$ 55,809
Right Of Use Assets and Liability
September 30, 2020
Operating lease ROU assets
$ 59,992
Operating lease liabilities
$ 94,367
For the nine months ended September 30,
2021
96,418
2022
—
2023
—
2024
—
2025
—
Thereafter
—
Total Lease Payments
96,418
Less: Discount
(2,051 )
Total Lease Liability
94,367
15
September 30, 2020
Weighted average remaining lease term (years)
.083
Weighted average discount rate
7 %
16 17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
· 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
–
o CAFFE
CANNA - Caffe Canna is a rich organic CBD-infused non-GMO dark roast coffee
o ABSORB
– Made of a Japanese root and rice flour veggie capsule.
o 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 18
For the three months ended
For the three months ended
For the nine months ended
For the nine months ended
September
30,
September
30,
September
30,
September
30,
2020
2020
2019
2019
Staff and Overhead Expenses
$ 386,284
$ 527,314
$ 1,075,139
$ 1,472,958
Accounting/Legal
25,968
160,369
107,422
185,491
Commission Expense
95,009
255,076
404,652
729,392
Non-Cash Stock Based Compensation
837,452
—
2,298,028
—
$ 1,344,713
$ 942,759
$ 3,885,241
$ 2,387,841 19 20
For the Nine Months Ended
For the Nine Months Ended
September 30,
September 30,
Summary
2020
2019
Cash used in operating activities
(373,483 )
(466,949 )
Cash used in investing activities
—
—
Cash provided by financing activities
428,958
474,275
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES 21
The Company lacks an effective control environment since there are insufficient personnel to exercise appropriate oversight of accounting judgments and estimates.
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.
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS
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)
NEW YOU, INC.
By:
/S/ Ray Grimm, Jr.
Ray Grimm, Jr.
Chief Executive Officer
(Principal Executive Officer)
By:
/S/ James Sinkes
James Sinkes
Chief Accounting Officer
(Principal Financial Officer) 24