ITEM 1. BUSINESS
Overview
We are a consumer health care and beauty company that is in the process of building a portfolio of best-in-class consumer product brands. Our strategy is to grow both organically and by further acquisition.
Corporate History
We were organized as a corporation under the laws of the State of Nevada on December 29, 2010 under the name “Oro Capital Corporation”. On April 7, 2014, an Agreement and Plan of Merger (the “Merger Agreement”) was entered into by and among us, Synergy Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary formed for the purpose of the transactions under the Merger Agreement (“Merger Sub”), and Synergy Strips Corp., a Delaware corporation incorporated on January 24, 2012 (“SSC”). The Merger Agreement provided for the merger of Merger Sub with and into SSC (the “Merger”), with SSC surviving the merger as our wholly owned subsidiary. On April 17, 2014, we issued a share dividend to our shareholders in order to effect a 30-for-1 forward stock split. The Merger was consummated on April 21, 2014. On April 21, 2014, we changed our fiscal year end from July 31 to December 31. On April 28, 2014, we changed the name of the Company from “Oro Capital Corporation” to “Synergy Strips Corp.” On August 5, 2015, we changed the name to “Synergy CHC Corp.”
Effective January 1, 2019, the Company’s U.S. subsidiaries, Neuragen Corp., Sneaky Vaunt Corp., The Queen Pegasus Corp. and Breakthrough Products Inc., merged with and into the Company.
Fiscal Year Developments
During 2018 we focused on development and line extensions within our existing brands. We developed product extensions and expanded into new markets.
Description of the Business
FOCUSfactor is sold at America’s leading retailers such as Costco, Sam’s Club, BJ’s, Walmart, Amazon.com, Walgreens, CVS, The Vitamin Shoppe and online at www.focusfactor.com. FOCUSfactor is a brain-health nutritional supplement that includes a proprietary blend of brain supporting vitamins, minerals, antioxidants and other nutrients. In December 2012, the United States Patent and Trademark Office issued US Patent 8,329,227 covering FOCUSfactor’s proprietary formulation “for enhanced mental function.” The issuance of the patent marked one of the few times a patent has been issued for a nationally branded nutritional supplement. FOCUSfactor is clinically tested with results demonstrating improvements in focus, concentration and memory in healthy adults. FOCUSfactor is a material product to our revenue base, representing 55% of revenue.
Flat Tummy Tea is a uniquely formulated two-step herbal detox tea that works to naturally help speed metabolism, boost energy and reduce bloating. Flat Tummy Tea is sold online at www.flattummyco.com, Amazon.com, CVS and at The Vitamin Shoppe. Flat Tummy Tea is a material product to our revenue base, representing 37% of revenue.
Hand MD is the world’s first anti-aging skincare line formulated specifically for the hands. Hand MD is sold online at www.handmd.com and Amazon.com.
Neuragen is a topical product that works directly at the site of pain as opposed to oral products. Neuragen reduces the spontaneous firing of damaged peripheral nerves. By calming these nerves, Neuragen is clinically shown to reduce shooting and burning pains quickly and without side effects. Neuragen is sold at Walgreens and through various distribution channels.
Sneaky Vaunt is a backless, strapless, stick on, push up bra. Sneaky Vaunt is sold online at www.sneakyvaunt.com and Amazon.com.
The Queen Pegasus is a two-step eyelash elixir kit for longer and fuller looking natural eyelashes. The Queen Pegasus is sold online at www.thequeenpegasus.com and Amazon.com.
Per-fekt Beauty is a line of cosmetics that merges advanced skincare formulations with color. Per-fekt Beauty products are sold online at www.perfektbeauty.com and Amazon.com.
Think Fuel is a line of nootropic supplements designed to enhance brain function. Think Fuel products are sold online at www.thinkfuel.com and Amazon.com.
Products
Current Products
Development and Commercialization Strategy
We intend to expand on the current retail strategies and build out a strong online sales model.
Research and Development
We currently outsource our research and development to our manufacturers, as they are experienced in the development of new products and line extensions.
Manufacturing
We currently outsource the manufacturing of our products to third parties who have the necessary equipment and technology to provide mass quantities as required. FOCUSfactor is manufactured by Atrium Innovations and Vit-Best Nutrition. Flat Tummy Tea is manufactured by Caraway Tea Company. Neuragen is manufactured by C-Care. Hand MD is manufactured by HealthSpecialty. Sneaky Vaunt is manufactured by Dongguan Jingrui. The Queen Pegasus is manufactured by Skin Actives and Ningbo Beautiful Day Cosmetics.
Commercialization
We are highly dependent on two retailers for the sale of our retail products: Costco Wholesale Corporation and Sam’s West, Inc./Walmart (a/k/a Sam’s Club), which comprise 65% of our net revenue for retail sales of our products. We intend to diversify our sales network and generate revenue by selling our consumer-ready products to retailers across North America, which retailers may then sell to end consumers through retail distribution channels. We also sell direct to wholesalers and distributors at a reduced cost as a means to grow our revenue base quickly and to penetrate the market more effectively.
Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we will rely on a combination of patents, patent applications, trademarks, copyrights, trade secrets, including know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and other contractual rights.
In December 2012, the United States Patent and Trademark Office issued U.S. Patent 8,329,227 covering FOCUSfactor’s proprietary formulation “for enhanced mental function.” The issuance of the patent marked one of the few times a patent has been issued for a nationally branded nutritional supplement. The issuance of the patent for FOCUSfactor came after a 2011 clinical study report which showed that FOCUSfactor improved memory, concentration and focus in healthy adults participating in the study. The clinical study of FOCUSfactor was sponsored by Factor Nutrition Labs, the owner of the Focus Factor Business at the time, and was conducted by Cognitive Research Corporation, a full-service contract research organization that specializes in the effects of nutritional supplements and pharmaceutical products on human cognition. The study was conducted in compliance with all applicable country requirements for the conduct of clinical studies, including those outlined by the International Conference on Harmonization, Consolidated Guidelines on Good Clinical Practices, and the Food and Drug Administration.
Distribution and Marketing
We plan to focus on selling to retailers and distributors who currently are active in the consumer product space with the aim to expedite the penetration of market acceptance of the product. We are currently conducting research with focus groups to find out what the best approach for marketing efforts is and how to do so in the most cost-effective manner. We also plan to develop an online sales channel.
Markets
We sell our products in mostly North American retail locations along with other developed countries with similar retail landscapes to North America.
Competition
Although there are many competing products on the market, in all our current product categories, FOCUSfactor is the only product in its category with both a patent and clinical study to support its claims. FOCUSfactor’s competitors include a wide range of products, from targeted brain-enhancement supplements to indirect competitors such as energy drinks that claim to improve concentration.
Government Regulation
The products that we sell, and those that we are developing for future sale, may be subject to U.S. Food and Drug Administration (“FDA”) approval for packaging compliance. With respect to the products we currently sell, our regulatory counsel has reviewed all of our products and we believe we are compliant with the current rules. Since the current products sold are considered nutraceuticals, cosmeceuticals and over the counter products, minimal regulations are placed on the product with the exception of the appropriate labeling and warnings on the packaging.
We will rely on legal and operational compliance programs, as well as local counsel, to guide our compliance with applicable laws and regulations of the jurisdictions in which we do business.
We do not anticipate, at this time, that the cost of compliance with U.S. and foreign laws will have a material financial impact on operations, business or financial condition. There are, however, no guarantees that new regulatory and tariff legislation will not have a material negative effect on our business in the future.
Employees
As of March 27, 2019, we had 42 full-time employees and 1 part-time employee. We intend to grow our employee base in response to the demands and requirements of the business.
ITEM 1A.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
ITEM 2. PROPERTIES
The following table describes our principal properties leased as of March 27, 2019:
(1) Monthly rental payments are $22,086 CDN per month on a month to month basis.
(2) Monthly rental payments are $4,290 per month on a month to month basis.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
During March 2019 we received a 60 day Proposition 65 letter that one of our products did not have California’s Prop 65 label. We are taking action to correct the oversight.
We are not a party to any legal proceedings and we are not aware of any claims or actions pending or threatened against us. In the future, we might from time to time become involved in litigation relating to claims arising from our ordinary course of business.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Only a sporadic and limited market exists for our securities. There is no assurance that a regular trading market will develop, or if one develops, that it will be sustained. Therefore, a shareholder in all likelihood will be unable to resell his, her or its securities in our Company. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops. Our securities are traded on the OTCQB operated by OTCMarkets.com under the symbol “SNYR”. The table below reflects the high and low bid information for our common stock obtained from OTC Markets and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
Shareholders
As of March 27, 2019, we had 37 shareholders of record of our common stock.
Dividend Policy
We have not declared any cash dividends. We do not intend to pay dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors our board deems relevant.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this report.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
There were no unregistered sales of the Company’s equity securities during the period from January 1, 2018 to December 31, 2018 that were not otherwise disclosed in a Current Report on Form 8-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is an overview of the important factors that management focuses on in evaluating our business, financial condition and operating performance and should be read in conjunction with the financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth in the Company’s reports filed with the SEC on Forms 10-K, 10-Q and 8-K as well as in this Annual Report on Form 10-K. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Overview
We are in the business of marketing and distributing consumer branded products through various distribution channels primarily in the health and wellness industry. Our strategy is to grow both organically and by future acquisition.
Our management’s discussion and analysis of our financial condition and results of operations are only based on our current business and should be read in conjunction with our audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Annual Report Form 10-K. Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.
Non-GAAP Financial Measures
We currently focus on Adjusted EBITDA to evaluate our business relationships and our resulting operating performance and financial position. Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization), further adjusted to exclude certain non-cash expenses and other adjustments as set forth below. We present Adjusted EBITDA because we consider it an important measure of our performance and it is a meaningful financial metric in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business, such as certain non-cash items and other adjustments.
We believe that Adjusted EBITDA, viewed in addition to, and not in lieu of, our reported results in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), provides useful information to investors.
EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA, further adjusted to exclude the impact of higher-than-normal revenue change order activity and certain expenses and transactions that we believe are not representative of our core operating results, including loss on change in fair value of derivative liability; stock-based compensation; one-time expenses for acquisitions; and loss on foreign currency translation and transaction. The Company’s definitions of EBITDA and adjusted EBITDA might not be comparable to similarly titled measures reported by other companies.
