The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 1 – Organization and Summary of Significant Accounting
Policies
Nature
of Business
New
You, Inc., formerly known as The Radiant Creations Group, Inc. (the “Company”) was incorporated in Nevada on December
29, 2005. From inception, the Company's principal business activity was the acquisition and exploration of mineral resources. On
June 20, 2013, following a change of control and subsequent acquisition of an exclusive license agreement, the Company changed
its principal business to the development and marketing of cosmetics and over-the-counter personal enhancement products and devices.
After a change in control on July 11, 2018, the Company changed its principal business to selling cannabidiol (“CBD”)
hemp oil-based products through independent business owners (called “Brand Partners”).
The
Company, through its wholly owned subsidiary New You LLC, markets and sells its products through a multi-level marketing sales
opportunity.
Basis
of Presentation
The unaudited condensed consolidated
financial statements include the operations of New You, Inc. and its wholly-owned subsidiary, New You LLC. These unaudited condensed
consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) for interim financial information and with Article 10 of Securities and Exchange Commission (SEC)
Regulation S-X for Interim Reporting. All intercompany transactions, accounts and profits, if any, have been eliminated in the
unaudited condensed consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair
statement have been included.
These unaudited condensed consolidated
financial statements do not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial
statements should be read in conjunction with the more detailed audited financial statements of New You, Inc. for the year ended
December 31, 2019, which are included in the Company’s Annual Report on Form 10-K.
The results for the three months ended
March 31, 2020 and 2019 are not necessarily indicative of results to be expected for a full year, any other interim periods, or
any future year or period.
Use of Estimates
The preparation of financial statements
in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. The Company’s significant estimates include estimates for future charge-backs and allowance for slow moving or
obsolete inventory.
Cash
and Cash Equivalents
The Company
considers all highly liquid investments with an original term of three months or less to be cash equivalents. As of March 31, 2020,
the Company had no cash equivalents.
Credit
Card Receivables
Credit
card receivable consists of only the amount due from the credit card processing companies. There is no need for an allowance for
doubtful accounts, since the system and processor makes sure that the transaction is successful prior to the sale being finalized.
Accordingly, no allowance was recorded as of March 31, 2020.
Inventory
Inventory
consists of finished goods and is valued at the lower of cost or net realizable value. Cost is determined using the first in first
out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory
levels and future sales forecasts.
Prepaid
Expenses
Prepaid
expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These
prepaid expenses primarily consist of deposits on inventory yet to be delivered or shipped.
Property
and Equipment
Property
and equipment are stated at cost, net of depreciation provided by use of a straight-line method over the estimated useful lives
of the assets, which is five years. The Company reviews property and equipment for potential impairment whenever events or changes
in circumstances indicate that the carrying amounts of assets may not be recoverable.
Impairment
of Long-Lived Assets
We evaluate
the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or disposal
of long-lived assets. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. Such impairment is recognized in the event the net book value of such assets
exceeds their fair value. No impairment of long-lived assets occurred in the periods presented.
Revenue Recognition
Revenue
is recognized in accordance with ASC 606, Contracts with Customers, by analyzing exchanges with the Company’s customers and
Brand Partners using a five-step analysis that includes identifying performance obligations in the contract, estimating the amount
of variable consideration to include in the transaction price and allocating the transaction price to each separate performance
obligation.
The Company
recognizes revenue when the customer receives the promised good and all performance obligations are met. Revenue is recognized
at an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services.
The Company
records sales of finished products once the customer or Brand Partner places and pays for the order and the product is shipped.
Delivery is considered to have occurred when title and risk of loss have transferred to the customer, which is upon shipment of
the product. The Company treats shipping expenses as costs to fulfill a contract, so that revenue is recognized gross of shipping
expenses. The Company recognizes revenue net of sales taxes.
