UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20172019

Commission file number: 333-185103000-55098

Synergy CHC Corp.

(Exact name of registrant as specified in its charter)

865 Spring St.

Westbrook, ME 04092

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: 615-939-9004

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, par value $0.00001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d)15(d) of the Act. Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any newsnew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 20172019 was approximately $10.7$5.4 million based upon the closing price of the common stock as quoted by the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”)

As of March 30, 2018,April 7, 2020, there were 89,862,68389,889,074 shares of the registrant’s common stock, par value $0.00001 per share, outstanding.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this annual report contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are contained principally in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. As used herein, “we,” “us,” “our” and the “Company” refers to Synergy CHC Corp. and its wholly owned subsidiaries.

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; the continuation of historical trends; the sufficiency of our cash balances for future needs; our future operations; our sales and revenue levels and gross margins, costs and expenses; the relative cost of our operation as compared to our competitors; new product introduction, entry and expansion into new markets and utilization of new sales channels and sales agents; improvements in, and the relative quality of, our technologies and the ability of our competitors to copy such technologies; our competitive technological advantages over our competitors; brand image, customer loyalty and expanding our customer base; the sufficiency of our resources in funding our operations; and our liquidity and capital needs.

Our forward-looking statements are based on our current expectations and beliefs concerning future developments, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

PART I

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.

20172019 Fiscal Year Developments

During 20172019 we created a new subsidiary, The Queen Pegasus, for the purpose of developing, marketing and selling specialty cosmetic products. We also purchased a cosmetic line, Per-fekt Beauty, and we also focused on executing our current brandsdevelopment and creating line extensions that we expect to launch in 2018.

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, and The Vitamin Shoppe.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 47%64% of revenue.

The Flat Tummy Tea isbrand consists of multiple products and accessories including tea, shakes, lollipops, supplements, apparel, a uniquely formulated two-step herbal detox tea that works to naturally help speed metabolism, boost energymobile App and reduce bloating.exercise accessories. Flat Tummy Tea isproducts are sold online atwww.flattummyco.com, Amazon.com, CVS and at The Vitamin Shoppe. The Flat Tummy Teabrand is a material product to our revenue base, representing 36%32% of revenue.

Hand MD is the world’s first anti-aging skincare line formulated specifically for the hands. Hand MD is sold exclusively online at www.handmd.com.www.handmd.comand 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.

UrgentRx is a line of fast-acting, portable OTC medications that prove ‘right now relief’ for today’s busy, on the go consumer. UrgentRx fast powders are innovative, fast acting flavored powdered medications in patented credit card sized packets. They can be taken without water, providing immediate relief for a wide variety of every day ailments such as allergy attacks, headaches, aches and pains, heartburn and upset stomach.

Sneaky Vaunt is a backless, strapless, stick on, push up bra. Sneaky Vaunt is sold exclusively online atwww.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 exclusively online atwww.thequeenpegasus.com.

Per-fekt BeautyThink Fuel is a line of cosmetics that merges advanced skincare formulations with color. Per-fekt Beautynootropic supplements designed to enhance brain function. Think Fuel products are sold in retailers across the country such as Ulta, Beauty Brands and online atwww.perfektbeauty.comwww.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. Urgent Rx is manufactured by Capstone Nutrition. 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 FOCUSfactor product:retail products: Costco Wholesale Corporation and Sam’s West, Inc./Walmart (a/k/a Sam’s Club), which comprise 88%78% of our net revenue for FOCUSfactor.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.

In February 2013,addition to this intellectual property, we also rely on our proprietary knowledge and ongoing technological innovation to develop a competitive position in the United States Patentmarket for our products. Each of these patents, patent applications, and Trademark Office issued U.S. Patent 8,376,140 covering UrgentRx’s portable powder delivery system and method.know-how are integral to the conduct of our business, the loss of any of which could have a material adverse effect on our business.

