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NWYU New You

Filed: 7 Apr 21, 8:00pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

   
(Mark One)  

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2020

 

Or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                          to                     

 

 

Commission File Number 000-52668

NEW YOU, INC.
(Exact name of registrant as specified in its charter)

   
Nevada
(State or other jurisdiction of
incorporation or organization)
 

26-3062661

(I.R.S. Employer
Identification No.)

 

6351 Yarrow Drive, Suite E

Carlsbad, California
(Address of principal executive offices)

 

 

92011
(Zip Code)

 

(866) 611-4694

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

(Title of each class)

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.00001 Par Value

(Title of each class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company   

 

 1 
 

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 ¨ No x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates, as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, was $9,865,369.

 

As of March 23, 2021, 43,318,396 shares of common stock were outstanding.  

 

TABLE OF CONTENTS

 

 Page
PART I
 
Item 1.Business3
Item 1A.Risk Factors6
Item 1B.Unresolved Staff Comments13
Item 2.Properties13
Item 3.Legal Proceedings13
Item 4.Mine Safety Disclosures13
PART II
 
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities13
Item 6.Selected Financial Data14
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations14
Item 7A.Quantitative and Qualitative Disclosure About Market Risk16
Item 8.Financial Statements and Supplementary Data16
Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure17
Item 9AControls and Procedures17
Item 9B.Other Information17
PART III
 
Item 10.Directors, Executive Officers and Corporate Governance17
Item 11.Executive Compensation19
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters20
Item 13.Certain Relationships and Related Transactions, and Director Independence21
Item 14.Principal Accountant Fees and Services21
PART IV
 
Item 15.Exhibits, Financial Statement Schedules21
Item 16.Form 10-K Summary22
 2 
 

PART I.

 

ITEM 1. BUSINESS

 

This annual report on Form 10-K (including, but not limited to, the following disclosures regarding our Business) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this annual report on Form 10-K. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.

 

Forward-looking statements in this annual report on Form 10-K reflect our good faith judgment based on facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this annual report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this annual report on Form 10-K, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

Company Background – Business Overview

 

We were originally incorporated as “Nova Mining Corporation” in Nevada on December 29, 2005. After a change in control the Company changed its name to “The Radiant Creations Group, Inc.” and we were focused on developing and marketing a skin crème and other cosmetic and over-the-counter personal enhancement products and devices.

 

On July 11, 2018, we closed our Subscription and Securities Purchase Agreement (the “SPA”) with three investors, Carlsbad Naturals, LLC, Ray Grimm, and Nish Mehta. Under the SPA, the investors were issued a (collectively) controlling interest in the Company consisting of a total of 9,695,328 shares of common stock. These shares were issued in exchange for a total Purchase Price of $95,000. The Purchase Price was used to settle and retire our notes payable, for certain compliance costs, and for general working capital. In conjunction with the SPA, our formerly controlling stockholder, Biodynamic Molecular Technologies, LLC, exchanged its preferred stock for a total of 269,315 shares of common stock. Upon issue, these shares were transferred to principal of Biodynamic Molecular Technologies, LLC, Michael Alexander. This common stock position, which represented 2.5% of our post-closing common stock, was formerly non-dilutable for a period of one (1) year. We acquired New You LLC following the passage of the United States Agricultural Improvement Act of 2018, commonly known as the “Farm Bill,” which contained a permanent declassification of cannabidiol (CBD) as a controlled substance under federal law. As a result of that transaction, we own and operate the CBD brand New You LLC which now represents our focus and all of our revenues.

 

On March 8, 2019, pursuant to stockholder consent, our Board of Directors authorized an amendment (the "Amendment") to our Certificate of Incorporation, as amended, to (i) change the name of the Company from The Radiant Creations Group, Inc. to New You, Inc. and (ii) effect a reverse stock split of the issued and outstanding shares of our common stock, par value $0.00001, on a 1 for 50 basis (the "Reverse Stock Split"). We filed the Amendment with the Nevada Secretary of State reflecting the name change on March 27, 2019. On April 29, 2019, the Financial Industry Regulatory Authority, Inc. notified us that the Name Change and Reverse Stock Split would take effect on April 30, 2019 (the "Effective Date"). On the Effective Date, each holder of common stock received 1 share of our common stock for each 50 shares of our common stock they owned immediately prior to the Reverse Stock Split. We did not issue fractional shares in connection with the Reverse Stock Split. Fractional shares were rounded up to the nearest whole share. In addition, on the Effective Date the Company’s trading symbol changed to “RCGPD” for a period of 20 business days, after which the "D" was removed from the Company’s trading symbol and began trading under new trading symbol “NWYU.” Unless otherwise indicated, the information in these unaudited condensed consolidated financial statements gives effect to the 1-for-50 reverse stock split of the Company’s common stock, par value $0.00001 per share and name change from The Radiant Creations Group, Inc. to New You, Inc., effected on April 30, 2019.

  

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 –

 

 oCAFFE CANNA - Caffe Canna is a rich organic CBD-infused non-GMO dark roast coffee

 

 oABSORB – Made of a Japanese root and rice flour veggie capsule.

 

 oRELEASE - Made with organic Clove, Cascara Sagrada, Agave Inulin, Rhubarb Root Extract, Slippery Elm Bark, Aloe Vera and other herbs.
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 ·Drops FX –Our proprietary blend of CBD and Vitamins B3, B6, B9 & B12, that you can use in any drink or liquid.

 

 ·Drops FX Sleep –A blend of CBD, GABA (Gamma-amino butyric acid is an amino acid in the body that acts as a neurotransmitter in the central nervous system), Melatonin, Valerian Root.

 

 ·NanoX – A water soluble, Full Spectrum DBD made with Purified Water, NanoX™ Liposomal Hemp Complex (Hemp Extracts, Purified Water, Gum Acacia, MCT Oil (from Coconut)), Colloidal Silver (20ppm), Liposomal Methyl B12, Liposomal CoQ10, Liposomal Curcumin, Stevia Leaf Extract.

 

·The Cream – A topical skin cream made with Cannabidiol (1,000 mg of whole plant CBD isolate per 60 mL), Purified Water (Aqua), Glyceryl Stearate SE, Cannabis Sativa (Hemp) Seed Oil, Cocos Nucifera (Coconut) Oil, Ethyl Macadamiate, Stearic Acid, Cetearyl Alcohol, Pentylene Glycol, Oryza Sativa (Rice) Bran Extract, Tocopherol, Eucalyptus Globulus Leaf Oil, Origanum majorana, Potassium Hydroxide, Hydroxypropyl Starch Phosphate, Phenoxyethanol, Caprylyl Glycol, Tetra- sodium Glutamate Diacetate, Pentanediol

 

New You, Inc. through its wholly owned subsidiary, New You LLC, markets and sells its products through a multi-level marketing and direct sales opportunity afforded to independent business owners called “Brand Partners.” Commissions are earned on product sales to Brand Partners and their customers at a rate of 10% for every transaction, plus a specified spread on recurring sales. Brand Partners earn a 5% commission on sales by other team members at lower levels up to nine level 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 stockholder of New You, Inc., and is owned by a principal stockholder 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 stockholder approval.

 

We conduct our principal operations through one operating subsidiary, New You LLC, a Wyoming limited liability company. Our net losses for the years ended December 31, 2020 and 2019 were $5,046,711 and $1,692,298, respectively. The Company will need to raise additional capital to fund operations based on the current level of sales. We can provide no assurance that the required additional capital will be available to us on favorable terms, or at all.

 

Marketing and Sales

 

We market and sell our 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 level below the Brand Partner. Brand Partners can earn an additional bonus for customer sales and team sales. The team bonus is $400 for each and every 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.

 

As of December 2020, we had 5,133 Brand Partners, of which 139 joined in the fourth quarter of 2020, 69 joined in the third quarter of 2020, 206 joined in the second quarter of 2020, 285 joined in the first quarter of 2020. On top of the Brand Partners that have joined, there are also over 4,500 customers that have placed orders through Brand Partners.

 

The process of becoming a New You LLC Brand Partner or Customer begins with viewing the company website which gives information on all of the products. Brand Partners are introduced to the business and products through word of mouth, tradeshows, and local events. When Brand Partners decide to join, they are required to read and agree to the terms and conditions of the Company prior to signing up. All Brand Partners are supplied with training videos, weekly conference calls, and training seminars to teach them about the products.

 

Suppliers and Production

 

Carlsbad Naturals is a wholesale supplier of a wide range of private label and white label CBD consumer products including beverages tinctures, skincare, and creams. Carlsbad Naturals manufactures Drops, Energy FX, and Sleep FX. In addition to Carlsbad Naturals, New You, Inc. has made arrangements with one additional supplier as a backup. The contract with Carlsbad Naturals is a traditional vendor relationship, there is no formal agreement in place.

 

Kelker Pharma, Inc., is a cGMP certified contract manufacturer of capsules, tablets, powders and nutritional bars. Kelker manufactures our Absorb and Release capsules. The contract with Kelker Pharma is a traditional vendor relationship, there is no formal agreement in place.

 

 4 
 

Orders from Brand Partners and Customers are placed through our online website and phone application. Once a customer or Brand Partner places an order, our warehouse staff will receive that order and fulfill that order on the same day or within one business day. Our Brand Partners and Customers are located in the United States throughout all fifty states.

