Synergy CHC Corp. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Synergy CHC Corp.	ex32-1.htm
EX-32.2 - Synergy CHC Corp.	ex32-2.htm
EX-31.2 - Synergy CHC Corp.	ex31-2.htm
EX-31.1 - Synergy CHC Corp.	ex31-1.htm

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

Synergy CHC Corp.

Nevada	000-55098	99-0379440
(State or other jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification Number)

865 Spring Street

Westbrook, Maine 04092

(Address of principal executive offices)

(615) 939-9004

(Issuer’s Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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. [X] Yes [ ] 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 (Sec.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 [ ] No [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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

Large accelerated filer [ ]		Accelerated filer [ ]		Non-accelerated filer [ ]		Smaller reporting company [X]
				(Do not check if smaller reporting company)

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 7, 2015, 67,095,187 shares of our common stock were issued and outstanding.

SYNERGY CHC CORP.

(FORMERLY SYNERGY STRIPS CORP.)

INDEX

Table of Contents

PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated financial statements	F-1

	Condensed Consolidated balance sheets as of June 30, 2015 (unaudited) and December 31, 2014	F-1

	Condensed Consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (unaudited)	F-2

	Condensed Consolidated statements of cash flows for the six months ended June 30, 2015 and 2014 (unaudited)	F-3

	Notes to unaudited condensed consolidated financial statements	F-4

Item 2.	Management’s discussion and analysis of financial condition and results of operations	3

Item 3.	Quantitative and qualitative disclosures about market risk	9

Item 4.	Controls and procedures	10

PART II	OTHER INFORMATION

Item 1.	Legal proceedings	11

Item 1A.	Risk factors	11

Item 2.	Unregistered sales of equity securities and use of proceeds	11

Item 3.	Defaults upon senior securities	11

Item 4.	Mine Safety Disclosures	11

Item 5.	Other information	11

Item 6.	Exhibits	11

Signatures		12

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Synergy CHC Corp.

(formerly Synergy Strips Corp.)

Condensed Consolidated Balance Sheets

	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents		637,238		$	338
Accounts Receivable		1,720,385			2,898
Receivable from related party		168,197			16,077
Prepaid expenses		73,661			10,000
Inventory		391,130			26,064
Total Current Assets		2,990,611			55,376

Fixes assets, net		1,441			-
Goodwill		2,923,047			-
Intangible assets, net		2,862,090			-
Debt issuance cost, net		225,693			-
Total Assets	$	9,002,882		$	55,376

Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable and accrued liabilities	$	1,263,012		$	74,642
Notes payable, related party		-			100,000
Current portion of long-term debt		750,000			-
Current portion of long-term debt, related party		300,000			6,400
Total Current Liabilities		2,313,012			181,042

Long-term Liabilities:
Note payable		750,000			-
Note payable, net of debt discount, related party		5,130,561			-
Total Long-term Liabilities		5,880,561			-
Total Liabilities		8,193,573			181,042

Commitments and contingencies		-			-

Stockholders’ Equity (Deficit):
Common stock, $0.00001 par value; 75,000,000 shares authorized; 67,095,187 and 62,100,000 shares issued and outstanding, respectively		671			621
Common stock to be issued		64,000			40,000
Additional paid in capital		4,382,469			867,004
Accumulated deficit		(3,637,831	)		(1,033,291	)
Total stockholders’ equity (deficit)		809,309			(125,666	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	9,002,882		$	55,376

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-1

Synergy CHC Corp.

(formerly Synergy Strips Corp.)

Unaudited Condensed Consolidated Statements of Operations

	For the three months ended						For the six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Revenue	$	2,455,747		$	2,748		$	4,055,996		$	2,748
Cost of sales		1,028,052			1,685			1,633,334			1,685
Gross profit		1,427,695			1,063			2,422,662			1,063

Operating expenses
Selling and marketing		680,189			-			1,413,778			-
General and administrative		385,832			643,552			700,652			645,622
Depreciation and amortization		101,911			-			179,153			-
Total operating expenses		1,167,932			643,552			2,293,583			645,622

Income (loss) from operations		259,763			(642,489	)		129,079			(644,559	)

Other income (expenses)
Interest expense		(227,797	)		-			(399,190	)		-
Amortization of debt discount		(182,070	)		-			(2,271,075	)		-
Amortization of debt issuance cost		(36,032	)					(63,352	)		-

Total other expenses		(445,899	)		-			(2,733,617	)		-

Net Loss	$	(186,136	)	$	(642,489	)	$	(2,604,538	)	$	(644,559	)

Net loss per share – basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

Weighted average common shares – basic and diluted		67,095,187			47,071,111			66,492,457			26,535,556

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-2

Synergy CHC Corp.