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, FOCUSFactorFOCUSfactor is the only product in its category with both a patent and clinical study to support its claims. FOCUSFactor’sFOCUSfactor’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.

WewillWe will rely on legal and operational compliance programs, as well as local counsel, to guide its businesses in complyingour compliance with applicable laws and regulations of the jurisdictions in which we do business.

We donot 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 maywill not have a material negative effect on our business in the future.

Employees

As of March 30, 2018,April 13, 2020, we had 6636 full-time employees and no part-time employees. We intend to grow our employee base in response to the demands and requirements of the business. We believe that the employer-employee relationships in our Company are positive. We have no labor union contracts.

Impact of COVID-19

Therecent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that the Company or its employees, suppliers, and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in which the Company operates could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company may take temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring all employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

Available Information

Our website address is https://synergychc.com/. We do not intend our website address to be an active link or to otherwise incorporate by reference the contents of the website into this Report. The U.S. Securities and Exchange Commission (the “SEC”) maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

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. UNRESOLVED STAFF COMMENTS.

None.None.

ITEM 2. PROPERTIES

The following table describes our principal properties leased as of March 30, 2018:April 13, 2020:

(1) Monthly rental payments are $8,050$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.

(3) Monthly rental payments are $19,500 per month through May 31, 2021.

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 Proposition 65 label. We settled the matter and made a one-time payment of $85,000 in full satisfaction of the matter.

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. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

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 providesreflects the high and low bid information for our common stock obtained from OTC Markets and reflects inter-dealer prices, for the periods presented.

without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

Shareholders

As of March 30, 2018,April 7, 2020, 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 11. Executive Compensation”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, 2019 to December 31, 2019 that were not otherwise disclosed in a Current Report on Form 8-K.

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. 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 arein 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, 20172019 and December 31, 20162018

During 2017,2019, we completed one acquisitionfocused on developing our currently owned brands into new markets and developed two new brands.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 2016,2018, we focused on growingdeveloping our currently owned brands into new markets and managing our existing brands.by product extensions.

Revenue

For the year ended December 31, 2017,2019, we had revenues of $35,596,035$29,357,546 from sales of our products, as compared to revenue of $34,840,394$33,824,495 for the year ended December 31, 2016.2018. This is comprised of the following categories:

The decrease in our Nutraceutical category was due to shifting product sales from online to retail. The decrease in the shift of resources to new brands. The increase in bothOver the consumer goods and cosmeceuticals categoriesCounter category was due to a newsupply 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 decrease in the cosmeceuticals category was due to the discontinuation of a product line.

Cost of Revenue

For the year ended December 31, 2017,2019, our cost of revenue was $9,818,406.$9,137,602. Our cost of revenue for the year ended December 31, 2016,2018, was $10,205,324.$11,036,587. This is comprised of the following categories:

The decrease in our Nutraceutical category was due to lower revenue due to a shiftrevenue. The decrease in focus to new brands. The increase in bothOver the consumer goods and cosmeceuticals categoriesCounter was due to a new product line.

write off of inventory. The decrease in Consumer Goods was due to lower sales. The decrease in Cosmeceuticals was due to lower sales and a write off of inventory in 2018.

Gross Profit

Gross profit was $25,777,629,$20,219,944, or 72%69% of gross revenue for the year ended December 31, 2017,2019, as compared to gross profit of $24,635,070,$22,787,908 or 71%67% of gross revenue for the same period in 2016, an increase2018, a decrease of $1,142,559,$2,567,964 or 5%11%. The decrease in gross profit is directly related to decrease in net sales and write off of inventory in 2019. The increase in gross profit and gross profit margin is directly related to increase in sales and better negotiated deals with manufacturers, utilizing volume purchasing to avail lower prices and purchasing finished goods insteadthe mix of buying components.

products being sold.

Operating Expenses

Selling and Marketing Expenses

For the year ended December 31, 2017,2019, our selling and marketing expenses were $14,043,870$11,471,652 as compared to $10,334,075$17,698,806 for the year ended December 31, 2016.2018. The increasedecrease is primarily due to marketingbetter management of expenses and decreased personnel.

