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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with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company an additional $2.0 million (the “Second Additional Loan”). The Fourth Amendment amends the original loan agreement that the Company and Knight entered into in January 2015 and subsequently amended (as amended, the “Original Loan Agreement”). The Second Additional Loan matures on the earlier of October 31, 2022 and the date that is ninety days after the date, if any, on which Knight delivers a Second Additional Loan Repayment Notice to the Company. The Company will pay Knight a success fee of $40,000 and an amendment fee of $30,000 which is fully earned and payable as of the Fourth Amendment Date. The loan bears interest at the greater of 14% or the prime rate plus 8% per annum, compounded quarterly. This $2.0 million Second Additional Loan (only) has a personal guarantee by a shareholder, Jack Ross.

On September 30, 2023, the Company entered into a Fifth Amendment Agreement (the “Fifth Amendment”) to the Loan Agreement with Knight, pursuant to which Knight agreed to extend the maturity date of the Loan to March 31, 2024. The loan will bear interest at 15.5% per annum compounding quarterly. The Company will pay Knight a closing fee of $1,000,000 and $150,000 as reimbursement for Knights legal fees incurred in connection with the Fifth Amendment. These have been accrued for during the year ended December 31, 2022 since this was earned upon renegotiation of the loan during 2022. The Company has also paid Knight an extension fee of $136,000 per month from October 2023 through February 2024.

We have amended our financial covenants in the Fifth Amendment to as follows: We will maintain a minimum EBITDA of $1,000,000 for the three (3) month period ending on the last day of each Fiscal Quarter starting June 30, 2023. We shall at all times maintain Focus Factors net sales on a trailing twelve-month basis of at least $30,000,000.

The Company recognized interest expense of $1,693,642 and $1,319,295 during the years ended December 31, 2023 and 2022, respectively. Accrued interest was $1,760,076 and $1,771,684 as of December 31, 2023 and 2022, respectively. Accrued interest was capitalized and included in the loan balance as of December 31, 2023 and 2022.

On October 1, 2023 (effective date), the Company entered into second amendment to the Distribution Agreement with Knight with an initial term ending on February 25, 2026 with an automatic renewal of one year for a payment of $450,000 by the Company within 180 days from the effective date. The Company has recorded this payable in terms of a Note Payable to Knight Therapeutics in relation to a license fee of an intangible asset. The balance outstanding at December 31, 2023 was $450,000.

During 2023, the Company accrued $83,250 as added to Notes Payable in the form of a loan success fee as earned.

During March 2024, the Company entered into an Amended Agreement with Knight Therapeutics for its existing secured debt, which was finalized in June 2024. The consolidated loan will bear minimum interest rate at 12% per annum compounded quarterly and will be paid on the last day of each month. The principal repayment will begin in the first quarter of 2025 with $1,000,000 due quarterly until March 31, 2026 when the loan becomes due in full. As part of this agreement the outstanding royalties of $536,730 were converted to long term debt (see note 9).

Minimum interest rate is subjected to the following adjustments:

(i)     Following an uncured event of default by Synergy, the Interest Rate will increase by 5%.

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Notes Payable (cont.)

(ii)    Synergy shall raise Five Million Dollars ($5,000,000) of equity no later than March 31, 2025. Should Synergy fail to raise equity of Five Million Dollars ($5,000,000) by March 31, 2025, then (1) Knight will earn an additional fee of One Million Dollars ($1,000,000) which will be added to the principal balance of the loan then outstanding and (2) the loan shall be considered to be in default. Any equity raise shall not dilute Knight’s ownership in Synergy below 10% of fully diluted basis.

Security:    This loan shall be senior secured against all current and future assets (cash, intellectual property, real property, etc.) of Synergy, its affiliates, and subsidiaries. Synergy shall not add any other debt without paying out KTI first.