(formerly Synergy Strips Corp.)

Unaudited Condensed Consolidated Statements of Cash Flows

	For the six months ended
	June 30, 2015			June 30, 2014
Cash Flows from Operating Activities
Net loss	$	(2,604,538	)	$	(644,559	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		179,153			-
Amortization of debt issuance cost		63,352			-
Stock based compensation expense		24,000			297,247
Loss on acquisition		-			109,040
Amortization of debt discount		2,271,075			-
Changes in operating assets and liabilities:
Accounts receivable		1,279,272			(2,748	)
Inventory		(93,031	)		-
Prepaid expense		(70,061	)		(15,000	)
Accounts payable and accrued liabilities		(844,504	)		23,466
Net cash provided by (used in) operating activities		204,718			(232,554	)

Cash Flows from Investing Activities
Payments for acquisition of fixed assets		(1,654	)		-
Payments for acquisition of Factor Nutrition Labs		(4,500,000	)		-
Payments for acquisition transaction with Knight Therapeutics Inc.		(250,000	)		-
Net cash used in investing activities		(4,751,654	)		-

Cash Flows from Financing Activities
Proceeds from notes payable		6,000,000			-
Repayment of notes payable		(375,000	)		(84,040	)
Payment of debt issuance cost		(289,045	)		-
(Repayments to) advances from related party note		(152,120	)		-
Warrant exercise		1			-
Proceeds from issuance of common stock		-			500,000
Net cash provided by financing activities		5,183,836			415,960

Net increase in cash and cash equivalents		636,900			183,406

Cash and Cash Equivalents, beginning of period		338			3,230

Cash and Cash Equivalents, end of period	$	637,238		$	186,636

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	394,521		$	-
Income taxes	$	-		$	-

Supplemental Disclosure of Non-cash Investing and Financing Activities:
Common stock issued for settlement of debt	$	100,000		$	-
Beneficial conversion feature on warrants issued concurrent with debt	$	3,415,514		$	-
Assumption of liabilities as part of acquisition transaction	$	9,332,559		$	84,040
Assumption of liabilities as part of acquisition transaction with Knight Therapeutics Inc.	$	1,400,315		$	-
Note issued as part of asset purchase agreement	$	1,500,000		$	-
Cancellation of common stock as part of purchase transaction	$	-		$	1,359
Financing for prepaid insurance	$	-		$	20,000
Issuance of shares as part of acquisition transaction	$	-		$	25,000

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

F-3

Synergy CHC Corp.

(formerly Synergy Strips Corp.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of the Business

Synergy CHC Corp. (“Synergy”, “we”, “us”, “our” or the “Company”) (formerly Synergy Strips Corp.) was incorporated on December 29, 2010 in Nevada under the name “Oro Capital Corporation.” On April 21, 2014, the Company changed its fiscal year end from July 31 to December 31. On April 28, 2014, the Company changed its name to “Synergy Strips Corp.”. On August 5, 2015, the Company changed its name to “Synergy CHC Corp.”

The Company is a consumer health care company that is in the process of building a portfolio of best-in-class consumer product brands. Synergy’s strategy is to grow its portfolio both organically and by further acquisition.

Synergy is the sole owner of a subsidiary, Neuragen Corp., and the results have been consolidated in these statements.

Loan and Warrants

On January 22, 2015, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company $6.0 million (the “Loan”), and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring the Focus Factor Business (defined below). At closing, the Company paid Knight an origination fee of $120,000 and a work fee of $60,000 and also paid $40,000 of Knight’s expenses associated with the Loan. The Loan bears interest at a rate of 15% per year; provided, however, that upon the occurrence of an equity or convertible equity offering by the Company of at least $1.0 million, the interest rate will drop to 13% per year. Interest accrues quarterly and is payable in arrears on March 31, June 30, September 30 and December 31 in each year, beginning on March 31, 2015.

All outstanding principal and accrued and unpaid interest is due on the earliest to occur of either January 20, 2017 (the “Maturity Date”), or the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default. The Company may extend the Maturity Date for two successive additional 12-month periods if at March 31, 2016 and March 31, 2017, respectively, the Company’s revenues exceed $13.0 million and its EBITDA exceeds $2.0 million for the respective 12-month period then ending. Principal payments under the Loan Agreement commenced on June 30, 2015 and continue quarterly as set forth on the Repayment Schedule to the Loan Agreement.