Results of Operations for the Years Ended December 31, 2018 and December 31, 2017
During 2018, we focused on developing our currently owned brands into new markets and by product extensions. Our objective is to grow all four of our targeted verticals (Nutraceuticals, Over the Counter (OTC), Consumer Goods and Cosmeceuticals) to provide a balanced and synergistic portfolio that drives consumer demand via multiple channels. During 2017, we completed one acquisition and developed two new brands.
Revenue
For the year ended December 31, 2018, we had revenues of $33,824,495 from sales of our products, as compared to revenue of $35,596,035 for the year ended December 31, 2017. This is comprised of the following categories:
The increase in our Nutraceutical category was due to organic growth, and new markets. The decrease in the Over the Counter category was due to a supply issue with one product during the year. The decrease in the consumer goods category is due to normalization of business after the launch year. The increase in the cosmeceuticals category was due to the full year of a new product line and additional products on existing lines.
Cost of Revenue
For the year ended December 31, 2018, our cost of revenue was $12,474,098. Our cost of revenue for the year ended December 31, 2017, was $9,818,406. This is comprised of the following categories:
The increase in our Nutraceutical category was due higher revenue and a write off of inventory. The increase in Over the Counter was due to a write off of inventory. The decrease in Consumer Goods was due to lower sales. The increase in Cosmeceuticals was due to higher sales and a write off of inventory.
Gross Profit
Gross profit was $21,350,397, or 63% of gross revenue, for the year ended December 31, 2018, as compared to gross profit of $25,777,629, or 72% of gross revenue, for the same period in 2017, a decrease of $4,427,232, or 17%. The decrease in gross profit and gross profit margin is directly related to decrease in net sales and a write off of inventory.
Operating Expenses
Selling and Marketing Expenses
For the year ended December 31, 2018, our selling and marketing expenses were $16,330,365 as compared to $14,043,870 for the year ended December 31, 2017. The increase is primarily due to increased marketing personnel.
General and Administrative Expenses
For the year ended December 31, 2018, our general and administrative expenses were $7,191,646. For the year ended December 31, 2017, our general and administrative expenses were $8,418,159. The decrease due to better management of operating expenses.
Depreciation and Amortization Expenses
For the year ended December 31, 2018 our depreciation and amortization expenses were $1,822,064 as compared to $1,493,285 for the year ended December 31, 2017. The increase in 2018 is primarily due to the increase in amortization of two intangible assets acquired in later part of 2017 as compared to for the full year of 2018, before these were impaired during later part of 2018.
Impairment of Intangible Assets
During the review of intangible assets and goodwill, it was determined that the carrying value of the intangible assets for two of our subsidiaries may not be recoverable, to the assets were fully impaired. For the year ended December 31, 2018, we recorded non-cash intangible asset impairment charges of $924,068.
Other Income and Expenses
For the year ended December 31, 2018, we had other (income) and expense items of the following:
For the year ended December 31, 2017 we had other (income) and expense items of the following:
The increase in interest expense in 2018 was due to the increased percentage rate on our loan.
Income tax expense
For the years ended December 31, 2018 and 2017 we incurred income tax benefit (expense) of $247,694 and ($316,012), respectively, primarily related to our subsidiary, NomadChoice Pty Limited (NomadChoice), located in Australia, which we acquired in 2015.
Net Income (Loss)
For the year ended December 31, 2018, our net loss was $6,160,690. For the year ended December 31, 2017 our net income was $499,568. This was primarily due to higher operating expenses during 2018 as well as various non-cash expenses and one-time expenses.
Liquidity and Capital Resources
Overview
Our sources of cash have historically consisted of proceeds from issuances of loans and revenues generated from operations.
Loan Financing
In 2017, we raised loans in the aggregate of $10 million, exclusive of issuance costs and expenses paid by us.
Sufficiency of Cash Balances and Potential Sources of Additional Capital
Our capital requirements depend on many factors, including, among others: the acceptance of, and demand for, our products and services; our levels of net product revenues and any other revenues we may receive; the extent and timing of any investments in developing, marketing and launching new or enhanced products or technologies; the costs associated with maintaining, defending and enforcing our intellectual property rights; and the nature and timing of acquisitions and other strategic transactions or relationships in which we engage, if any.
We believe our existing cash balance, together with cash provided by our operations and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our estimates of our operating revenues and expenses and working capital requirements could be incorrect and we may use our cash resources faster than we anticipate. Further, some or all of our ongoing or planned investments may not be successful and could further deplete our capital without immediate, or any, cash returns. Until we can generate sufficient revenues to finance our cash requirements from our operations, which we may never do, we may need to increase our liquidity and capital resources by one or more measures, which may include, among others, reducing operating expenses, restructuring our balance sheet by negotiating with creditors and vendors, entering into strategic partnerships or alliances, raising additional financing through the issuance of debt, equity or convertible securities or other alternative financing arrangements. Further, even if our near-term liquidity expectations prove correct, we may still seek to raise capital through one or more of these financing alternatives. However, we may not be able to obtain capital when needed or desired, on terms acceptable to us or at all.
Inadequate working capital would have a material adverse effect on our business and operations and could cause us to fail to execute our business plan, fail to take advantage of future opportunities or fail to respond to competitive pressures or customer requirements. A lack of sufficient funding may also require us to significantly modify our business model and/or reduce or cease our operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, business development initiatives and sales and marketing activities, among other activities. Modification of our business model and operations could result in an impairment of assets, the effects of which cannot be determined. Furthermore, if we continue to issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience significant dilution, and the new equity or debt securities may have rights, preferences and privileges that are superior to those of our existing stockholders.
As of December 31, 2018, we had $459,736 cash on hand and a $1,470,837 working capital deficit. In addition, we also had restricted cash of $136,180 which is held for credit card collateral.
As of December 31, 2017, we had $1,955,614 cash on hand and a $3,278,903 working capital surplus. In addition, we also have restricted cash of $139,071 which is held for credit card collateral.
Year Ended December 31, 2018 and 2017
Net Cash Provided by (Used in) Operating Activities
For the year ended December 31, 2018, we had net cash provided by operating activities of $1,304,632 as compared to $831,070 used in operating activities for the year ended December 31, 2017. The increase was primarily attributable to the write off of inventory, impairment of intangible assets, decrease in accounts receivable and an increase in accounts payable.
For 2018, the $1,304,632 consists of our net loss of $6,160,690 adjusted by:
For 2017, the $831,070 consists of our net income of $499,568 adjusted by:
Net Cash Used in Investing Activities
For the year ended December 31, 2018, we used net cash of $198,007 in investing activities, as compared to $1,908,757 used in investing activities for the year ended December 31, 2017. The decrease was primarily due to the payment of brand development fees in 2017.
Investing activities during 2018:
Investing activities during 2017:
Net Cash (Used in) Provided by Financing Activities
For the year ended December 31, 2018, financing activities used $2,862,500, as compared to $2,310,881 provided in financing activities for the year ended December 31, 2017. The decrease was primarily attributable to the receipt of cash pursuant to a new loan which was received in 2017.
Financing activities during 2018:
Financing activities during 2017:
Key 2019 Initiatives
During 2019, we have plans for organic growth within our current product lines by developing and launching new products and expanding into new markets. Our technology center in Halifax, Nova Scotia is in full operation providing marketing services to all of our brands. We have new marketing campaigns in process and intend to expand our online presence for each product. While we intend to grow further through additional acquisitions, we feel it is important to also develop our existing products.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
None.
Off-Balance Sheet Arrangements
None.
Inflation
The effect of inflation on our operating results was not significant in either 2018 or 2017.
Summary of Significant Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our audited consolidated financial statements appearing elsewhere in this report.
Recent Accounting Pronouncements
Note 2 to our audited consolidated financial statements appearing elsewhere in this report includes Recent Accounting Pronouncements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the consolidated financial statements and notes thereto beginning at page of this Form 10-K.
CONSOLIDATED FINANCIAL STATEMENTS
Synergy CHC Corp.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Synergy CHC Corp. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Synergy CHC Corp. and subsidiaries (the Company) as of December 31, 2018 and 2017, and the related statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RBSM LLP
We have served as the Company’s auditor since 2014.
New York, NY
March 29, 2019
Synergy CHC Corp.
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements
Synergy CHC Corp.
Consolidated Statements of Operations and Comprehensive Income (Loss)
The accompanying notes are an integral part of these consolidated financial statements
Synergy CHC Corp.
Consolidated Statement of Stockholders’ Equity
The accompanying notes are an integral part of these consolidated financial statements
Synergy CHC Corp.
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
SYNERGY CHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of the Business
Synergy CHC Corp. (“Synergy”, “we”, “us”, “our” or the “Company”) (formerly Synergy Strips Corp.) was incorporated on December 29, 2010 in Nevada under the name “Oro Capital Corporation.” On April 21, 2014, the Company changed its fiscal year end from July 31 to December 31. On April 28, 2014, the Company changed its name to “Synergy Strips Corp.”. On August 5, 2015, the Company changed its name to “Synergy CHC Corp.”
The Company is a consumer health care company that is in the process of building a portfolio of best-in-class consumer product brands. Synergy’s strategy is to grow its portfolio both organically and by further acquisition.
Synergy is the sole owner of six subsidiaries: Neuragen Corp., Breakthrough Products, Inc., NomadChoice Pty Ltd., Synergy CHC Inc., Sneaky Vaunt Corp., and The Queen Pegasus Corp., and the results have been consolidated in these statements.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. At December 31, 2018 and 2017 significant estimates included are assumptions about collection of accounts receivable, current income taxes, deferred income taxes valuation allowance, useful life of fixed and intangible assets, impairment analysis of goodwill and intangible assets, estimates used in the fair value calculation of stock based compensation, assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of December 31, 2018, and 2017, the Company had no 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, 2018 and 2017, the uninsured balances amounted to $162,729 and $1,557,373, respectively.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
Amounts included in restricted cash represent amounts held for credit card collateral.
Capitalization of Fixed Assets
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.