Bad debts

For the year ended December 31, 2019, our various products in multiple media channels including print, television and online.

bad debts expenses were $283,971. For the year ended December 31, 2018, our bad debts expenses were $69,070. The increase is due to one customer.

General and Administrative Expenses

For the year ended December 31, 2019, our general and administrative expenses were $5,493,433. For the year ended December 31, 2018, our general and administrative expenses were $7,191,646. The decrease is due to better management of operating expenses.

Impairment of Intangible Assets

For the year ended December 31, 2017,2019 our general and administrativeimpairment of intangible assets expenses were $8,418,159. For$9,715,137 as compared to $924,068 for the year ended December 31, 2016, our general and administrative expenses were $8,019,722.2018. The increase is a modestprimarily due to normal operating expensesthe impairment of goodwill and increased personnel.indefinite life intangible assets in 2019.

Depreciation and Amortization Expenses

For the year ended December 31, 20172019 our depreciation and amortization expenses were $1,493,285$1,211,861 as compared to $1,170,778$1,822,064 for the year ended December 31, 2016.2018. The increase in 2017decrease is primarily due to the acquisitions completed during 2017.

Impairment of Intangible Assets and Goodwill

During reviewimpairment of intangible assets and goodwill as of December 31, 2016, it was determined that the carrying value of the intangible assets and goodwill for one of our subsidiaries may not be recoverable, so the assets were fully impaired. As a result, for the year ended December 31, 2016, we recorded non-cash intangible asset and goodwill impairment charges of $2,176,910 related to a subsidiary.

during 2018, thus lower amortization costs during 2019.

Other Income and Expenses

For the year ended December 31, 2017,2019, we had other (income) and expense items of the following:

For the year ended December 31, 20162018 we had other (income) and expense items of the following:

The decrease in interest expense in 20172019 was due to the pay down of loans issued for the purpose of acquisitions of various companies during 2015. We also issued warrants along with the loansdecreased percentage rate on our loan and paid debt issuance cost in 2015 which leadlower loan balance due to the amortization of debt discount and debt issuance cost during 2016. We issued warrants with a reset provision in 2015 which lead to the calculation of warrant derivative liability and hence we recorded a loss on change in fair value of derivative liability. In 2016, we cancelled those warrants and issued shares, which resulted in a loss on extinguishment of debt.principal payments made.

Income tax expense

For the yearsyear ended December 31, 2017 and 20162019 we incurred income tax expense of $316,012 and $944,358, respectively,$131,537. For the year ended December 31, 2018 we incurred income tax benefit of $247,694 primarily related to our subsidiary, NomadChoice Pty Limited (NomadChoice), located in Australia, which we acquired in 2015.

Net Income (Loss)Loss

For the year ended December 31, 2017,2019, our net incomeloss was $499,568.$9,207,447. For the year ended December 31, 20162018 our net loss was $796,161.$6,160,690. This was primarily due to non-operatingincrease in impairment of intangible assets during 2019 offset by lower operating expenses such as amortization of debt discounts and the loss on extinguishment of debt during 2016.2019.

Liquidity and Capital Resources

Overview

Our sources of cash have historically consisted of proceeds from issuances of loans and revenues generated from operations.

Presentation of Financial Statements – Going Concern

Going Concern Evaluation

In connection with preparing consolidated financial statements for the year ended December 31, 2019, 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:

● At December 31, 2019, the Company had an accumulated deficit of $24,234,569.

● At December 31, 2019, the Company had working capital deficit of $5,099,969.

● Revenue declined in 2019 by $4,466,949.

● The Company had net loss of $9,207,447 in 2019 as opposed to a net loss of $6,160,690 in 2018.

● The Company obtained waiver against not meeting financial covenants related to loans payable (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 2019, the Company repaid $2.05 million of loans.