 

Competition

 

The market for the sale of CBD-based products is fragmented and intensely competitive. Currently, in the United States, New You LLC does not believe that there are any businesses that can demonstrate or claim a dominant market share of the growing CBD products market. Our competitors in the sales of CBD-based products include cbdMD, Green Roads, PlusCBD, and Select CBD, Diamond CBD, CBDistillery, and Lazarus Naturals. We have no known competitors in the multi-level marketing space. We believe we compete based upon the quality of our products. We expect that the quantity and composition of the competitive environment will continue to evolve as the industry matures and new customers enter the marketplace.

 

Regulatory Requirements and Government Regulations

 

On December 20, 2018 the President of the United States signed the Farm Bill into law. Among other things, this new law changed certain federal authorities relating to the production and marketing of hemp, defined as cannabis (Cannabis sativa L.), and derivatives of cannabis with extremely low (less than 0.3 percent on a dry weight basis) concentrations of the psychoactive compound delta-9-tetrahydrocannabinol (THC). These changes include removing hemp and derivatives of hemp from the Controlled Substances Act, which means that it is no longer an illegal substance under federal law. For the first time since 1937, industrial hemp has been legalized at the federal level and this paved the way for the growth of the industry. With the recent publication of the USDA interim final rule regarding the Establishment of a Domestic Hemp Production Program on October 31, 2019, hemp can now be grown and processed legally in the United States, and is legal to transport in interstate commerce. Although this interim final rule became effective on the date of publication, it is still subject to comment and there is a possibility it will be modified from its current application.

 

The Farm Bill recognizes hemp as distinct from its genetic cousin, marijuana, and specifically industrial hemp has been excluded from U.S. drug laws. The Farm Bill allows for each individual state to regulate industrial hemp and industrial hemp-based products or accept the USDA rules. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp (other than THC) are still subject to a patchwork of state regulations. We are actively monitoring the regulations and proposed regulations in each state to ensure our operations are compliant.

 

In conjunction with the enactment of the Farm Bill, the United States Food and Drug Administration (“FDA”) released a statement about the status of CBD and the agency’s actions in the short term with regards to CBD will guide the industry. The statement noted that the Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis derived compounds under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and Section 351 of the Public Health Service Act.

 

This authority allows the FDA to continue enforcing the law to protect patients and the public while also providing potential regulatory pathways for products containing cannabis and cannabis-derived compounds. The statement also noted the growing public interest in cannabis and cannabis-derived products, including CBD, and informed the public that the FDA will treat products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products — meaning the products will be subject to the same authorities and requirements as FDA-regulated products containing any other substance, regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the Farm Bill. Recently, both the U.S. House of Representatives (McNerney CA-09) and the Senate (McConnell R-KY) have passed amendments to the respective appropriations bills working their way through each chamber, which would help clear the way for cannabidiol (CBD) to become an approved dietary ingredient by the FDA through an alternative rule making process available to the FDA. Although it is uncertain if either of these amendments will make it to the final federal appropriation bill, or if the President will ultimately sign the appropriations bill, this signifies the legislatures clear intent to pave a pathway for clear and consistent federal regulation for cannabidiol.

 

As of the date of this report, and based upon publicly available information, to our knowledge the FDA has not taken any enforcement actions against CBD companies. The FDA, however, has sent warning letters to companies demanding they cease and desist from the production, distribution, or advertising of CBD products, only relating to instances that such CBD companies have made misleading and unapproved label claims. We will continue to monitor the FDA’s position on CBD.

 

We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security. There is also great uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel and personal privacy apply to the internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the internet and commercial online services could result in significant additional taxes or regulatory restrictions on our business. These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

  

Employees

As of December 31, 2020, we had 5 full-time employees and 2 part-time warehouse employees.

 5 
 

ITEM 1A. RISK FACTORS

 

RISK FACTORS

 

An investment in our securities is subject to numerous risks, including the risk factors described below. You should carefully consider the risks, uncertainties, and other factors described below, in addition to the other information set forth in this Prospectus, before making an investment decision with regard to our securities. Any of these risks, uncertainties, and other factors could materially and adversely affect our business, financial condition, results of operations, cash flows, or prospects. In that case, the trading price of our Common Stock could decline, and you may lose all or part of your investment. See also “Cautionary Note Regarding Forward-Looking Statements.”

 

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

 

We have a limited operating history, which may make it difficult for investors to predict future performance based on current operations.

 

We have a limited operating history upon which investors may base an evaluation of our potential future performance. In particular, we have not proven that the Company’s multi-level marketing business model will work. As a result, there can be no assurance that we will be able to develop or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash flows.

  

Any forecasts we make about our operations may prove to be inaccurate. We must, among other things, determine appropriate risks, rewards, and level of investment in our products, respond to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain, and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business, results of operations, and financial condition. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in the early stage of development. As a result of these risks, challenges, and uncertainties, the value of your investment could be significantly reduced or completely lost.

 

We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and on our cash flows.

 

We have incurred significant losses in prior periods. For the year ended December 31, 2020, we incurred a net loss of $5,046,711, of which $2,787,568 was related to non-cash stock-based compensation, and had an accumulated deficit of $7,167,015. For the year ended December 31, 2019, we incurred a net loss of $1,692,298 and, as of that date, we had an accumulated deficit of $2,120,304. Any losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and on our cash flows.

 

We will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not be able to obtain on acceptable terms or at all. If we fail to raise additional capital as needed, our ability to implement our business model and strategy could be compromised.

 

We have limited capital resources and operations. To date, our operations have been funded entirely from the proceeds of debt and equity financings. We expect to require substantial additional capital in the near future to expand our products and establish our targeted levels of commercial production. We may not be able to obtain additional financing on terms acceptable to us, or at all.

 

Even if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.

 

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior to those of our Common Stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of Common Stock could limit our ability to obtain equity financing.

 

We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.

 

We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.

 

The industries in which we operate in general are subject to intense and increasing competition. Some of our competitors may have greater capital resources, facilities, and diversity of products, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products that will directly compete with our products. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.

 

 6 
 

If we fail to protect our intellectual property, our business could be adversely affected.

 

Our viability will depend, in part, on our ability to maintain the proprietary aspects of our products to distinguish our products from our competitors’ products. We do not have trademarks or patents on our products and therefore must rely on, trade secrets and confidentiality provisions to protect the unique aspects of our supplier’s products.

 

Competitors may harm our sales by designing products that mirror the capabilities of our products or technology without infringing on our vendor’s intellectual property rights. If our vendors do not obtain sufficient protection for their intellectual property, or if they are unable to effectively enforce their intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.

  

Although we believe that our technology does not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.

 

We are not aware of any infringement by us of any person’s or entity’s intellectual property rights. In the event that products we sell are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify our products, or obtain a license for the manufacture and/or sale of such products, or cease selling such products. In such event, there can be no assurance that we would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business.

 

There can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or proposed products are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on our business and our financial condition.

 

Our trade secrets may be difficult to protect.

 

Our success depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. Because we operate in several highly competitive industries, we rely in part on trade secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.

 

These confidentiality, inventions, and assignment agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive, and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.

 

Our business, financial condition, results of operations, and cash flows have been, and may in the future be, negatively impacted by challenging global economic conditions.

 

The recent global economic slowdown has caused disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy, and declining consumer and business confidence, which has led to decreased levels of consumer spending. These macroeconomic developments have and could continue to negatively impact our business, which depends on the general economic environment and levels of consumer spending. As a result, we may not be able to maintain our existing customers or attract new customers, or we may be forced to reduce the price of our products. We are unable to predict the likelihood of the occurrence, duration or severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 

Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.

 

Our future success largely depends upon the continued services of our executive officers and management team, especially our President and Chief Executive Officer, Mr. Ray Grimm Jr. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive officers joins a competitor or forms a competing company, we may lose some or all of our customers. Finally, we do not maintain “key person” life insurance on any of our executive officers. Because of these factors, the loss of the Services of any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment in our Common Stock.

 

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Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition for skilled personnel in our industry. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your investment could be significantly reduced or completely lost.

 

Federal and State Government regulations may change how we do business

 

The effect of existing or probable federal and state 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. Federal and State government agencies have not yet put Hemp and CBD regulations into effect, these proceedings over time should result in revisions or decisions providing even greater legal certainty for CBD sellers.

 

CBD related products have not established legality within the FDA

 

The FDA has deemed marketing food to which CBD has been added, or labeling CBD as a dietary supplement, to be impermissible. The FDA is continuing to assess potential pathways available for various types of CBD products to be lawfully marketed. The FDA has summarized its current policies regarding CBD products at: https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd.

 

As discussed in Item 14 of its summary, the FDA has thus far limited its enforcement actions regarding CBD sellers to actions involving the impermissible use of medical or therapeutic claims for CBD products. Should the FDA change its enforcement policies regarding CBD products and begin broader enforcement actions against all sellers of products containing CBD, we would be forced to take serious corrective actions or make drastic changes to our business plan, and our business may fail. In addition, we cannot predict the form and content of future FDA regulations regarding CBD. Should the FDA adopt a legal framework for the marketing of CBD products, the requirements of its new regulations may be costly or burdensome such that we will lack the financial resources to become compliant with them.

 

Network marketing guidelines set by the Federal Trade Commission could impact how we do business.

