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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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).

On September 30, 2023, the Company entered into a Fifth Amendment Agreement with Knight Therapeutics (Barbados) Inc., a related party, to modify prior Agreements. This modification extends the maturity dates of loans to March 31, 2024. The Company will pay Knight a closing fee of $1,000,000 in connection with the Fifth Amendment. This has been accrued for during the year ended December 31, 2022 since this was earned upon renegotiation of the loan during 2022 (see Note 11).

During February 2024, the Company entered into an amended agreement with Knight Therapeutics Inc., a related party, to modify prior Agreements. This modification consolidates outstanding loans and extends the maturity dates of loans to March 31, 2026 (see Note 11).

The Company recognized interest expense of $414,158 and $398,201 during the period ended March 31, 2024 and 2023, respectively. Accrued interest was $1,760,076 as of both March 31, 2024 and December 31, 2023. Accrued interest was capitalized and included in the loan balance as of March 31, 2024 and December 31, 2023.

On December 23, 2016, the Company entered into an agreement with Knight Therapeutics for the distribution rights of FOCUSfactor in Canada. In conjunction with this agreement, the Company is required to pay Knight a distribution fee equal to 30% of gross sales for sales achieved through a direct sales channel and 5% of gross sales for

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SYNERGY CHC CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Related Party Transactions (cont.)

sales achieved through retail sales. The minimum due to Knight under this agreement is $100,000 Canadian dollars. During the year ended December 31, 2023, the Company expensed $133,502 Canadian dollars (US Dollars $98,939). As of both March 31, 2024 and December 31, 2023, the total outstanding balance was $549,229 Canadian dollars. In US Dollars, the total outstanding balance was $403,936 and $415,272 as of March 31, 2024 and December 31, 2023, respectively. The outstanding distribution fees have been added to the related party notes payable.

On December 23, 2016, the Company entered into an agreement with Knight Therapeutics for the distribution rights of Hand MD 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 both March 31, 2024 and December 31, 2023, the total outstanding balance was $160,637 Canadian dollars. In US Dollars, the total outstanding balance was $118,550 and $121,428 as of March 31, 2024 and December 31, 2023, respectively. The outstanding distribution fees have been added to the related party notes payable.

The Company expensed royalty of $22,478 and $22,153 for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024 and December 31, 2023, the Company owed Knight Therapeutics $7,245 and $19,324, 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 both March 31, 2024 and December 31, 2023 was $450,000.

Note 10 — Accounts Payable and Accrued Liabilities

As of March 31, 2024 and December 31, 2023, accounts payable and accrued liabilities consisted of the following:

March 31, 2024 December 31, 2023

Accrued payroll $	332,236 $	329,652

Legal fees 634,161 707,590

Commissions 683,023 601,988

Manufacturers 629,167 4,424,146

Promotions 1,171,823 3,315,755

Accounting Fees 319,571 223,286

Interest 122,633 —

Royalties, related party 7,245 19,324

Warehousing 1,125,801 962,260

Sales taxes 34,835 18,364

Payroll taxes 896,600 871,047

Professional Fees 35,723 41,556

Inventory — 49,972

Related party advance — 7,561

Others 151,658 154,989

Total $	6,144,476 $	11,727,490

The Company has estimated and accrued for its sales tax liability at $9,114 and $6,098 for the parent entity as of March 31, 2024 and December 31, 2023, respectively.

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SYNERGY CHC CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Notes Payable

The Company’s notes payable at March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024 December 31, 2023

Notes payable $	32,397,406 $	27,630,420

Unamortized debt issuance cost (10,874	) (12,288	)

Total 32,386,532 27,618,132

Current portion, related party (1,400,000	) (—	)

Current portion, other (4,094,057	) (2,094,525	)

Long-term portion, related party 12,335,452 12,426,997

Long-term portion, other $	14,557,022 $	13,096,610

$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 $199,640 and $204,941 as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023 the Company owed Knight $275,000 and $287,500 in relation to this agreement. The Company recorded interest expense of $7,199 and $7,520 for the three months March 31, 2024 and 2023, respectively. The Company made payments of $12,500 and $12,500 during the three months ended March 31, 2024 and 2023, respectively.

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

$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.

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