Subject to certain restrictions, the Company may prepay the outstanding principal of the Loan (in whole but not in part) at any time if the Company pays a concurrent prepayment fee equal to the greater of (i) the total unpaid annual interest that would have been payable during the year in which the prepayment is made if the prepayment is made prior to the first anniversary of the closing, and (ii) $300,000. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in all present and future assets of the Company. The Company also agreed to not pledge or otherwise encumber its intellectual property assets, subject to certain customary exceptions.

The Loan Agreement includes customary representations, warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, and to not merge or dispose of assets, acquire other businesses (except for businesses substantially similar or complementary to the Company’s business and the aggregate consideration to be paid does not exceed $100,000) or make capital expenditures in excess of $100,000 over the Company’s annual business plan in any year. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants, change of control and material adverse effect default. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of the Loan will bear a default interest rate of an additional 5%.

In connection with the Loan Agreement, the Company issued to Knight a warrant that entitled Knight to purchase 4,595,187 shares of common stock of the Company (“Common Stock”) on or prior to close of business on January 30, 2015 (the “ST Warrant”). The aggregate exercise price of the Common Stock under the ST Warrant is $1.00. Knight exercised the ST Warrant on January 22, 2015. Also in connection with the Loan Agreement, the Company issued to Knight a warrant to purchase 3,584,759 shares of Common Stock on or prior to the close of business of January 22, 2025 (the “LT Warrant”). The exercise price per share of the Common Stock under the LT Warrant is $0.34. The LT Warrant provides for cashless exercise. The LT Warrant also provides that in the event the closing price of the Common Stock remains above $1.00 for six consecutive months, Knight will forfeit the difference between the number of shares acquired under the LT Warrant prior to 90 days after such six-month period, and 25% of the shares purchasable under the LT Warrant.

Asset Purchase Agreement with Factor Nutrition Labs, LLC

On January 22, 2015 (the “Closing Date”), the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Factor Nutrition Labs, LLC, a Delaware limited liability company (the “Seller”), Vita Partners, LLC, RPR Partners, LLC, and Thor Associates, Inc. (each a “Principal Owner”). Pursuant to the Purchase Agreement, the Company purchased all of the assets of the Seller’s line of business and products called FOCUS Factor (the product plus the business related to the product is collectively referred to as the “Focus Factor Business”) and assumed the accounts payable and contractual obligations of the Focus Factor Business for an aggregate purchase price of $6.0 million, with $4.5 million paid on the Closing Date, and $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017.

F-4

Distribution Agreement

On January 22, 2015, the Company and Knight entered into a Distribution, License and Supply Agreement (the “Distribution Agreement”), pursuant to which the Company granted to Knight an exclusive license to commercialize FOCUSFactor, FOCUSFactor Kids and Synergy Strip and all improvements thereto (together the “Licensed Products”) and appointed Knight as the exclusive distributor to offer to sell and sell the Licensed Products in Canada, and, at Knight’s election, one or more of Israel, Russia, and Sub-Saharan Africa. The Distribution Agreement provides that Knight may sublicense its rights or use sub-distributors under the Distribution Agreement on terms consistent with the terms of the Distribution Agreement. During the term of the Distribution Agreement, Knight agrees to obtain from the Company all its requirements for the Licensed Products and the Company agrees to supply the Licensed Products at its adjusted production cost plus a designated percentage and any applicable taxes.

In the event of a long term inability by the Company to supply Knight with the Licensed Products, Knight is entitled to require, among other remedies, the Company to grant a Knight-designated third party a non-exclusive license to use all relevant intellectual property to manufacture and supply Knight with the Licensed Products for commercialization in the Territory. The term of the Distribution Agreement runs until 15 years from the date of the first commercial sale of a Licensed Product in Canada, and the Distribution Agreement will automatically renew for successive 15-year periods unless either party provides the other with written notice of its intention not to renew (a “Non-Renewal Notice”). The Company agrees that in the event it issues a Non-Renewal Notice, the Company will pay to Knight a non-renewal fee equal to the net sales of the Licensed Products achieved by Knight in the Territory during the eight calendar quarters preceding the date of such notice, plus all applicable taxes.

Distribution Option Agreement

In connection with the Loan Agreement, the Company entered into a Product Distribution Option Agreement, dated January 22, 2015 (the “Option Agreement”), pursuant to which the Company granted Knight the exclusive right to negotiate the exclusive distribution rights of any one or more of the Company’s products, including products from the Focus Factor Business, for the territories of Canada, Russia, Sub-Saharan Africa and Israel (the “Option”), pursuant to designated parameters. The Option Agreement is effective upon the date of the Option Agreement, will run until January 31, 2045, and will automatically renew thereafter for successive five-year periods unless either party provides a notice of termination prior to the Option Agreement’s expiration. If Knight does not exercise the option then the Company is free to contract for distribution with other parties, but only on terms no less favorable than those offered by Knight pursuant to the Option Agreement.

Asset Purchase Agreement with Knight Therapeutics Inc.

On June 26, 2015 (the “Closing Date”), Neuragen Corp., a Delaware corporation (“Neuragen”) and our wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Knight Therapeutics Inc., a Canadian corporation (“Knight”). Pursuant to the Purchase Agreement, Neuragen purchased the U.S. rights related to an innovative OTC product that helps relieve pain caused by diabetic nerve damage (the “Purchased Assets”) for an aggregate purchase price of $1.2 million, with (i) $250,000 paid on the Closing Date, (ii) $250,000 to be paid on or before June 30, 2016, (iii) $700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of $12,500 or 5% of U.S. net sales, and (iv) 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released upon receipt of total payments of $1.2 million (collectively, “Total Consideration”).

Security Agreement

On the Closing Date, Neuragen entered into a Security Agreement with Knight, pursuant to which Neuragen granted a lien and security interest to Knight in Collateral in connection with the Purchase Agreement.

The Security Agreement was made to secure the payment of all indebtedness, obligations and liabilities of Neuragen of the Purchase Agreement, including all expenses and charges, legal or otherwise, suffered or incurred by Knight in collecting or enforcing such indebtedness of the Purchase Agreement.

The Security Agreement includes customary events of default, including but not limited to: payment defaults; Neuragen becoming insolvent or entering into bankruptcy; or if any contemplated security ceases to be a valid and perfected first-priority security interest that is not remedied within fifteen business days by Neuragen. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of the outstanding Total Consideration will bear a default interest rate of an additional 10% per annum.

F-5

Note 2 – Summary of Significant Accounting Policies

General

The accompanying condensed consolidated financial statements as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014 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, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. 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, 2014 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. 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.

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, 2015 the Company had no cash equivalents.

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. Intangible assets are amortized on a straight-line basis over their useful lives.

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 and 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.

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.

Revenue Recognition

Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership of and title to our products pass to customers upon delivery of the products to customers. 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.

F-6

Revenue is presented net of estimated returns and allowances, discounts, sales incentives and promotions including, price reductions, coupons, rebate offers and placement/slotting fees.

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.

Advertising Expense

The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in general and administrative expense in the accompanying 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 Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“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.

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 loss 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, 2015, an option to purchase 1,000,000 shares of common stock and warrants to purchase 3,584,759 shares of common stock were outstanding.

Going Concern

The Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had accumulated deficit at June 30, 2015 of $3,637,831. The Company has working capital of $677,599 as of June 30, 2015. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations.

In order to continue as a going concern and to develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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.

F-7

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, 2015, the Company has determined that there were no assets or liabilities measured at fair value.

Inventory

Inventory consists of components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market.

Stock-Based Compensation

The Company has adopted the provisions of ASC 718. We estimate the fair value of stock options using a binomial model, consistent with the provisions of ASC 718 and SEC Staff Accounting Bulletin No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the underlying stock. We determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. The expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. We believe the resulting binomial calculation provides a more refined estimate of the fair value of our employee stock options.

Recent Accounting Pronouncements

ASU 2015-03

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash flows.

ASU 2015-02

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

F-8

ASU 2015-01

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.

ASU 2014-17

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.

ASU 2014-16

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.

ASU 2014-15

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

ASU 2014-12

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

ASU 2014-09

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year.

ASU 2014-08

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.

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

Change in Fiscal Year End

On April 21, 2014, the Company’s board of directors approved a change to the Company’s fiscal year end from July 31 to December 31 of each year.