 

As a network marketing company, we have to follow specific guidelines set by the Federal Trade Commission. The Company and its Brand Partners must follow all of these guidelines. Should the Company or Brand Partners deviate from these guidelines, the company could be fined and would have to take corrective actions. One of the FTC’s primary concerns with regard to “multi-level marketing” (“MLM”) or “network marketing” businesses is the potential for the compensation structure of an MLM business to be unfair or deceptive within the meaning of Section 5 of the FTC Act. At the most basic level, FTC policy requires that an MLM pay compensation that is based on actual sales to real customers, rather than based on mere wholesale purchases or other payments by its participants. In evaluating MLM practices, the FTC focuses on how the structure as a whole operates in practice, and considers factors including marketing representations, participant experiences, the compensation plan, and the incentives that the compensation structure creates. The assessment of an MLM’s compensation structure is a fact-specific determination that the FTC makes after careful investigation. In any such investigation, the FTC staff is likely to consider whether features of the MLM’s compensation structure incentivize or encourage participants to purchase product for reasons other than satisfying their own personal demand or actual consumer demand in the marketplace. Second, the FTC staff is likely to consider information bearing on whether particular wholesale purchases by business opportunity participants were made to satisfy personal demand. In addition, FTC focuses on whether an MLM’s representations regarding is business opportunity are deceptive. Although we believe the compensation structure for our Brand Partners and the other features of our network marketing program are in compliance with current FTC guidelines, any material change to those guidelines could force us to restructure our Brand Partners program or otherwise adversely affect our business.

 

We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.

 

In the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, finances, management and other resources. The factors that may place strain on our resources include, but are not limited to, the following:

 

 

 ·The need for continued development of our financial and information management systems;

 

 ·The need to manage strategic relationships and agreements with manufacturers, customers and partners; and

 

 ·Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business.

 

Additionally, our strategy envisions a period of rapid growth that may impose a significant burden on our administrative and operational resources. Our ability to effectively manage growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that we will be successful in recruiting and retaining new employees or retaining existing employees.

 

 8 
 

We cannot provide assurances that our management will be able to manage this growth effectively. Our failure to successfully manage growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting our business, financial condition, or results of operations.

 

If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.

 

In the area of innovation, we must be able to develop new technologies and products that appeal to our customers. This depends, in part, on the technological and creative skills of our personnel. We may not be successful in the development, introduction, marketing, and sourcing of new technologies or innovations, that satisfy customer needs, achieve market acceptance, or generate satisfactory financial returns.

 

Our business is subject to risks arising from epidemic diseases, such as the recent global outbreak of the COVID-19 coronavirus

An epidemic or pandemic disease outbreak, including the recent COVID-19 outbreak, could cause significant disruption to our business operations or the operations of our third-party manufacturers upon whom we rely. The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed.

 

Any disruption of our suppliers and their contract manufacturers or our customers would likely impact our sales and operating results. Moreover, our operations could be negatively affected if employees are quarantined as the result of exposure to a contagious illness. The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a period of business disruption, reduced customer traffic, and reduced operations.

 

Litigation may adversely affect our business, financial condition, and results of operations.

 

From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.

 

Our officers and directors have significant control over stockholder matters and the minority stockholders will have little or no control over our affairs.

 

Our officers and directors currently own approximately 57.13% of our outstanding Common Stock, and thus significant control over stockholder matters, such as election of directors, amendments to the Articles of Incorporation, and approval of significant corporate transactions. As a result, our minority stockholders will have little or no control over its affairs.

 

Our internal controls and accounting methods may require modification.

 

We continue to review and develop controls and procedures sufficient to accurately report our financial performance on a timely basis.  If we do not develop and implement effective controls and procedures, we may not be able to report our financial performance on a timely basis and our business and stock price would be adversely affected.

 

 

If we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our operating results, our ability to operate our business, and investors’ views of us.

 

The Sarbanes-Oxley Act of 2002 requires that we report annually on the effectiveness of our internal control over financial reporting. Among other things, we must perform systems and processes evaluation and testing. We must also conduct an assessment of our internal controls to allow management to report on our assessment of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. We are required to provide management’s assessment of internal controls in conjunction with the filing our Annual Report on Form 10-k. The failure to implement and maintain proper and effective internal controls and disclosure controls could result in material weaknesses in our financial reporting such as errors in our financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.

 

We do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 9 
 

The Company has the following material weaknesses:

 ·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.

 

 ·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.

  

Our insurance coverage may be inadequate to cover all significant risk exposures.

 

Like all sellers of products for human consumption, we cannot eliminate the risk that our products may be subjection to contamination during the manufacturing or distribution process, causing illness or injury to the consumer. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, and results of operations. We do not have any business interruption insurance. Any business disruption or natural disaster could result in substantial costs and diversion of resources.

 

Our failure to maintain and expand our distributor relationships could adversely affect our business.

 

We distribute our products through independent distributors, and we depend upon them directly for all of our sales in most of our markets.  Accordingly, our success depends in significant part upon our ability to attract, retain and motivate a large base of distributors.  Our direct selling organization is headed by a relatively small number of key distributors.  The loss of a significant number of distributors, especially key distributors, could materially and adversely affect sales of our products and could impair our ability to attract new distributors.  Moreover, the replacement of distributors could be difficult because, in our efforts to attract and retain distributors, we compete with other direct selling organizations, including but not limited to those in the personal care, cosmetic product and nutritional supplement industries.  Our distributors may terminate their services with us at any time..

 

The number of active distributors or their productivity may not increase and could decline in the future.  We cannot accurately predict any fluctuation in the number and productivity of distributors because we primarily rely upon existing distributors to sponsor and train new distributors and to motivate new and existing distributors. Operating results could be adversely affected if our existing and new business opportunities and products do not generate sufficient economic incentive or interest to retain existing distributors and to attract new distributors.

 

The number and productivity of our distributors could be harmed by several factors, including:

 

 adverse publicity or negative perceptions regarding us, our products, our method of distribution or our competitors;
 lack of interest in, or the technical failure of, existing or new products;

 

 lack of interest in our existing compensation plan for distributors or in enhancements or other changes to that compensation plan;
 our actions to enforce our policies and procedures;

 

 regulatory actions or charges or private actions against us or others in our industry;
 general economic and business conditions;

 

 changes in management or the loss of one or more key distributor leaders;
 entry of new competitors, or new products or compensation plan enhancements by existing competitors, in our markets; and

 

 

potential saturation or maturity levels in a given country or market which could negatively impact our ability to attract and

retain distributors in such market.

 

An increase in the amount of compensation paid to distributors would reduce profitability.

 

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A significant expense is the payment of compensation to our distributors, which represented approximately 35% of net sales during 2020.  We compensate our distributors by paying commissions, bonuses, and certain awards and prizes.  Factors impacting the overall commission payout include the growth and depth of the distributor network, the distributor retention rate, the level of promotions, local promotional programs and business development agreements.  Any increase in compensation payments to distributors as a percentage of net sales will reduce our profitability.

 

Failure of new products to gain distributor and market acceptance could harm our business.

 

An important component of our business is our ability to develop new products that create enthusiasm among our distributor force. If we fail to introduce new products on a timely basis, our distributor productivity could be harmed. In addition, if any new products fail to gain market acceptance, are restricted by regulatory requirements, or have quality problems, this would harm our results of operations. Factors that could affect our ability to continue to introduce new products include, among others, limited capital and human resources, government regulations, proprietary protections of competitors that may limit our ability to offer comparable products and any failure to anticipate changes in consumer tastes and buying preferences.

 

Although our distributors are independent contractors, improper distributor actions that violate laws or regulations could harm our business.

 

Our distributors are independent contractors and, accordingly, we are not in a position to directly provide the same direction, motivation and oversight as we would if distributors were our own employees.  As a result, there can be no assurance that our distributors will participate in our marketing strategies or plans, accept our introduction of new products, or comply with our distributor policies and procedures.  Extensive federal, state and local laws regulate our business, our products and our network marketing program.  Given the size and diversity of our distributor force, we experience problems with distributors from time to time.  Distributors often desire to enter a market, before we have received approval to do business, to gain an advantage in the marketplace.  Improper distributor activity in new geographic markets could result in adverse publicity and can be particularly harmful to our ability to ultimately enter these markets.  Violations by our distributors of applicable law or of our policies and procedures in dealing with customers could reflect negatively on our products and operations and harm our business reputation.  In addition, it is possible that a court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our distributors.  If any of these events occur, our business, financial condition, or results of operations could be materially adversely affected.

 

Because we do not have an audit or compensation committee, stockholders will have to rely on our officers and directors, most of whom are not independent, to perform these functions.

 

Because we do not have an audit or compensation committee, stockholders will have to rely on our officers and directors, most of whom are not independent, to perform these functions. Thus, there is a potential conflict of interest in that our officers and directors have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.

 

RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES

 

We expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments.

 

The trading price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely affect your ability to sell your shares of Common Stock or, if you are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.

 

The relative lack of public company experience of our management team could adversely impact our ability to comply with the reporting requirements of U.S. securities laws.

 

Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002. Our senior management has little experience in managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance, and reporting requirements, including the establishing and maintaining of internal controls over financial reporting. Any such deficiencies, weaknesses, or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy, we could be subject to the imposition of fines and penalties and our management would have to divert resources from attending to our business plan.

 

Our Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock due to suitability requirements.

 

Our Common Stock is categorized as “penny stock”. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The price of our Common Stock is significantly less than $5.00 per share and is therefore considered “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser, and determine that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks. These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our Common Stock, either directly or on behalf of their clients, may discourage potential stockholders from purchasing our Common Stock, or may adversely affect the ability of stockholders to sell their shares.

 

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Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our shares of Common Stock, have an adverse effect on the market for our shares of Common Stock, and thereby depress our price per share of Common Stock.

 

The elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.

 

Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.