Intangible Assets
We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization except intellectual property of $1,450,000 acquired as part of an Asset Purchase Agreement entered into with Factor Nutrition Labs LLC on January 22, 2015, $10,000 acquired as part of an Asset Purchase Agreement entered into with Perfekt Beauty Holdings LLC and CDG Holdings, LLC (“Perfekt”) on June 21, 2017 and $50,000 acquired as an Asset Purchase entered into with Cocowhite on May 22, 2018. Intangible assets are amortized on a straight line basis over the useful lives. As of December 31, 2017, our qualitative analysis of intangible assets with indefinite lives did not indicate any impairment. During the year ended December 31, 2018, the Company fully impaired intangible assets related to Perfekt and Cocowhite and charged to operations impairment loss of $60,000.
Long-lived Assets
Long-lived assets include equipment and intangible assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. As of December 31, 2017, our qualitative analysis of long-lived assets did not indicate any impairment. However, as of December 31, 2018 our review of intangible assets related to two of our subsidiaries did indicate that the carrying amount of the asset may not be recoverable. During the year ended December 31, 2018, the Company fully impaired related intangible assets and charged to operations impairment loss of $864,067.
Goodwill
An asset purchase is accounted for under the purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. As of December 31, 2018, and 2017, our qualitative analysis of goodwill did not indicate any impairment.
Revenue Recognition
Adoption of ASU 2014-09, Revenue from Contracts with Customers
On January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective (cumulative effect) transition method. Under this transition method, results for reporting periods beginning January 1, 2018 or later are presented under ASC 606, while prior period results continue to be reported in accordance with previous guidance. The cumulative effect of the initial application of ASC 606 was immaterial, no adjustment was recorded to the opening balance of retained earnings. The timing of revenue recognition for our various revenue streams was not materially impacted by the adoption of this standard. The Company believes its business processes, systems, and controls are appropriate to support recognition and disclosure under ASC 606. In addition, the adoption has led to increased footnote disclosures. Overall, the adoption of ASC 606 did not have a material impact on the Company’s consolidated balance sheet, statement of operations and comprehensive income and statement of cash flows for the year ended December 31, 2018. ASC 606 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.
Policy
The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
The Company recognizes revenue upon shipment from its fulfillment centers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Freight billed to customers is presented as revenues, and the related freight costs are presented as cost of goods sold. Cancelled orders are refunded if not already dispatched, refunds are only paid if stock is damaged in transit, discounts are only offered with specific promotions and orders will be refilled if lost in transit.
Contract Assets
The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s consolidated balance sheet are from contracts with customers.
Contract Costs
Costs incurred to obtain a contract are capitalized unless short term in nature. As a practical expedient, costs to obtain a contract that are short term in nature are expensed as incurred. The Company does not have any contract costs capitalized as of December 31, 2018.
Contract Liabilities - Deferred Revenue
The Company’s contract liabilities consist of advance customer payments and deferred revenue. Deferred revenue results from transactions in which the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.
Accounts receivable
Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts. As of both December 31, 2018, and 2017, allowance for doubtful accounts was $0.
Advertising Expense
The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling and marketing expense in the accompanying consolidated statements of operations.
Research and Development
Costs incurred in connection with the development of new products and processing methods are charged to general and administrative expenses as incurred.
Income Taxes
The Company utilizes FASBASC 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.
The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration.
NomadChoice Pty Ltd, the Company’s wholly-owned subsidiary is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
Synergy CHC Inc. is a wholly-owned foreign subsidiary, is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under ASC subtopic 260-10, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted earnings per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net income per share is anti-dilutive. As of December 31, 2018, and 2017, options to purchase 7,166,667 and 8,666,667 shares of common stock, respectively, were outstanding. As of December 31, 2017, warrants to purchase 1,000,000 shares of common stock were outstanding.
The following is a reconciliation of the number of shares used in the calculation of basic earnings per share and diluted earnings per share for the years ending December 31, 2018, and 2017:
The following securities were not included in the computation of diluted net earnings per share as their effect would have been antidilutive due to the respective exercise prices being greater than the market price of the Company’s common stock on the dates shown:
Fair Value Measurements
The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
As of December 31, 2018, the Company has determined that there were no assets or liabilities measured at fair value.
Inventory
Inventory consists of raw materials, components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or net realizable value. Finished goods include the cost of labor to assemble the items.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Foreign Currency Translation
The functional currency of one of the Company’s foreign subsidiaries (Nomadchoice Pty Ltd.) is the U.S. Dollar. The Company’s foreign subsidiary maintains its records using local currency (Australian Dollar - “AUD”). All monetary assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at quarter end exchange rates, non-monetary assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at transaction day exchange rates. Income and expense items related to non-monetary items were translated at exchange rates prevailing during the transaction date and other incomes and expenses were translated using average exchange rate for the period. The resulting translation adjustments, net of income taxes, were recorded in statements of operations as Remeasurement gain or loss on translation of foreign subsidiary.
The functional currency of the Company’s other foreign subsidiary (Synergy CHC Inc.) is the Canadian Dollar (CAD). The Company’s foreign subsidiary maintains its records using local currency (CAD). All assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at period end exchange rates and stockholders’equity is translated at the historical rates. Income and expense items were translated using average exchange rate for the period. The resulting translation adjustments, net of income taxes, are reported as other comprehensive income and accumulated other comprehensive income in the stockholder’s equity in accordance with ASC 220 - Comprehensive Income.
The exchange rates used to translate amounts in AUD and CAD into USD for the purposes of preparing the consolidated financial statements were as follows:
Balance sheet:
Income statement:
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into either Australian Dollars or Canadian Dollars, as the case may be, at the rate on the date of the transaction and included in the results of operations as incurred.
Concentrations of Credit Risk
In the normal course of business, the Company provides credit terms to its customers; however, collateral was not required. Accordingly, the Company performed credit evaluations of its customers and maintained allowances for possible losses which, when realized, were within the range of management’s expectations. From time to time, a higher concentration of credit risk existed on outstanding accounts receivable for a select number of customers due to individual buying patterns.
Warehousing costs
Warehouse costs include all third party warehouse rent fees and are charged to selling and marketing expenses as incurred. Any additional costs relating to assembly or special pack-outs of the Company’s products are charged to cost of sales.
Product display costs
All displays manufactured and purchased by the Company are for placement of product in retail stores. This also includes all costs for display execution and setup and retail services are charged to cost of sales and expensed as incurred.
Cost of Sales
Cost of sales includes the purchase cost of products sold and all costs associated with getting the products into the retail stores including buying and transportation costs.
Debt Issuance Costs
Debt issuance costs consist primarily of arrangement fees, professional fees and legal fees. These costs are netted off with the related loan and are being amortized to interest expense over the term of the related debt facilities.
Shipping Costs
Shipping and handling costs billed to customers are recorded in sales. Shipping costs incurred by the company are recorded in selling and marketing expenses.
Related parties
Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. All transactions with related parties are recorded at fair value of the goods or services exchanged.
Segment Reporting
Segment identification and selection is consistent with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an aggregated basis.
Presentation of Financial Statements - Going Concern
Going Concern Evaluation
In connection with preparing consolidated financial statements for the year ended December 31, 2018, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued.
The Company considered the following:
● Net loss of $6,160,690 for the year ended December 31, 2018.
● At December 31, 2018, the Company had an accumulated deficit of $15,027,122.
● At December 31, 2018, the Company had working capital deficit of $1,470,837.
● Revenue decline in 2018 of $1,771,540.
● The Company obtained waiver against not meeting financial covenants related to loans payable (maintaining minimum cash balance, net debt to EBITDA ratio and minimum EBITDA).
● The Company is required to make repayment of loans payable of $500,000 and accrued interest during the three months ended March 31, 2020.
Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due.
The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:
● The Company raised $10.0 million via debt financing during the year ended December 31, 2017.
● In 2018, the Company repaid $2.9 million of loans.
● In 2018, the Company generated $1.3 million of cash from operating activities.
● In 2019, the Company has repaid $500,000 of the loan payable.
● Working capital deficit of $1,470,837 at December 31, 2018, includes loans payables to related party of $1,963,887, royalty payable to related party of $304,434 and deferred revenue of $49,709.
● Revenue declines were largely the result of 2017 being launch year of two new brands and 2018 being normalized revenue of those brands.
● The Company has line of credit facility of $20 million available from its current lender for future mergers and acquisition.
Management concluded that above factors alleviates 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 additional restructuring and cost reductions.
● Raise additional capital through a private placement.
At March 27, 2019 and December 31, 2018, the Company had $1,372,431 and $459,736, respectively in cash and cash equivalents.
Recent Accounting Pronouncements
ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes in Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2018-13 is not expected to have any impact on the Company’s consolidated financial statements.
ASU 2018-07
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2018-07 is not expected to have any impact on the Company’s consolidated financial statements.
ASU 2018-05
This Accounting Standards Update adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act (H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) was signed into law. We are currently evaluating the impact of adopting ASU 2017-13 on our consolidated financial statements.
ASU 2018-02
On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act of 2017). Stakeholders raised a narrow-scope financial reporting issue that arose as a consequence of the Tax Cuts and Jobs Act of 2017. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement-Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this update is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2018-210-Income Statement-Reporting Comprehensive Income (Topic 220), which has been deleted. We are currently evaluating the impact of adopting ASU 2017-13 on our consolidated financial statements.
ASU 2018-01
The amendments in this Update provide an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840, Leases. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. We are currently evaluating the impact of adopting ASU 2017-13 on our consolidated financial statements.
ASU 2017-13
In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). The effective date for ASU 2017-13 is for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting ASU 2017-13 on our consolidated financial statements.
ASU 2017-09
The Board is issuing this Update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award.
The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendment is Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
This Update is the final version of Proposed Accounting Standards Update 2016-360-Compensation-Stock Compensation (Topic 718)-Scope of Modification Accounting, which has been deleted. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.
ASU 2017-04
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the goodwill impairment test. The effective date for ASU 2017-04 is for fiscal years beginning after December 15, 2019. These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.
The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting ASU 2017-04 on our consolidated financial statements.
ASU 2017-01
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018; however, early adoption is permitted with prospective application to any business development transaction. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.
ASU 2016-18
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The effective date for ASU 2016-18 is for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We adopted ASU 2016-18 effective January 1, 2018. The adoption of ASU 2016-18 had no impact on our retained earnings, and no impact to our net income on an ongoing basis. Adoption of the new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash, or restricted cash equivalents. The amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The amendments have been applied using a retrospective transition method to each period presented, as required. The period ended December 31, 2017 has been reclassified to reflect this change.