Bonus Success Fee:    Upon closing of a Sale Transaction (hereinafter defined) of Synergy, KTI, shall be paid a One Million eight hundred thousand Dollar ($1,800,000) Bonus success fee (“Bonus Success Fee”). The Sale Transaction shall include but is not limited to the acquisition of Synergy by a Third Party, the merger of Synergy with a Third Party, partial or complete sale of any asset of Synergy. The obligation of Synergy to KTI under the Success Fee shall survive the Maturity Date and remain in force until a Sale Transaction. As the sole exemption from the above defined Sale transaction and herein Bonus success fee, If Synergy or any of its brands does an IPO on a publicly listed exchange, no such Bonus Success fee will be due nor payable by Synergy. An IPO shall be defined as Synergy raising at least $10 million of cash through the issuance of equity at a $50 million pre-money valuation.

Covenants:    The following covenants shall be added or amended to the existing Loan with KTI;

(i)     Jack Ross’s Synergy total annual compensation (salary, bonus and options) shall be capped at $500,000; until KTI’s loan is paid out or until such a time when Synergy is listed on a publicly traded stock exchange at such time the compensation committee will determine the annual compensation and approve by the Board of Directors.

(ii)    Synergy shall maintain a minimum EBITDA of US$1,250,000 for the three (3) month period ending on the last day of each Fiscal Quarter starting March 31, 2024.

(iii)   Synergy shall provide KTI a quarterly and annual operating budget for approval prior to implementation;

(iv)   Synergy shall enter into a Shareholders Agreement with KTI, by June 30, 2024; which shall contain customary terms and conditions acceptable to all parties

(v)    This Loan becomes immediately due if Focus Factor Net Revenues fall below a trailing 12-month net sales of $30 million. Synergy shall provide KTI with monthly Net Revenues for Focus Factor;

(vi)   Synergy is required to communicate to Knight within 2 working days in the event it receives a notice of default from any third party for any debt payables or obligations. If Synergy, default on any of its third-party debt obligations, then the Amended Loan will automatically enter into default.

(vii)  Timely payment of royalties due to Knight.

(viii) Synergy shall repay and terminate Shopify debt no later than December 31, 2024.

Other Loan Conditions:    In the event, Synergy does not repay the KTI in full on March 31, 2026, Jack Ross shall sell, for $1, a total of 5,400,000 of his Synergy shares to KTI. The purchase of the Additional Shares is at Knight’s option and Jack Ross and KTI shall execute a Share Purchase Agreement prior to April 30th, 2024.

As of December 31, 2023 the total consolidated amount outstanding on these loans, including accrued interest and royalties is $12,426,997.

The Company is required to make future payments as follows:

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Notes Payable (cont.)

$1,700,000 July 13, 2021 Loan:

On July 13, 2021, the Company entered into a loan agreement of $1,700,000 with Hand MD, LLC for transfer of ownership to in Hand MD Corp. to The Company.

Payments are due as follows: $500,000 within 10 business days of execution, $400,000 on or before the six-month anniversary of the agreement, $400,000 on or before the twelve-month anniversary of the agreement and $400,000 on or before the eighteen-month anniversary of the agreement.

During the years ended December 31, 2023 and 2022 the Company paid $400,000 and $800,000, respectively, toward the loan. This has been fully repaid during 2023.

$214,700 October 13, 2021 Loan:

On October 13, 2021, the Company entered into a loan agreement of $214,700 with Shopify Capital Inc. for an advancement of working capital from its online processing account. The Company received $190,000 from Shopify Capital Inc. and $24,700 was an original issue discount. The loan bears a repayment rate of 17% of daily sales and the Company shall pay $35,783 every 60 days.

The payment of such amounts is secured by a security interest in certain assets, undertakings and property pursuant to the Security Agreement, which will be released upon receipt of total payments of $214,700.

The Company recognized amortization original issue discount of $24,700, which is included in interest expense in the statement of income during the year ended December 31, 2022. This was fully repaid during 2022.

$2,000,000 February 10, 2022 Loan: