SEC Filing Document

Company: Synergy CHC Corp.
Ticker: SNYR
CIK: 1562733
Filing Type: S-1/A
Document Type: S-1/A
Date Filed: 2024-07-29
Accession Number: 0001013762-24-002165
Exchange: Nasdaq
SIC Code: 2833
SIC Description: Medicinal Chemicals & Botanical Products
URL: https://www.sec.gov/Archives/edgar/data/1562733/000101376224002165/ea0208324-02.htm

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temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax positions. Table of Contents SYNERGY CHC CORP. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3 — Income Taxes (cont.) For U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382/383, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited or eliminated, as to the amount that could be utilized each year, based on the Code. NOL’s attributable to Breakthrough Products, Inc., which are the majority of the Company’s domestic NOL’s are Separate Return Limitation Year (SRLY) NOL’s. Such losses may generally not be available for use (limited or eliminated).

The Company has not filed its State & Local Income/Franchise tax returns in states it is required to file, as such returns and liability remain open. The Company does not expect this to be a significant liability.

The Company had tax expense of $127,189 for the three months ended March 31, 2024 and a tax benefit of $10,918 for the three months ended March 31, 2023.

The Company also has net operating loss carryforwards of approximately $52,858,000 and approximately $52,800,000 (United States and Canada) included in the deferred tax assets for March 31, 2024 and December 31, 2023, respectively, the majority attributable to the acquisition of Breakthrough Products, Inc. However, due to limitations of carryover attributes and separate return limitation year rules, it is unlikely the company will benefit from the NOL’s and thus Management has determined a 100% valuation allowance is required. Further, the Company has not completed an evaluation of the NOL’s attributable to Breakthrough Products, Inc. at the date of this report.

Note 4 — Accounts Receivable

Accounts receivable, net of allowances for doubtful accounts, consisted of the following:

March 31, 2024 December 31, 2023

Trade accounts receivable $	2,472,687 $	2,255,540

Less allowances (48,263	) (149,446	)

Total accounts receivable, net $	2,424,424 $	2,106,094

During the three months ended both March 31, 2024 and 2023, the Company charged $0 to bad debt expense.

Note 5 — Prepaid Expenses

At March 31, 2024 and December 31, 2023, prepaid expenses consisted of the following:

March 31, 2024 December 31, 2023

Advances for inventory $	309,220 $	128,025

Insurance 15,925 6,133

Deposits 24,000 60,000

Contract employee, related party 667,008 501,321

Components 53,385 97,606

Promotions 96,534 —

Miscellaneous 488 4,900

Total $	1,166,560 $	797,985

Note 6 — Concentration of Credit Risk

Cash and cash equivalents

The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At March 31, 2024 and December 31, 2023, the uninsured balance amounted to $748,391 and $441,711, respectively.

Table of Contents

SYNERGY CHC CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Concentration of Credit Risk (cont.)

Accounts receivable

As of March 31, 2024 and December 31, 2023, four and two customers accounted for 73% and 68%, respectively, of the Company’s accounts receivable.

Major customers

For the three months ended March 31, 2024, two customers accounted for approximately 68% of the Company’s net revenue. For the three months ended March 31, 2023, three customers accounted for approximately 77% of the Company’s net revenue. Substantially all of the Company’s business is with companies in the United States.

Accounts payable

As of March 31, 2024 and December 31, 2023, three and two vendors accounted for 44% and 64%, respectively, of the Company’s accounts payable.

Major suppliers

For the three months ended March 31, 2024, two suppliers accounted for approximately 73% of the Company’s purchases. For the three months ended March 31, 2023, one supplier accounted for approximately 13% of the Company’s purchases. Substantially all of the Company’s business is with suppliers in the United States.

Note 7 — Inventory

Inventory consists of finished goods, components and raw materials. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or net realizable value.

The carrying value of inventory consisted of the following:

March 31, 2024 December 31, 2023

Finished goods $	2,570,836 $	3,584,343

Components 93,949 93,949

Inventory in transit — 2,948

Raw materials 45,000 45,000

Total inventory $	2,709,785 $	3,726,240

As of January 22, 2015, inventory was pledged to Knight under the Loan Agreement (see note 12). As of March 31, 2024 and December 31, 2023, $0 and $2,948, respectively, of the Company’s inventory was in transit. During the three months ended March 31, 2024 and 2023, the Company had no inventory write-offs.

Note 8 — Intangible Assets

March 31, 2024 December 31, 2023

License Fee $	450,000 $	450,000

Less accumulated amortization (66,667	) (33,333	)

Intangible assets, net $	383,333 $	416,667

Amortization expense for the three months ended March 31, 2024 and 2023 was $33,334 and $0, respectively.

The estimated aggregate amortization expense over each of the next five years is as follows:

Nine months 2024 $	99,999

Table of Contents

SYNERGY CHC CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Related Party Transactions

The Company paid consulting fees through March 2024 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. The Company expensed $0 and $308,511, respectively during the three months ended March 31, 2024 and 2023 as consulting fees. The Company advanced $165,687 in the manner of a prepaid consulting fees during the three months ended March 31, 2024. The prepaid balance as of March 31, 2024 and December 31, 2023 was $667,008 and $501,321, respectively. During 2024, the Company was advanced $1,400,000 in the form of a short-term note. The balance owed as of March 31, 2024 and December 31, 2023 the balance owed is $1,400,000 and $0, respectively.

On June 26, 2015, the Company entered into a Security Agreement with Knight Therapeutics, Inc., a related party (owner of greater than 10% shares of the Company), through its wholly owned subsidiary Neuragen Corp., for the purchase of Knight Therapeutics, Inc.’s assets. At March 31, 2024 and December 31, 2023, the Company owed Knight $275,000 and $287,500 in relation to this agreement (see Note 11). The Company recorded present value of future payments of $199,640 and $204,941 as of March 31, 2024 and December 31, 2023, respectively.

The Company entered into transactions with a related party controlled by the CEO during prior years. The transactions were a pass through and allocation of expenses and reimbursements. As of March 31, 2024 and December 31, 2023 the Company was owed $4,434,834 and $4,459,996, respectively.

The Company entered into a transaction with a related party controlled by the CEO during the year ended December 31, 2023. The transaction was in the form of a short-term loan. The Company received $10,000 Canadian dollars (US Dollars $7,561). This amount was owed to the related party as of December 31, 2023 and was repaid during February 2024.

On August 9, 2017, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party (owner of greater than 10% shares of the Company), for a working capital loan. At both March 31, 2024 and December 31, 2023, the Company owed Knight $5,000,000 on this loan, net of debt issuance cost (see Note 11). During the year ended December 31, 2020 a loan success fee of $1,000,000 was earned by Knight payable in August 2022 (see Note 11). At both March 31, 2024 and December 31, 2023, the Company owed Knight $1,000,000 on the loan success fee (see Note 11).

On May 8, 2020, the Company entered into a Third Amendment Agreement with Knight Therapeutics (Barbados) Inc., a related party, for working capital loan. At March 31, 2024 and December 31, 2023, the Company owed Knight $320,000 and $392,000, respectively on this loan (see Note 11).

On July 7, 2022, the Company entered into a Fourth Amendment Agreement with Knight Therapeutics (Barbados) Inc., a related party, for an additional $2,000,000 loan (the “Second Additional Loan”). At both March 31, 2024 and December 31, 2023, the Company owed Knight $2,000,000 on this loan (see Note 11). During the year ended December 31, 2023 a loan success fee of $83,250 was earned by Knight and is payable as of both March 31, 2024 and December 31, 2023 (see Note 11).