 

We may issue additional shares of Common Stock or preferred stock in the future, which could cause significant dilution to all stockholders.

 

Our Articles of Incorporation authorize the issuance of up to 1.4 billion shares of Common Stock and 100 million shares of preferred stock, with a par value of $0.00001 per share. As of December 31, 2020, we had 39,523,051 shares of Common Stock, 0 shares of Series A Preferred Stock and 0 shares of Series B Preferred Stock outstanding; however, we may issue additional shares of Common Stock or preferred stock in the future in connection with a financing or an acquisition. Such issuances may not require the approval of our stockholders. In addition, certain of our outstanding rights to purchase additional shares of Common Stock or securities convertible into our Common Stock are subject to full-ratchet anti-dilution protection, which could result in the right to purchase significantly more shares of Common Stock being issued or a reduction in the purchase price for any such shares or both.

 

Any issuance of additional shares of our Common Stock, or equity securities convertible into our Common Stock, including but not limited to, preferred stock, warrants, and options, will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our Common Stock, and may negatively impact the market price of our Common Stock.

 

Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.

 

Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after an “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquiror to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.

 

The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our Board. Both of these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

 

Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them.

 

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined by our Board, based upon earnings, financial condition, capital resources, capital requirements, restrictions in our Articles of Incorporation, contractual restrictions, and such other factors as our Board deems relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.

  

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ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Inapplicable as we are not a large accelerated filer, as defined in Rule 12b-2 of the Exchange Act, or a well-known seasoned issuer as defined in Rule 405 of the Securities Act.

 

ITEM 2. PROPERTIES 

  

We do not own any real estate or other physical properties material to our operations. We operate from leased space. Our executive offices are located at 3246 Grey Hawk Court, Carlsbad, California 92010, and our telephone number is (866) 611-4694. The lease is for an initial term of three years and expires on July 31, 2021. The current monthly base rent amount equals $5,720.

 

ITEM 3. LEGAL PROCEEDINGS

  

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION AND HOLDERS

 

Market Information

 

Our Common Stock is quoted on the OTC Markets Group, Inc.’s “QB” tier under the symbol “NWYU.” The following is a summary of the high and low closing bid prices of our Common Stock for the periods indicated, as reported by the OTC Markets Group, Inc. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

  CLOSING BID PRICE PER SHARE
  HIGH LOW

Year ended December 31, 2020

First Quarter

 $2.40  $.25 
Second Quarter $.75  $.35 
Third  Quarter $.54  $.14 
Fourth Quarter $.38  $.10 

Year ended December 31, 2019

First Quarter

 $25.50  $7.61 
Second Quarter $22.75  $1.01 
Third Quarter $2.99  $1.01 
Fourth Quarter $2.40  $1.50 

Year ended December 31, 2018

First Quarter

 $9.75  $3.50 
Second Quarter $10.00  $5.00 
Third Quarter $14.25  $5.00 
Fourth Quarter $14.75  $9.35 

 

On April 1, 2021 the closing bid price on the OTC Markets for our Common Stock was $0.1325.

 

Stockholders

 

As of December 31, 2020, there were 39,523,051 shares of Common Stock issued and outstanding, held by approximately 202 stockholders of record.

 

Dividends

 

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:

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 ·we would not be able to pay our debts as they become due in the usual course of business; or

 

 ·our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our Articles of Incorporation.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

 

Penny Stock Regulations

 

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock, when and if a trading market develops, may fall within the definition of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 individually, or $300,000, together with their spouse).

 

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words “believes,” “expects,” “anticipates” and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many factors, including the risks discussed from time to time in this report, including the risks described under “Risk Factors” in any filings we have made with the SEC.

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.

 

Background

 

On January 9, 2019, New You, Inc. completed a reverse recapitalization (“Recapitalization”) with New You LLC, a privately held Wyoming limited liability company in accordance with the terms of a share exchange agreement (“Share Exchange Agreement”). Pursuant to the Share Exchange Agreement, New You, Inc. issued 15,974,558 common shares in exchange for one hundred percent (100%) of the outstanding units of New You LLC (11,450 units), with New You LLC becoming a wholly-owned operating subsidiary of the Company. The transaction was accounted for as a reverse recapitalization because New You, Inc. was a shell company prior to the transaction. For accounting purposes, New You LLC is considered to have obtained the net monetary assets of New You, Inc. in exchange for equity. Upon the consummation of the Recapitalization, the historical financial statements of New You LLC became the consolidated company’s historical financial statements.

 

Results of Operations

 

Revenues. For the year ended December 31, 2020, we generated revenues of $2,008,493, a decrease of $823,933 compared to December 31, 2019. The decrease was due to declining revenue generated by New You LLC as a result of a slowed economy brought about by the global Covid pandemic. At this stage in our development, revenues are not yet sufficient to cover ongoing operating expenses.

 

Gross Profit. Our gross profit for the year ended December 31, 2020 was $1,723,334, a decrease of $654,332 compared to December 31, 2019. Our gross margin percentage for the year ended December 31, 2020 was 86%, compared to 84% for the year ended December 31, 2019. The increase in gross profit generated by New You LLC is largely a result of product sales mix and the associated costs for the year.

 

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Selling, General, and Administrative Expenses. Selling, General, and Administrative expenses for the year ended December 31, 2020 were $4,958,672, an increase of $889,508 compared to December 31, 2019. For the year ended December 31, 2020, the components of the change in Selling, General, and Administrative expenses were: (i) decrease in commission expenses; (ii) decrease in payroll expenses; (iii) decrease in other selling general and administrative expenses; and (iv) increase in stock based compensation.

 

  For the year ended December 31,
2020
 For the year ended December 31,
2019
Staff and Overhead Expenses $1,389,637  $1,980,058 
Accounting/Legal  210,132   382,715 
Commission Expense  571,335   1,028,787 
Non-Cash Stock Based Compensation  2,787,568   677,604 
  $4,958,672  $4,069,164 

  

Operating Loss. We realized an operating loss of $3,235,338 for the year ended December 31, 2020 compared to $1,691,498 for the year ended December 31, 2019.

 

Net Loss. We incurred a net loss of $5,046,711, for the year ended December 31, 2020 compared to a net loss of $1,692,298 for the year ended December 31, 2019. The primary reason for the increase in net loss is due to decreased revenue earned, increased stock based compensation expense, finance charges including non-interest expense of $496,639, and change in fair value of derivative features embedded within certain convertible notes of $1,066,421 during the year. Management will continue to make an effort to lower operating expenses and increase revenue. We will continue to invest in further expanding our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and our products. Given the fact that most of the operating expenses are fixed or have quasi-fixed character, management expects them to significantly decrease as a percentage of revenues as revenues increase.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We incurred a net loss for the year ended December 31, 2020 and had an accumulated deficit of $7,167,015 at December 31, 2020. At December 31, 2020, we had a cash balance of approximately $45,102, compared to a cash balance of $1,125 at December 31, 2019. At December 31, 2020, we had a working capital deficit of $2,460,718, 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. See note 2 to our financial statements for the year ended December 31, 2020 and 2019.

 

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:

 

  2020 2019
Cash used in operating activities  (486,369)  (360,980)
Net Cash provided by (used in) investing activities  —     —   
Cash provided by financing activities  530,346   334,795 

  

 

 15 
 

Cash Used in Operating Activities

 

During the year ended December 31, 2020 cash used in operating activities of $486,369 primarily reflected our net losses for the period, adjusted by non-cash charges such as depreciation, stock-based compensation, amortization of debt discounts, as well as changes in our working capital accounts, primarily consisting of a decrease in inventory, an increase in prepaid expenses, and a decrease in accounts payable.

 

During the year ended December 31, 2019 cash used in operating activities of $360,980 primarily reflected our net losses for the period, adjusted by non-cash charges such as depreciation and stock-based compensation, as well as changes in our working capital accounts, primarily consisting of an increase in inventory, a decrease in prepaid expenses, and in increase in accounts payable.

 

Cash Used in Investing Activities

 

During the year ended December 31, 2020 and 2019, there was no cash used in investing activities.

 

Cash Provided by Financing Activities

 

During the year ended December 31, 2020, cash provided by financing activities was $530,346 which consisted primarily of proceeds from related party debt, issuance of notes payable, and issuance of convertible notes payable.

 

During the year ended December 31, 2019, cash provided by financing activities was $334,795, which consisted primarily of proceeds from related party debt and issuances of common shares for cash.

 

Known Trends and Uncertainties Expected to Have a Material Impact on Revenues

 

Our ability to continue to add and maintain Brand Partners and Customers on a consistent basis will have a material impact on revenues. We will be increasing our marketing efforts in the upcoming year. Due to this, we expect to see our customer base and number of Brand Partners to grow consistently over the next few quarters and expect those numbers to grow even more as we continue to expand our marketing efforts and add to our product portfolio. We expect to continue to see high retention rates as we continue to train our Brand Partners and provide them with a support system that promotes success and strong partnerships. Our retention rate for our Brand Partners over the last twenty-eight months (since inception) ended December 31st, 2020 is 98.5%.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We have no off-balance sheet arrangements.