F-9

Note 3 – Asset Purchases

Asset Purchase Agreement with Factor Nutrition Labs, LLC:

The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The Company expects the purchase price allocations for the acquisition of Focus Factor Business to be completed by September 30, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Accounts Receivable	$	2,926,369
Inventory		67,113
Intellectual Property		1,000,000
Non-compete provision		50,000
Non-solicitation provision		50,000
Intangible assets-Customer relationships		1,941,030
Goodwill		1,798,047
Liabilities
Accounts Payable		(891,113	)
Accrued Expenses		(941,446	)
	$	6,000,000

The Customer relationships, the non-compete and the non-solicitation provisions will be amortized over their estimated useful lives of 5 years.

Pro forma Results of Operations. The historical operating results of Focus Factor Business prior to its acquisition date have not been included in the Company’s historical consolidated operating results. Pro forma results of operations data (unaudited) for the years ended December 31, 2014 and 2013, as if the acquisition had occurred on January 1, 2013, are as follows:

	December 31,
	2014			2013
Revenue	$	12,695,295		$	10,629,171
Net income (loss)		(183,471	)		932,209

Pro forma revenue amount above does not include adjustment/reductions relating to certain discounts, coupons and placement fees and is presented gross.

The amounts of revenue and earnings of FOCUS Factor Business since the acquisition date included in the unaudited condensed consolidated statement of operations for the six months ended June 30, 2015 are approximately $3,983,241 and $(2,663,046), respectively.

Asset Purchase Agreement with Knight Therapeutics Inc.:

F-10

The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The Company expects the purchase price allocations for the acquisition of the Purchased Assets to be completed by December 31, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Accounts Receivable	$	70,390
Inventory		204,925
Goodwill		1,125,000
Liabilities
Accounts Payable		(51,795	)
Accrued Expenses		(148,520	)
	$	1,200,000

Note 4 – Inventory

Inventory consists of finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market.

The carrying value of inventory consisted of the following:

	June 30, 2015		December 31, 2014
Energy product	$	24,451	$	26,064
Components		144,752		-
Finished goods		189,158		-
Raw Materials		32,770		-
Total inventory	$	391,131	$	26,064

As of January 22, 2015, inventory was pledged to Knight Therapeutics under the Loan Agreement (see note 1).

Note 5 – Fixed Assets and Intangible Assets

As of June 30, 2015 and December 31, 2014, fixed assets and intangible assets consisted of the following:

	June 30, 2015			December 31, 2014
Property and equipment	$	1,654		$	-
Less accumulated depreciation		(213	)		-
Fixed assets, net	$	1,441		$	-

	June 30, 2015			December 31, 2014
Intangible assets		3,041,030			-
Less accumulated depreciation		(178,940	)		-
Intangible assets, net	$	2,862,090		$	-

Depreciation and amortization expense for the six months ended June 30, 2015 and 2014 was $179,153 and $0, respectively. Depreciation and amortization expense for the three months ended June 30, 2015 and 2014 was $101,911 and $0, respectively. Annual amortization expense will be $408,206 per year through 2020.

Note 6 – Related Party Transactions

On April 2, 2014, the Company granted an option to purchase 1,000,000 shares of the Company’s common stock, valued at approximately $282,000 to the Company owned by Mr. Jack Ross, Chief Executive Officer of the Company.

On October 31, 2014, the Company borrowed $100,000 through a promissory note bearing interest at 10% with a maturity date of October 31, 2015 from a company owned by Mr. Ross, the Company’s chief executive officer. During the six months ended June 30, 2015, the note was converted into 400,000 shares of the Company’s common stock.

F-11

The Company accrued and paid consulting fees of $15,000 per month to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. As of June 30, 2015, the total outstanding balance was $0.

At June 30, 2015, $168,197 was due from a company owned by Mr. Jack Ross, Chief Executive Officer of the Company in a form of a note receivable.

On January 22, 2015, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc. (“Knight”), a related party, for the purchase of the Focus Factor assets. At June 30, 2015, the Company owed Knight $4,480,561 on this loan, net of discount (see Note 8).

On June 26, 2015, the Company entered into a Loan Agreement with Knight Therapeutics, through its wholly owned subsidiary, for the purchase of the Neuragen assets. At June 30, 2015, the Company owed Knight $950,000 on this loan (see Note 8).