● In 2019, the Company generated $2.9 million of cash from operating activities.

● Working capital deficit of $5,099,969 at December 31, 2019, includes loans payables to related party of $5,465,113, royalty payable to related party of $94,778 and deferred revenue of $7,887.

● Revenue declines were largely the result of not overspending in marketing in 2019.

● 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, which may be impacted by the recent outbreak of COVID-19.

● Implement additional restructuring and cost reductions.

● Raise additional capital through a private placement, which may be impacted by the recent outbreak of COVID-19. 

At April 13, 2020 and December 31, 2019, the Company had $949,812 and $1,324,514, respectively in cash and cash equivalents.

As of December 31, 2017,2019, we had $1,955,614$1,224,514 cash on hand and a $3,278,903$5,099,969 working capital surplus.deficit. In addition, we also have restricted cash of $139,071$100,000 which is held for credit card collateral.

As of December 31, 2016,2018, we had $2,517,642$459,736 cash on hand and a $4,944,587$1,470,837 working capital deficit. In addition, we also had restricted cash of $100,000$136,180 which is held for credit card collateral.

Year Ended December 31, 20172019 and 20162018

Net Cash (Used in) Provided by Operating Activities

For the year ended December 31, 2017,2019, we had net cash used inprovided by operating activities of $831,070,$2,946,350 as compared to $6,038,620$1,304,632 provided byin operating activities for the year ended December 31, 2016.2018. The decreaseincrease was primarily attributable to purchasesthe write off of inventory, impairment of intangible assets, decrease in accounts receivable and an increase in accounts receivable.payable in 2018.

For 2017,2019, the $831,070$2,946,350 consists of our net incomeloss of $499,568$9,207,447 adjusted by:

For 2016,2018, the $6,038,620$1,304,632 consists of our net loss of $796,161$6,160,690 adjusted by:

Net Cash Used in Investing Activities

For the year ended December 31, 2017,2019, we used net cash of $1,947,828$0 in investing activities, as compared to $2,346,643$198,007 used in investing activities for the year ended December 31, 2016.2018. The increasedecrease was primarily due to the paymentacquisition of brand development fees.fixed and intangible assets in 2018.

Investing activities during 2017:2018:

Investing activities during 2016:

Net Cash (Used in) Provided byUsed in Financing Activities

For the year ended December 31, 2017,2019, financing activities provided $2,310,881,used $2,050,000, as compared to $4,831,250$2,862,500 used in financing activities for the year ended December 31, 2016.2018. The increasedecrease was primarily attributable to the receiptpayoff of cash pursuant to a new loan.note in 2018.

Financing activities during 2017:2019:

Financing activities during 2016:2018:

Key 20182020 Initiatives

During 2018,2020, we have plans for organic growth within our current product lines by developing and launching new products and brands.expanding into new markets. 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.

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that the Company or its employees, suppliers, and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in which the Company operates could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company may take temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring all employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

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 20172019 or 2016.

2018.

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. 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. 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 F-1 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, 20172019 and 2016,2018, and the related statements of operations, comprehensive income (loss),loss, stockholders’ (deficit) equity, and cash flows for each of the years in the two year period ended December 31, 2017,2019, 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, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2017,2019, 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.

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)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 FlowsStockholders’ (Deficit) Equity

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.

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 isEffective January 1, 2019 the sole owner of six subsidiaries: NeuragenCompany has merged the U.S. Subsidiaries (Neuragen Corp., Breakthrough Products Inc., NomadChoice Pty Ltd., Synergy CHC Inc., Sneaky Vaunt Corp., and The Queen Pegasus Corp.,) into the parent company.

Synergy is the sole owner of two subsidiaries: NomadChoice Pty Ltd. And Synergy CHC Inc. 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, 20172019 and 20162018 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, beneficial conversion featureassumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and derivative liabilityexpected dividend rate. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

Reclassification

Certain amounts in prior periods have been reclassified to conform to current period presentation. These reclassifications had no effect on warrants using Black-Scholes Model.the previously reported net loss.

