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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and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized. Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from 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 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 table below summarizes the differences between the U.S. statutory federal rate and the Company’s estimated effective tax rate for the years ended December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

U.S. Statutory Rate (21	)% (21	)%

AU/CA rates in excess of the US rate 1	% (1	)%

Increase in valuation allowance 16	% 23	%

Other % (1	)%

Utilization of Australian and Canadian NOL % —	%

Total provision for income taxes (4	)% —	%

The Company has deferred tax assets, which have been fully reserved, as follows as of December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

Net operating Losses $	11,088,197 $	11,849,713

Obsolete inventory 244,397 192,869

Nonstatutory stock options 515,319 515,319

Success fee 525,000 525,000

Other 70,597 55,967

Impairment of Intangible Asset 220,150 220,150

Accruals 180,139 598,500

Amortization 78,400 71,400

Bad Debt Reserve 25,695 46,695

True up of prior year accruals — (47,250	)

Deferred tax asset 12,947,894 14,028,363

Valuation allowance for deferred tax assets (12,947,894	) (14,028,363	)

Net deferred tax assets $	— $	—

Tax expense was $234,980 and $32,172 for 2023 and 2022, respectively.

The Company also has net operating loss carryforwards of approximately $52,800,000 and approximately $55,000,000 (United States and Canada) included in the deferred tax asset table above for 2023 and 2022, 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 reserved 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.

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Accounts Receivable

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

December 31, 2023 December 31, 2022

Trade accounts receivable (including related party receivable of $0 and $0, respectively – see note 9) $	2,255,540 $	3,632,996

Less allowances (149,446	) (148,282	)

Total accounts receivable, net $	2,106,094 $	3,484,714

During the years ended December 31, 2023 and 2022, the Company charged $0 and $222,357, respectively to bad debt expense and written off allowance of $164,489 in 2022.

Note 5 — Prepaid Expenses

At December 31, 2023 and 2022, prepaid expenses consisted of the following:

December 31, 2023 December 31, 2022

Advances for inventory $	128,025 $	—

Insurance 6,133 2,070

Deposits 60,000 4,000

Contract employee, related party 501,321 131,866

Components 97,606 —

Miscellaneous 4,900 1,833

Total $	797,985 $	139,769

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 December 31, 2023 and 2022, the uninsured balance amounted to $441,711 and $2,170,447, respectively.

Accounts receivable

As of December 31, 2023 and 2022, two customers accounted for 68% and 77%, respectively, of the Company’s accounts receivable.

Major customers

For the years ended December 31, 2023 and 2022, three customers accounted for approximately 78% and 67%, respectively, of the Company’s net revenue. Substantially all of the Company’s business is with companies in the United States.

Accounts payable

As of December 31, 2023 and 2022, two and one vendors accounted for 64% and 63%, respectively, of the Company’s accounts payable.

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Concentration of Credit Risk (cont.)

Major suppliers

For the year ended December 31, 2023, one supplier accounted for approximately 18% of the Company’s purchases. For the year ended December 31, 2022, one supplier accounted for approximately 28% 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:

December 31, 2023 December 31, 2022

Finished goods $	3,584,343 $	7,858,250

Components 93,949 109,467

Inventory in transit 2,948 —

Raw materials 45,000 —

Total inventory $	3,726,240 $	7,967,717

As of January 22, 2015, inventory was pledged to Knight under the Loan Agreement (see note 12). As of December 31, 2023, $2,948 of the Company’s inventory was in transit. During the years ended December 31, 2023 and 2022, $251,021 and $12,456,346, respectively, of expiring and slow-moving inventory was written off to cost of sales. As of December 31, 2023 and 2022, the Company has accrued $387,176 and $1,660,000, respectively, related to storing this inventory and ultimate disposal of the obsolete inventory.

Note 8 — Fixed Assets and Intangible Assets

As of December 31, 2023 and 2022, fixed assets and intangible assets consisted of the following:

December 31, 2023 December 31, 2022

Property and equipment $	— $	579,520

Less accumulated depreciation — (528,914	)

Less accumulated impairment — (50,606	)

Fixed assets, net $	— $	—

Depreciation expense for each of the years ended December 31, 2023 and 2022 was $0. During the year ended December 31, 2022, the Company fully impaired remaining assets of $9,778.

December 31, 2023 December 31, 2022

Hand MD intellectual property $	— $	1,700,000

License Fee 450,000 —

Less accumulated amortization (33,333	) (495,833	)

Less accumulated impairment — (1,204,167	)

Intangible assets, net $	416,667 $	—

Amortization expense for the years ended December 31, 2023 and 2022 was $33,333 and $340,000, respectively. Impairment of intangible assets for the year ended December 31, 2022 related to intangible assets from the Hand MD intellectual property purchase in 2021.

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Fixed Assets and Intangible Assets (cont.)

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

Note 9 — Related Party Transactions

The Company accrued and paid consulting fees through December 2023 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. The Company also paid eight months of a vehicle allowance of $2,500 per month. The Company expensed $500,000 and $738,483, respectively during 2023 and 2022 as consulting fees, advanced $501,321 and $131,894 in the manner of a prepaid consulting fees as of December 31, 2023 and 2022, respectively. During 2023, the Company was advanced $1,170,000 in the form of a short-term note. The Company repaid this during 2023 with interest of $210,000. As of both December 31, 2023 and 2022, the total outstanding balance was $0.

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 December 31, 2023 and 2022, the Company owed Knight $287,500 and $325,000 in relation to this agreement (see Note 11). The Company recorded present value of future payments of $204,941 and $213,040 as of December 31, 2023 and 2022, respectively.