As filed with the Securities and Exchange Commission on July 24, 2020

 

Registration No. 333- __________

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1


REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

NEW YOU, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 5069 26-3062661
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)

 

3246 Grey Hawk Court

Carlsbad, California 92010

(866) 611-4694 

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

VCorp Services, LLC

702 S. Carson St., Ste. 200

Carson City, NV 89701

(888) 528-2677

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

Joe Laxague, Esq. Laxague Law, Inc.

1 East Liberty, Suite 600

Reno, NV 89501

(775) 234-5221

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this Registration Statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]

 

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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

Pursuant to Rule 429(a) under the Securities Act, the prospectus (“Prospectus”) included in this Registration Statement on Form S-1 (this “Registration Statement”) is a combined prospectus and also relates to an aggregate of 5,823,576 shares registered and remaining unsold (the “Previously Registered Shares”) under the registrant’s registration statements on Form S-1 (No. 333-234577), as amended (the “Prior Registration Statement”), which became effective on February 25, 2020 pursuant to Section 8(a) of the Securities Act. Pursuant to Rule 429(b), this Registration Statement, upon effectiveness, also constitutes a post-effective amendment to the Prior Registration Statement, which post-effective amendment shall hereafter become effective concurrently with the effectiveness of this Registration Statement and in accordance with Section 8(c) of the Securities Act. 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered Number of shares to be Registered Proposed Offering Price
Per Share(1)
Proposed Maximum Aggregate Offering Price Amount of Registration Fee
Common stock, $0.00001 par value per share 3,381,085 (2) $0.35 $1,183,379.75 $153.61

 

(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the “Securities Act”), based on the average of the bid and asked price as of a specified date within 5 business days prior to the date of the filing of this Registration Statement.

(2) Represents shares of common stock held by certain selling stockholders and issued by the registrant in private placements and otherwise as described herein. Pursuant to Rule 416(a) under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.


PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED: July 24, 2020

 

 

New You, Inc.

3,381,085 Shares of Common Stock

 

This prospectus relates to the resale, from time to time, by the selling stockholders identified in this prospectus under the caption “Selling Stockholders,” of up to 3,381,085 shares of the common stock of New You, Inc., a Nevada corporation. Our registration of the shares of common stock covered by this prospectus does not mean that the selling stockholders will offer or sell any of such shares of common stock. We are not selling any shares under this prospectus and will not receive any proceeds from any sale or disposition by the selling stockholders of the shares covered by this prospectus. In addition, we will pay all fees and expenses incident to the registration of the resale of shares under this prospectus. The selling stockholders may offer their shares from time to time directly or through one or more underwriters, broker-dealers or agents, in the over-the-counter market at market prices prevailing at the time of sale, or in one or more privately negotiated transactions at prices acceptable to the selling stockholders. The selling stockholders will bear all commissions and discounts, if any, attributable to their sales of our common stock. For additional information on the possible methods of sale that may be used by the selling stockholders, you should refer to the section of this prospectus entitled “Plan of Distribution”. This prospectus covers any additional shares of common stock that may become issuable by reason of stock splits, stock dividends, and other events described therein. Unless otherwise noted, the terms “the Company,” “our Company,” “we,” “us” and “our” refer to New You, Inc. and its subsidiary.

 

Our common stock is quoted on the OTCQB tier of the electronic over-the-counter marketplace operated by OTC Markets Group, Inc. under the trading symbol “NWYU.” On July 20 2020, the last reported sales price for our common stock was $0.35 per share.


Investment in our common stock involves risk. See “Risk Factors” contained in this prospectus. You should carefully read this prospectus, together with the documents we incorporate by reference, before you invest in our common stock.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or the accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is July 24, 2020

 

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TABLE OF CONTENTS

 
  Page  
PART I - INFORMATION REQUIRED IN PROSPECTUS  
Prospectus Summary
Summary Financial Data 8
Risk Factors 9
Risks Related to Our Business and Industry
Risks Related to An Investment in Our Securities 15
Selling Stockholders 17
Use of Proceeds 19
Market for Common Equity and Related Stockholder Matters 19
Quantitative and Qualitative Disclosures About Market Risk 20
Cautionary Note Regarding Forward-Looking Statements 20
Description of Business 20
Description of Properties 23
Legal Proceedings 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Directors and Executive Officers 28
Executive Compensation 30
Security Ownership Of Certain Beneficial Owners And Management 31
Certain Relationships And Related Party Transactions And Director Independence 31
Description of Securities to be Registered 31 
Plan of Distribution 33 
Shares Eligible for Future Sale

34

Legal Matters 35
Experts 35
Disclosure Of SEC Position Of Indemnification For Securities Act Liabilities 35
Where You Can Find More Information 35 
Financial Statements 36 
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS  
Other Expenses of Issuance and Distribution II-1
Indemnification of Directors and Officers II-1
Recent Sales of Unregistered Securities II-2
Exhibit Index II-3
Undertakings II-4
Signatures II-5

 

 

Youshould rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with information that is different from that contained in this Prospectus. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The information in this Prospectus is complete and accurate only as of the date on the front cover regardless of the time of delivery of this Prospectus or of any sale of our securities.

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this Prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire Prospectus, including our financial statements and the documents to which we refer you. The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Registration Statement of which this Prospectus is a part.

Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” or the “Registrant” refer to New You, Inc., a Nevada corporation, and its wholly-owned subsidiary, New You LLC, see merger information below.

 

Business Overview

  

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 7 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 –

 

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

 

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

 

o RELEASE - Made with organic Clove, Cascara Sagrada, Agave Inulin, Rhubarb Root Extract, Slippery Elm Bark, Aloe Vera and other herbs.

 

· Drops FX –Our proprietary blend of CBD and Vitamins B3, B6, B9 & B12, that you can use in any drink or liquid.

 

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

 

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

 

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

 

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 owned by one of the shareholders 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 38.10% of the outstanding common shares. Accordingly, management will have a determinative influence on matters requiring shareholder approval.

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We conduct our principal operations through one operating subsidiary, New You LLC, a Wyoming limited liability company. Our net losses for 2019 and the three months ended March 31, 2020 were $1,692,298 and $964,736, respectively. The Company will need to raise between $250,000 and $500,000 in 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.

 

Change In Control and Transition to the New You LLC Business

 

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.” Prior to our transition to the New You, LLC business, 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 shareholder, 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 conduct our current operations through our wholly-owned subsidiary, New You LLC. New You LLC was formed with three founding members – Ray Grimm, Jr., Nish Mehta, and Jared Berry – and began its operations on August 1, 2018. From its inception, New You, LLC has focused on the marketing and distribution of CBD-related products through its network marketing program. Following its acquisition by the Company on January 9, 2019, New You, LLC has continued its operations without interruption as a wholly-owned subsidiary of the Company.

 

On January 9, 2019, The Radiant Creations Group, 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, The Radiant Creations Group, 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 consolidated company. The transaction was accounted for as a reverse recapitalization because The Radiant Creations Group, 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 The Radiant Creations Group, 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. Following the New You LLC acquisition, the Company has focused exclusively on developing and expanding New You LLC’s multi-level marketing and direct sales operation for CBD products.

 

On March 8, 2019, pursuant to stockholder consent, we changed our name to New You, Inc. and approved a reverse split of our common stock on a 1 for 50 basis. Except where otherwise indicated, all share and per share amounts in this filing have been retrospectively adjusted to reflect this reverse split.

 

Corporate Information

 

Our principal executive offices are located at 3246 Grey Hawk Court, Carlsbad, California 92010. Our telephone number is (866) 611-4694. We maintain a corporate website at www.newyounow.com.

 

Transfer Agent

 

The transfer agent for our Common Stock is Action Stock Transfer at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, Utah 84121. The transfer agent’s telephone number is (801) 274-1088. 

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Summary of the Offering

 

Securities offered by the Selling Stockholders

Up to 3,381,085 shares of common stock previously issued in exempt private offerings

 

Use of Proceeds

All proceeds from the sale of the shares of common stock under this prospectus will be for the account of the selling stockholders. We will not receive any proceeds from the sale of our shares of common stock offered pursuant to this prospectus.

 

Common Stock Outstanding

38,324,890 shares of common stock are currently issued and outstanding. No new shares of common stock are being offering under this prospectus.

 

Risk Factors

An investment in our common stock involves a high degree of risk and could result in a loss of your entire investment. Prior to making an investment decision, you should carefully consider all of the information in this Prospectus and, in particular, you should evaluate the risk factors set forth under the caption “Risk Factors” beginning on page 9.

 

OTC Markets Trading Symbol NWYU

 

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SUMMARY FINANCIAL DATA

 

The following tables summarize our financial data for the periods indicated. We derived our summary statements of operations data for the years ended December 31, 2019 and 2018 and our balance sheet data as of December 31, 2019 and 2018 from our audited financial statements included elsewhere in this prospectus. The statement of operations data for the three months ended March 31, 2020 and the balance sheet data as of March 31, 2020 are derived from our unaudited financial statements that are included elsewhere in this prospectus. In the opinion of management, the unaudited financial statements have been prepared on the same basis as our audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information set forth therein. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. Our historical results are not necessarily indicative of the results that may be expected in any future period.

 

The summary financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

    Consolidated        
    Three Months Ended   Year Ended   Year Ended
    March 31, 2020   December 31,   December 31,
Statements of Operations Data:   (Unaudited)   2019   2018
Total revenues   $ 531,522     $ 2,832,426     $ 898,153  
Cost of goods sold   $ 81,842     $ 454,670     $ 197,415  
Net income (loss)   $ (964,736 )   $ (1,692,298 )   $ (428,006 )
Net loss per share attributable to common stockholders, basic and diluted   $ (0.03 )   $ (0.06 )   $ (0.05 )
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted     27,809,200       26,343,136       8,218,053  
Balance Sheet Data:     March 31, 2020 (unaudited)      

December 31,

2019

     

December 31,

2018

 
Cash   $ 1,125     $ 1,125     $ 27,310  
Current assets   $ 109,671     $ 177,620     $ 141,672  
Long-Term Assets   $ 118,396     $ 122,105       31,587  
Total assets   $ 228,067     $ 299,725     $ 173,259  
Current liabilities   $ 1,348,063     $ 1,232,669     $ 474,265  
Long-Term Liabilities   $ 25,794       38,025       0  
Stockholders’ equity (deficit)   $ (1,145,790 )   $ (970,969 )   $ (301,006 )
Total liabilities and stockholders’ deficit   $ 228,067     $ 299,725     $ 173,259  
                         

 

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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

 

The novel coronavirus (COVID-19) has negatively affected our ability to timely prepare and maintain accurate accounting and reporting, and may have a severe adverse impact on our business.

 

We believe COVID-19 has negatively affected our ability to timely prepare and maintain accurate accounting and reporting, and could continue to do so in the foreseeable future. The Company is based in Escondido, California. The novel coronavirus known as COVID-19 (the “Coronavirus”) has caused the Governor of the State of California to issue a “Stay at Home” order requiring, in short, all nonessential business to close and for individuals to stay in their homes but for certain, necessary activities. This order affects the Company, as well as its clients, suppliers, and employees, and may adversely affect the Company’s business or the Company’s ability to operate. Further government intervention or regulation may significantly impact the Company’s ability to operate. Investors and potential investors should consider the current governmental regulations, as well as the possibility of additional intervention, in owning or purchasing the Company’s stock.

 

The impact, extent and duration of the government-imposed restrictions on travel and public gatherings as well as the overall effect of the COVID-19 virus is currently unknown.

 

Any significant disruption to communications and travel, including travel restrictions and other potential protective quarantine measures against COVID-19 by governmental agencies, may make it more difficult and could make it impossible for us to deliver goods to our customers. Travel restrictions and protective measures against COVID-19 could cause us to incur additional unexpected labor costs and expenses or could restrain our ability to retain the highly skilled personnel we need for our operations. The extent to which COVID-19 impacts our business, sales and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

 

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 three months ended March 31, 2020, we incurred a net loss of $964,736 and, as of that date, we had an accumulated deficit of $3,085,040. 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.

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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.

 

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.

 

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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.

 

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.

 

  11  

 

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 CDB 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.

 

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.

 

  12  

 

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 38.10% 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.

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. We do not believe that this weakness had any impact on the financial statements. The Company plans on hiring a sufficient accounting staff to remediate this weakness, along with formalized procedures to review financial statements by management and the board of directors on a periodic basis.

 

· 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. We do not believe that this weakness had any impact on the financial statements. The Company has planned increased use of consultants to assist in putting formal processes in place to help identify and assess financial reporting risks along with formalizing procedures to review financial statements by management and the board of directors on a periodic basis.
  13  

 

· Due to limited accounting and financial reporting resources, the Company has not implemented significant monitoring controls. We do not believe that this weakness had any impact on the financial statements. Review and oversight procedures are currently being documented by management and will be fully implemented going forward. These procedures include management signoff of financial reports, bank balances and transactions, as well as access controls over bank software, accounting software, and sales software.

 

· 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. We do not believe that this weakness had any impact on the Company’s financial statements. The Company plans to have formal review and approval process documented and implemented immediately. Such processes include review and approval of all financial transactions that are not in the normal course of business by management and board of directors. Further, normal day to day transactions such as sales reports, check ledgers, commission expense will be reviewed and approved by management on a regular basis effective immediately. Further, transactions that are spotted outside the normal business activity will have dual management approval. Finally, we will implement access controls over bank software, accounting software, and sales software.

  

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 subject 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.

 

 

  14  

 

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.

 

A significant expense is the payment of compensation to our distributors, which represented approximately 49%, and 33% of net sales during 2018 and 2019, respectively.  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.

  15  

 

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.

 

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.

 

  16  

 

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 July 9, 2020, we had 38,324,890 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.

 

SELLING STOCKHOLDERS

 

The table below presents information regarding the Selling Stockholders and the shares of Common Stock that they may offer from time to time under this Prospectus. This table is prepared based on information supplied to us by the Selling Stockholders and reflects holdings as of July 9, 2020. As used in this Prospectus, the term “Selling Stockholders” includes the named stockholders, and any donees, pledgees, transferees, or other successors-in-interest selling shares received after the date of this Prospectus from the Selling Stockholders as a gift, pledge, or other non-sale related transfer. The number of shares in the column “Maximum Number of Shares of Common Stock to be Offered Pursuant to this Prospectus” represents all of the shares of Common Stock that the Selling Stockholders may offer under this Prospectus. The Selling Stockholders may sell some, all, or none of their shares offered by this Prospectus. We do not know how long the Selling Stockholders will hold the shares before selling them, and we currently have no agreements, arrangements, or understandings with the Selling Stockholders regarding the sale of any of the shares.

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act and includes shares of Common Stock with respect to which the Selling Stockholders have voting and investment power. The percentage of shares of Common Stock beneficially owned by the Selling Stockholders prior to the Offering shown in the table below is based on an aggregate of 38,324,890 shares of our Common Stock outstanding on July 9, 2020.

  17  

 

 

Name of Selling Shareholder Shares Owned Prior to this Offering Total Number of Shares to be Offered for Selling Shareholder Account Total Shares to be Owned Upon Completion of this Offering Percent Owned Upon Completion of this Offering
Robert Aitcheson 5,000               5,000 0 0.00%
Tim Anders 100,000             10,000 90,000 0.23%
Pualani Armstrong 50,000             50,000 0 0.00%
Jim Ayres 50,000             50,000 0 0.00%
Erika Bankowski 1,000               1,000 0 0.00%
Michael J Beck 1,001               1,001 0 0.00%
Robert Brian Beeson 20,000             20,000 0 0.00%
Jon Bender 540,000           135,000 405,000 1.06%
Jack Bevan 6,506               6,506 0 0.00%
Patricia A Bevan 2,003               2,003 0 0.00%
Leslie Blackwell 400                  400 0 0.00%
Blythe Global 512,000           256,000 256,000 0.67%
Paul Bontemo 20,000             20,000 0 0.00%
Tammy Boonstra 270,000             45,000 225,000 0.59%
James N Brinstow 3,003               3,003 0 0.00%
Gregory R Broome 3,003               3,003 0 0.00%
Mattew S Brown 5,400               5,400 0 0.00%
Tacy M Byrd 6,000               6,000 0 0.00%
Tracy Byrd 75,000             75,000 0 0.00%
Tracy Lanae Byrd 25,000             25,000 0 0.00%
Joe Caracciolo 20,000             20,000 0 0.00%
Gregory P Carson 5,066               5,066 0 0.00%
Wayne L Carson 620                  620 0 0.00%
Lisa Fontaine Carson 5,066               5,066 0 0.00%
Ceba LP 601                  601 0 0.00%
Mary Beth Crosbie 801                  801 0 0.00%
Kelly J Davis 10,000             10,000 0 0.00%
David Delano 20,000             20,000 0 0.00%
David Dennert 10,000             10,000 0 0.00%
Arman Dischavi 100,000           100,000 0 0.00%
Ken Dockery 25,000             25,000 0 0.00%
Brian Ellworth 50,000             50,000 0 0.00%
Carolina Esquivel 25,000             25,000 0 0.00%
Thomas Joseph Farkas 125,000           125,000 0 0.00%
Michael Anthony Felice 6,006               6,006 0 0.00%
Marjorie Lynn Ferrell 20,000             20,000 0 0.00%
Josie Gallegos 1,000               1,000 0 0.00%
Max Gallegos 2,000               2,000 0 0.00%
Brittany Gallegos 1,000               1,000 0 0.00%
Colton Gallegos 3,000               3,000 0 0.00%
James E Gilliland 3,000               3,000 0 0.00%
Thomas Gioseffi 2,002               2,002 0 0.00%
Frank Grace 40,000             40,000 0 0.00%
Michael Granstaff 50,000             50,000 0 0.00%
Greentech Consulting Group Inc. 20,800             20,800 0 0.00%
Danica Grimm 405,000           135,000 270,000 0.70%