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, 2017,2019, and 2016,2018, 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, 20172019 and 2016,2018, the uninsured balances amounted to $1,557,373$947,312  and $2,038,985,$162,729, 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 amount 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, and $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, 2017.2017 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 ofDuring the year ended December 31, 2017, our qualitative analysis of2018, the Company fully impaired intangible assets with indefinite lives did not indicate any impairment.related to Perfekt and Cocowhite and charged to operations impairment loss of $60,000. During the year ended December 31, 2019, the Company fully impaired intellectual property related to Focus Factor and charged to operations impairment loss of $1,450,000.

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, 2017,2018 our qualitative analysisreview of long-livedintangible assets related to two of our subsidiaries did indicate that the carrying amount of the asset may not indicate any impairment.be recoverable. During the year ended December 31, 2016,2018, the Company fully impaired related intangible assets and charged to operations impairment loss of $193,750.$864,067. During the year ended December 31, 2019, the Company fully impaired intangible assets and charged to operations impairment loss of $471,897.

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, 2017,2018 our qualitative analysis of goodwill did not indicate any impairment. However, asAs of December 31, 2016,2019 our reviewqualitative analysis of goodwill relatedindicated potential impairment, thus the Company chose to onefully impair goodwill and charged to operations impairment loss of our subsidiaries did indicate that$7,793,240.

Revenue Recognition

Adoption of ASU 2014-09, Revenue from Contracts with Customers

On January 1, 2018, the carrying amountCompany 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 asset mayinitial 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 be recoverable. Duringmaterially 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, 2016,2018. ASC 606 also requires additional disclosures about the Company fully impaired related goodwillnature, amount, timing and chargeduncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to operations an impairmentfulfill 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 of $1,983,160.pass to the customer.

Revenue RecognitionPolicy

The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) 605,ASC 606, Revenue Recognitionfrom Contracts with Customers (“ASC 605”606”). ASC 605 requiresRevenues are recognized when control is transferred to customers in amounts that four basic criteria mustreflect the consideration the Company expects to be met beforeentitled 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 can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and/when or service has been performed; (3) the selling priceas a performance obligation is fixed and determinable; and (4) collectability is reasonably assured. satisfied.

The Company believes that these criteria are satisfiedrecognizes 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.

  The Company recognizes revenue for its digital products in the month the download by the customer occurs. 

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, 2019.

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, 2017,2019 and 2016,2018, allowance for doubtful accounts was $0.$283,971 and $0, respectively.

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, 20172019, and 2016,2018, options to purchase 8,666,6676,166,667 and 6,300,0007,166,667 shares of common stock, respectively, were outstanding. As

The following is a reconciliation of boththe number of shares used in the calculation of basic and diluted loss per share for the years ending December 31, 20172019, and 2016, warrants to purchase 1,000,000 shares of common stock were outstanding.2018:

The following securities were not included in the computation of diluted net earnings per share as their effect would have been antidilutivedue 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, 2017,2019, 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 recordrecords using local currency (Australian Dollar)Dollar – “AUD”). All monetary assets and liabilities of the foreign subsidiariessubsidiary were translated into U.S. Dollars at fiscal year-endperiod end exchange rates, non-monetary assets and liabilities of the foreign subsidiariessubsidiary 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 remeasurementRemeasurement 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.

Warrant Derivative Liabilities

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

A Black-Scholes-Merton option-pricing model, with dilution effects, was utilized to estimate the fair value of the Warrant Derivative Liabilities as of November 12, 2015 and December 31, 2015. As of December 23, 2016 the Warrant Derivative Liability was extinguished in conjunction with the issuance of shares. This model is subject to the significant assumptions discussed below and requires the following key inputs with respect to the Company and/or instrument:

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.costs and the hosting of our online Application.

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, 2019, 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:

● At December 31, 2019, the Company had an accumulated deficit of $24,234,569.