ASU 2016-15
In August 2016, the FASB issued AS 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The effective date for ASU 2016-15 is for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements.
ASU 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-13 on its consolidated financial statements.
ASU 2016-09
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, or ASU No. 2016-09. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.
ASU 2016-02
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively Topic 842) to increase transparency and comparability of lease recognition and disclosure. The update requires lessees to recognize lease contracts with a term greater than one year on the balance sheet, while recognizing expenses on the income statement in a manner similar to current guidance. For lessors, the update makes targeted changes to the classification criteria and the lessor accounting model to align the guidance with the new lessee model and revenue guidance. ASU 2016-02, ASU 2017-13, ASU 2018-10, ASU 2018-11 and ASU 2018-20 are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2019-01 is effective for annual reporting periods beginning after December 15, 2019. The Company is currently assessing the potential impact of ASU 2019-01 on its consolidated financial statements.
ASU 2016-01
In January 2016, the FASBASU 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.
ASU 2015-17
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements, and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets.
ASU 2015-16
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement -Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.
ASU 2015-11
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. Adoption of this new standard did not have any impact 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 - Acquisitions
Asset Purchase Agreement with Perfekt Beauty Holdings LLC and CDG Holdings, LLC:
On June 21, 2017, the Company entered into and simultaneously closed on an Asset Purchase Agreement with Perfekt Beauty Holdings LLC and CDG Holdings, LLC, which owns 92.3% of the issued and outstanding equity interests of Perfekt Beauty. Perfekt Beauty is engaged in the business of developing and selling skincare and cosmetics products under the brand Per-fekt.
The acquisition was treated as an acquisition of assets as the transaction involved the acquisition of a brand and a license agreement. The allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:
As additional consideration, the Company will pay quarterly royalties equal to 5% of net sales for 10 years following the closing date. The purchase price was subject to adjustment as provided in the Purchase Agreement, based on the final amounts of accounts payable, accounts receivable and new and unsold inventory. Subsequent to December 31, 2018, we have issued 26,931 shares as full and final payment to Perfekt Beauty Holdings LLC and CDG Holdings, LLC.
During 2018 the Company wrote off $164,694 worth of inventory to cost of sales as it was determined to be nearing expiration and slow moving. The Company also determined the $10,000 intellectual property related to the brand may not be recoverable and thus recorded full impairment of the asset.
Note 4 - 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.
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The TCJA contains significant changes to corporate income taxation, including but not limited to the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including changes to the orphan drug tax credit and changes to the deductibility of research and experimental expenditures that will be effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, including to what extent various states will conform to the newly enacted federal tax law.
The Company has not recorded the necessary provisional adjustments in the financial statements in accordance with its current understanding of the TCJA and guidance currently available as of this filing. But is reviewing the TCJA’s potential ramifications.
The Company generated a deferred tax asset through net operating loss carry-forwards. Based upon Management’s evaluation, a valuation allowance of 100% has been established due to the uncertainty of the Company’s realization of the benefit derived from net operating loss carry-forwards.
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.
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 for the last few years, so such returns and liability remain open. The Company has estimated and accrued for its sales tax liability at $180,222 as of December 31, 2018.
The table below summarizes the differences between the U.S. statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2018 and 2017:
The Company has deferred tax assets, which have been fully reserved, as follows as of December 31, 2018 and 2017:
Tax expense (benefit) was $(247,694) and $316,012 for 2018 and 2017, respectively. The effective tax rate is attributable to the Company’s world wide income/(loss) as it relates to the income tax expense due in Australia.
The “TCJA” added a one-time taxation of offshore earnings for the period ending December 31, 2017 (IRC Sec. 965), regardless of whether they are repatriated (“Deemed Repatriation”). The Company anticipates the one-time taxation of offshore earnings relating to its foreign subsidiaries is applicable for the 2017 year end. The Company is reviewing its potential tax liability at December 31, 2017, but has not fully completed the view. It is anticipated that such amount will not be a material amount at December 31, 2017.
The Company also has net operating loss carryforwards of approximately $40,000,000 and $33,634,744 (United States and Canada) included in the deferred tax asset table above for 2018 and 2017, 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.
The total deferred tax asset is calculated by multiplying a domestic (US) 21 percent marginal tax rate for 2018 and 21 percent marginal tax rate for 2017 by the cumulative Net Operating Loss Carryforwards (“NOL”). The Company currently has net operating loss carryforwards approximately aggregating $40,000,000 and $33,634,744 for 2018 and 2017, respectively, which expire through 2035. The deferred tax asset related to the NOL carryforwards Management has determined based on all the available information that a 100% Valuation reserve is required.
Note 5 - Accounts Receivable
Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:
During the years ended December 31, 2018 and 2017, the Company charged $69,070 and $0, respectively to bad debt expense.
Note 6 - Prepaid Expenses
At December 31, 2018 and 2017, prepaid expenses consisted of the following:
Note 7 - 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, 2018 and 2017, the uninsured balance amounted to $162,729 and $1,557,373, respectively.
Accounts receivable
As of December 31, 2018 and 2017, three customers accounted for 83% and 88%, respectively, of the Company’s accounts receivable.
Major customers
For the year ended December 31, 2018, two customers accounted for approximately 41% of the Company’s net revenue. For the year ended December 31, 2017, two customers accounted for approximately 42% 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, 2018 and 2017, two vendors accounted for 77% and 81%, respectively, of the Company’s accounts payable.
Major suppliers
For the year ended December 31, 2018, two suppliers accounted for approximately 45% of the Company’s purchases. For the year ended December 31, 2017, three suppliers accounted for approximately 46% of the Company’s purchases. Substantially all of the Company’s business is with suppliers in the United States.
Note 8 - 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:
As of January 22, 2015, inventory was pledged to Knight under the Loan Agreement (see note 12). As of December 31, 2018 and 2017, $256,051 and $45,188, respectively, of the Company’s inventory was in transit. During the year ended December 31, 2018, $1,056,209 of expiring and slow moving inventory was written off to cost of sales.
Note 9 - Fixed Assets and Intangible Assets
As of December 31, 2018 and 2017, fixed assets and intangible assets consisted of the following:
Depreciation expense for the years ended December 31, 2018 and 2017 was $152,522 and $108,126, respectively.
Amortization expense for the years ended December 31, 2018 and 2017 was $1,669,542 and $1,385,159, respectively. Impairment of intangible assets for the year ended December 31, 2018 related to branding payments made during 2017.
The estimated aggregate amortization expense over each of the next five years is as follows:
Note 10 - Related Party Transactions
The Company accrued and paid consulting fees of $41,250 per month through April 2017 and $57,917 per month through December 2018 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. The Company also paid three months of a vehicle allowance of $1,500 per month. The Company expensed $648,944 and $796,336, respectively during 2018 and 2017 as consulting fees, and made payments totaling $648,944 and $796,336 towards services to an entity owned and controlled by an officer and shareholder of the Company for the year ended December 31, 2018 and 2017, respectively. The Company also paid out a bonus of $525,000 during 2017. As of December 31, 2018 and 2017, the total outstanding balance was $28,213 and $0, respectively.
On January 22, 2015, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for the purchase of the Focus Factor assets. At December 31, 2017, the Company owed Knight $559,243 on this loan, net of discount, which was paid-off during 2018 (see Note 12).
On June 26, 2015, the Company entered into a Security Agreement with Knight Therapeutics, Inc., through its wholly owned subsidiary Neuragen Corp., for the purchase of Knight Therapeutics, Inc.’s assets. At December 31, 2018 and 2017, the Company owed Knight $525,000 and $575,000 in relation to this agreement (see Note 12).
On August 18, 2015, the Company entered into a Consulting Agreement with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and sales related service. The Company will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated earlier by either party. The Company decided to extend the contract on a month to month basis. Hand MD, LLC is a 50% owner in Hand MD Corp. The Company expensed $120,000 through payroll for each of the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, the total outstanding balance was $0.
On August 9, 2017, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for a working capital loan. At December 31, 2018 and 2017, the Company owed Knight $7,320,739 and $9,110,030, respectively, on this loan, net of debt issuance cost (see Note 10).
On December 23, 2016, we entered into an agreement with Knight Therapeutics for the distribution rights of FOCUSFactor in Canada. In conjunction with this agreement, we are 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 sales achieved through retail sales. The minimum due to Knight under this agreement is $100,000 Canadian dollars. As of December 31, 2018 and 2017, the total outstanding balance was $200,000 and $100,000 Canadian dollars, respectively. In US Dollars, the total outstanding balance was $152,834 and $79,534 as of December 31, 2018 and 2017, respectively.
On December 23, 2016, we entered into an agreement with Knight Therapeutics for the distribution rights of Hand MD into Canada. In conjunction with this agreement, we are 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. As of December 31, 2018 the total outstanding balance was $25,000 Canadian dollars. In US Dollars, the total outstanding balance was $18,325.
The Company expensed royalty of $16,066 and $117,722 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, Sneaky Vaunt Corp., a subsidiary of the Company, owed Knight Therapeutics $5,906 and $4,608, respectively in connection with a royalty distribution agreement.
The Company expensed commissions of $43,374 and $172,579 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, Sneaky Vaunt Corp., a subsidiary of the Company, owed Founded Ventures, owned by a shareholder in the Company, $10,579 and $2,581, respectively in connection with a commission agreement. The Company paid a development fee for the brand, Sneaky Vaunt, in the amount of $761,935 for the year ended December 31, 2017.
The Company expensed commissions of $10,016 and $13,952 for the years ended December 31, 2018 and 2017, respectively. The Company paid a development fee for the brand, The Queen Pegasus, in the amount of $1,000,000 for the year ended December 31, 2017. At December 31, 2018 and 2017, The Queen Pegasus, a subsidiary of the Company, owed Founded Ventures $3,547 and $1,462, respectively in connection with a commission agreement.
The Company expensed royalty of $2,361 and $24,227 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, The Queen Pegasus, a subsidiary of the Company, owed Knight Therapeutics $193 and $10,274, respectively in connection with a royalty distribution agreement.
