| Summary of Significant Accounting Policies | Note
2 – Summary of Significant Accounting Policies General The
accompanying condensed consolidated financial statements as of June 30, 2019 and December 31, 2018 and for the three and six months
ended June 30, 2019 and 2018 are unaudited. These unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information
and are presented in accordance with the requirements of Rule S-X of the Securities and Exchange Commission (the “SEC”)
and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and
six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December
31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 2018 and footnotes thereto included in the Company’s Annual
Report on Form 10-K filed with the SEC on March 29, 2019. Basis
of Presentation The
unaudited condensed 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.
Significant estimates are assumptions about collection of accounts receivable, useful life of fixed and intangible assets, goodwill
and 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 June
30, 2019, 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 June 30, 2019, the uninsured
balance amounted to $770,545. 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.
June 30, 2019 December 31, 2018 June 30, 2018
Cash and cash equivalents $ 1,064,301 $ 459,736 $ 865,812
Restricted cash 136,966 136,180 138,023
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 1,201,267 $ 595,916 $ 1,003,835 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. 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. As of June 30, 2019, our qualitative analysis of intangible assets with indefinite lives did not indicate any impairment. 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. 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. As of June 30, 2019, our qualitative analysis of long-lived assets did
not indicate any impairment. 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 June 30, 2019, our
qualitative analysis of goodwill did not indicate any impairment. Revenue
Recognition 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 condensed 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 June 30,
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 June 30, 2019 and December 31, 2018, allowance for doubtful accounts was
$0. Advertising
Expense The
Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling expense in the accompanying
unaudited condensed 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 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. 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 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. 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 loss per share is anti-dilutive.
As of June 30, 2019, and 2018, options to purchase 6,166,667 and 8,666,667 shares of common stock, respectively, were outstanding.
As of June 30, 2018, 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 three and six months ended June 30, 2019, and 2018:
For the three months ended For the six months ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Net income (loss) after tax $ 318,462 $ (783,393 ) $ 1,785,748 (838,886 )
Weighted average common shares outstanding 89,889,044 89,862,683 89,877,247 89,862,683
Incremental shares from the assumed exercise of dilutive stock options - - - -
Incremental shares from the assumed exercise of dilutive stock warrants - - - -
Dilutive potential common shares 89,889,044 89,862,683 89,877,247 89,862,683
Net earnings per share:
Basic $ 0.00 $ (0.01 ) $ 0.02 $ (0.01 )
Diluted $ 0.00 $ (0.01 ) $ 0.02 $ (0.01 ) The
following securities were not included in the computation of diluted net earnings per share as their effect would have been antidilutive:
2019 2018
Options to purchase common stock 6,166,667 8,666,667
Warrants to purchase common stock - 1,000,000
6,166,667 9,666,667 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 June 30, 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
515-50, “Compensation – Stock Compensation.” 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). 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:
June 30, 2019 December 31, 2018
Period-end AUD: USD exchange rate $ 0.7023 $ 0.7046
Period-end CAD: USD exchange rate $ 0.7641 $ 0.7330 Income
statement:
June 30, 2019 June 30, 2018
Average Quarterly AUD: USD exchange rate $ 0.7064 $ 0.7714
Average Quarterly CAD: USD exchange rate $ 0.7499 $ 0.7827 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 is not required. Accordingly,
the Company performs credit evaluations of its customers and maintains 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 exists 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, 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 aggregate basis. Presentation
of Financial Statements – Going Concern Going
Concern Evaluation In
connection with preparing unaudited condensed consolidated financial statements for the three and six months ended June 30, 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 June 30, 2019, the Company had an accumulated deficit of $13,241,374. ●
At June 30, 2019, the Company had working capital deficit of $46,078. ●
Revenue decline in 2019 as compared to 2018 of $3,623,897. 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 $1,025,000 of loans. ●
The Company generated net income of $318,462 for the three months ended June 30, 2019 and $1,785,748 for the six months ended
June 30, 2019. ●
In 2019, the Company generated $1,776,352 of cash from operating activities. ●
Working capital deficit of $46,078 at June 30, 2019, includes loans payables to related party of $1,979,876, royalty payable to
related party of $312,568 and deferred revenue of $37,051. ●
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. As
of August 12, 2019 and June 30, 2019, the Company had $875,154 and $1,201,267, 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 unaudited condensed 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 did not
have any impact on the Company’s unaudited condensed 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 2018-05
on our unaudited condensed 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. The adoption of ASU 2018-02 did not have any impact on the Company’s
unaudited condensed 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. The effective date
and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02.
The adoption of ASU 2018-01 did not have any impact on the Company’s unaudited condensed consolidated financial statements. |