 

CRITICAL ACCOUNTING POLICIES

 

See Note 1 – Organization and Significant Accounting Policies in the Notes to the Consolidated Financial Statements on page F-6

 

Recently Issued Accounting Standards

 

See Note 1 – Organization and Significant Accounting Policies in the Notes to the Consolidated Financial Statements on page F-6

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting FirmF-1
  
Consolidated Balance Sheets as of December 31, 2020 and 2019F-2
  
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019F-3
  
Consolidated Statement of Stockholders’ Deficit for the Two Years Ended December 31, 2020F-4
  
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019F-5
  
Notes to Consolidated Financial StatementsF-6

 

 

 

 16 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

New You, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of New You, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, , stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

 

Fair value of the level 3 default put option derivatives

 

As described in Notes 9 and 11 to the financial statements, the Company has entered into certain debt agreements that contain default put features that may be triggered in the event the Company defaults on its convertible notes. The Company has bifurcated such default put features and recognized them as derivatives. The Company used a Monte Carlo simulation model to simulate the stock price, the default likelihood, and the default liability, in order to determine the fair value of these derivatives at inception and at year-end.

 

The principal considerations for our determination that performing procedures relating to evaluating the valuation of these derivatives is a critical audit matter, are that there is significant judgment by management in the determining the inputs and assumptions used in the Monte Carlo simulation model. This in turn led to high degree of auditor judgment, subjectivity and effort in performing audit procedures in evaluating audit evidence related to management’s inputs and assumptions used in the Monte Carlo simulation model. Also, the evaluation of audit evidence related to the derivative valuation required significant auditor judgment as the nature of the evidence is often subjective, and the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.

 

Addressing the matter involved performing procedures and evaluating evidence in connection with forming our overall audit opinion on the consolidated financial statements. These procedures included, among others, (i) evaluating the reasonableness of management’s inputs and assumptions used in the Monte Carlo simulation model; and (ii) performing an independent recalculations of the estimated fair value of the derivatives. Professionals with specialized skills and knowledge were used to assist in the evaluation of the measurement of the Company’s estimated fair value of the derivatives.

 

/s/ Marcum llp 

Marcum llp

 

We have served as the Company’s auditor since 2019.

 

Costa Mesa, California
April 7, 2021

 F-1 

 

New You, Inc.
Consolidated Balance Sheets as of December 31, 2020 and 2019

  December 31, 2020 December 31, 2019
     
ASSETS        
Current Assets:        
Cash $45,102  $1,125 
Credit Card Receivable  1,952   23,715 
Inventory  79,438   147,780 
Prepaid Expenses and Other Current Assets  8,212   5,000 
Total Current Assets  134,704   177,620 
         
Property and Equipment, Net  20,004   25,795 
Operating Lease Right of Use Asset, Net  42,380   96,310 
         
TOTAL ASSETS $197,088  $299,725 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
LIABILITIES        
Current Liabilities:        
Accounts Payable and Other Accrued Expenses $419,487  $471,507 
Accounts Payable to Related Party  30,625   200,605 
Operating Lease Liability  82,281   63,410 
Related Party Debt  573,659   497,147 
Notes Payable, Current  85,081   —   
Convertible Notes Payable, Net of Discount of $177,798 and $0, respectively  228,202   —   
Derivative Liability  1,176,087   —   
Total Current Liabilities  2,595,422   1,232,669 
Notes Payable, Non-current  128,877   —   
Operating Lease Liabilities, Non-current  —     38,025 
TOTAL LIABILITIES  2,724,299   1,270,694 
         
COMMITMENTS AND CONTINGENCIES - SEE NOTE 5        
         
STOCKHOLDERS’ DEFICIT        
Common stock at $0.00001 par value: 1,400,000,000 and 900,000,000 shares authorized as of December 31, 2020 and December 31, 2019, respectively; 39,523,051 and 32,985,200 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively  395   330 
Additional Paid-in Capital  4,639,409   1,149,005 
Accumulated Deficit  (7,167,015)  (2,120,304)
TOTAL STOCKHOLDERS’ DEFICIT  (2,527,211)  (970,969)
         
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $197,088  $299,725 
         

The accompanying notes are an integral part of the financial statements. 

 F-2 

 

New You, Inc.
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

 

 

  

For The Year Ended

December 31, 2020

 

For The Year Ended

December 31, 2019

     
     
Total Revenues $2,008,493  $2,832,426 
         
Cost of Goods Sold  285,159   454,760 
         
Gross Profit  1,723,334   2,377,666 
         
Selling, General and Administrative Expenses        
         
Commission Expense  571,335   1,028,787 
Stock Based Compensation  2,787,568   677,604 
Other Selling, General and Administrative Expenses  1,599,769   2,362,773 
Total Selling, General, and Administrative Expenses  4,958,672   4,069,164 
         
Loss from Operations  (3,235,338)  (1,691,498)
         
Interest Expense  744,152   —   
Change in Fair Value of Derivative  1,066,421   —   
Net Loss Before Income Tax Expense  (5,045,911)  (1,691,498)
         
Income Tax Expense  800   800 
         
Net Loss $(5,046,711) $(1,692,298)
         
         
Net Loss Per Common Share        
- Basic and Diluted $(0.15) $(0.06)
         
Weighted Average Common Shares Outstanding        
- Basic and Diluted  34,480,966   26,343,136 

 

The accompanying notes are an integral part of the financial statements.  

 F-3 

 

New You, Inc.


Consolidated Statement of Stockholders’ Deficit for the Two Years Ended December 31, 2020

 

  Common      
  Shares Par Value Additional Paid in Capital Accumulated Deficit Total
Stockholders’ 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)  —     —   
Sales of Common Shares  652,450   7   316,293   —     316,300 
Restricted Stock Issuance - Employees  4,150,000   41   (41)  —     —   
Restricted Stock Issuances – Vendors  1,026,000   10   (10)  —     —   
Stock-based Compensation - Employees  —     —     469,791   —     469,791 
Stock-based Compensation – Vendors  —     —     207,813   —     207,813 
Cash Received for Common Shares Not Yet Issued  —     —     45,000   —     45,000 
Net Loss  —     —     —     (1,692,298)  (1,692,298)
Balance as of December 31, 2019  32,985,200  $330  $1,149,005   (2,120,304)  (970,969)
                     
Shares Issued as Default Penalty  900,000   9   449,991   —     450,000 
Shares Issued in Lieu of Interest  196,721   2   21,637   —     21,639 
Shares Issued as Debt Issuance Costs  50,000   1   24,999   —     25,000 
Restricted Stock Issuance - Employees  150,000   1   (1)  —     —   
Restricted Stock Issuances – Vendors  5,241,130   52   (52)  —     —   
Stock-based Compensation - Employees          1,627,083   —     1,627,083 
Stock-based Compensation – Vendors          1,160,485   —     1,160,485 
Cancellation of shares  (90,000)  (1)  1   —     —   
Shares Issued for Cash Received in 2019  90,000   1   (1)  —     —   
Beneficial Conversion Feature in Connection with Notes Payable  —     —     206,262   —     206,262 
Net Loss  —     —     —     (5,046,711)  (5,046,711)
Balance as of December 31, 2020  39,523,051  $395  $4,639,409   (7,167,015)  (2,527,211)
                     

 

 

The accompanying notes are an integral part of the financial statements. 

 

 F-4 

 

New You, Inc.


Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

 

  

For The Year Ended

December 31, 2020

 

For The Year Ended

December 31, 2019

     
Operating Activities        
Net Loss  (5,046,711) $(1,692,298)
Adjustments to Reconcile Net Loss to Net Cash Used        
   in Operating Activities:        
Depreciation and Amortization  5,791   10,917 
Amortization of Operating Lease Right of Use Assets  53,930   99,166 
Other Non-cash Interest Expense  42,563     
Amortization of Debt Issuance Costs  126,567   —   
Change in Fair Value of Derivative Liability  1,066,421   —   
Shares Issued in Connection with Notes Payable as Default Penalty  450,000   —   
Shares Issued in Lieu of Interest  21,639   —   
Stock-based Compensation - Employees  1,627,083   469,792 
Stock-based Compensation - Vendors  1,160,485   207,813 
Changes in Operating Assets and Liabilities:        
Credit Card Receivable  21,763   (122,804)
Inventory  68,342   (97,918)
Due From Merger Partner  —     10,482 
Prepaid Expenses and Other Current Assets  (3,212)  29,415 
Accounts Payable and Accrued Expenses  (52,020)  359,453 
Accounts Payable to Related Parties  (9,856)  459,043 
Operating Lease Liabilities  (19,154)  (94,041)
Net Cash Used in Operating Activities  (486,369)  (360,980)
         
Financing Activities        
Proceeds from Related Party Debt  161,100   398,000 
Repayments of Related Party Debt  (244,712)  (424,505)
Issuance of Common Shares for Cash  —     316,300 
Cash Received for Shares Not Yet Issued  —     45,000 
Proceeds from Convertible Notes Payable, Net of Issuance Costs  400,000   —   
Proceeds from Notes Payable  213,958   —   
Net Cash Provided by Financing Activities  530,346   334,795 
Net Increase/(Decrease) in Cash and Cash Equivalents  43,977   (26,185)
Cash and Cash Equivalents        
Beginning of Period  1,125   27,310 
End of Period $45,102  $1,125 
         
Supplemental Disclosures        
Cash Paid for Interest $93,833  $5,000 
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 $270,000  $412,672 
Related Party Debt Adjusted Against Related Party Receivables $109,876  $(118,692)
Recognition of Beneficial Conversion Features on Convertible Debt $206,262  $—   
Recognition of Initial Derivative Liability and Associated Debt Discount $67,103  $—   
Common Shares Issued in Connection with Convertible Note Issuance $25,000  $—   

The accompanying notes are an integral part of the financial statements.  

 F-5 

 

New You, Inc.

Notes to Consolidated Financial Statements

 

Note 1 – Organization and 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 accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) to reflect the accounts and operations of the Company.