The Company
and its Brand Partners agree to provide customers with a 100% satisfaction guaranteed policy that allows the customer sixty days
from the sales transaction to return the product and receive a 100% refund, and one year for a Brand Partner to get a 90% refund,
as long as the product remains in saleable condition and the Brand Partner or the Company have not cancelled the Brand Partner
agreement. The Company records an estimate for provisions of returns and other adjustments for each shipment, which is netted with
gross sales. The Company accounts for such provisions during the same period in which the related revenues are earned. The Company
has determined that the population of contracts with the Company’s customers and Brand Partners tends to be homogenous, so
that review of the contracts and estimate of various revenue related adjustments can be applied to the entire population. The Company
had customer returns of approximately $24,000 for the three months ended March 31, 2020 and approximately $21,000 for the three
months ended March 31, 2019. The Company has not recorded a reserve for returns at March 31, 2020 or December 31, 2019 since it
does not believe such returns will be material.
As of March
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 expenses incurred in order to fulfill orders of our products. Such costs are recorded
as incurred. Our cost of revenue consists primarily of the cost of product, and the cost of product samples.
Commission Expense and Contract
Acquisition Costs
The Company markets and sells its
products through a direct sales opportunity afforded to Brand Partners through a multi-level marketing sales platform. Commissions
are earned on product sales to Brand Partners and customers at a rate of 10% for every transaction plus a specified spread on recurring
sales. Brand Partners earn a 5% commission on sales by other team members at lower levels up to nine levels below the Brand Partner.
Brand Partners can earn an additional bonus for customer sales and team sales. The team bonus is $400 for each time their team
bonus volume reaches a certain amount in a 30 day period. Brand Partners can also earn an initial bonus for qualifying customer
purchases in the Brand Partners’ first 30 days of 20% of the transaction value.
The Company expenses commissions
in accordance with ASC 606, Contracts with Customers. Commissions are accrued upon shipment of the product to either the Brand
Partner or the customer.
Advertising Expenses
The Company expenses advertising
costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses totaled
$5,899 for the three months ending March 31, 2020 and $6,623 for the three months ended March 31, 2019.
Operating Lease
A lease
provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Right
of use (ROU) assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities
represent the Company's obligation to make lease payments arising from the lease. The Company determines if an arrangement is a
lease at inception. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing
market conditions. The lease term used to calculate the ROU asset includes renewal periods or periods subject to termination when
it is reasonably certain that the Company will lease the assets in such periods.
The discount
rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when
that is not readily determinable, the estimated incremental secured borrowing rate. ROU assets include any lease payments required
to be made prior to commencement and exclude lease incentives. Both ROU assets and lease liabilities exclude variable payments
not based on an index or rate, which are treated as period costs. The Company's lease agreements do not contain significant residual
value guarantees, restrictions or covenants.
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 three months ended March
31, 2020 and 2019 was $764,916 and $0.
Basic
and Diluted Net Loss and Income Per Share
Basic
net loss or income per share is calculated by dividing the net loss or income attributable to common stockholders by the weighted-average
number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss or income
per share is computed by dividing the net loss or income attributable to common stockholders by the weighted-average number of
common share equivalents outstanding for the period determined using the treasury-stock method.
The following
table presents the computation of basic and diluted net loss or income per common share:
|
|
3/31/2020
|
|
3/31/2019
|
Historical net (loss) income per share
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(964,736
|
)
|
|
|
22,313
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
33,175,738
|
|
|
|
22,960,858
|
|
Less: Weighted-average restricted shares
|
|
|
(5,366,538
|
)
|
|
|
—
|
|
Denominator for basic and diluted net (loss) income per share
|
|
|
27,809,200
|
|
|
|
22,960,858
|
|
Basic and diluted net (loss) income per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.00
|
|
Potentially
dilutive securities that are not included in the calculation of diluted net loss or income per share because their effect is anti-dilutive
are as follows (in common equivalent shares):
|
|
3/31/2020
|
|
3/31/2019
|
|
Restricted shares
|
|
|
|
5,366,538
|
|
|
|
—
|
|
Note
2 – Going Concern
We
incurred a net loss for the three months ended March 31, 2020 and
had an accumulated deficit of $3,085,040 at March 31, 2020 of which $1,442,000 was
related to non-cash stock based compensation. At March 31, 2020, we had a cash balance
of approximately $1,125, compared to a cash balance of $1,125 at December 31, 2019. At March 31, 2020,
we had a working capital deficit of $1,238,392, compared to a working capital deficit of $1,055,049 at December 31, 2019.