Note 7 – Accounts Payable and Accrued Liabilities

As of June 30, 2015 and December 31, 2014, accounts payable and accrued liabilities consisted of the following:

	June 30, 2015		December 31, 2014
Accrued payroll	$	-	$	10,867
Accrued legal fees		22,748		47,916
Manufacturers		968,262		-
Promotions		116,240		-
Other		155,762		15,859
Total	$	1,263,012	$	74,642

Note 8 – Notes Payable

On January 22, 2015, the Company entered into a Loan and Security Agreement, pursuant to which Knight Therapeutics (Barbados) Inc. (“Knight”) agreed to loan the Company $6.0 million (the “Loan”), and which amount was borrowed at closing for the purpose of acquiring the Focus Factor Business (see note 1). The Loan bears interest at a rate of 15% per year; provided, however, that upon the occurrence of an equity or convertible equity offering by the Company of at least $1.0 million, the interest rate will drop to 13% per year. Interest accrues quarterly and is payable in arrears on March 31, June 30, September 30 and December 31 in each year, beginning on March 31, 2015. All outstanding principal and accrued and unpaid interest is due on the earliest to occur of either January 20, 2017, or the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default.

In connection with the Loan, the Company issued warrants that were recorded as a debt discount at an initial aggregate value of $3,415,514 (see note 1). The value of these warrants was amortized during the six months ended June 30, 2015, resulting in a final debt discount balance of $1,144,439 as of June 30, 2015.

On January 22, 2015, the Company issued a 0% promissory note in a principal amount of $1,500,000 in connection with an Asset Purchase Agreement (see note 1). The note has a maturity date of January 20, 2017, with $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017.

On June 26, 2015, the Company, through its wholly owned subsidiary, Neuragen Corp. (“Neuragen”), issued a 0% promissory note in a principal amount of $950,000 in connection with an Asset Purchase Agreement (see note 1). The note requires $250,000 to be paid on or before June 30, 2016, and $700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of $12,500 or 5% of U.S. net sales, and 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released upon receipt of total payments of $1.2 million.

Note 9 – Stockholders’ Deficit

The total number of shares of all classes of capital stock which the Company is authorized to issue is 75,000,000 shares of common stock with $0.00001 par value. On July 30, 2014, the Company’s board of directors approved an increase of the Company’s authorized common stock from 75,000,000 to 300,000,000 shares, which increase was approved by the Company’s shareholders and became effective on August 5, 2015.

During the six months ended June 30, 2015, the Company issued 4,595,187 shares of its common stock upon exercise of the ST Warrant at an aggregate exercise price of $1.00 in connection with the Loan Agreement (see note1).

During the six months ended June 30, 2015, the Company issued 400,000 shares of its common stock to a note holder in a note conversion at $0.25 per share. At the time of conversion, the note was valued at $100,000 for outstanding principal.

As of June 30, 2015, there were 67,095,187 shares of the Company’s common stock issued and outstanding.

F-12

Note 10 – Commitments & Contingencies

From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.

Note 11 – Stock Options

On July 30, 2014, the Company’s board of directors approved the Company’s 2014 Equity Incentive Plan and the reservation of 15,525,000 shares of common stock for issuance under such plan. Such plan was approved by the Company’s shareholders and became effective on August 5, 2015.

On April 2, 2014, the Company granted 1,000,000 options with an exercise price of $0.25 per share.

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and consultants under a stock option plan at June 30, 2015:

		Options Outstanding					Options Exercisable
Exercise Prices ($)		Number Outstanding	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price ($)		Number Exercisable	Weighted Average Exercise Price
$	0.25	1,000,000		3.75	$	0.25	1,000,000	$	0.25

The stock option activity for the six months ended June 30, 2015 is as follows:

	Options Outstanding		Weighted Average Exercise Price
Outstanding at December 31, 2014		1,000,000	$	0.25
Granted		—		—
Exercised		—		—
Expired or canceled		—		—
Outstanding at June 30, 2015	$	1,000,000	$	0.25

Note 12 – Stock Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock at June 30, 2015:

		Warrants Outstanding					Warrants Exercisable
Exercise Prices ($)		Number Outstanding	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price ($)		Number Exercisable	Weighted Average Exercise Price
$	0.34	3,584,759		9.57	$	0.34	3,584,759	$	0.34

The warrant activity for the six months ended June 30, 2015 is as follows:

	Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2014		—		$	—
Granted		8,179,946			0.71
Exercised		(4,595,187	)		1.00
Expired or canceled		—			—
Outstanding at June 30, 2015	$	3,584,759		$	0.34

Note 13 – Subsequent Events

On July 6, 2015 the stockholders approved a resolution to change the name of the Company to “Synergy CHC Corp.”, which became effective on August 5, 2015, to increase the authorized shares of common stock from 75,000,000 to 300,000,000 and to approve the 2014 Equity Incentive Plan.