 

On January 9, 2019, the Company completed a reverse recapitalization (“Recapitalization”) with New You LLC, a privately held Wyoming limited liability company, in accordance with the terms of a share exchange agreement (“Share Exchange Agreement”). Pursuant to the Share Exchange Agreement, the Company issued 15,974,558 common shares in exchange for one hundred percent (100%) of the outstanding units of New You LLC (11,450 units), with New You LLC becoming a wholly-owned operating subsidiary of the Company. The transaction was accounted for as a reverse recapitalization because the Company was a shell company prior to the transaction. For accounting purposes, New You LLC is considered to have obtained the net monetary assets of the Company in exchange for equity. Upon the consummation of the Recapitalization, the historical financial statements of New You LLC became the consolidated company’s historical financial statements. Accordingly, these financial statements reflect the financial position and operations of New You LLC, except that the capital structure of New You LLC has been adjusted based on the ratio of common shares issued and units transferred in accordance with the Share Exchange Agreement.

 

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 GAAP 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, allowance for slow moving or obsolete inventory, stock-based compensation expense, and the fair value of the derivative liabilities.

Financial Instruments

 

The Company’s balance sheets include the following financial instruments: cash, accounts payable, 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:

 

 F-6 

 

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 unobservable.

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2020.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of December 31, 2020, which consist of convertible instruments, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815.

 

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.

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 December 31, 2020 and 2019, 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 make sure that the transaction is successful prior to the sale being finalized. Accordingly, no allowance was recorded as of December 31, 2020 or 2019.

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 for vehicles and seven years for furniture and fixtures. 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 during the years ended December 31, 2020 and 2019.

 F-7 

 

Basic and Diluted Net Loss Per Share

 

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.

 

The following table presents the computation of basic and diluted net loss per common share:

 

  2020 2019
Historical Net loss per share        
Numerator        
    Net Loss  (5,046,711)  (1,692,298)
Denominator        
   Weighted-average common shares outstanding  36,756,792   27,514,330 
   Less: Restricted weighted-average shares  (2,275,826)  (1,171,194)
   Denominator for basic and diluted net loss per share  34,480,966   26,343,136 
Basic and diluted net loss per share $(0.15) $(0.06)
         

 

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):

 

  2020 2019
Restricted Stock  3,343,064   5,151,000
Convertible Notes  4,097,104   —  

  

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 obtains control of 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. Control is considered transferred 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 $63,272 for the year ended December 31, 2020 and $79,090 for the year ended December 31, 2019. The Company has not recorded a reserve for returns at December 31, 2020, or 2019 since it does not believe such returns will be material.

As of December 31, 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 product costs. Such costs are recorded when the associated revenue is recognized. 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 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.

 F-8 

 

The Company treats commission payments as costs to obtain a contract in accordance with ASC 340, “Other Assets and Deferred Costs.” 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 $12,385 for the year ended December 31, 2020 and $12,626 for the year ended December 31, 2019.

Income Taxes

The Company provides for income taxes utilizing the asset and liability method of accounting. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in the statements of operations as an adjustment to income tax expense in the period that includes the enactment date. Utilization of the net operating loss carry forwards and credits may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

ASC Topic 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with GAAP. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

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 year ended December 31, 2020 and 2019 was $2,787,568 and $677,604, respectively.

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 is currently evaluating the impact that this guidance will have upon its financial position and results of operations, if any.

 

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.

 

 F-9 

 

Note 2 – Going Concern

 

We incurred a net loss of $5,046,711 for the year ended December 31, 2020, of which $2,787,568 was related to non-cash stock based compensation, and had an accumulated deficit of $7,167,015 . At December 31, 2020, we had a cash balance of approximately $45,102, compared to a cash balance of $1,125 at December 31, 2019. At December 31, 2020, we had a working capital deficit of $2,460,718, compared to a working capital deficit of $1,047,273 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.

 

Since the Company sells its products to a large number of customers, there is no receivable or revenue concentration from customers. However, as of December 31, 2020 and 2019, one credit card processor accounted for 100% of credit card receivables.

 

Note 4 – Equity

 

On January 9, 2019, the Company purchased one hundred percent (100%) of the outstanding units of New You LLC. Pursuant to the terms and conditions of the Share Exchange Agreement, the Company issued 15,974,558 common shares in exchange for one hundred percent (100%) of New You LLC outstanding units. As a result of the Share Exchange Agreement, New You LLC became a wholly owned subsidiary of the Company. New You LLC began operations in August 2018.

 

On March 8, 2019, pursuant to stockholder consent, our Board of Directors authorized an amendment (the "Amendment") to our Certificate of Incorporation, as amended, to (i) change the name of the Company from The Radiant Creations Group, Inc. to New You, Inc. and (ii) effect a reverse stock split of the issued and outstanding shares of our common stock, par value $0.00001, on a 1 for 50 basis (the "Reverse Stock Split"). We filed the Amendment with the Nevada Secretary of State reflecting the name change on March 27, 2019. On April 29, 2019, the Financial Industry Regulatory Authority, Inc. notified us that the Name Change and Reverse Stock Split would take effect on April 30, 2019 (the "Effective Date"). On the Effective Date, each holder of common stock received 1 share of our common stock for each 50 shares of our common stock they owned immediately prior to the Reverse Stock Split. We did not issue fractional shares in connection with the Reverse Stock Split. Fractional shares were rounded up to the nearest whole share. In addition, on the Effective Date the Company’s trading symbol changed to “RCGPD” for a period of 20 business days, after which the "D" was removed from the Company’s trading symbol and began trading under new trading symbol “NWYU.” Unless otherwise indicated, the information in these unaudited condensed consolidated financial statements gives effect to the 1-for-50 reverse stock split of the Company’s common stock, par value $0.00001 per share and name change from The Radiant Creations Group, Inc. to New You, Inc., effected on April 30, 2019.

 

Stock Sales

 

2020

During the year ended December 31, 2020, the Company issued 90,000 common shares which resulted in raising $45,000 in additional capital that was received in 2019.

 

2019

During the year ended December 31, 2019, the Company issued 652,450 common shares which resulted in raising $316,300 in additional capital and two investors paid a total of $45,000 for 90,000 common shares that were not issued as of December 31, 2019.

 

2020 Restricted Stock Grants

 

During the year ended December 31, 2020, the Company granted 6,111,130 common shares (of which 770,000 were cancelled in the same period) valued at $3,055,565 for employees and several consultants for services that will be provided in the future and will vest over the course of twenty-four months or twelve months based on the specific contract. The Company estimates the fair value of the shares 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 when the equity instruments were granted.

 

The table below summarizes the activity of the restricted stock during 2020:

 

  Number of Shares Weighted Average Grant Date Fair Value per Share
 Non-vested as of December 31, 2019   3,754,750  $—   
 Granted   6,111,130  $0.50 
 Vested   (5,752,816) $0.50 
 Forfeited/Cancelled   (770,000) $0.50 
 Non-vested as of December 31, 2020   3,343,064  $0.50 
           

 

 F-10 

 

For the year ended December 31, 2020, the compensation cost that has been charged to Stock Compensation Expense is $2,787,568. No portion of the total compensation cost was capitalized. The unrecognized compensation costs as of December 31, 2020 and 2019 is $1,766,619 and $1,902,896, respectively, which will be recognized over 0.8 years and one year respectively. The company recognizes the cost of these stocks using a straight-line method and forfeitures are recognized as they occur.

 

Note 5 – Commitments and Contingencies

 

Operating Lease Commitments

 

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.

 

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 costs are as follows:

 

  

Year Ended

December 31, 2020

Operating lease cost $74,451 
Total lease cost $74,451 
     

  

Cash paid for amounts included in operating lease liabilities was $39,746 for the year ended December 31, 2020. The table below presents total operating lease ROU assets and lease liabilities as of December 31, 2020:

 

Year Ended

December 31, 2020

Operating lease ROU assets $42,380 
Operating lease liabilities $82,281 

 

The table below presents the maturities of operating lease liabilities as of December 31,

 

 
2021 $83,332 
2022 $—   
Total Lease Payments $83,332 
Less: Discount $(1,051)
Operating Lease Liability $82,281 

  

  Year Ended
December 31, 2020
Weighted average remaining lease term (years)  0.58 
Weighted average discount rate  7%

 

 

 F-11 

 

Note 6 - 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 neither required an accrual as of December 31, 2020 or 2019, nor were there any asserted or unasserted material claims for which material losses are reasonably possible.

 

Note 7 – Related Party Transactions

 

During the year December 31, 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 December 31, 2020, these loans had a combined balance of $523,658 for the CEO, the President, and two other board members. Total additions to these loans during the year ended December 31, 2020 were cash loan proceeds of $61,100 and deferred compensation of $270,000 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 year ended December 31, 2019 were $159,975.

 

As of December 31, 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 stockholder of New You, Inc. and is owned by a principal stockholder of New You, Inc., for inventory purchases. During the years ended December 31, 2020 and December 31, 2019, we made purchases of $183,929 and $238,588, respectively, from Carlsbad Naturals, LLC. As of December 31, 2020 and December 31, 2019, we owed $27,500 and $22,500, respectively, for consulting payments to a relative of the CEO.

 

During the year ended December 31, 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 if 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 year ended December 31, 2020, the amount of penalty shares issued was 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 year ended December 31, 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 year ended December 31, 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 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 were 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 December 31, 2020 was $0.