D Hansen & S Hansen TTEES

The Doug Hansen Family Trust U/A dated 3/23/2004

235,000           175,000 60,000 0.16%
Sharyn Jones 54,000             54,000 0 0.00%
Michael Keister 8,000               8,000 0 0.00%
  18  

 

 

David Levy 50,000             50,000 0 0.00%
Lifestyle Investment Trusts LLC 22,000             22,000 0 0.00%
Paul Linville 30,000             30,000 0 0.00%
Jim Lutes 540,000           135,000 405,000 1.06%
Mehul Mehta 1,100,000           250,000 850,000 2.22%
Gary Merritt 540,000           135,000 405,000 1.06%
Guy Metzker 50,000             50,000 0 0.00%
Hannah Montoya 2,000               2,000 0 0.00%
Greg Montoya 1,080,000           360,000 720,000 1.89%
Cynthia Mostyn 2,000               2,000 0 0.00%
Ronald Nedry 8,007               8,007 0 0.00%
Ron Partridge 20,000             20,000 0 0.00%
Thomas Pritchard 50,000             50,000 0 0.00%
Matthew Allen Pyle 4,000               4,000 0 0.00%
Keola Ragudo 2,000               2,000 0 0.00%
Debbie Ratliff 25,000             25,000 0 0.00%
Robert Royden 50,000             50,000 0 0.00%
Dena Royer 65,000             65,000 0 0.00%
RTBDWIS TRUST 2,000               2,000 0 0.00%
Geri Sibilla 418,548           200,000 218,548 0.66%
James Sinkes 260,000           125,000 135,000 0.35%
Christopher Steensma 8,000               8,000 0 0.00%
Pamela K Stonebreaker 40,000             40,000 0 0.00%
Huyanh Tran 4,000               4,000 0 0.00%
Normand Turgeon 2,000               2,000 0 0.00%
Arturo Valdivia 10,000             10,000 0 0.00%
Ali Vertefeuille 2,000               2,000 0 0.00%
Louis Volpe 25,000             25,000 0 0.00%
Frederick Paul Walker 20,000             20,000 0 0.00%
Shar Weinrauch 25,000             25,000 0 0.00%
Annette Zalinski 800                  800 0 0.00%
John Zihla 20,000             20,000 0 0.00%

USE OF PROCEEDS

This Prospectus relates to shares of our Common Stock that may be offered and sold from time to time by the Selling Stockholders. We will receive no proceeds from the sale of shares of Common Stock by the Selling Stockholders in this Offering.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our Common Stock is quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “NWYU.” Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

On July 20, 2020 the closing bid price on the OTCQB market for our Common Stock was $0.35.

Stockholders

 

As of July 9, 2020, there were 38,324,890 shares of Common Stock issued and outstanding, held by approximately 192 shareholders of record.

 

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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:

 

· 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.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 304 of Regulation S-K.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Except for statements of historical facts, this Prospectus contains forward-looking statements involving risks and uncertainties. The words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions or variations thereof are intended to identify forward-looking statements. Such statements reflect our current view with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the risks contained in the section of this Prospectus entitled “Risk Factors”) relating to our industries, operations, and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. You are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with our financial statements and the related notes included in this Prospectus.

 

DESCRIPTION OF BUSINESS

 

Company Overview

 

New You, Inc.’s principal business is the marketing of cannabidiol (“CBD”) products. 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”.

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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. We conduct our principal operations through one operating subsidiary, New You LLC, a Wyoming limited liability company.

 

History and Background

 

We were incorporated in Nevada on December 29, 2005 as Nova Mining Corporation. Our original principal business activity was the acquisition and exploration of mineral resources. On June 20, 2013, following a change of control, we changed our name to “The Radiant Creations Group, Inc.” and focused on developing and marketing a skin crème and other cosmetic and over-the-counter personal enhancement products and devices. Following the acquisition of New You LLC on January 9, 2019, we have focused exclusively on the New You LLC business as described in this prospectus. Effective, April 30, 2019, we changed our name to “New You, Inc.”

 

Our Business

 

Current Product Offerings

 

Our products are THC-Free Hemp CBD products. We currently offer the following 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 –

 

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

 

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

 

o RELEASE - Made with organic Clove, Cascara Sagrada, Agave Inulin, Rhubarb Root Extract, Slippery Elm Bark, Aloe Vera and other herbs.

 

· Drops FX –Our proprietary blend of CBD and Vitamins B3, B6, B9 & B12, that you can use in any drink or liquid.

 

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

 

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

 

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

 

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.

 

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On top of the Brand Partners that have joined, there are also over 2,000 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, LLC 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, LLC manufactures Drops, Energy FX, and Sleep FX. In addition to Carlsbad Naturals, LLC, 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.

 

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.

 

Regulatory Requirements

 

The United States FDA does not approve any nutritional or plant based Hemp CBD product. The FDA has deemed marketing food to which CBD has been added, or labeling CBD as a dietary supplement, to be impermissible. Beverages are considered food under the definition in the Federal Food, Drug and Cosmetic Act. All of our products, excluding The Cream, are considered food under this act. Drops, EnergyFX, SleepFX, CB2 and CB2+, Caffe Canna, and Drops for Pets are intended to be added to water or any other beverage and ingested. The Cream is a topical cream that is for external use only. 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.

 

The FDA does not formally approve CBD added food products which includes all of our products (FDA approval is not required for The Cream). However, 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 CDB 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.

 

Our hemp and CBD products are derived from industrial hemp, not marijuana. It is grown under a duly-licensed state agricultural pilot program conducted by the Colorado Department of Agriculture, as authorized by the 2014 U.S. Farm Bill.

 

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.

 

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Employees

 

As of the date hereof, we have five full-time employees.

 

Intellectual Property

 

The Company does not have any trademarks or patents.

 

DESCRIPTION OF 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.

 

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.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations should be read together with our financial statements and accompanying notes appearing elsewhere in this Prospectus. This Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” set forth in the beginning of this Prospectus, and see “Risk Factors” beginning on page 9 for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.

 

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

 

Fiscal Years ended December 31, 2019 and 2018

 

Revenues. For the year ended December 31, 2019, we generated revenues of $2,832,426, an increase of $1,934,273 compared to December 31, 2018. The increase was primarily due to revenue generated by New You LLC beginning operations in the later part of 2018. Prior to August 2018, the Company had no active operations and therefore had only four months of consolidated revenue in 2018, verses twelve months of consolidated revenue in 2019. There were no sales prior to August 2018. 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, 2019 was $2,377,666, an increase of $1,676,928 compared to December 31, 2018. Our gross margin percentage for the year ended December 31, 2019 was 84%, compared to 78% for the year ended December 31, 2018. The increase in gross profit was primarily due to revenue generated by New You LLC beginning operations in the later part of 2018. There were no sales prior to August 2018.

 

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Operating Expenses. Operating expenses for the year ended December 31, 2019 were $4,069,164, an increase of $2,941,220 compared to December 31, 2018. For the year ended December 31, 2019, the components of operating expenses were: (i) increase in commission expenses; (ii) payroll expenses; and (iii) and other selling general and administrative expenses. There were few expenses prior to August of 2018 due to New You LLC having very little activity prior to August 2018.

 

    For the year ended   For the year ended
   

December 31,

2019

 

December 31,

2018

Staff and Overhead Expenses     1,980,058       681,941  
Accounting/Legal(1)     382,715       8,050  
Commission Expense     1,028,787       437,953  
Non-Cash Stock Based Compensation     677,604       —    
      4,069,164       1,127,944  

 

  (1) Approximately $350,000 accounting and legal expenses were one time fees for 2017 and 2018 audit and audit preparation fees

 

Operating Loss. We realized an operating loss of $1,691,498 for the year ended December 31, 2019 compared to $427,206 for the year ended December 31, 2018.

 

Net Loss. We incurred a net loss of $1,692,298, for the year ended December 31, 2019 compared to a net loss of 428,006 for the year ended December 31, 2018. The primary reason for the increase in net loss is due to New You LLC beginning operations in the later part of 2018. 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. There were approximately $350,000 in one-time audit and S-1 preparation fees that will not occur again. These costs were for the audits for the year ended 2017 and 2018 and preparation and formatting of the S-1 that was filed at the end of 2019.