The Company paid $250,000 and $125,000 for the years ended December 31, 2018 and 2017, respectively, to Hand MD, Corp, related to a royalty agreement. At December 31, 2018 and 2017, the Company owed Hand MD Corp. $0 and $250,000, respectively in minimum future royalties.
The Company expensed royalty of $392,589 and $380,166 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, NomadChoice Pty Ltd., a subsidiary of the Company owed Knight Therapeutics $109,329 and $39,682, respectively, in connection with a royalty distribution agreement (see Note 3).
Note 11 - Accounts Payable and Accrued Liabilities
As of December 31, 2018 and 2017, accounts payable and accrued liabilities consisted of the following:
The Company has accounted for a severance accrual in the amount of $506,250 as of December 31, 2018 relating to the termination of an employee. This liability will be paid out in three remaining equal installments of $168,750 during 2019.
Note 12 - Notes Payable
The Company’s loans payable at December 31, 2018 and 2017 are as follows:
$6,000,000 January 22, 2015 Loan:
On January 22, 2015, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company $6.0 million (the “Loan”), and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring the Focus Factor Business (defined below). At closing, the Company paid Knight an origination fee of $120,000 and a work fee of $60,000 and also paid $40,000 of Knight’s expenses associated with the Loan. The Loan bears interest at a rate of 15% per year; provided, however, that upon the occurrence of an equity or convertible equity offering by the Company of at least $1.0 million, the interest rate will drop to 13% per year. Interest accrues quarterly and is payable in arrears on March 31, June 30, September 30 and December 31 in each year, beginning on March 31, 2015.
All outstanding principal and accrued and unpaid interest was due on the earliest to occur of either January 20, 2017 (the “Maturity Date”), or the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default. The Company may extend the Maturity Date for two successive additional 12-month periods if at March 31, 2016 and March 31, 2017, respectively, the Company’s revenues exceed $13.0 million and its EBITDA exceeds $2.0 million for the respective 12-month period then ending. These covenants were achieved, therefore the Company chose to extend the loan for the first 12-month period to January 20, 2018. Principal payments under the Loan Agreement commenced on June 30, 2015 and continue quarterly as set forth on the Repayment Schedule to the Loan Agreement. This loan was repaid in full on January 20, 2018.
The Company also recorded deferred financing costs of $289,045 with respect to the above loan. The Company recognized amortization of deferred financing costs of $3,257 and $56,605 during the years ended December 31, 2018 and 2017, respectively. Unamortized debt issuance cost as of December 31, 2018 amounted to $0.
The Company recognized and paid interest expense of $4,611 and $293,238 during the years ended December 31, 2018 and 2017, respectively. Accrued interest expense was $0 as of both December 31, 2018 and 2017. Loan payable balance was $0 and $562,500 as of December 31, 2018 and 2017, respectively.
$1,500,000 January 22, 2015 Loan:
On January 22, 2015, the Company issued a 0% promissory note in a principal amount of $1,500,000 in connection with an Asset Purchase Agreement (see note 1). The note has a maturity date of January 20, 2017, with $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017. Loan payable balance was $0 as of December 31, 2018 and 2017. The loan was paid in full in January 2017.
$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 (see note 1). 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 also recorded deferred financing costs of $10,486 with respect to the above agreement. The Company recognized amortization of deferred financing costs of $0 and $2,600 during the years ended December 31, 2018 and 2017, respectively. Unamortized debt issuance cost as of December 31, 2017 amounted to $0. The Company recorded present value of future payments of $272,151 and $282,240 as of December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, the Company owed Knight $525,000 and $575,000 in relation to this agreement. The Company recorded interest expense of $39,911 and $41,292 for the year ended December 31, 2018 and 2017, respectively. The Company made payments of $50,000 during both 2018 and 2017.
$5,500,000 November 12, 2015 Loan:
On November 12, 2015, we entered into a First Amendment to Loan Agreement (“First Amendment”) with Knight, pursuant to which Knight agreed to loan us an additional $5.5 million, and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring Breakthrough Products, Inc. and NomadChoice Pty Limited through Stock Purchase Agreements. At closing, we paid Knight an origination fee of $110,000 and a work fee of $55,000 and also paid $24,000 of Knight’s expenses associated with the Loan. The Loan bears interest at a rate of 15% per year. The interest rate will decrease to 13% if we meet certain equity-fundraising targets. The New Loan Agreement matured on November 11, 2017 and was fully paid.
The Company also recorded deferred financing costs of $233,847 with respect to the above loan. The Company recognized amortization of deferred financing costs of $101,088 during the year ended December 31, 2017. Unamortized debt issuance cost as of December 31, 2017 amounted to $0.
The Company recognized interest expense of $252,515 during the year ended December 31, 2017. The principal balance outstanding at both December 31, 2018 and 2017 was $0.
$10,000,000 August 9, 2017 Loan:
On August 9, 2017, we entered into a Second Amendment to Loan Agreement (“Second Amendment”) with Knight, pursuant to which Knight agreed to loan us 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, we 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.
We have met all the covenants except for the TTM EBITDA of $5 million during the period ending March 31, 2018. Default Interest rate of 5% (from 10.5% to 15.5%) applies in accordance to our current agreement and will be in effect starting April 1, 2018 and will be in effect until the $5 million TTM EDITDA covenant is achieved. We entered into Loan Amendment Agreement on May 14, 2018, the interest rate was reduced to 13% due to reducing payroll expenses. Also, Synergy will maintain Focus Factor Net Sales as measured on a year-end basis of at least USD $15 million for each fiscal year starting with December 31, 2017.
We have amended our covenants under our loan agreement on March 27, 2019 and are currently in compliance with all covenants. The new covenants are as follows: we will maintain a minimum EBITDA of $1,900,000 for the twelve months ending on December 31, 2018, $2,500,000 for the twelve months ending March 31, 2019, $3,500,000 for the twelve months ending June 30, 2019 and $5,000,000 for the twelve months period ending on last day of each fiscal quarters thereafter. We shall maintain a net debt to TTM EBITDA ratio of no more than 8:1 for the twelve month period ending on December 31, 2018 until March 31, 2019 and shall maintain a net debt to TTM EBITDA ratio of no more than 6:1 thereafter. We shall maintain at all times a positive cash balance of $575,000 for the three month period ending December 31, 2018, $750,000 for the three month period ending March 31, 2019 and $1,000,000 thereafter. The default interest rate of 2.5% applies (from 13% to 15.5%) in accordance to our current agreement and will be in effect as of October 1, 2018.
The Company also recorded deferred financing costs of $452,869 with respect to the above loan. The Company recognized amortization of deferred financing costs of $210,710 and $62,898 during the years ended December 31, 2018 and 2017, respectively. Unamortized debt issuance cost as of December 31, 2018 amounted to $179,261.
The Company recognized interest expense of $1,057,833 and $412,417 during the years ended December 31, 2018 and 2017, respectively. Accrued interest was $0 and $147,000 as of December 31, 2018 and 2017, respectively. The loan balance at December 31, 2018 and 2017 was $7,500,000 and $9,500,000, respectively.
Note 13 - Stockholders’ Equity
During the year ended December 31, 2017, the Company issued 473,326 shares of its common stock valued at $0.51 per share in accordance with an asset purchase agreement entered into with Perfekt Beauty Holdings, LLC and CDG Holdings, LLC, in exchange for assets and liabilities related to the Per-fekt brand.
During the year ended December 31, 2017, the Company sold 400,000 shares of its common stock valued at $220,000 to an employee of the Company.
During the year ended December 31, 2017, the Company issued 100,000 shares of its common stock valued at $55,000 to an employee of the Company.
As of December 31, 2018 and 2017, there were 89,862,683 shares of the Company’s common stock issued and outstanding.
Note 14 - Commitments and Contingencies
Litigation:
From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.
Employee Commitments
The Company and Mr. McCullough entered into an employment agreement on October 17, 2017 (the “Employment Agreement”) with an initial term of 3 years. In exchange for his service as President, Mr. McCullough will receive an annual base salary of $340,000. He received a cash signing bonus of $37,500paid on January 1, 2018, and an additional cash signing bonus of $37,500, paid on July 1, 2018. Mr. McCullough will be eligible for an annual bonus of up to twenty-five percent (25%) of his base salary. The annual bonus will be determined at the discretion of our Board or compensation committee based upon the achievement of financial goals established by the Company’s Chief Executive Officer. Mr. McCullough will also be eligible for additional bonus compensation based on the Company’s achievement of certain annual earnings and retail sales goals established each year by the Company’s Chief Executive Officer. Subject to the Company’s achievement of an annual overall earnings goal and certain adjustments in the event of future acquisitions by the Company, Mr. McCullough will be eligible to receive five percent (5%) of all retail sales by the Company in excess of the annual retail sales goal set by the Chief Executive Officer.
The Company granted Mr. McCullough an option to purchase 1,000,000 shares of the Company’s common stock, subject to the approval of the Company’s Board of Directors (the “Option Grant”). The Option Grant will vest in three (3) equal annual installments on the first three anniversaries of Mr. McCullough’s start date with the Company, provided that Mr. McCullough remains employed by the Company on each such date. The Option Grant will be granted under the Company’s 2014 Stock Incentive Plan pursuant to a stock grant agreement between the Company and Mr. McCullough.
Operating leases
On August 16, 2017, the Company entered into a sublease for office space, effective October 1, 2017 through May 2021. Rent expense under this lease was $19,500 per month, and increasing annually on June 1. Effective January 31, 2019 this sublease was cancelled.
The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018:
Note 15 - Stock Options
On July 4, 2016, the Company granted 500,000 options with an exercise price of $0.70 per share to an employee of the Company. During 2017, 333,333 unvested options were cancelled due to termination of employee.
On October 10, 2017, the Company granted 1,000,000 options with an exercise price of $0.70 per share to an employee of the Company.
On October 16, 2017, the Company granted 1,500,000 options with an exercise price of $0.55 per share to an employee of the Company. During 2018, 1,500,000 unvested options were cancelled due to termination of employee.
On October 18, 2017, the Company granted 200,000 options with an exercise price of $0.70 per share to an employee of the Company.