We
have not been able to generate sufficient cash from operating activities to fund our ongoing operations. We will be required to
raise additional funds through public or private financing, additional collaborative relationships or other arrangements until
we are able to raise revenues to a point of positive cash flow. We are evaluating various options to further reduce our cash requirements
to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock.
There is no guarantee that we will be able to generate enough revenue and/or raise capital to support operations.
Based
on the above factors, substantial doubt exists about our ability to continue as a going concern for one year from the issuance
of these financial statements.
Note
3 – Concentrations of Business and Credit Risk
The
Company at times maintains balances in various operating accounts in excess of federally insured limits.
The Company
monitors its positions with, and the credit quality of, the financial institutions with which it invests.
Substantially
all of the Company’s revenues are to unique customers or Brand Partners. Since the Company sells its products to a
large number of customers, there is no revenue concentration from customers. However, the Company uses merchant processors to
charge customer credit cards and does contain concentration risk between credit card processors. As of March 31, 2020, one
credit card processor accounted for 100% of Credit Card Receivables. We have added one other processor and will begin
processing through both processors as sales grow. We are in the process of adding more processors when they become
available.
The Company
also made purchases from and has accounts payable to Carlsbad Naturals, LLC as described in Note 6.
Note
4 – Equity
March
31, 2020 Restricted Stock Grants
During
the three months ended March 31, 2020, the Company issued 458,000 common shares for several consultants for services that will
be provided in the future and will vest over the course of twelve months. The Company estimated 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 from August 2019 to
March 2020 when the equity instruments were granted. There were no grants of restricted stock to employees or consultants during
the first quarter of 2019.
The table
below summarizes the activity of the restricted stock during the three months ended March 31, 2020:
|
Nonvested as of January 1, 2020
|
|
|
|
5,151,000
|
|
|
|
0.5
|
|
|
Granted
|
|
|
|
458,000
|
|
|
|
0.5
|
|
|
Vested
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Nonvested as of March 31, 2020
|
|
|
|
5,609,000
|
|
|
|
0.5
|
|
For the
three months ended March 31, 2020 the compensation costs that has been charged to Stock Compensation Expense is $764,916. No portion
of the total compensation cost was capitalized. The unrecognized compensation costs as of the three months ended March 31, 2020
is $1,355,000, which the weighted average remaining period over which the $1,355,000 will be amortized is 7.2 months as of 3/31/2020.
The company recognizes the cost of these stocks using the straight line method and forfeitures are recognized as they occur.
Note
5 – Debt
During
the three months ended March 31, 2020, the Company received loan proceeds of $125,000 pursuant to a promissory 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
valued at $25,000, and allowed the noteholder to convert the note into common shares at a conversion price of $0.50 per share.
During
the three months ended March 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. The amount
of shares is doubled to 200,000 if the stock price falls below $1.00. 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, there will be no change in control without paying off the loan.
Note
6 – Commitments and Contingencies
Operating
Lease Commitments
The Company
leases a warehouse facility under a lease agreement that expires July 31, 2021. The Company does not have any significant capital
leases.
The components
of total lease cost were as follows:
Operating Lease Cost
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Operating lease cost
|
|
|
18,613
|
|
|
|
18,613
|
|
Total lease cost
|
|
$
|
18,613
|
|
|
$
|
18,613
|
|
Cash paid for amounts included in operating
lease liabilities was $19,098 and $18,582 for the three months ended March 31, 2020 and March 31, 2019 respectively.