 

Three Months ended March 31, 2020 and 2019

 

Revenues. For the three months ended March 31, 2020, we generated revenues of $531,522, a decrease of $182,118 compared to March 31, 2019. The decrease was primarily due to a major systems change. Such systems changes in a multilevel marketing environment, create a lag in sales due to brand partners learning the new system prior to signing up new brand partners. At this stage in our development, revenues are not yet sufficient to cover ongoing operating expenses.

 

Gross Profit. Our gross profit for the three months ended March 31, 2020 was $449,680, a decrease of $155,282 compared to March 31, 2019. Our gross margin percentage for the three months ended March 31, 2020 was 85%, compared to 85% for the three months ended March 31, 2019. There was no change in gross margin in the three months ended March 31, 2020 than during the three months ended March 31,2019.

 

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses (“SG&A expenses”) for the three months ended March 31, 2020 were $1,381,683, an increase of $799,834 compared to the three months ended March 31, 2019. For the three months ended March 31, 2020, the components of SG&A expenses were: (i) a reduction in commission expenses; (ii) an increase in payroll expenses; and (iii) and an increase in other SG&A expenses. Non-cash stock based compensation for the three months ended March 31, 2020 was $764,916, there was no stock based compensation for the three months ended March 31, 2019.

  

    For the three months ended March 31, 2020   For the three months ended March 31, 2019
Staff and Overhead Expenses     404,599       361,436  
Accounting/Legal     64,479       16,884  
Commission Expense     147,689       203,529  
Non-Cash Stock Based Compensation     764,916       —    
      1,381,683       581,849  

 

Operating Loss. We realized an operating loss of $932,003 before interest and income taxes for the three months ended March 31, 2020 compared to operating income of $23,113 for the three months ended March 31, 2019.

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Interest Expense. Interest expenses for the three months ended March 31, 2020 were $31,933 compared to $0 for March 31, 2019. There were no interest bearing loans in 2019.

 

Net Loss. We incurred a net loss of $964,736 for the three months ended March 31, 2020 compared to net income of $22,313 for the three months ended March 31, 2019. The primary reason for the increase in net loss is due to the major system changes and a total of $764,916 of non-cash stock based compensation expenses. Management will continue to make an effort to lower operating expenses and increase revenue.

 

 LIQUIDITY AND CAPITAL RESOURCES

 

We incurred a net loss for the year ended December 31, 2019 and had an accumulated deficit of $2,120,304 at December 31, 2019. At December 31, 2019, we had a cash balance of approximately $1,125, compared to a cash balance of $27,310 at December 31, 2018. At December 31, 2019, we had a working capital deficit of $1,047,273, compared to a working capital deficit of $332,593 at December 31, 2018. 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, 2019 and 2018.

 

We also 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. 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. Our existing and available capital resources are not expected to be sufficient to satisfy our funding requirements through one year from the date of this filing in the absence of share issuances or other sources of financing.

 

We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of preferred stock, common stock, and debt securities.

 

We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support its operations.

 

Based on the above factors, substantial doubt exists about our ability to continue as a going concern for one year from the issuance of these financial statements.

 

The issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms.

 

The effect of existing or probable government regulations on our business is not known at this time. Due to the nature of our business, it is anticipated that there may be increasing government regulation that may cause us to have to take serious corrective actions or make changes to the business plan.

 

Cash Flow For the Three Months Ended March 31, 2020 and 2019

 

The following table summarizes our cash flows for the periods indicated below:

 

    For the Three Months Ended March 31, 2020   For the Three Months Ended March 31, 2019
Cash used in operating activities     (190,000 )     (88,507 )
Cash provided by (used in) investing activities     —         —    
Cash provided by financing activities     190,000       77,000  

 

Cash Used in Operating Activities

 

During the three months ended March 31, 2020 cash used in operating activities of $190,000 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 a decrease in inventory, an increase in prepaid expenses and other current assets, and a decrease in accounts payable.

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During the three months ended March 31, 2019 cash used in operating activities of $88,507 primarily reflected our net losses for the period, adjusted by non-cash charges such as depreciation, as well as changes in our working capital accounts, primarily consisting of an increase in inventory, a decrease in prepaid expenses, and a decrease in accounts payable.

 

Cash Used in Investing Activities

 

During the three months ended March 31, 2020 and 2019, there was no cash used in investing activities.

 

Cash Provided by Financing Activities

 

During the three months ended March 31, 2020, cash provided by financing activities was $190,000, which consisted primarily of proceeds from related party debt and proceeds from a loan from an unrelated party received in January 2020.

 

During the three months ended March 31, 2019, cash provided by financing activities was $77,000, which consisted of proceeds from related party debt.

 

Cash Flow For the Years Ended December 31, 2019 and 2018

 

The following table summarizes our cash flows for the periods indicated below:

 

    2019   2018
Cash used in operating activities     (360,980 )     (295,361 )
Net Cash provided by (used in) investing activities     —         (34,001 )
Cash provided by financing activities     334,795       356,672  

 

Cash Used in Operating Activities

 

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.

 

During the year ended December 31, 2018 cash used in operating activities of $295,361 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, an increase in prepaid expenses, and in increase in accounts payable.

 

Cash Used in Investing Activities

 

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

 

During the year ended December 31, 2018, cash used in investing activities of $34,001 from the purchase of warehouse equipment.

 

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Cash Provided by Financing Activities

 

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.

 

During the year ended December 31, 2018, cash provided by financing activities was $356,672, 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.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We have no off-balance sheet arrangements.

 

CRITICAL ACCOUNTING POLICIES

 

See Part I, Financial Statements.

  

Recently Issued Accounting Standards

 

See Part I, Financial Statements.

  

Implications of Smaller Reporting Company Status

 

Because the worldwide market value of our common stock held by non-affiliates, or public float, is below $75 million, we are a “smaller reporting company” as defined under the Exchange Act. Certain reduced disclosure and other requirements are available to us because we are a smaller reporting company and may continue to be available to so long as we remain a smaller reporting company under the Exchange Act. As a smaller reporting company we are not required to:

 

  Present more than two years of audited financial statements in our registration statements and annual reports on Form 10-K and present any selected financial data in such registration statements and annual reports.

 

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DIRECTORS AND EXECUTIVE OFFICERS

 

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   Positions
Ray Grimm, Jr.   74   Chief Executive Officer, Chairman of the Board, and Director
Nish Mehta   53   Director
Greg Montoya   56   President
James Sinkes   35   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.

 

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.

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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.

 

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.

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Executive COMPENSATION

Summary Compensation Table 

 

                    Non-Equity          
For the Fiscal Year ended December 31, 2019            Stock   Option  

Incentive

Plan

 

Deferred

Compensation

  All Other    
Name and Principal Position   Salary ($)   Bonus ($)   Awards ($)   Awards ($)   Compensation ($)   Earnings ($)   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  

  

                  Non-Equity   Deferred        
For the Fiscal Year ended December 31, 2018             Stock   Option   Incentive Plan   Compensation   All Other    
Name and Principal Position   Salary ($)   Bonus ($)   Awards ($)   Awards ($)   Compensation ($)   Earnings ($)   Compensation ($)   Total($)
Ray Grimm, Jr. - Chief Executive Officer   $ 52,500     $ —       $ —       $ —       $ —       $ —       $ —       $ 52,500  
Greg Montoya - President     —         —         —         —         —         —         —       $ —    
James Sinkes - Chief Accounting Officer   $ 12,000       —         —         —         —         —         —       $ 12,000  
    $ 64,500     $ —       $ —       $ —       $ —       $ —       $ —       $ 64,500  

  

Retirement Benefits

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

 

Outstanding Equity Awards at December 31, 2019 

 

      Option Awards       Stock Awards  
                                                              Equity       Equity  
                                                              Incentive       Incentive  
                                                              Plan       Plan  
                                                              Awards:       Awards:  
                                                              Number       Market or  
                      Equity                       Number       Market       of       Payout  
              Number of       Incentive                       of       Value of       Unearned       Value of  
              Securities       Plan                       Shares       Shares       Shares,       Unearned  
      Number of       Underlying       Awards:                       or Units       or Units       Units or       Shares,  
      Securities       Unexer-       Number of                       of Stock       of Stock       Other       Units or  
      Underlying       cised       Securities                       That       That       Rights       Other  
      Unexer-       Options       Underlying                       Have       Have       That       Rights  
      cised       (#)       Unexercised       Option       Option       Not       Not       Have Not       That Have  
      Options (#)       Unexer-       Unearned       Exercise       Expiration       Vested       Vested       Vested       Not  
Name     Exercisable       cisable       Options (#)       Price ($)       Date       (#)       ($)       (#)       Vested ($)  
(a)     (b)       (c)       (d)       (e)       (f)       (g)       (h)       (i)       (j)  
James Sinkes     —         —         —         —         —         100,000     $ 50,000       —         —    
Greg Montoya     —         —         —         —         —         1,080,000     $ 540,000       —         —    
Nish Mehta     —         —         —         —         —         500,000     $ 250,000       —         —    