● At December 31, 2019, the Company had working capital deficit of $5,099,969.

● Revenue declined in 2019 by $4,466,949.

● The Company had net loss of $9,207,447 in 2019 as opposed to a net loss of $6,160,690 in 2018.

● The Company obtained waiver against not meeting financial covenants related to loans payable (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 2019, the Company repaid $2.05 million of loans. 

● In 2019, the Company generated $2.9 million of cash from operating activities.

● Working capital deficit of $5,099,969 at December 31, 2019, includes loans payables to related party of $5,465,113, royalty payable to related party of $94,778 and deferred revenue of $7,887.

● Revenue declines were largely the result of not overspending in marketing in 2019.

● 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, which may be impacted by the recent outbreak of COVID-19.

● Implement additional restructuring and cost reductions.

● Raise additional capital through a private placement, which may be impacted by the recent outbreak of COVID-19. 

At April 13, 2020 and December 31, 2019, the Company had $949,812 and $1,324,514, respectively in cash and cash equivalents.

Recent Accounting Pronouncements

ASU 2017-132018-13

In September 2017,August 2018, the FASB issued ASU 2017-13, Revenue Recognition2018-13, Fair Value Measurement (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),820): Disclosure Framework – Changes in Disclosure Requirements for Fair Value Measurement, which removes, modifies and Leases (Topic 842)adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. TheASU 2018-13 is effective date for ASU 2017-13 is for fiscal years beginning after December 15, 2018. We are currently evaluating2019, 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 impact of adopting ASU 2017-13 on ourCompany’s consolidated financial statements.

ASU 2017-042018-07

In January 2017,June 2018, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other2018-07, Compensation – Stock Compensation (Topic 350),718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the goodwill impairment test. Theaccounting 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 date for ASU 2017-04 is for fiscal years beginning after December 15, 2019. 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. We are currently evaluating the impact of adopting ASU 2017-04 on our 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, 2018, andincluding interim periods within those fiscal years. Early adoption is permitted. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements.

ASU 2017 - 04, Intangibles - Goodwill and other (Topic 350)

In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04 Intangibles - Goodwill and other, which simplifies the test for goodwill impairment. This Update eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of the assets acquired and liabilities assumed in a business combination. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge 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 the reporting unit. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2019.2019, and interim periods within those fiscal years. Early adoption is permitted. We are currentlypermitted, including adoption in an interim period. The Company is in the process of evaluating the impact of adopting ASU 2016-18this standard update on ourits consolidated financial statements.statements and related disclosures.

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 2016-10

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services.

The effective date for ASU 2016-10 is the same as the effective date of ASU 2016-08 and ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. Effective January 1, 2018, the Company will adopt the requirements of Topic 606 using the modified retrospective method. Upon adoption, the Company will recognize the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. Using the modified retrospective method of adoption, the comparative information for periods prior to 2018 will not be restated and instead will continue to be reported under the accounting standards in effect for those periods.

The Company anticipates that the adoption of the new standard will not result in a material difference between the recognition of revenue under Topic 606 and prior accounting standards. For the majority of the Company’s net sales, revenue will continue to be recognized when products are shipped from our distribution facilities, or when received by the customers, depending upon the terms of the contract. In addition, to meet the disaggregation disclosure requirements under Topic 606, the Company anticipates its disclosure of revenue disaggregation will be by major product group, geographic area and major sales channels.

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 2016-01

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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 2015-112016-13

In July 2015,June 2016, the FASB issued ASU No. 2015-11, Simplifying the2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Inventory (Topic 330)Credit Losses on Financial Instruments and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). ASU 2015-11 simplifies2016-13 amends the accounting for the valuationimpairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types 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.financial instruments, including trade receivables. ASU 2015-112016-13 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years beginning after December 15, 20162019, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-13 on a prospective basis. Adoption of this new standard did not have any impact on the Company’sits consolidated financial statements.