F-13

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition of Synergy for the six months ended June 30, 2015 and 2014, should be read in conjunction with the financial statements of Synergy, and the notes to those financial statements that are included elsewhere in this Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in our Form 10-K filed on March 31. 2015. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

The Company is in the business of marketing and distributing best-in-class consumer-branded products through various distribution channels primarily in the health and wellness industry. The Company’s strategy is to grow both organically and by future acquisitions.

On April 7, 2014, an Agreement and Plan of Merger (the “Merger Agreement”) was entered into by and among the Company, Synergy Merger Sub, Inc., a Delaware corporation and the wholly owned subsidiary of the Company 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 the wholly owned subsidiary of the Company. The Merger was consummated on April 21, 2014.

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 from “Oro Capital Corporation” to “Synergy Strips Corp.” in connection with the Merger.

During the six months ended June 30, 2015, management has been undertaking a rebranding of the FOCUSfactor product. The focus has been on the ‘evolution’ of the label and brand so as not to alienate current customers, but to give the product a fresh look. All marketing materials will be updated over the next six months.

Management has also launched a direct to consumer campaign with national radio and television commercials.

Our management’s discussion and analysis of our financial condition and results of operations are only based on Synergy’s current business. Our previous shell company’s results of operations are immaterial and will not be included in the discussion below. Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.

Results of Operations for the Three months Ended June 30, 2015 and 2014

Revenue

For the three months ended June 30, 2015, we had revenue of $2,455,747 from sales of our products, as compared to revenue of $2,748 for the same period in 2014. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Cost of Revenue

For the three months ended June 30, 2015, our cost of revenue was $1,028,052. Our cost of revenue for the three months ended June 30, 2014, was $1,685. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Gross Profit

Gross profit was $1,427,695 for the three months ended June 30, 2015, as compared to gross profit of $1,063 for the same period in 2014.

Operating Expenses

For the three months ended June 30, 2015, our operating expenses were $1,167,932. Selling and marketing expenses were $680,189, and included primarily retail promotions of $362,625, in-store demonstrations of $85,752, and marketing costs of $231,812. General and administrative expenses were $385,832, which included professional fees of $69,819 and wages of $91,813. Amortization and depreciation expense was $101,911 during the three months ended June 30, 2015. For the three months ended June 30, 2014, our operating expenses were $643,552. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Other Expenses

For the three months ended June 30, 2015, we incurred interest expense of $227,797 related to interest on notes payable, amortization of debt issuance cost of $36,032 and amortization of debt discount of $182,070 in connection with our loan from Knight. There were no such expenses during the three months ended June 30, 2014.

Net Loss

For the three months ended June 30, 2015, our net loss was $186,136, as compared to $642,489 for the same period in 2014.

Results of Operations for the Six months Ended June 30, 2015 and 2014

Revenue

For the six months ended June 30, 2015, we had revenues of $4,055,996 from sales of our products, as compared to revenue of $2,748 for the same period in 2014. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Cost of Revenue

For the six months ended June 30, 2015, our cost of revenue was $1,663,334. Our cost of revenue for the six months ended June 30, 2014, was $1,685. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Gross Profit

Gross profit was $2,422,662 for the six months ended June 30, 2015, as compared to gross profit of $1,063 for the same period in 2014.

Operating Expenses

For the six months ended June 30, 2015, our operating expenses were $2,293,538. Selling and marketing expenses were $1,413,778, and included primarily retail promotions of $824,453, in-store demonstrations of $263,060, and marketing costs of $326,265. General and administrative expenses were $700,652, which included professional fees of $156,420 and wages of $153,920. Amortization and depreciation expense was $179,153 during the six months ended June 30, 2015. For the six months ended June 30, 2014, our operating expenses were $645,622. The increase was due to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor).

Other Expenses

For the six months ended June 30, 2015, we incurred interest expense of $399,190 related to interest on notes payable, amortization of debt issuance cost of $63,352 and amortization of debt discount of $2,271,075 in connection with our loan from Knight. There were no such expenses during the six months ended June 30, 2014.

Net Loss

For the six months ended June 30, 2015, our net loss was $2,064,538, as compared to $644,559 for the same period in 2014.

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 (“GAAP”), provides useful information to investors.