The table below presents total operating lease ROU assets and lease liabilities as of March 31, 2020:
Right of Use Assets and Liability
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
Operating lease ROU assets
|
|
$
|
94,265
|
|
Operating lease liabilities
|
|
|
98,905
|
|
The table below presents the maturities of operating
lease liabilities as of March 31, 2020
For the Twelve Months Ended March 31,
|
|
Amounts
|
|
2021
|
|
|
$
|
77,808
|
|
|
2022
|
|
|
|
26,101
|
|
|
2023
|
|
|
|
—
|
|
|
2024
|
|
|
|
—
|
|
|
2025
|
|
|
|
—
|
|
|
Thereafter
|
|
|
|
—
|
|
|
Total Lease Payments
|
|
|
|
103,909
|
|
|
Less:Portion representing interest
|
|
|
|
(5,004
|
)
|
|
Total Operating Lease Payments
|
|
|
$
|
98,905
|
|
The table below presents the
weighted average remaining lease term for operating leases and weighted average discount rate used in calculating operating lease
right-of-use assets:
Weighted Average
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
Weighted average remaining lease term (years)
|
|
|
1.33
|
Weighted average discount rate
|
|
|
7%
|
Litigation
and Claims
The
Company may be involved in lawsuits and claims arising in the ordinary course of business from time to time. The Company reviews
any such legal proceedings and claims on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure
decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably
estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if
such disclosure is necessary for the Company’s financial statements not to be misleading. To estimate whether a loss contingency
should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the
likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present
information, the Company determined that there were no matters that required an accrual as of March 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 three months ended March 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 March 31, 2020, these loans had a combined
balance of $529,647 for the CEO, the President, and two other board members. Total additions to these loans during the three months
ended March 31, 2020 were $76,500, including cash loan proceeds of $9,000 and deferred compensation of $67,500 transferred from
accounts payable to related parties to related party debt. Total cash repayments for the three months ended March 31, 2020 were
$44,000. As of December 31, 2019, these loans had a combined balance of $497,147 for the CEO and two other board members. Total
additions to these loans during the three months ended March 31, 2019 were $149,697, including cash loan proceeds of $77,000 and
deferred compensation of $72,679 transferred from accounts payable to related parties to related party debt. The Company also offset
$100,000 of related party debt against receivables during the three months ended March 31, 2019.
As
of March 31, 2020 and December 31, 2019, we also owed $66,325 and $78,105 to Carlsbad Naturals, LLC (included in accounts payable
to related parties), which is a principal shareholder of New You, Inc. and is owned by a principal shareholder of New You, Inc.,
for inventory purchases. During the three months ended March 31, 2020 and three months ended March 31, 2019 we made purchases of
$19,975 and $80,473 from Carlsbad Naturals, LLC. As of March 31, 2020 and December 31, 2019, we owed $27,500 and $22,500 for consulting
payments to a relative of the CEO.
During
the three months ended March 31, 2020, the Company received a loan from a board member’s family member in the amount of $100,000.
A total of $10,000 was paid in interest for the loan during the three months ended March 31, 2020.
The
Company leases and pays for a warehouse facility where it shares space with Carlsbad Naturals, LLC. In exchange, Carlsbad Naturals,
LLC leases and pays for an office facility where it shares space with the Company. As a result of this arrangement, the Company
has recorded rent expense in the accompanying statements of operations for the lease that it is responsible for paying.
During
2018 and the first five months of 2019, all credit card receivable payments were processed through the bank account of one of the
founding members due to the frequent bank account changes that were occurring with the Company’s accounts. All funds received
into the founder’s bank account was transferred directly to the Company’s account on a weekly basis and have been accounted
for. As of May 31, 2019, all credit card receivables are deposited by the credit card processor directly into the Company’s
bank account.
Note
8 – Subsequent Events
The
Company has evaluated subsequent events through June 22, 2020, which is the date the financial statements were issued. The Company
has determined that there were no subsequent events which required recognition or disclosure in the financial statements, except
as disclosed below.
Subsequent to March 31, 2020, the Company issued 4,786,690
common shares for services to be performed in the future.