SEC Filing Document

Company: Synergy CHC Corp.
Ticker: SNYR
CIK: 1562733
Filing Type: 424B4
Document Type: 424B4
Date Filed: 2024-10-23
Accession Number: 0001213900-24-089987
Exchange: Nasdaq
SIC Code: 2833
SIC Description: Medicinal Chemicals & Botanical Products
URL: https://www.sec.gov/Archives/edgar/data/1562733/000121390024089987/ea0208324-14.htm

Chunk 62 of 67
Word Count: 1333
Character Count: 8454

Document Content:

into Canada. In conjunction with this agreement, the Company is required to pay Knight a distribution fee equal to 60% of gross sales for sales achieved through a direct sales channel until the sales in the calendar year equal the threshold amount and then 40% of all such gross sales in such calendar year in excess of the threshold amount and 5% of gross sales for sales achieved through retail sales. The minimum due to Knight under this agreement is $25,000 Canadian dollars. During the year ended December 31, 2023, the Company expensed was $25,000 Canadian dollars (US Dollars $18,531). As of December 31, 2023 and 2022, the total outstanding balance was $160,637 and $135,637 Canadian dollars, respectively. In US Dollars, the total outstanding balance was $121,458 and $100,141 as of December 31, 2023 and 2022 respectively. The outstanding distribution fees have been added to the related party notes payable.

The Company expensed royalty of $849 for the year ended December 31, 2022. At December 31, 2022, the Company owed Knight Therapeutics $41 in connection with a royalty distribution agreement.

The Company expensed royalty of $82,810 and $74,088 for the years ended December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, the Company owed Knight Therapeutics $19,324 and $11,084, respectively, in connection with a royalty distribution agreement.

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.

Note 10 — Accounts Payable and Accrued Liabilities

As of December 31, 2023 and 2022, accounts payable and accrued liabilities consisted of the following:

December 31, 2023 December 31, 2022

Accrued payroll $	329,652 $	273,214

Legal fees 707,590 2,428,031

Commissions 601,988 362,705

Manufacturers 4,424,146 7,107,763

Promotions 3,315,755 6,804,395

Accounting Fees 223,286 —

Interest — 30,557

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Accounts Payable and Accrued Liabilities (cont.)

December 31, 2023 December 31, 2022

Royalties, related party 19,324 418,197

Warehousing 962,260 2,259,933

Sales taxes 18,364 76,044

Payroll taxes 871,047 706,944

Professional Fees 41,556 —

Inventory 49,972 109,972

Rent — 90,000

Related party advance 7,561 —

Others 154,989 129,754

Total $	11,727,490 $	20,797,509

The Company has estimated and accrued for its sales tax liability at $6,098 and $13,277 for the parent entity as of December 31, 2023 and 2022, respectively.

During 2023 the Company recognized a gain on forgiveness of accounts payable of $2,400,000. This gain was included as a reduction of selling and marketing expenses.

Note 11 — Notes Payable

The Company’s notes payable at December 31, 2023 and 2022 are as follows:

December 31, 2023 December 31, 2022

Notes payable $	27,630,420 $	22,839,277

Unamortized debt issuance cost (12,288	) (13,746	)

Total 27,618,132 22,825,531

Current portion, related party (—	) (21,068	)

Current portion, other (2,094,525	) (1,005,385	)

Long-term portion, related party 12,426,997 11,463,656

Long-term portion, other $	13,096,610 $	10,335,422

$950,000 June 26, 2015 Security Agreement:

On June 26, 2015, the Company, through its wholly owned subsidiary, Neuragen Corp. (“Neuragen”), issued a 0% promissory note in a principal amount of $950,000 in connection with an Asset Purchase Agreement. The note requires $250,000 to be paid on or before June 30, 2016, and $700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of $12,500 or 5% of U.S. net sales, and 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released upon receipt of total payments of $1.2 million.

The Company recorded present value of future payments of $204,941 and $213,040 as of December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, the Company owed Knight $287,500 and $325,000 in relation to this agreement. The Company recorded interest expense of $29,401 and $31,817 for the years ended December 31, 2023 and 2022, respectively. The Company made payments of $37,500 and $62,500 during 2023 and 2022, respectively.

During March 2024, this Security Agreement was consolidated with the other outstanding loans to Knight.

Table of Contents

SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Notes Payable (cont.)

$10,000,000 August 9, 2017 Loan:

On August 9, 2017, the Company entered into a Second Amendment to Loan Agreement (“Second Amendment”) with Knight, pursuant to which Knight agreed to loan the Company an additional $10 million, and an ongoing credit facility of up to $20 million, and which amount was borrowed at closing (the “Financing”) for working capital purposes. At closing, the Company paid Knight an origination fee of $200,000 and a work fee of $100,000 and also paid $100,000 of Knight’s expenses associated with the Loan.

Additional Tranches under the Loan Agreement are available to the Company until August 9, 2022 provided that no event of default exists. Each Additional Tranche must be for a minimum amount of $1.0 million, may only be used to finance qualified acquisitions (as defined in the Loan Agreement), and can be denied in Knight’s absolute discretion. If an Additional Tranche is denied, the Company can effect a qualified acquisition through a special purpose entity with such special purpose entity being entitled to obtain financing from third parties so long as such financing does not adversely affect Knight or Knight’s rights under the Loan Agreement. Upon the closing of any Additional Tranche, the Company will pay Knight an origination fee equal to 2% of the Additional Tranche, a work fee equal to 1% of the amount of the Additional Tranche, and reimburse Knight for its expenses incurred in connection with its consideration of any Additional Tranche (whether or not advanced).

The Loan bears interest at 10.5% per annum. The amended Loan Agreement matures on August 8, 2020 and (b) the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default.

On the Maturity Date of the Third Tranche and every Additional Tranche (or upon the acceleration of each such loan), the Company must pay Knight a success fee (the “Success Fee”) of that number of Company common shares equal to 10% of the loan, divided by the lesser of (a) $1.50, (b) the lowest price at which any common shares were issued by the Company in any offering or equity financing or other transaction between the Closing Date and the date the Success Fee is due, and (c) the current market price on the date the Success Fee is due. The Company may also pay the Success Fee in cash pursuant to the terms of the Loan Agreement.

The Loan Agreement includes customary representations, warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, and to not merge or dispose of assets, acquire other businesses (except for businesses substantially similar or complementary to the Company’s business, and provided that the aggregate consideration to be paid does not exceed $100,000 and the acquired business guarantees the Company’s obligations under the Loan Agreement) or make capital expenditures in excess of $500,000. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants, change of control and material adverse effect defaults. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of all loans under the Loan Agreement will bear a default interest rate of an additional 5%.

The Company’s obligations and liabilities under the Loan Agreement are secured and unconditionally guaranteed by certain of the Company’s wholly-owned subsidiaries as provided in the Loan Agreement.