  

 

2019 Compensation of Directors 

 

                                      Non-Equity       Deferred                  
                      Stock       Option       Incentive Plan       Compensation       All Other          
Name and Principal Position     Salary ($)       Bonus ($)       Awards ($)       Awards ($)       Compensation ($)       Earnings ($)       Compensation ($)       Total($)  
Ray Grimm, Jr.  - Chairman   $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —    
Nish Mehta - Board Member     —         —         250,000        —         —         315,000         —       $ 565,000  
    $ —       $ —       $ 250,000     $ —       $ —       $ 315,000       $ —       $ 565,000  

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of July 9, 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. The percentages are based on 38,324,890 shares of common stock issued and outstanding on July 9, 2020

 

Title of class Name 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 27.77%
Common Stock

Greg Montoya

3246 Grey Hawk

Carlsbad, CA 92010

1,080,000 2.82%
Common Stock

James Sinkes

4305 Saddlehorn Way

Oceanside, CA 92057

260,000 0.68%
Common Stock

Nish Mehta

8152 Run of the Knolls

San Diego, CA 92127

2,620,691 6.84%
Common Stock Total of All Current Directors and Officers: 14,601,798 38.10%
     
More than 5% Beneficial Owners    
Common Stock

Jared Berry

701 Palomar Airport Rd., Ste. 300

Carlsbad, CA 92010

10,641,109(2) 27.77%

  

(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 6,278,211 shares held by Mr. Berry and 4,362,898 shares held in the name of Carlsbad Naturals, LLC.

 

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

 

Equity Compensation Plan Information

 

None

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

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 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, 2019, these loans had a balance of $255,603, $75,000, $10,000 and $156,544 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, 2018 was $22,946, and $69,296 for the year ended December 31, 2019 and is included in general and administrative expense on the accompanying statement of operations. Carlsbad Naturals, LLC is a shareholder of the Company. Another shareholder of New You, Inc., Jared Berry, has controlling interest in Carlsbad Naturals, LLC.

  

  3. On July 11, 2018, we closed our Subscription and Securities Purchase Agreement (the “SPA”) with three investors, Carlsbad Naturals, LLC, Ray Grimm, our CEO, and Nish Mehta, a former officer. 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 shareholder, 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.
     
  4. 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.

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  5. 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.
     
   6.

The Company purchases product from Carlsbad Naturals, LLC, which is owned by a shareholder 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, 2019 was $340,283.

 

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.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 General

The following summary includes a description of material provisions of our capital stock, however the description does not purport to be complete and is subject to, and is qualified by, our Articles of Incorporation and Bylaws, which are filed as exhibits to the Registration Statement of which this Prospectus is a part.

Authorized and Outstanding Securities

We have the authority to issue up to 1.4 billion shares of Common Stock, $0.00001 par value. As of July 9, 2020 there were 38,324,890 shares of Common Stock issued and outstanding.

Common Stock

The holders of our Common Stock are entitled to one vote per share on all matters requiring a vote of the stockholders, including the election of directors. Holders of Common Stock do not have cumulative voting rights. Holders of Common Stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board in its discretion from funds legally available therefore, subject to preferences that may be applicable to preferred stock, if any, then-outstanding. At present, we have no plans to issue dividends. See “Dividend Policy” for additional information. In the event of a liquidation, dissolution, or winding up of the Company, the holders of Common Stock are entitled to share pro-rata all assets remaining after payment in full of all liabilities, subject to prior distribution rights of preferred stock, if any, then-outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. There is a limited public market for our Common Stock.

Dividends

Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements, and financial conditions. The payment of dividends, if any, will be within the discretion of our Board. We intend to retain earnings, if any, for use in our business operations and accordingly, our Board does not anticipate declaring any dividends in the foreseeable future.

Indemnification of Directors and Officers

Neither our articles of incorporation, nor our bylaws, prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statutes (“NRS”). NRS Section 78.7502, provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

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NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

Our charter provides that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification. We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

Our bylaws provide that a director or officer of the Company shall have no personal liability to the Company or its stockholders for damages for breach of fiduciary duty as a director or officer, except for damages for breach of fiduciary duty resulting from (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law, or (b) the payment of dividends in violation of section 78.3900 of the NRS as it may from time to time be amended or any successor provision thereto.

Transfer Agent

The transfer agent for our Common Stock is Action Stock Transfer at 2469 E. Fort Union Blvd, Suite 214, Salt Lake City, Utah 84121. The transfer agent’s telephone number is (801) 274-1088.

PLAN OF DISTRIBUTION

Each selling stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal trading market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. Until such time as our common stock is quoted on the OTCQB tier of the over-the-counter market, the Selling Stockholders must sell their shares at a fixed price of $1.23 per share. Once our common stock is quoted on the OTCQB tier of the over-the-counter market, the Selling Stockholders may sell their shares at prevailing market prices. Upon the effectiveness of the Registration Statement of which this Prospectus forms a part, we intend to apply for an upgrade of our OTC market tier from “Pink-Current” to “OTCQB.” Although we believe that we will be eligible for the OTCQB market tier upon becoming an SEC reporting issuer, we can provide no guarantee that out application for the OTCQB market will be accepted. A Selling Stockholder may use any one or more of the following methods when selling securities:

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
  block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
  an exchange distribution in accordance with the rules of the applicable exchange;
  privately negotiated transactions;
  settlement of short sales;
  33  

 

  in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
  through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
  a combination of any such methods of sale; or
  any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

SHARES ELIGIBLE FOR FUTURE SALE

We cannot predict the effect, if any, that market sales of shares of our Common Stock or the availability of shares of our Common Stock for sale will have on the market price of our Common Stock prevailing from time to time. Future sales of our Common Stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. The availability for sale of a substantial number of shares of our Common Stock acquired through the exercise of outstanding warrants could materially adversely affect the market price of our Common Stock. In addition, sales of our Common Stock in the public market after the restrictions lapse as described below, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions. 

Rule 144

In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated), including a person who may be deemed an “affiliate” of a company, who has beneficially owned restricted securities for at least six months may sell, within any three- month period, a number of shares that does not exceed the greater of: (1) 1% of the then-outstanding shares of common stock, or (2) if and when the common stock is listed on a national securities exchange, the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Sales of shares held by our affiliates that are not “restricted” are subject to such volume limitations, but are not subject to the holding period requirement. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice, and availability of current public information about our company. A person who is not deemed to have been an affiliate of us at any time during the 90 days preceding a sale by such person, and who has beneficially owned the restricted shares for at least one year, is entitled to sell such shares under Rule 144 without regard to any of the restrictions described above.

  34  

 

We cannot estimate the number of shares of our Common Stock that our existing stockholders will elect to sell under Rule 144.

LEGAL MATTERS

Unless otherwise indicated in the applicable prospectus supplement, Laxague Law, Inc., will provide opinions regarding the validity of the shares of our Common Stock. Laxague Law, Inc. may also provide opinions regarding certain other matters. Any underwriters will also be advised about legal matters by their own counsel, which will be named in the prospectus supplement.

EXPERTS

The financial statements of New You, Inc. at December 31, 2019 and 2018, and for each of the two years in the period ended December 31, 2019, appearing in this prospectus and related registration statement have been audited by Marcum, LLP, independent registered public accounting firm, as set forth in its report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

DISCLOSURE OF THE SEC POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 

Sections 78.7502 and 78.751 of the Nevada Revised Statutes authorizes a court to award, or a corporation’s board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit indemnification, including reimbursement of expenses incurred, under certain circumstances for liabilities arising under the Securities Act. In addition, our Bylaws provide that we have the authority to indemnify our directors and officers and may indemnify our employees and agents (other than officers and directors) against liabilities to the fullest extent permitted by Nevada law. We are also empowered under our Bylaws to purchase insurance on behalf of any person whom we are required or permitted to indemnify. 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer, or controlling person in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

WHERE YOU CAN FIND MORE INFORMATION

We have filed this Registration Statement, together with all amendments and exhibits, with the SEC. This Prospectus, which forms a part of the Registration Statement, does not contain all information included in the Registration Statement. Certain information is omitted and you should refer to the Registration Statement and its exhibits. With respect to references made in this Prospectus to any of our contracts or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the Registration Statement for copies of the actual contracts or documents. You may read and copy any document that we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our filings and the Registration Statement, of which this Prospectus is a part, can also be reviewed by accessing the SEC’s website at www.sec.gov.

We file periodic reports and other information with the SEC. Such periodic reports and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.newyounow.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information and other content contained on any of our websites are not part of this Prospectus.