 

During the year ended December 31, 2019, the Company received two loans from a board member’s family member in the amount of $100,000 each for a total of $200,000 which were paid in full prior to year-end. A total of $5,000 was paid in interest for the loans during the year ended December 31, 2019.

 

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 8 – 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 $10,000. All or a portion of this loan may be forgiven if the Company satisfies certain criteria.

 

In May, 2020, the Company’s subsidiary 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:

 

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

 

 F-12 

 

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.

 

In July 2020, the Company’s subsidiary received a second 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 9 – Convertible Debt

 

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 (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.

 

  

December 31,

2020

 

December 31,

2019

Principal $406,000  $—   
Debt discount  (177,798)  —   
Total Principal $228,202  $—   
         

Note 1 - During the year ended December 31, 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 December 31, 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. As of December 31, 2020, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 250,000.

  

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 December 31, 2020, the Company owed $88,000 in principal and $3,882 in accrued interest on the note. As of December 31, 2020, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 1,552,856.

 

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 December 31, 2020, the Company owed $43,000 in principal and $1,574 in accrued interest on the note. As of December 31, 2020, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 753,314

 

Note 4 – On November 18, 2020, the Company entered into a Secured Promissory Note (“Fourth Convertible Note”) with a third party, receiving $150,000 in loan proceeds. The Note matures on May 18, 2021 and accrues interest at 2% per month. The Noteholder may convert any portion of the debt into shares of common stock of the Company at $0.10 USD per share or 30% discount to the 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 to the Noteholder. In the event that Company fails to make any payment of principal and/or interest within ten (10) calendar days of the due date for the same, then in addition to such payment due, the Company is obligated to pay a late payment charge to the Noteholder in the amount of five percent (5%) of the delinquent principal and/or interest payment. As of December 31, 2020, the Company owed $150,000 in principal and $4,093 in accrued interest on the note. As of December 31, 2020, the equivalent number of common shares the Company would be required to issue to satisfy the Note is 2,839,277.

 

 F-13 

 

Note 10 – 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 and Fourth 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 December 31, 2020 and 2019, the unamortized beneficial conversion feature associated with our convertible notes was $140,261 and $0, respectively.

 

Note 11 - Derivatives and Fair Value

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 year ended December 31, 2020, 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.

Accordingly, the Company recognized that a derivative liability in connection with such instruments for the year ended December 31, 2020 exists; however, the Company determined that there was no active market for the Company’s common stock and because of this lack of liquidity and market value, the Company did not record the derivative liabilities associated with the conversion features in its convertible notes.

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 December 31, 2017 and 2016, 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.

 F-14 

 

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.

 

 

Note

 

 

Issue Date

 

 

Maturity Date

 Term Remaining Derivative Value at Issuance (Level 3) Change in Derivative Value (Level 3) Derivative Value at 12/31/20 (Level 3)
Second Convertible Note 6/17/2020 6/17/2021  .46  $27,103  $798,063  $825,166 
Third Convertible Note 7/20/2020 7/20/2021  .55   82,563   268,358   350,921 
Totals:         $109,666  $1,066,421  $1,176,087 

 

Valuation of the default derivative 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 12/31/20
Default probability  5% to 30%   50%
Volatility  306.4% to 310.1%   357.8% to 363.3% 
Risk free rate  1.62%  0.08% to 0.09% 

 

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.

 

Note 12 – Income Taxes

 

The Company incurred no deferred tax expense during the years ended December 31, 2020 and 2019. The components of deferred tax assets and liabilities are:

 

  

December 31,

2020

 

December 31,

2019

     
Deferred income tax assets:        
Net operating loss carryforwards $558,782  $284,193 
Lease liability  12,503   —   
Stock-Based Compensation  969,680   189,618 
   1,540,965   473,811 
Less: valuation allowance  (1,527,314)  (473,529)
Total deferred income tax assets  13,651   282 
         
Deferred income tax liabilities:        
Right of use asset  (11,860)  —   
Depreciation and amortization  (1,791)  (282)
Total deferred income tax liabilities  (13,651)  (282)
         
Net deferred tax assets/(liabilities) $—    $—   

   

For the years ended December 31, 2020 and 2019, a reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows:

  December 31,
2020
 December 31,
2019
U.S. Federal Statutory Income Tax Rate $(1,059,641) $(355,383)
State income tax, net of federal benefit  (352,386)  (117,346)
Meals and entertainment  397   —   
Non-deductible interest  104,294   —   
Mark-to-market on derivative liability  232,887   —   
Debt discounts  21,170   —   
Other  294   —   
   (1,052,985)  (472,729)
Change in valuation allowance  1,053,785   473,529 
Income Tax Expense $800  $800 

 

 F-15 

 

As of December 31, 2020, the Company had federal and state net operating loss carryforwards of approximately $1,996,820 and $1,996,820, respectively. The Company’s federal net operating losses may be carried forward indefinitely, and its state net operating losses will begin to expire in 2039. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred through the period ended December 31, 2020. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation, management has determined to record a full valuation allowance on its deferred tax assets. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

 

The Company is subject to U.S. federal income tax as well as income tax in various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state agencies for the years ended December 31, 2015 through December 31, 2020.

 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was enacted March 27, 2020. Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses. The Company has evaluated the impact of both the Acts and has determined that any impact is not material to its financial statements.

 

Note 13 – Subsequent Events

 

The Company has evaluated subsequent events through April 7, 2021, 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.

 

On February 23, 2021, the Company issued 70,000 shares of common stock at $0.05 per share with a value of $3,500 were issued as a finder’s fee for potential debt issuances in the future.

 

On March 11, 2021, we entered into a Letter of Intent with ST Brands, Inc., a Wyoming corporation (“ST”). The LOI outlines the terms for a potential merger or share exchange agreement (the “Potential Acquisition”) under which we will acquire all of the issued and outstanding common stock of ST in exchange for our issuance, on a pro rata basis to the stockholders of ST, of new shares of our preferred stock having the right to convert to the cumulative equivalent of ninety percent (90%) of our issued and outstanding share capital. The LOI contemplates that our existing business and assets will remain and continue under the Company’s legal ownership following the closing of the Potential Acquisition.

 

During March 2021, the Company issued an aggregate of 3,725,345 shares of common stock in satisfaction of principal and interest on two convertible notes payable. The Company will record the issuances at the contract value, at the date of exchange, off-setting the notes payable and accrued interest.

 

The Potential Acquisition is subject to various conditions and contingencies, including the satisfactory completion of due diligence by both parties and ST’s ability to furnish audited consolidated financial statements. 

 

 

 

 

 

 

 F-16 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures

 

As of December 31, 2020, the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have 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 Financial 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

 

 ·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.

 

 ·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 December 31, 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 III.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person:

 

Name Age Position
Ray Grimm, Jr. 75 Chief Executive Officer, Chairman of the Board, and Director
Nish Mehta 54 Director
Greg Montoya 57 President
James Sinkes 36 Chief Accounting Officer

 

Ray Grimm, Jr.

Chief Executive Officer and Chairman of the Board

 

Ray Grimm, Jr. has served as Chief Executive Officer since 2018. Ray Grimm, Jr. has more than a quarter century experience building nutritional and weight loss companies in direct sales. Those companies include: Univite, Inc where Ray was CEO from 1987-1988, Body Wise International where he was Co-founder and President from 1989-1999, and Cal Nutrisciences (sold to Xyngular, Inc.) where he was Co-founder and CEO from 2009-2010. Cal Nutrisciences did $10 million in its first 10 months and as Xyngular did $70 million in its fifth year. Mr. Grimm was semi-retired from 2014 to 2018, but he acted as a consultant for various network marketing companies on a part time basis during this period.

 

Nish Mehta

Director

 

Nish Mehta is a financial professional. Nish has raised over $100m in venture backed capital for technology-based start-up companies. Nish’s past and current ventures include several high-profile VC backed companies including Nuvve Corp. (2010-2018), HomeSpace.com (1998-2001), Envestnet (2001-2004)(IPO, July 2010), Rayspan Corporation (2005-2008), Wildcat Discovery Technologies (2008-2010) and others. Nish has also provided services for several network marketing companies in San Diego. Nish is a Canadian Chartered Accountant as well as a CPA and has served 7.5 years with KPMG (1990-1997). Nish graduated from Acadia University (Hons) with a major in Accounting and Finance.

 17 

 

Greg Montoya President

 

Greg Montoya has served as New You LLC’s Company’s President since 2018. Prior thereto, he was involved in several direct marketing businesses in North America and abroad, including Alpine Industries (Presidential Master Manager 1995-2000, EcoQuest International (Presidential Master Manager 2000-2010), and Vollara LLC, (Presidential Ambassador 2010-2018). He co-founded two international direct marketing sales, consulting and training companies, Seventh Success, Inc. (President 1997-present), and Unovis, Inc. (President 2008-2010); co-founded Ageless Impact – A USA based health and wellness company specializing in anti-aging and energy drink products (President 2010 – present); and co-founded Tiny Treasure Home, Inc. – A tiny house on wheels manufacturing company (President 2015 - present).

  

James Sinkes,

Chief Accounting Officer

 

Mr. Sinkes has served as the Company’s Chief Accounting Officer since 2018. With over 10 years of accounting and finance experience, James has been the Controller for WCG Cares, a non-profit that works in the health and wellness sector in multiple countries all over the world, from 2016 through 2017. Prior to his work at WCG, Mr. Sinkes was a Senior accountant at Alliant Insurance for over five years, 2010 – 2015, where he managed the financials of the largest property and casualty program in the nation. Mr. Sinkes graduated from California State University San Bernardino.

