The statements contained in this report that are not statements of historical
fact, including without limitation, statements containing the words "believes,"
"expects," "anticipates" and similar words, constitute forward-looking
statements that are subject to a number of risks and uncertainties. From time to
time we may make other forward-looking statements. Investors are cautioned that
such forward-looking statements are subject to an inherent risk that actual
results may materially differ as a result of many factors, including the risks
discussed from time to time in this report, including the risks described under
"Risk Factors" in any filings we have made with the SEC.
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an on-going basis, we evaluate these estimates, including those
related to useful lives of real estate assets, cost reimbursement income, bad
debts, impairment, net lease intangibles, contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from those estimates.
Background
On January 9, 2019, New You, Inc. completed a reverse recapitalization
("Recapitalization") with New You LLC, a privately held Wyoming limited
liability company in accordance with the terms of a share exchange agreement
("Share Exchange Agreement"). Pursuant to the Share Exchange Agreement, New You,
Inc. issued 15,974,558 common shares in exchange for one hundred percent (100%)
of the outstanding units of New You LLC (11,450 units), with New You LLC
becoming a wholly-owned operating subsidiary of the Company. The transaction was
accounted for as a reverse recapitalization because New You, Inc. was a shell
company prior to the transaction. For accounting purposes, New You LLC is
considered to have obtained the net monetary assets of New You, Inc. in exchange
for equity. Upon the consummation of the Recapitalization, the historical
financial statements of New You LLC became the consolidated company's historical
financial statements.
Results of Operations
Revenues. For the year ended December 31, 2020, we generated revenues of
$2,008,493, a decrease of $823,933 compared to December 31, 2019. The decrease
was due to declining revenue generated by New You LLC as a result of a slowed
economy brought about by the global Covid pandemic. At this stage in our
development, revenues are not yet sufficient to cover ongoing operating
expenses.
Gross Profit. Our gross profit for the year ended December 31, 2020 was
$1,723,334, a decrease of $654,332 compared to December 31, 2019. Our gross
margin percentage for the year ended December 31, 2020 was 86%, compared to 84%
for the year ended December 31, 2019. The increase in gross profit generated by
New You LLC is largely a result of product sales mix and the associated costs
for the year.
15
Selling, General, and Administrative Expenses. Selling, General, and
Administrative expenses for the year ended December 31, 2020 were $4,958,672, an
increase of $889,508 compared to December 31, 2019. For the year ended December
31, 2020, the components of the change in Selling, General, and Administrative
expenses were: (i) decrease in commission expenses; (ii) decrease in payroll
expenses; (iii) decrease in other selling general and administrative expenses;
and (iv) increase in stock based compensation.
For the year For the year
ended December ended December
31, 31,
2020 2019
Staff and Overhead Expenses $ 1,389,637 $ 1,980,058
Accounting/Legal 210,132 382,715
Commission Expense 571,335 1,028,787
Non-Cash Stock Based Compensation 2,787,568 677,604
$ 4,958,672 $ 4,069,164Operating Loss. We realized an operating loss of $3,235,338 for the year ended
December 31, 2020 compared to $1,691,498 for the year ended December 31, 2019.
Net Loss. We incurred a net loss of $5,046,711, for the year ended December 31,
2020 compared to a net loss of $1,692,298 for the year ended December 31, 2019.
The primary reason for the increase in net loss is due to decreased revenue
earned, increased stock based compensation expense, finance charges including
non-interest expense of $496,639, and change in fair value of derivative
features embedded within certain convertible notes of $1,066,421 during the
year. Management will continue to make an effort to lower operating expenses and
increase revenue. We will continue to invest in further expanding our operations
and a comprehensive marketing campaign with the goal of accelerating the
education of potential clients and promoting our name and our products. Given
the fact that most of the operating expenses are fixed or have quasi-fixed
character, management expects them to significantly decrease as a percentage of
revenues as revenues increase.