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and consultants under a stock option plan at December 31, 2018:
The stock option activity for the year ended December 31, 2018 is as follows:
Stock-based compensation expense related to vested options was $440,999 and $1,458,850 during the years ended December 31, 2018 and 2017, respectively. The Company determined the value of share-based compensation for options vesting during the year ended December 31, 2017 using the Black-Scholes fair value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common stock of $0.48-0.50, risk-free interest rate of 1.95-1.99%, volatility of 116-117%, expected lives of 10 years, and dividend yield of 0%. Stock options outstanding as of December 31, 2018, as disclosed in the above table, have an intrinsic value of $0. As of December 31, 2018, unamortized stock-based compensation costs related to options was $290,499, and will be recognized over a period of 2 years.
Note 16 - Stock Warrants
The following table summarizes the warrants outstanding and the related prices for the shares of the Company’s common stock at December 31, 2018:
The warrant activity for the year ended December 31, 2018 is as follows:
Note 17 - Segments
Segment identification and selection is consistent with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an aggregated basis.
Net sales attributed to customers in the United States and foreign countries for the years ended December 31, 2018 and 2017 were as follows:
Foreign countries primarily consist of Australia and Canada.
The Company’s net sales by product group for the years ended December 31, 2018 and 2017 were as follows:
(1) Net sales for any other product group of similar products are less than 10% of consolidated net sales.
The Company’s net sales by major sales channel for the years ended December 31, 2018 and 2017 were as follows:
Long-lived assets (net) attributable to operations in the United States and foreign countries as of December 31, 2018 and 2017 were as follows:
Note 18 - Subsequent Events
During 2019, the Company made an additional $500,000 payment on Loan 3.
Effective January 1, 2019 the Company has merged its U.S. subsidiaries into the parent company.
On January 28, 2019 the Company issued 26,391 shares of stock in full and final settlement of Per-fekt transaction.
Effective January 31, 2019, the sublease for office space entered into on October 1, 2017 was cancelled.
During March 2019 the Company received a 60 day Proposition 65 letter that one of its products did not have California’s Prop 65 label. The Company is taking action to correct the oversight.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our management, with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2018.
Based on this evaluation, these officers concluded that, as of December 31, 2018, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control over Financial Reporting.” Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
Under the supervision of our chief executive officer (our principal executive officer) and, our chief financial officer (our principal financial officer and principal accounting officer), we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 using the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 2018.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018, we determined that there were control deficiencies that constituted material weaknesses which are indicative of many small companies with small staff, such as:
(1) inadequate segregation of duties and effective risk assessment; and
(2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both generally accepted accounting principles in the United States and guidelines of the Securities and Exchange Commission.
These control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements could not have been prevented or detected on a timely basis. As a result of the material weaknesses described above, we concluded that we did not maintain effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control Integrated Framework issued by COSO. Our management is currently evaluating remediation plans for the above deficiencies. During the period covered by this annual report on Form 10-K, we have not been able to remediate the remaining weaknesses described above. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting.
Changes in Internal Control
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the year ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As a “smaller reporting company,” as defined by Item 10 of the Regulation S-K, we are not required to include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following table sets forth the names of the members of our Board of Directors and executive officers, and the position with the Company held by each.
Name
Age
Title
Tenure
Jack Ross
Chief Executive Officer, Chief Financial Officer and Director
Since October 2014
Stephen Fryer
Director
Since December 2014
Paul SoRelle
Director
Since December 2014
Gale Bensussen
Director
Since October 2017
Patrick McCullough
President
Since October 2017
Each director is elected to hold office until the next annual meeting of shareholders and until his/her successor has been qualified and elected. Our President, Chief Executive Officer and Chief Financial Officer serve at the discretion of our Board of Directors. There are no understandings between any of our directors or executive officer or any other person pursuant to which any executive officer or director was or is to be selected as an executive officer or director. Furthermore, there are no family relationships between any director, executive officer, or person nominated or chosen by us to become a director or executive officer.
Background of Executive Officer and Board of Directors
The following is a brief account of the business experience of each director, director nominee and executive officer of the Company.
Jack Ross - Chief Executive Officer, Chief Financial Officer and Director
Mr. Ross serves as our Chief Executive Officer and Chief Financial Officer and prior to October 2017 served as our President. Mr. Ross is currently the sole officer and director of Pure Sports Inc., positions he has held since February 2009, the sole officer and director of Gowan Capital Inc., positions he has held since May 2011, the sole officer and director of Synergy Energy Strips World Wide Inc., positions he has held since August 2011, the sole officer and director of Rio e Cigs Inc., positions he has held since December 2011, and the sole officer and director of Kenek Brands Inc., positions he has held since May 2014. From January 2012 to April 2014, Mr. Ross served as the sole officer and director of Synergy Strips Corp., which was acquired by and became a wholly owned subsidiary of the Company in April 2014 (the “Subsidiary”) in connection with the Merger. Other than the Subsidiary, none of these companies are related to or affiliated with the Company. Mr. Ross’s significant leadership experience at various private and public companies led to the conclusion that he should serve as a member of our Board of Directors, in light of our business and structure.
Mr. Stephen Fryer - Director
Since April 2003, Mr. Fryer has been the Chief Executive Officer and Managing Partner of SC Capital Partners, Inc., a private micro-market investment banking and private equity intermediary. Prior to joining SC Capital Partners, Inc., Mr. Fryer was a consulting investment banker with Grant Bettingen, Inc., a broker-dealer based in California, from January 2001 to March 2003. From May 1989 to August 1997, Mr. Fryer was the Principal and Managing Director of Ventana International, Ltd., a venture capital and private investment banking firm with operations and investors in the United States, Latin America, Europe and Asia. Mr. Fryer earned a B.S. in Mechanical Engineering, with a minor in Economics, from the University of Southern California. Mr. Fryer’s substantial experience in the investment banking industry, and his demonstrated skill in corporate finance, led to the conclusion that he should serve as a member of our Board of Directors, in light of our business and structure.
Mr. Paul SoRelle - Director
Since November 1999, Mr. SoRelle has been the Chief Executive Officer and Managing Partner of Pioneer Press of Greeley, Inc., a commercial offset printing company. Prior to joining Pioneer Press, Mr. SoRelle worked in the gaming business as well as the retail gasoline and convenience store business. Mr. SoRelle’s significant leadership experience at Pioneer Press of Greeley, Inc. led to the conclusion that he should serve as a member of our Board of Directors, in light of our business and structure.
Mr. Gale Bensussen - Director
On October 12, 2017, our Board of Directors appointed Gale Bensussen as an independent member of the Board of Directors. Since October 2017, Mr. Bensussen has served as a director of Kingdomway U.S.A. Corp, a wholly-owned subsidiary of Kingdomway Group Companies publicly traded on the Shenzen stock exchange. Since January 2017, Mr. Bensussen has served as Chairman of Vit-Best, and from September 2017 to January 2017 he served as President and CEO. Mr. Bensussen has served as President and CEO, and Chairman of Doctor’s Best since November 2013 and May 2016, respectively. Since January 2012, Mr. Bensussen has served as Advisor to North Castle Partners, LLC. Mr. Bensussen holds a Bachelor’s degree from the University of Southern California and a Juris Doctor degree from Southwestern University School of Law. There are no related party transactions between Mr. Bensussen and us nor are there any family relationships between Mr. Bensussen and any of our directors or officers. Mr. Bensussen’s considerable experience in one of our main industries led to the conclusion that he should serve as a member of our Board of Directors.
Patrick S. McCullough - President
From 2014 to October 2017, Mr. McCullough served as Chief Commercial Officer of InterHealth Nutraceuticals, Inc., a supplier of nutritional ingredient for use in dietary supplements, which was acquired in September of 2016 by Lonza Group Ltd, a multinational chemicals and biotechnology company based in Switzerland. From 2013 to 2014, Mr. McCullough was a Senior Vice President of Sales for Corr-Jensen Inc., a manufacturer of exercise and weight-loss products and dietary supplements. Prior to Corr-Jensen, Mr. McCullough was the President of Unique Nutritional Supplements, LLC, a dietary supplements company. From 2008 to 2011, Mr. McCullough served as President, Chief Operating Officer, and Vice President of Sales for Natrol LLC, a manufacturer of vitamins and dietary supplements.
Legal Proceedings
No director, director nominee, executive officer, or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
CORPORATE GOVERNANCE
Director Independence
As of March 30, 2019, we have four directors. Each director is elected to hold office for a one year period or until the next Annual Meeting of Shareholders and until his/her successor has been qualified and elected following the one year of service. Our common stock is not listed on any exchange. Consequently, no exchange rules regarding director independence are applicable to us. However, we have applied the director independence test of The NASDAQ Capital Market and Mr. Fryer, Mr. SoRelle and Mr. Bensussen are independent directors. Officers serve at the discretion of the Company’s directors. There are no understandings between the director of the Company or any other person pursuant to which any officer or director was or is to be selected as an officer or director.
Code of Ethics
The Company does not have a code of ethics for our principal executive or principal financial officers, due to our size and current stage of development. The Company’s management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
Committees
The Company does not have any standing committees and the Board of Directors performs the duties of an audit committee, nominating committee and compensation committee. Since the Company has no standing committees, the Company does not have any written charters governing such committees’ conduct.
Nominating Committee
We do not have a nominating committee, as we believe the Company is too small to warrant a separate standing nominating committee. Director Jack Ross is responsible for selecting individuals to stand for election as members of our Board of Directors. The Company does not have a policy with regards to the consideration of any director candidates recommended by our stockholders. Our Board of Directors has determined that it is in the best position to evaluate our Company’s requirements as well as the qualifications of each candidate when it considers a nominee for a position on our Board of Directors. If stockholders wish to recommend candidates directly to our Board of Directors, they may do so by communicating directly with Jack Ross, our Chief Executive Officer and the Chairman of our Board of Directors by mail, at Synergy CHC Corp., Attn: CEO, 865 Spring Street, Westbrook, ME 04092, or by telephone at (615) 939-9004.
Audit Committee
We do not have an audit committee currently serving and, as a result, our Board of Directors performs the duties of an audit committee. We also do not have an “audit committee financial expert,” as such term is defined in Item 407(d)(5)(ii) of Regulation S-K, however we feel that our directors’ backgrounds and financial sophistication is sufficient to fulfill the duties of the audit committee.