 

Director Qualifications

 

We believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, age, and skills, including financial literacy and experience in the context of our needs and the needs of the Board.

  

Employment Agreements

 

We currently do not have any employment agreements with any of our directors or executive officers.

 

Family Relationships

 

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

·     Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

·     Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

·     Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; 

·     Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

·     Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

·     Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity, or organization that has disciplinary authority over its members or persons associated with a member.

 

Code of Ethics

 

We have not adopted a Code of Ethics, but we expect to adopt a Code of Ethics in fiscal 2018 and will post such code to our website.

 

Term of Office

 

Our directors are appointed to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our Bylaws. Our officers are appointed by the Board and hold office until removed by the Board, absent an employment agreement.

 

 18 

 

Conflicts of Interest

 

Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. The Board has not established an audit committee and does not have an audit committee financial expert, nor has the Board established a nominating committee. The Board is of the opinion that such committees are not necessary since we are in the earlier stages of operations. We have seven directors, and to date, such directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.

 

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

                  

For the Fiscal Year ended December 31, 2020 

 

 

                 
Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) 

Deferred

Compensation

Earnings ($)

 All Other Compensation ($) Total  ($) 
Ray Grimm, Jr. - Chief Executive Officer $200,000  $—    $—    $—    $—    $70,000    $—    $270,000 
Greg Montoya - President $---   —     ---     —     —     —     —    $-0- 
James Sinkes - Chief Accounting Officer $27,873   —     75,000     —     —     —     —    $102,873 
  $227,873  $—    $75,000    $—    $—    $70,000    $—    $372,873 
                                                

  

          

Non-Equity

Incentive Plan

Compensation ($)

 

Deferred

Compensation

Earnings ($)

     
For the Fiscal Year ended December 31, 2019                 
Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($)   All Other Compensation ($) Total  ($) 
Ray Grimm, Jr. - Chief Executive Officer $180,000  $—    $—    $—    $—    $52,500    $—    $232,500 
Greg Montoya - President  60,000   —     540,000   —     —     —     —    $600,000 
James Sinkes - Chief Accounting Officer $73,866   —         50,000   —     —     —     —    $123,866 
  $313,866  $—    $590,000  $—    $—    $52,500    $—    $956,366 
                                          

 

Retirement Benefits

We do not currently provide our named executive officers with supplemental or other retirement benefits.

 

 19 

 

Outstanding Equity Awards at December 31, 2020

 

   Option Awards   Stock Awards 

                               

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

(#)

(i)

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That Have

Not

Vested ($)

(j)

 
                                   
           

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)

(d)

           

Number

of

Shares

or Units

of Stock

That

Have

Not

Vested

(#)

(g)

   

Market

Value of

Shares

or Units

of Stock

That

Have

Not

Vested

($)

(h)

       
       

Number of

Securities

Underlying

Unexer-

cised

Options

(#)

Unexer-

cisable

(c)

                        
                               
   

Number of

Securities

Underlying

Unexer-

cised

Options (#)

Exercisable

(b)

                           
                              
                              
                              
            

Option

Exercise

Price ($)

(e)

   

Option

Expiration

Date

(f)

             
                            

Name

(a)

                           
                           
James Sinkes  —     —     —     —     —     50,000  $25,000   —     —   
Greg Montoya  —     —     —     —     —     ---  $---   —     —   
Nish Mehta  —     —     —     —     —     ---  $---   —     —   

 

 

Compensation of Directors

                                  
                                 
Name and Principal Position Year  Salary ($)   Bonus ($)   Stock Awards ($)   Option Awards ($)   None-Equity Incentive Plan Compensation ($)   Deferred Compensation Earnings ($)   All Other Compensation ($)   Total($) 
Ray Grimm, Jr.  - Chairman $—    $—    $—    $—    $—    $70,000    $—    $70,000   
Nish Mehta - Board Member  —     —     ---    —     —     200,000     —    $200,000 
  $—    $—    $---  $—    $—    $270,000    $—    $270,000 
                                    

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of December 31, 2020 by (1) each stockholder who is known by us to beneficially own more than 5% of our common stock, (2) each of our directors, (3) each of our executive officers named in the Summary Compensation Table above, and (4) all of our directors and executive officers as a group.

 

Title of className and address of beneficial owner(1)Amount of beneficial ownership  Percent of class 
Current Executive Officers & Directors: 
Common Stock

Ray Grimm, Jr.

P.O. Box 8501

Rancho Santa Fe, CA 92067

10,641,107  40.95%  
Common Stock

Greg Montoya

3246 Grey Hawk

Carlsbad, CA 92010

1,080,000  4.16%  
Common Stock

James Sinkes

4305 Saddlehorn Way

Oceanside, CA 92057

260,000  1.00%  
Common Stock

Nish Mehta

8152 Run of the Knolls

San Diego, CA 92127

2,864,691  11.02%  
Common Stock Total of All Current Directors and Officers:14,845,798      57.13%  
    
More than 5% Beneficial Owners   
Common Stock

Jared Berry

701 Palomar Airport Rd., Ste. 300

Carlsbad, CA 92010

11,141,107(2) 42.87% 
            

 

(1)       As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days after such date.

 

(2)  Consists of 6,778,210 shares held by Mr. Berry and 4,362,897 shares held in the name of Carlsbad Naturals, Inc.

 

There are no arrangements known to the Company, which may at a subsequent date result in a change-in-control.

 20 

 

 

Equity Compensation Plan Information

 

None

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

Except as described below, during the past two fiscal years, there have been no transactions, whether directly or indirectly, between us and any of our respective officers, directors, beneficial owners of more than 5% of our outstanding Common Stock or their family members, that exceeded the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years:

 

 1.During 2020 and 2019, a director, a founder, the President, and the CEO loaned or paid for various expenses of the Company. These loans contained no interest, term or due date. As of December 31, 2020, these loans had a balance of $220,503, $75,000, $10,000 and $218,156 for the director, a founder, the President, and CEO, respectively.

 

 2.The Company leases and pays for a certain business facility on behalf of Carlsbad Naturals, LLC, a related party in exchange for the Company using a lease that Carlsbad Naturals, LLC pays for on behalf of the Company, the “Related Party Lease.” As a result of this arrangement, the Company has recorded the lease and rental expense in the accompanying statement of operations. The Company’s rent expense for the year ended December 31, 2019 was $69,296, and $74,451 for the year ended December 31, 2020 and is included in general and administrative expense on the accompanying statement of operations. Carlsbad Naturals, LLC is a stockholder of the Company. Another stockholder of New You Inc., Jared Berry, has controlling interest in Carlsbad Naturals, LLC.

 

 4.On January 9, 2019, we acquired one hundred percent (100%) of the outstanding membership interests in our current operating subsidiary, New You LLC, under a Share Exchange Agreement. Pursuant to the Share Exchange Agreement, we issued 15,974,558 shares of common stock to the former members of New You LLC. The members of New You LLC included our current CEO, Ray Grimm, Jr., and certain other affiliates of the Company.
   
  5.

The Company purchases product from Carlsbad Naturals, LLC, which is owned by a stockholder of the Company. Drops, Drops For Pets, Energy FX, Sleep FX are manufactured by Carlsbad Naturals, LLC. The total amount of inventory purchased for the year ended December 31, 2020 was $183,929. 

 

Director Independence

 

We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The NASDAQ Stock Market, Inc., we do have any independent directors.

 

The Board currently does not have any separately designated standing committees.

  

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table sets forth the aggregate fees billed to us for the fiscal year ended December 31, 2020 by Marcum LLP:

 

  Year Ended
December 31,
2020
 Year Ended
December 31,
2019
Audit Fees $159,562  $152,440 
Audit-Related Fees  —     —   
Tax Fees  —     —   
All Other Fees  —     —   
Total $159,562  $152,440 

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements

 

The following consolidated financial statements of New You, Inc. are included in “Item 8. Financial Statements and Supplementary Data.”

 Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Statements

 

 21 

 

(a)(2) Financial Statement Schedules

None.

 

(a)(3) Exhibits

 

 3.1Articles of Incorporation, as Amended*
 3.2Amended and Restated Bylaws*
 10.1Subscription and Securities Purchase Agreement*
 10.2Share Exchange Agreement*
 10.3Lease*
 10.4New You Brand Partner Agreement*
 21.1List of Subsidiaries*
 31Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
 32Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
 101.INSXBRL Instance Document(1)
 101.SCHXBRL Taxonomy Extension Schema Document(1)
 101.CALXBRL Taxonomy Extension Calculation Linkbase Document(1)
 101.LABXBRL Taxonomy Extension Label Linkbase Document(1)
 101.PREXBRL Taxonomy Extension Presentation Linkbase Document(1)
 101.DEFXBRL Taxonomy Extension Definition Linkbase Definition(1)

 

(1) Filed Herewith

* Incorporated by reference to Registration Statement on Form S-1 filed November 7, 2019.

  

ITEM 16.FORM 10-K SUMMARY.

 

None.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
Date:  April 7, 2021 NEW YOU, INC.
  
By:
 


/S/ Ray Grimm, Jr.

Ray Grimm, Jr.

Principal Executive Officer

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints and each of them, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name Title Date

/S/ Ray Grimm, Jr.

Ray Grimm, Jr.

 Principal Executive Officer and Chairman April 7, 2021

/S/ James Sinkes

James Sinkes

 Principal Financial Officer April 7, 2021

/S/ Nish Mehta

Nish Mehta

 Director April 7, 2021
     

 

 

 

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