  35  

 

Index to Financial Statements Required by Article 8 of Regulation S-X:

Consolidated Audited Financial Statements for the Years Ended December 31, 2019 and 2018

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-2
   
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018 F-3
   
Consolidated Statement of Shareholders’ Deficit for the Two Years Ended December 31, 2019 F-4
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 F-5
   
Notes to Consolidated Financial Statements F-6

 

 

Consolidated Unaudited Financial Statements for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited) F-12 
   
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited) F-13
   
Condensed Consolidated Statement of Shareholders’ Deficit for the Three Months Ended March 31, 2020 (unaudited) F-14
   
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 F-15
   
Notes to Condensed Consolidated Financial Statements F-16

 

  36  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders 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, 2019 and 2018, the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, 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.

Explanatory Paragraph – Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.

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.

 

/s/ Marcum llp

Marcum llp

 

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

 

Costa Mesa, California
March 30, 2020

 

 

 

  F- 1  
 

New You, Inc.
Consolidated Balance Sheets as of December 31, 2019 and 2018

    December 31,   December 31,
    2019   2018
ASSETS                
Current Assets:                
Cash   $ 1,125     $ 27,310  
Credit Card Receivable     23,715       19,603  
Due from Merger Partner     —         10,482  
Inventory     147,780       49,862  
Prepaid Expenses and Other Current Assets     5,000       34,415  
Total Current Assets     177,620       141,672  
                 
Property and Equipment, Net     25,795       31,587  
Operating Lease Right of Use Asset, Net     96,310       —    
                 
TOTAL ASSETS   $ 299,725     $ 173,259  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
LIABILITIES                
Current Liabilities:                
Accounts Payable and Other Accrued Expenses   $ 471,507     $ 90,359  
Accounts Payable to Related Party     200,605       154,234  
Operating Lease Liability, Current     63,410       —    
Related Party Debt     497,147       229,672  
Total Current Liabilities     1,232,669       474,265  
                 
Operating Lease Liabilities, Noncurrent     38,025       —    
TOTAL LIABILITIES     1,270,694       474,265  
                 
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, 2019 and December 31, 2018, respectively; 32,985,200 and 15,974,558 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively     330       160  
Additional Paid-in Capital     1,149,005       126,840  
Accumulated Deficit     (2,120,304 )     (428,006 )
TOTAL STOCKHOLDERS’ DEFICIT     (970,969 )     (301,006 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 299,725     $ 173,259  
                 

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, 2019 and 2018

 

      For The Year Ended         For The Year Ended  
      December 31,         December 31,  
      2019         2018  
Total Revenues     2,832,426       $ 898,153  
                   
Cost of Goods Sold     454,760         197,415  
                   
Gross Profit     2,377,666         700,738  
                   
Operating Expenses                  
Selling, General and Administrative Expenses     2,362,773         689,991  
Commission Expense     1,028,787         437,953  
Stock Based Compensation     677,604         —    
Total Operating Expenses     4,069,164         1,127,944  
                   
Loss from Operations     (1,691,498 )       (427,206 )
                   
Income Tax Expense     800         800  
                   
Net Loss   $ (1,692,298 )     $ (428,006 )
                   
                   
Net Loss Per Common Share                  
- Basic and Diluted   $ (0.06 )     $ (0.05 )
                   
Weighted Average Common Shares Outstanding                  
- Basic and Diluted     26,343,136         8,218,053  

 

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

 

 

  F- 3  
 

New You, Inc.
Consolidated Statement of Shareholders’ Deficit for the Two Years Ended December 31, 2019

      Common       Additional Paid       Accumulated      

Total

Stockholders’

 
      Shares       Par Value        in Capital       Deficit       Deficit  
Balance as of December 31, 2017     —       $ —       $ —       $ —       $ —    
Share Issuances to Founding Members     13,951,579       140       (140 )     —         —    
Share Issuances     2,022,979       20       126,980       —         127,000  
Net Loss     —         —         —         (428,006 )     (428,006 )
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  
Stock-based Compensation - Employees     4,150,000       41       469,750       —         469,791  
Stock-based Compensation – Vendors     1,026,000       10       207,803       —         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 )

 

 

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, 2019 and 2018

   

For The Year Ended

December 31,

 

For The Year Ended

December 31,

      2019       2018  
Operating Activities                
Net Loss   $ (1,692,298 )   $ (428,006 )
Adjustments to Reconcile Net Loss to Net Cash Used                
   in Operating Activities:                
Depreciation and Amortization     10,917       2,414  
Amortization of Operating Lease Right of Use Assets     99,166       —    
Stock-based Compensation - Employees     469,792       —    
Stock-based Compensation - Vendors     207,813       —    
Changes in Operating Assets and Liabilities:                
Credit Card Receivable     (122,804 )     (19,603 )
Inventory     (97,918 )     (49,862 )
Due From Merger Partner     10,482       (10,482 )
Prepaid Expenses and Other Current Assets     29,415       (34,415 )
Accounts Payable and Other Current Liabilities     359,453       244,593  
Accounts Payable to Related Parties     459,043          
Operating Lease Liabilities     (94,041 )        
Net Cash Used in Operating Activities     (360,980 )     (295,361 )
Investing Activities                
Purchase of Property and Equipment     —         (34,001 )
Net Cash Used in Investing Activities     —         (34,001 )
Financing Activities                
Proceeds from Related Party Debt     398,000       229,672  
Repayments of Related Party Debt     (424,505 )        
Issuance of Common Shares for Cash     316,300       127,000  
Cash Received for Shares Not Yet Issued     45,000          
Net Cash Provided by Financing Activities     334,795       356,672  
Net (Decrease) Increase in Cash and Cash Equivalents     (26,185 )     27,310  
Cash and Cash Equivalents                
Beginning of Period     27,310       —    
End of Period   $ 1,125     $ 27,310  
                 
Supplemental Disclosures                
Cash Paid for Interest   $ 5,000     $ —    
Cash Paid for Income Taxes   $ —       $ —    
                 
Non-cash Investing and Financing Activities:                
Payroll and Other Payables to Related Parties Converted to Related Party Debt   $ 412,672     $ —    
Related Party Debt Adjusted Against Credit Card Receivables   $ (118,692 )   $ —    

  

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.

 

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, and stock-based compensation expense.

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, 2019 and 2018, 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 December 31, 2019 or 2018.

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, 2019 and 2018.

  F- 6  
 

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 deemed common share equivalents; therefore, its basic and diluted net loss per share calculations are the same.

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

 

    2019   2018
Historical Net loss per share                
Numerator                
    Net Loss     (1,692,298 )     (428,006 )
Denominator                
   Weighted-average common shares outstanding     27,514,330       8,218,053  
   Less: Weighted-average shares subject to repurchase     (1,171,194 )     —    
   Denominator for basic and diluted net loss per share     26,343,136       8,218,053  
Basic and diluted net loss per share   $ (0.06 )   $ (0.05 )

 

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):

 

    2019   2018
Restricted Stock     5,151,000       —    

  

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 $79,090 for the year ended December 31, 2019 and $14,192 for the year ended December 31, 2018. The Company has not recorded a reserve for returns at December 31, 2019, or 2018 since it does not believe such returns will be material.

As of December 31, 2019, 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.

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.

  F- 7  
 

Advertising Expenses

The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses totaled $12,626 for the year ended December 31, 2019 and $15,817 for the year ended December 31, 2018.

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, 2019 and 2018 was $677,604 and $0.

Recently Adopted Accounting Pronouncements 

FASB ASU No. 2016-02 (Topic 842), “Leases” – Issued in February 2016, ASU No. 2016-02 established ASC Topic 842, Leases, as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We were be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments and will continue to recognize expense on a straight-line basis upon adoption of this standard. ASU 2016-02 was effective for reporting periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued an update ASU 2018-11 Leases: Targeted Improvements, which provides companies with an additional transition option that would permit the application of ASU 2016-02 as of the adoption date rather than to all periods presented. We adopted this standard on January 1, 2019 and elected to use the transition practical expedients package available to us under this new standard. Upon Adoption of the standard, we recorded a right-of-use asset of $195,476 and an operating lease liability of $195,476.

 

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.

 

Note 2 – Going Concern

 

We incurred a net loss for the year ended December 31, 2019 and had an accumulated deficit of $2,120,304 at December 31, 2019 of which $677,604 was related to non-cash stock based compensation. At December 31, 2019, we had a cash balance of approximately $1,125, compared to a cash balance of $27,310 at December 31, 2018. At December 31, 2019, we had a working capital deficit of $1,047,273, compared to a working capital deficit of $332,593 at December 31, 2018.

 

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, 2019 and 2018, one credit card processor accounted for 100% of credit card receivables.