LIQUIDITY AND CAPITAL RESOURCES
We incurred a net loss for the year ended December 31, 2020 and had an
accumulated deficit of $7,167,015 at December 31, 2020. At December 31, 2020, we
had a cash balance of approximately $45,102, compared to a cash balance of
$1,125 at December 31, 2019. At December 31, 2020, we had a working capital
deficit of $2,460,718, compared to a working capital deficit of $1,055,049 at
December 31, 2019. Our existing and available capital resources are not expected
to be sufficient to satisfy our funding requirements through one year from the
date of this filing in the absence of share issuances or other sources of
financing. See note 2 to our financial statements for the year ended December
31, 2020 and 2019.
We have not been able to generate sufficient cash from operating activities to
fund our ongoing operations. Since our inception, we have raised capital through
private sales of preferred stock, common stock, and debt securities.
We will be required to raise additional funds through public or private
financing, additional collaborative relationships or other arrangements until we
are able to raise revenues to a point of positive cash flow. We are evaluating
various options to further reduce our cash requirements to operate at a reduced
rate, as well as options to raise additional funds, including obtaining loans
and selling common stock. There is no guarantee that we will be able to generate
enough revenue and/or raise capital to support its operations.
Based on the above factors, substantial doubt exists about our ability to
continue as a going concern for one year from the issuance of these financial
statements.
The issuance of additional securities may result in a significant dilution in
the equity interests of our current stockholders. Obtaining loans, assuming
these loans would be available, will increase our liabilities and future cash
commitments. There is no assurance that we will be able to obtain further funds
required for our continued operations or that additional financing will be
available for use when needed or, if available, that it can be obtained on
commercially reasonable terms.
The effect of existing or probable government regulations on our business is not
known at this time. Due to the nature of our business, it is anticipated that
there may be increasing government regulation that may cause us to have to take
serious corrective actions or make changes to the business plan.
Cash Flow
The following table summarizes our cash flows for the periods indicated below:
2020 2019
Cash used in operating activities (486,369 ) (360,980 )
Net Cash provided by (used in) investing activities - -
Cash provided by financing activities 530,346 334,795
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Cash Used in Operating Activities
During the year ended December 31, 2020 cash used in operating activities of
$486,369 primarily reflected our net losses for the period, adjusted by non-cash
charges such as depreciation, stock-based compensation, amortization of debt
discounts, as well as changes in our working capital accounts, primarily
consisting of a decrease in inventory, an increase in prepaid expenses, and a
decrease in accounts payable.
During the year ended December 31, 2019 cash used in operating activities of
$360,980 primarily reflected our net losses for the period, adjusted by non-cash
charges such as depreciation and stock-based compensation, as well as changes in
our working capital accounts, primarily consisting of an increase in inventory,
a decrease in prepaid expenses, and in increase in accounts payable.
Cash Used in Investing Activities
During the year ended December 31, 2020 and 2019, there was no cash used in
investing activities.
Cash Provided by Financing Activities
During the year ended December 31, 2020, cash provided by financing activities
was $530,346 which consisted primarily of proceeds from related party debt,
issuance of notes payable, and issuance of convertible notes payable.
During the year ended December 31, 2019, cash provided by financing activities
was $334,795, which consisted primarily of proceeds from related party debt and
issuances of common shares for cash.
Known Trends and Uncertainties Expected to Have a Material Impact on Revenues
Our ability to continue to add and maintain Brand Partners and Customers on a
consistent basis will have a material impact on revenues. We will be increasing
our marketing efforts in the upcoming year. Due to this, we expect to see our
customer base and number of Brand Partners to grow consistently over the next
few quarters and expect those numbers to grow even more as we continue to expand
our marketing efforts and add to our product portfolio. We expect to continue to
see high retention rates as we continue to train our Brand Partners and provide
them with a support system that promotes success and strong partnerships. Our
retention rate for our Brand Partners over the last twenty-eight months (since
inception) ended December 31st, 2020 is 98.5%.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
See Note 1 - Organization and Significant Accounting Policies in the Notes to
the Consolidated Financial Statements on page F-6
Recently Issued Accounting Standards
See Note 1 - Organization and Significant Accounting Policies in the Notes to
the Consolidated Financial Statements on page F-6
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