Compensation Committee
We do not have a compensation committee, as we believe the Company is too small to warrant a separate standing compensation committee. As a result, our Board of Directors performs the duties of a compensation committee. While the Company believes that its current size does not warrant a separate standing compensation committee, it will reassess that need if and when additional directors are appointed and/or elected.
Shareholder Communications
Shareholders may send written communications on the Company’s web site: www.synergychc.com
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities. These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms filed by such reporting persons. Based solely upon the Company’s review of such forms furnished to it, the Company believes that during the fiscal year ended December 31, 2018, all of its executive officers, directors, and every person who is directly or indirectly the beneficial owner of more than 10% of any class of the Company’s securities, complied with the filing requirements of Section 16(a) of the Exchange Act.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information about compensation paid, earned or accrued for services for each executive officer for the past two fiscal years.
Summary Compensation Table
(1) Mr. Ross also served as our President until October 2017.
(2) Mr. McCullough was hired in October 2017.
(3) Mr. Kadanoff was hired in October 2017 and terminated in August 2018.
We have not made provisions for paying cash or non-cash compensation to our directors. No salary is being paid to Mr. Ross for serving as our Chief Executive Officer and no fees are being paid at the present time to our directors.
Employment Agreements
On October 17, 2017, we entered into an employment agreement with Patrick S. McCullough to serve as our President. Mr. McCullough receives an annual base salary of $340,000. He received a cash signing bonus of $37,500, paid on January 1, 2018, and an additional cash signing bonus of $37,500, paid on July 1, 2018. Mr. McCullough will be eligible for an annual bonus of up to 25% of his base salary. The annual bonus will be determined at the discretion of our Board or compensation committee based upon the achievement of financial goals established by our Chief Executive Officer. Mr. McCullough will also be eligible for additional bonus compensation based on our achievement of certain annual earnings and retail sales goals established each year by our Chief Executive Officer. Subject to our achievement of an annual overall earnings goal and certain adjustments in the event of future acquisitions we make, Mr. McCullough will be eligible to receive 5% of all of our retail sales in excess of the annual retail sales goal set by the Chief Executive Officer. The Employment Agreement has a three-year initial term ending on November 6, 2020 that will automatically renew for additional one-year terms unless terminated by us or by Mr. McCullough. If we terminate Mr. McCullough’s employment for cause or due to his disability, as each term is defined in the employment agreement, Mr. McCullough will be entitled to receive only the accrued compensation due to him as of the date of such termination. If Mr. McCullough resigns for any reason he will be entitled only to payment of his accrued compensation as of such date. If we terminate Mr. McCullough’s employment without cause, then conditioned upon Mr. McCullough executing a release following such termination, Mr. McCullough will continue to receive his base salary and certain benefits for a period of time following the effective date of the termination of his employment (i) for a period of 12 months if Mr. McCullough is terminated within one year of his start date or (ii) for the remainder of the then-current term of the employment agreement if Mr. McCullough is terminated after the first anniversary of his start date. In addition, Mr. McCullough’s eligibility for his annual bonus and retail sales bonus will be pro-rated for the time before his termination. If more than 50% of the equity ownership interest in our company is sold or transferred to a third party who is not an affiliate of an existing stockholder during the initial term of the employment agreement, Mr. McCullough will be entitled to all base salary and car allowance payments for the remainder of the term of the employment agreement. In addition, the unvested portion of the options granted upon execution of the employment agreement will immediately vest and become exercisable.
On October 10, 2017, we entered into an employment agreement with Jeffrey Kadanoff to serve as our Chief Financial Officer, effective as of October 16, 2017. Mr. Kadanoff will receive an annual base salary of $450,000. He received a signing bonus consisting of: (i) 100,000 shares of our common stock, and (ii) a cash payment equal to the value of 100,000 shares of our common stock based on a price of $0.55 per share. He received an agreed upon annual bonus for 2017 of $37,500. Beginning with calendar year 2018, Mr. Kadanoff will be eligible for an annual target bonus of up to half his base salary. The target bonus will be determined at the discretion of our Board or compensation committee based upon the achievement of financial and other performance-related goals and may be paid in cash or shares of our common stock. Subject to the approval by the Board, during each calendar year of Mr. Kadanoff’s employment beginning with 2018, we will grant him an option to purchase 500,000 shares of our common stock, with an exercise price equal to the fair market value of the common stock on the date of each respective grant and that will vest in three equal annual installments on the first three anniversaries of the respective date of grant, provided that Mr. Kadanoff remains employed on each such date. Upon the occurrence of a change in control a defined in the agreement, the vesting of stock options granted to Mr. Kadanoff will be accelerated subject to his continued service on such date and provided further that Mr. Kadanoff’s stock options will be treated no less favorably than those of any other senior executive officer or our Chairman. If we terminate Mr. Kadanoff’s employment for Cause, death or Disability, or Mr. Kadanoff resigns for a purpose other than Good Reason (all as defined in the agreement), Mr. Kadanoff will be entitled to receive only the accrued compensation due to him as of the date of such termination. If we terminate Mr. Kadanoff’s employment without Cause, or if Mr. Kadanoff resigns for Good Reason, and conditioned upon Mr. Kadanoff executing a Release following such termination, Mr. Kadanoff will be entitled to receive separation benefits equal to the sum of his then current annual base salary plus his target annual bonus and a pro-rated rated amount of the target annual bonus for the year in which termination occurs. All unvested stock options granted to Mr. Kadanoff which would otherwise have vested had Mr. Kadanoff remained employed for 12 additional months beyond the date of termination will be accelerated and deemed to have vested as of the effective date of the termination of his employment under such circumstances. If we terminate Mr. Kadanoff’s employment without Cause, or if Mr. Kadanoff resigns for Good Reason, in either case at the time of or within 24 months following a Change in Control, and conditioned upon Mr. Kadanoff executing a Release following such termination, Mr. Kadanoff will be entitled to receive CIC Separation Benefits equal to the greater of: (i) two times the sum of Mr. Kadanoff’s then-current annual base salary plus his target annual bonus, or (ii) two times the sum of (A) Mr. Kadanoff’s average base salary actually paid over the preceding two years, plus (B) the average annual bonus actually paid over the preceding two years. In addition to the foregoing benefits, all stock and options granted to Mr. Kadanoff will be accelerated subject to his continued employment as of such date and provided further that Mr. Kadanoff’s stock options will be treated no less favorably than those of any other senior executive or our chairman.
On October 23, 2018 we entered into a release agreement with Mr. Kadanoff whereby the Company agreed to pay $675,000 in four equal installments payable on November 30, 2018, February 28, 2019, May 31, 2019 and August 30, 2019. If the Company completes a financing or asset sale resulting in proceeds to the Company greater than $10,000,000 or an acquisition with financing resulting in an increase of greater than $3,000,000 in working capital before the final installment is made, the Company will accelerate any remaining installments and will pay Mr. Kadanoff within ten days of closing such transaction. The Company immediately vested 500,000 of Mr. Kadanoff’s unvested stock options, however they expired on December 28, 2018. Within ten days of execution of the release, the Company paid to Mr. Kadanoff a one-time fee of $74,189.
Equity Compensation Plans
On October 10, 2017, the Company granted 1,000,000 options with an exercise price of $0.70 per share to an employee of the Company.
On October 16, 2017, the Company granted 1,500,000 options with an exercise price of $0.55 per share to an employee of the Company. During 2018 these options were cancelled due to termination of employee.
On October 18, 2017, the Company granted 200,000 options with an exercise price of $0.70 per share to an employee of the Company.
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and consultants under a stock option plan at December 31, 2018:
The stock option activity for the year ended December 31, 2018 is as follows:
Stock-based compensation expense related to vested options was $440,999 and $1,458,850 during the years ended December 31, 2018 and 2017, respectively. The Company determined the value of share-based compensation for options vesting during the year ended December 31, 2017 using the Black-Scholes fair value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common stock of $0.48-0.50, risk-free interest rate of 1.95-1.99%, volatility of 116-117%, expected lives of 10 years, and dividend yield of 0%. Stock options outstanding as of December 31, 2018, as disclosed in the above table, have an intrinsic value of $0.
Outstanding Equity Awards at Fiscal Year-End
The following table contains certain information concerning unexercised options for our executive officers as of December 31, 2018.
Director Compensation
The following table provides information regarding all compensation paid to non-employee directors during the fiscal year ended December 31, 2018.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding our common stock beneficially owned as of March 27, 2019, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding common stock, (ii) each executive officer and director, and (iii) all executive officers and directors as a group. To the best of our knowledge, subject to community and marital property laws, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.
(1) Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding.
(2) Based on 89,889,074 shares outstanding on March 27, 2019.
(3) This stockholder’s address is: 275 Canterbury Lane, Fall River NS B2T 1A4, Canada. Jack Ross is the Chief Executive Officer of Kenek Brands, Inc., Dunhill Distribution Group, Inc. and Gowan Private Equity Inc. Kenek Brands Inc. owns an option to purchase 1,000,000 shares of common stock. Gowan Private Equity owns 43,780,750 shares. Dunhill Distribution Group owns 3,208,649 shares and Gowan Capital Inc. owns 1,625,034 shares.
(4) Consists of an option to purchase 1,000,000 shares of common stock.
(5) Consists of 1,296,658 shares of common stock owned by the SoRelle Family Partnership LLP and an option to purchase 1,000,000 shares of common stock held by Mr. SoRelle.
(6) Consists of 17,645,812 shares of common stock. This stockholder’s address is Chancery House, High Street, Bridgetown, Barbados.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
TRANSACTIONS WITH RELATED PERSONS
The information required by Item 407(a) of Regulation S-K is included in this Annual Report on Form 10-K under the heading Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE - Director Independence.
The Company has not been a party to any transaction in which the amount involved exceeded or will exceed the lesser of $120,000 or 1% of the average of its total assets at year end for the last two fiscal years, and in which any of its directors, named executive officers or beneficial owners of more than 5% of the Company’s capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than described below:
The Company accrued and paid consulting fees of $41,250 per month through April 2017 and $57,917 per month through December 2018 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. The Company also paid three months of a vehicle allowance of $1,500 per month. The Company expensed $648,944 and $796,336, respectively during 2018 and 2017 as consulting fees, and made payments totaling $648,944 and $796,336 towards services to an entity owned and controlled by an officer and shareholder of the Company for the year ended December 31, 2018 and 2017. The Company also paid out a bonus of $525,000 during 2017. As of December 31, 2018 and 2017, the total outstanding balance was $0.