 

 

  F- 8  
 

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.

 

2019 Stock Sales

 

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.

 

2019 Restricted Stock Grants

 

During the year ended December 31, 2019, the Company issued 5,176,000 common shares for employees and several consultants for services that will be provided in the future and will vest over the course of six months or twelve months based on the specific contract. One vendor that was issued 100,000 shares will vest over eighteen months starting July 1, 2019. 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 to December 2019 when the equity instruments were granted. There were not grants of restricted stock to employees of vendors during 2018

 

The table below summarizes the activity of the restricted stock during 2019:

 

    Number of Shares   Weighted Average Grant Date Fair Value per Share
  Nonvested as of December 31, 2018       —         —    
  Granted       5,176,000     $ 0.50  
  Vested       (25,000 )   $ 0.50  
  Forfeited       —         —    
  Nonvested as of December 31, 2019       5,151,000     $ 0.50  

 

 For the year ended December 31, 2019 the compensation costs that has been charged to Stock Compensation Expense is $677,604. No portion of the total compensation cost was capitalized. The unrecognized compensation costs as of the year ended December 31, 2019 and 2018 is $1,902,896 and $0 respectively, which will be recognized over one year. 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 cost were as follows:

     
   

Year Ended

December 31,

    2019
Operating lease cost     69,296  
Total lease cost   $ 69,296  

 

  F- 9  
 

Cash paid for amounts included in operating lease liabilities was $69,296 for the year ended December 31, 2019. The table below presents total operating lease ROU assets and lease liabilities as of December 31, 2019:

       

Year Ended

December 31,

    2019
Operating lease ROU assets   $ 96,310
Operating lease liabilities     101,435

   

The table below presents the maturities of operating lease liabilities as of December 31, 2019: 

  

2020                                    77,277
2021                                    45,801
Total Lease Payments                                  123,078
Less: Discount                                   (21,643)
Operating Lease Liability                                  101,435

  

     

Year Ended

December 31,

    2019
Weighted average remaining lease term (years)     1.58
Weighted average discount rate     7%

   

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 required an accrual as of December 31, 2019 or 2018 nor were there any asserted or unasserted material claims for which material losses are reasonably possible.

 

Note 7 – Related Party Transactions

 

During the years ended December 31, 2019 and 2018, 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, 2019, these loans had a combined balance of $497,147 for the CEO and two other board members. Total additions for the year ended December 31, 2019 were $610,672 and total repayments and offsets were $343,197 As of December 31, 2018, these loans had a combined balance of $229,672 for the CEO and one other board member. Total additions for the year ended December 31, 2018 were $229,672 and no repayments were made. As of December 31, 2019 and 2018,

we also owed $78,105 and $23,460 to Carlsbad Naturals, LLC, 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 years ended December 31, 2019 and 2018, we made purchase of $340,283 and $142,632 from Carlsbad Naturals, LLC. As of December 31, 2019 and 2018, we owed $22,500 and $30,000 for consulting payments to a relative of the CEO.

 

During the year ended December 31, 2019, the Company also 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.

 

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.

 

  F- 10  
 

Note 8 – Income Taxes

 

The Company incurred no deferred tax expense during the years ended December 31, 2019 and 2018. The components of deferred tax assets and liabilities are:

 

   

December 31,

2019

 

December 31,

2018

         
Deferred income tax assets:                
Net operating loss carryforwards   $ 284,193     $ —    
Stock-Based Compensation     189,618       —    
      473,811       —    
Less: valuation allowance     (473,529 )        
Total deferred income tax assets     282       —    
                 
Deferred income tax liabilities:                
Depreciation and amortization     (282 )     —    
Total deferred income tax liabilities     (282 )     —    
                 
Net deferred income taxes   $ —       $ —    

 

For the years ended December 31, 2019 and 2018, a reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows:

 

    December 31,
2019
  December 31,
2018
U.S. Federal Statutory Income Tax Rate   $ (355,383 )   $ —    
State income tax, net of federal benefit     (117,346 )     800    
Valuation allowance     473,529       —    
Income Tax Expense   $ 800     $ 800    

 

As of December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately $1,015,701. 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, 2019. 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, 2018 through December 31, 2019. 

 

Note 9 – Subsequent Events

 

The Company has evaluated subsequent events through March 30, 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 December 31, 2019, 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, and allowed the noteholder to convert the note into common shares at a conversion price of $0.50 per share.

 

The Company received loan proceeds of $100,000 from a family member of one of its board members pursuant to a promissory note with a maturity date of April 7, 2020 and interest of $5,000 per month. The Company must issue 100,000 common shares (200,000 common shares if the Company’s stock price falls below $1.00 on an exchange) each time it is late on a payment. In addition, the Company must issue 250,000 common shares (500,000 common shares if the Company’s stock price falls below $1.00 on an exchange) if it is late on the principal repayment, and 100,000 common shares (200,000 common shares if the Company’s stock price falls below $1.00 on an exchange) for each month thereafter that the note is not repaid, and 250,000 common shares (500,000 common shares if the Company’s stock price falls below $1.00 on an exchange) for each year thereafter that the note is not repaid. All share penalties just described are subject to anti-dilution provisions. This note is secured by substantially all of the Company’s assets, and the Company may not effect a change in control without paying all obligations due under the note.

 

The Company issued 508,000 shares to consultants in exchange for services. 

 

  F- 11  
 

New You, Inc.
Condensed Consolidated Balance Sheets

    March 31,   December 31,
    2020   2019
      (Unaudited)          
ASSETS                
Current Assets:                
Cash   $ 1,125     $ 1,125  
Credit Card Receivable     6,660       23,715  
Inventory     88,403       147,780  
Prepaid Expenses and Other Current Assets     13,483       5,000  
Total Current Assets     109,671       177,620  
                 
Property and Equipment, Net     24,131       25,795  
Operating Lease Right of Use Asset, Net     94,265       96,310  
TOTAL ASSETS   $ 228,067     $ 299,725  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
LIABILITIES                
Current Liabilities:                
Accounts Payable and Other Accrued Expenses   $ 444,620     $ 471,507  
Accounts Payable to Related Parties     87,085       200,605  
Notes Payable, Net     113,600       —    
Operating Lease Liability, Current     73,111       63,410  
Related Party Debt     629,647       497,147  
Total Current Liabilities     1,348,063       1,232,669  
                 
Operating Lease Liabilities, Noncurrent     25,794       38,025  
                 
TOTAL LIABILITIES     1,373,857       1,270,694  
                 
COMMITMENTS AND CONTINGENCIES - SEE NOTE 6                
                 
STOCKHOLDERS’ DEFICIT                
Common stock at $0.00001 par value: 1,400,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 33,493,200 and 32,985,200 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively     335       330  
Additional Paid-in Capital     1,938,915       1,149,005  
Accumulated Deficit     (3,085,040 )     (2,120,304 )
TOTAL STOCKHOLDERS' DEFICIT     (1,145,790 )     (970,969 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 228,067     $ 299,725  

 

 

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

 

 

 

  F- 12  
 

New You, Inc.
Condensed Consolidated Statements of Operations

 

    For The Three Months Ended   For The Three Months Ended
    March 31,   March 31,
    2020   2019
      (Unaudited)       (Unaudited)  
Revenue   $ 531,522     $ 713,640  
                 
Cost of Goods Sold     81,842       108,678  
                 
Gross Profit     449,680       604,962  
                 
Selling, General, and Administrative Expenses                
Commission Expense     147,689       203,529  
Stock Based Compensation     764,916       —    
Other     469,078       378,320  
Total Selling, General, and Administrative Expenses     1,381,683       581,849  
                 
(Loss) Income from Operations     (932,003 )     23,113  
                 
Interest Expense     31,933       —    
                 
Net (Loss) Income before Income Tax Expense     (963,936 )     23,113  
                 
Income Tax Expense     800       800  
                 
Net (Loss) Income   $ (964,736 )   $ 22,313  
                 
                 
Net (Loss) Income Per Common Share                
- Basic and Diluted   $ (0.03 )   $ 0.00  
                 
Weighted Average Common Shares Outstanding                
- Basic and Diluted     27,809,200       22,960,858  

 

 

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

 

 

  F- 13  
 

 

New You, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit

For the Three Months Ended March 31, 2020

(Unaudited)

                      Additional                Total  
      Common               Paid       Accumulated     Stockholders’  
      Shares       Par Value        in Capital       Deficit       Deficit  
Balance as of January 1, 2020     32,985,200     $ 330     $ 1,149,004     $ (2,120,304 )   $ (970,970 )
Stock-based Compensation - Employees     —         —         518,750       —         518,750  
Stock-based Compensation - Consultants     458,000       5       246,161       —         246,166  
Shares Issued in Connection with Note Payable Issuance     50,000       —         25,000       —         25,000  
Net Loss     —         —         —         (964,736 )     (964,736 )
Balance as of March 31, 2020     33,493,200     $ 335     $ 1,938,915     $ (3,085,040 )   $ (1,145,790 )

