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

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additional capital. • The Company has restructured its debt agreements in 2024 which extends the terms into 2026. Table of Contents SYNERGY CHC CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 — Summary of Significant Accounting Policies (cont.) Management concluded that the above factors alleviate doubts about the Company’s ability to generate enough cash from operations and other available sources to satisfy its obligations for the next twelve months from the issuance date. The Company will take the following actions if it starts to trend unfavorably to its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern: • Raise additional capital through line of credit and/or loans financing for future mergers and acquisition. • Implement restructuring and cost reductions. • Raise additional capital through a private placement. Recent Accounting Pronouncements ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments — Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The implementation did not have a material effect on the Company’s consolidated financial statements.

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

Note 3 — Income Taxes

The Company utilizes FASB ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities 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