On January 22, 2015, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc. a related party, for the purchase of the Focus Factor assets. At December 31, 2017, the Company owed Knight $559,243 on this loan, net of discount, which was paid-off during 2018 (see Note 12).
On June 26, 2015, the Company entered into a Security Agreement with Knight Therapeutics, Inc., through its wholly owned subsidiary Neuragen Corp. for the purchase of Knight Therapeutics, Inc.’s assets. At December 31, 2018 and 2017, the Company owed Knight $525,000 and $575,000 on this agreement (see Note 12).
On August 18, 2015, the Company entered into a Consulting Agreement with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and sales related service. The Company will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated earlier by either party. Hand MD, LLC is a 50% owner in Hand MD Corp. The Company expensed $120,000 through payroll for each of the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, the total outstanding balance was $0.
On December 23, 2016, we entered into an agreement with Knight Therapeutics for the distribution rights of FOCUSFactor in Canada. In conjunction with this agreement, we are 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 sales achieved through retail sales. The minimum due to Knight under this agreement is $100,000 Canadian dollars. As of December 31, 2018 the total outstanding balance was $200,000 Canadian dollars. In US Dollars, the total outstanding balance was $152,834 and $79,534 as of December 31, 2018 and 2017, respectively.
On December 23, 2016, we entered into an agreement with Knight Therapeutics for the distribution rights of Hand MD into Canada. In conjunction with this agreement, we are 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. As of December 31, 2018 the total outstanding balance was $25,000 Canadian dollars. In US Dollars, the total outstanding balance was $18,325.
On August 9, 2017, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for a working capital loan. At December 31, 2018 and 2017, the Company owed Knight $7,320,739 and $9,110,030, respectively, on this loan, net of debt issuance cost (see Note 10).
The Company expensed royalty of $16,066 and $117,722 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 Sneaky Vaunt Corp., a subsidiary of the Company, owed Knight Therapeutics $5,906 and 4,608, respectively, in connection with a royalty distribution agreement.
The Company expensed commissions of $43,374 and $172,579 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 Sneaky Vaunt Corp., a subsidiary of the Company, owed Founded Ventures, owned by a shareholder in the Company, $10,579 and $2,581, respectively, in connection with a commission agreement. The Company paid a development fee for the brand, Sneaky Vaunt, in the amount of $761,935 for the year ended December 31, 2017.
The Company expensed commissions of $10.016 and $13,952 for the years ended December 31, 2018 and 2017, respectively. The Company paid a development fee for the brand, The Queen Pegasus, in the amount of $1,000,000 for the year ended December 31, 2017. At December 31, 2018 and 2017, The Queen Pegasus, a subsidiary of the Company, owed Founded Ventures $3.547 and $1,462, respectively in connection with a commission agreement.
The Company expensed royalty of $2,361 and $10,274 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, The Queen Pegasus, a subsidiary of the Company, owed Knight Therapeutics $193 and $10,274, respectively, in connection with a royalty distribution agreement.
The Company paid $250,000 and $125,000 for the years ended December 31, 2018 and 2017, respectively, to Hand MD, Corp, related to a royalty agreement. At December 31, 2018 and 2017, the Company owed Hand MD Corp. $0 and $250,000, respectively, in minimum future royalties.
The Company expensed royalty of $392,589 and $380,166 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, NomadChoice Pty Ltd. a subsidiary of the Company owed Knight Therapeutics $109,329 and $39,682, respectively, in connection with a royalty distribution agreement (see Note 3).
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Committee’s Pre-Approval Practice
Prior to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the year ended December 31, 2018 and 2017, were approved by our board of directors.
RBSM LLP serves as our independent registered public accounting firm.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate fees including expenses billed to us for the years ended December 31, 2018 and 2017 by our auditors.
(1) Audit Fees - This category includes the audit of the Company’s annual financial statements, review of financial statements included in its Quarterly Reports on Form 10-Q, and services that are normally provided by independent auditors in connection with the engagement for fiscal years.
(2) Audit-Related Fees - This category consists of fees reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported as “Audit Fees.”
(3) Tax Fees - This category consists of tax compliance, tax advice, and tax planning work.
(4) All Other Fees - This category consists of fees for other miscellaneous items.
PART IV
ITEM 15.
ITEM 15. EXHIBITS FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this report:
1. Consolidated Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
2. Consolidated Financial Statement Schedules
None.
3. Exhibits
4.2
Synergy Strips Corp. Common Stock Purchase Warrant, dated January 22, 2015.
10-K
000-55098
4.2
3/31/2015
4.3
Synergy Strips Corp. Common Stock Purchase Warrant (10-Year Warrant), dated January 22, 2015.
10-K
000-55098
4.3
3/31/2015
4.4
Synergy CHC Corp. Common Stock Purchase Warrant, dated November 12, 2015.
8-K
000-55098
4.4
11/18/2015
4.5
Synergy CHC Corp. Common Stock Purchase Warrant (10-Year Warrant), dated November 12, 2015.
8-K
000-55098
4.5
11/18/2015
4.6
Synergy CHC Corp. Common Stock Warrant dated December 17, 2015.
8-K
000-55098
4.6
12/22/2015
10.1
Mineral Claim Agreement for the Shipman Diamond Project, dated September 1, 2011.
S-1
333-185103
10.1
11/21/2012
10.2
Transfer of Mineral Dispositions with Danny Aaron, dated February 21, 2012.
S-1
333-185103
10.2
11/21/2012
10.3
Form of Sales and Marketing Consultant and Distribution Agreement, dated April 2, 2014.
8-K
000-55098
10.1
5/7/2014
10.4
Sales and Marketing Consultant and Distribution Agreement, dated April 2, 2014, between Synergy Strips Corp. and Kenek Brands Inc.
8-K
000-55098
10.1
5/7/2014
10.5
Loan Agreement, dated January 22, 2015, between Knight Therapeutics (Barbados) Inc. and Synergy Strips Corp.
10-K
000-55098
10.5
3/31/2015
10.6
Product Distribution Option Agreement, dated January 22, 2015, between Knight Therapeutics (Barbados) Inc. and Synergy Strips Corp.
10-K
000-55098
10.6
3/31/2015
10.7
Distribution, License and Supply Agreement, dated January 22, 2015, by and between Synergy Strips Corp. and Knight Therapeutics (Barbados) Inc.
10-K
000-55098
-
3/31/2015
10.8
Synergy Strips Corp. 2014 Equity Incentive Plan
8-K
000-55098
10.8
8/6/2015
10.9
Contribution Agreement, dated August 18, 2015, between Synergy CHC Corp. and Hand MD Corp.
8-K
000-55098
10.9
8/21/2015
10.10
Contribution Agreement, dated August 18, 2015, among Hand MD, LLC, Principal Owners as listed therein, Synergy CHC Corp. and Hand MD. Corp.
8-K
000-55098
10.10
8/21/2015
10.11
Intellectual Property License Agreement, dated August 18, 2015, by and between Synergy CHC Corp. and Hand MD. Corp.
8-K
000-55098
10.11
8/21/2015
10.12
Consulting Agreement, dated August 18, 2015, by and between Synergy CHC Corp. And Kara Harshbarger.
8-K
000-55098
10.12
8/21/2015
10.13
Stock Purchase Agreement, dated November 12, 2015, by and among Breakthrough Products, Inc., URX ACQUISITION TRUST, Jordan Eisenberg, other shareholders as listed therein and Synergy CHC Corp.
8-K
000-55098
10.13
11/18/2015
10.14
Share Purchase Agreement, dated November 15, 2015, between TPR Investments Pty Ltd CAN 128 396 654 as trustee for Polmear Family Trust, Timothy Polmear and Rebecca Polmear, NomadChoice Pty Limited ACN 160 729 939 trading as Flat Tummy Tea and Synergy CHC Corp.
8-K
000-55098
10.14
11/18/2015
10.15
First Amendment to Loan Agreement, dated November 12, 2015, between Knight Therapeutics (Barbados) Inc. and Synergy CHC Corp.
8-K
000-55098
10.15
11/18/2015
10.16
Amendment to First Amendment Agreement, dated December 3, 2015, between Knight Therapeutics (Barbados) Inc. and Synergy CHC Corp.
8-K
000-55098
10.16
12/9/2015
10.17
Amendment and Confirmation Agreement, dated December 3, 2015, by and among Knight Therapeutics (Barbados) Inc., Nomad Choice Pty Ltd., Synergy CHC Corp. and Breakthrough Products, Inc.
8-K
000-55098
10.17
12/9/2015
10.18
Settlement and Release Agreement, dated December 17, 2015, by and between Synergy CHC Corp., the former shareholders of Breakthrough Products, Inc. and URX ACQUISITION TRUST and as representative of certain shareholders.
8-K
000-55098
10.18
12/22/2015
21.1
Subsidiaries of the Registration
-
-
-
Filed herewith
23.1
Promissory Note to Danny Aaron, dated May 17, 2013.
S-1/A
333-185103
23.2
5/17/2013
23.2
Promissory Note and Future Advances Note to Danny Aaron, dated May 28, 2013.
S-1/A
333-185103
23.2
5/28/2013
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
-
-
-
Filed herewith
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
-
-
-
Filed herewith
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
-
-
-
Filed herewith
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
-
-
-
Filed herewith
101.INS
XBRL Instance Document.
-
-
-
Furnished herewith
101.SCH
XBRL Taxonomy Extension Schema Document.
-
-
-
Furnished herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
-
-
-
Furnished herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
-
-
-
Furnished herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
-
-
-
Furnished herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
-
-
-
Furnished herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Jack Ross
Chief Executive Officer
March 29,2019
Jack Ross
(principal executive officer)
/s/ Stephen Fryer
Director
March 29,2019
Stephen Fryer
/s/ Paul SoRelle
Director
March 29,2019
Paul SoRelle
/s/ Gale Bensussen
Director
March 29,2019
Gale Bensussen
/s/ Patrick McCullough
President
March 29,2019
Patrick McCullough