 

New You, Inc.
Condensed Consolidated Statement of Shareholders’ Deficit

For the Three Months Ended March 31, 2019

(Unaudited)

 

                      Additional                Total  
      Common               Paid       Accumulated     Stockholders’  
      Shares       Par Value        in Capital       Deficit       Deficit  
Balance as of January 1, 2019     15,974,558     $ 160     $ 126,840     $ (428,006 )   $ (301,006 )
Effect of Reverse Recapitalization Transaction     10,772,587       108       (16,677 )     —         (16,569 )
Shares Issued Pursuant to Anti-dilution Provision     409,605       4       (4 )     —         —    
Net Income     —         —         —         22,313       22,313  
Balance as of March 31, 2019     27,156,750     $ 272     $ 110,159     $ (405,693 )   $ (295,262 )

 

 

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

 

 

 

 

 

 

 

 

 

  F- 14  
 

New You, Inc.
Condensed Consolidated Statements of Cash Flows

      For The Three Months Ended       For The Three Months Ended  
    March 31,       March 31,    
    2020       2019    
    (Unaudited)       (Unaudited)    
Operating Activities                
Net (Loss) Income   $ (964,736 )   $ 22,313  
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used                
   in) Provided by Operating Activities:                
Depreciation and Amortization     1,663       848  
Amortization of Operating Lease Right of Use Asset     2,045       —    
Amortization of Debt Issuance Costs     13,600       —    
Stock-based Compensation - Employees     518,750       —    
Stock-based Compensation - Consultants     246,166       —    
Changes in Operating Assets and Liabilities:                
Credit Card Receivable     17,055       (83,083 )
Inventory     59,377       (61,653 )
Due From Merger Partner     —         10,482  
Prepaid Expenses and Other Current Assets     (8,483 )     28,221  
Accounts Payable and Other Current Liabilities     (26,887 )     (13,612 )
Accounts Payable to Related Parties     (46,020 )     7,977  
Operating Lease Liabilities     (2,530 )     —    
Net Cash (Used in) Provided by Operating Activities     (190,000 )     (88,507 )
Financing Activities                
Proceeds from Related Party Debt     109,000       77,000  
Repayments of Related Party Debt     (44,000 )     —    
Loan Proceeds     125,000       —    
Net Cash Provided by (Used in) Financing Activities     190,000       77,000  
Net (Decrease) Increase in Cash     —         (11,507 )
Cash                
Beginning of Period     1,125       27,310  
End of Period   $ 1,125     $ 15,803  
                 
Supplemental Disclosures                
Cash Paid for Interest   $ 18,333     $ —    
Cash Paid for Income Taxes   $ —       $ —    
                 
Non-cash Investing and Financing Activities:                
Payroll and Other Payables to Related Parties Converted                
to Related Party Debt   $ 67,500     $ 72,698  
Related Party Debt Adjusted Against Credit Card Receivables   $ —       $ 100,000  
Shares Issued in Connection with Note Payable Issuance   $ 25,000     $ —    

 

 

 

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

 

  F- 15  
 

NEW YOU, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 – Organization and Summary of Significant Accounting Policies

 

Nature of Business

New You, Inc., formerly known as The Radiant Creations Group, Inc. (the “Company”) was incorporated in Nevada on December 29, 2005. From inception, the Company's principal business activity was the acquisition and exploration of mineral resources. On June 20, 2013, following a change of control and subsequent acquisition of an exclusive license agreement, the Company changed its principal business to the development and marketing of cosmetics and over-the-counter personal enhancement products and devices. After a change in control on July 11, 2018, the Company changed its principal business to selling cannabidiol (“CBD”) hemp oil-based products through independent business owners (called “Brand Partners”).

 

The Company, through its wholly owned subsidiary New You LLC, markets and sells its products through a multi-level marketing sales opportunity.

 

Basis of Presentation

The unaudited condensed consolidated financial statements include the operations of New You, Inc. and its wholly-owned subsidiary, New You LLC. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 10 of Securities and Exchange Commission (SEC) Regulation S-X for Interim Reporting. All intercompany transactions, accounts and profits, if any, have been eliminated in the unaudited condensed consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair statement have been included.

 

These unaudited condensed consolidated financial statements do not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the more detailed audited financial statements of New You, Inc. for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K.

 

The results for the 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.

  F- 16  
 

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.

 

  F- 17  
 

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.

  F- 18  
 

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  

  

 

  F- 19  
 

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.

  F- 20  
 

 

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 July 24, 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 4,831,690 common shares for services to be performed in the future. 

 

 

 

 

 

 

 


  F- 21  
 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth all expenses to be paid by the Registrant, other than estimated placement agents’ fees and commissions, in connection with our public offering. All amounts shown are estimates except for the SEC registration fee:

 

SEC registration fee   $ 153.61  
Legal fees and expenses     15,000.00  
Accounting fees and expenses     2,000.00  
Transfer agent and registrar fees     —    
Printing and engraving expenses     —    
Miscellaneous fees and expenses     —    
Total   $ 17,153.61  

 

Item 14. Indemnification of Directors and Officers

 

Neither our articles of incorporation, nor our bylaws, prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statutes (“NRS”). NRS Section 78.7502, provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

 

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Our charter provides that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any stockholders’ or directors’ resolution or by contract. Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification. We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

Our bylaws provide that a director or officer of the Company shall have no personal liability to the Company or its stockholders for damages for breach of fiduciary duty as a director or officer, except for damages for breach of fiduciary duty resulting from (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law, or (b) the payment of dividends in violation of section 78.3900 of the NRS as it may from time to time be amended or any successor provision thereto.

  II- 1  
 

 

Item 15. Recent Sales of Unregistered Securities

 

  1. On July 11, 2018, we closed our Subscription and Securities Purchase Agreement (the “SPA”) with three investors, Carlsbad Naturals, LLC, Ray Grimm, our CEO, and Nish Mehta, a former officer. 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 shareholder, 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. The issuances made in connection with these transactions did not involve any public offering and were exempt under Section 4(a)(2) of the Securities Act.

 

  2. 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. The issuances made in connection with these transactions did not involve any public offering and were exempt under Section 4(a)(2) of the Securities Act.

 

  3. Beginning in February of 2019 and continuing through July 9, 2020, we conducted private offering of common shares at a $0.50 per share pursuant to Rule 506(b) under Regulation D. Shares were offered to accredited investors and we engaged in no general solicitation or advertising in connection with the offering. We sold a total of 729,558 shares for total proceeds of $354,894.

 

Item 16. Exhibit Index

 

(a)             Exhibits.

  

  3.1 Articles of Incorporation, as Amended*
     
  3.2 Amended and Restated Bylaws*
     
  5.1 Opinion of Laxague Law, Inc.*
     
  10.1 Subscription and Securities Purchase Agreement*
     
  10.2 Share Exchange Agreement*
     
  10.3 Lease*
     
  10.4 New You Brand Partner Agreement*
     
  21.1 List of Subsidiaries*
     
  23.1 Consent of Independent Registered Public Accounting Firm(1)

(1) Filed Herewith

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

 

  II- 2  
 

Item 17. Undertakings.

 

The undersigned registrant hereby undertakes:

 

(1)        To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

  (i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

 

  (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

  (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

  (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.

 

  (3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering.

 

  (4) That, for the purpose of determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);

 

  (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

  (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

  (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

  

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

  II- 3  
 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Newport Beach, State of California, on July 24, 2020.

  

 

New You, Inc.,

a Nevada corporation

   
 

By: /s/ Ray Grimm

Name: Ray Grimm

Title: Chief Executive Officer, and Director

(principal executive officer)

 

   
 

By: /s/ James Sinkes

Name: James Sinkes

Title: Chief Accounting Officer

(principal accounting officer and principal financial officer)

 

   
 

By: /s/ Nish Mehta

Name: Nish Mehta

Title: Director

 

  II- 4  
 

POWER OF ATTORNEY

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ray Grimm, Jr. his true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him/her and in his name, place and stead, in any and all capacities to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement, any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or all pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that said attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the following persons in the capacities and on the dates indicated have signed this Registration Statement below.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.

 

 

By: /s/ Ray Grimm

Name: Ray Grimm

Title: Chief Executive Officer, and Director

(principal executive officer)

 

July 24, 2020

   
 

By: /s/ James Sinkes

Name: James Sinkes

Title: Chief Accounting Officer

(principal accounting officer and principal financial officer)

 

July 24, 2020

   
 

By: /s/ Nish Mehta

Name: Nish Mehta

Title: Director

 

July 24, 2020

 

 

 

  II- 5  

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