	Three months ended June 30, 3015			Six months ended June 30, 3015
Net Loss	$	(186,136	)	$	(2,604,538	)
Interest		227,797			399,190
Depreciation		138			213
Amortization		319,875			2,513,367
EBITDA	$	361,674		$	308,232
Stock-based compensation		12,000			24,000
One-time expenses for Acquisition		-			67,849
Adjusted EBITDA	$	373,674		$	400,081

Liquidity and Capital Resources

Overview

As of June 30, 2015, we had $637,238 of cash on hand and $677,599 of working capital.

Going Concern

The Company’s unaudited condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had accumulated deficit at June 30, 2015 of $3,637,831. The Company has working capital of $677,599 as of June 30, 2015. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on whether the Company can obtain adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable, if at all. If the Company is unable to obtain adequate capital it could be forced to cease operations.

Six months Ended June 30, 2015 and 2014

Net Cash Used in Operating Activities

For the six months ended June 30, 2015, operating activities provided $204,718 to us. Non-cash adjustments included $179,153 related to the depreciation and amortization, $24,000 for stock based compensation, $2,271,075 related to amortization of debt discount, $63,352 related to amortization of debt discount issuance cost, and net changes in operating assets and liabilities of $271,676. During the six months ended June 30, 2014, we used $232,554 of cash in operating activities.

Net Cash Used in Investing Activities

For the six months ended June 30, 2015, we used net cash of $4,571,654 in investing activities, as compared to $0 used in investing activities for the six months ended June 30, 2014. The increase was primarily attributable to the purchase of the assets of Factor Nutrition Labs (FOCUSfactor) and Neuragen Corp.

Net Cash Provided by Financing Activities

Financing activities provided $5,183,836 to us during the six months ended June 30, 2015. We received $6,000,000 in proceeds from notes payable, and $1 in proceeds from warrant exercise. We also used $375,000 to repay the note. During the six months ended June 30, 2014, financing activities provided $415,960.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

None.

Off-Balance Sheet Arrangements

None.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. GAAP.

Use of Estimates

The preparation of the 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 assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant estimates include, but are not limited to, the collectability of accounts receivable and the estimates used when evaluating long-lived assets for impairment. Estimates are used for, but are not limited to, determining the following: allowance for doubtful accounts and inventory valuation reserves, recoverability of long-lived assets, and useful lives used in depreciation and amortization.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2015, the Company had no cash equivalents.

Capitalization of Fixed Assets

Intangible assets

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.

Goodwill

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.

Advertising Expense

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.

Revenue Recognition

Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. 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.

Revenue is presented net of estimated returns and allowances, discounts, sales incentives and promotions including, price reductions, coupons, rebate offers and placement/slotting fees.

Accounts receivable

Income Taxes

The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Fair Value of Financial Instruments

We may hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”). ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Level 1 instruments include cash, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying values are assumed to approximate the fair value due to the short term nature of the instrument.

The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at March 31, 2015 due to their short term nature.

Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.

Earnings (Loss) Per Share

Net earnings (loss) per share is computed by dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

Inventory

Inventory consists of components and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market.

Stock-Based Compensation

Recent Accounting Pronouncements

ASU 2015-03

ASU 2015-02

ASU 2015-01

ASU 2014-17

ASU 2014-16

ASU 2014-15

ASU 2014-12

ASU 2014-09

ASU 2014-08

Fiscal Year

The Company has adopted December 31, as its fiscal year end.

ITEM 3. 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 the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that as of June 30, 2015, (i) the Company’s disclosure controls and procedures were not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”), and (ii) the Company’s controls and procedures have not been designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with our evaluation of these controls as of the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The Company’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

	Exhibit Number		Description

	31.1		Section 302 Certification by the Corporation’s Chief Executive Officer *

	31.2		Section 302 Certification by the Corporation’s Chief Financial Officer *

	32.1		Section 906 Certification by the Corporation’s Chief Executive Officer *

	32.2		Section 906 Certification by the Corporation’s Chief Financial Officer *

	101.INS		XBRL Instance Document* **

	101.SCH		XBRL Taxonomy Extension Schema Document* **

	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document* **

	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document* **

	101.LAB		XBRL Taxonomy Extension Label Linkbase Document* **

	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document* **

	*	Filed herewith

	**	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signatures	Title	Date

/s/ Jack Ross	Chief Executive Officer	August 13, 2015
	Chief Financial Officer

Attached files

Stock widget

Investing forum

Synergy CHC Corp. Reports