Synergy CHC Corp. 10-Q

Item 1. Financial Statements. Synergy CHC Corp. Condensed Interim Financial Statements For the Nine Months Ended September 30, 2024 and 2023 Unaudited (Expressed in U.S. Dollars) 1 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING CONDENSED INTERIM FINANCIAL REPORTING The accompanying unaudited condensed interim financial statements of Synergy CHC Corp. (“the Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States (GAAP). Management acknowledges responsibility for the preparation and presentation of the unaudited condensed interim financial statements, including responsibility for significant accounting estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. 2 Synergy CHC Corp. Condensed Consolidated Balance Sheets September 30, 2024 December 31, 2023 (Unaudited) (Audited) Assets Current Assets: Cash $ 259,375 $ 632,534 Restricted cash 100,000 100,000 Accounts receivable, net 4,072,030 2,106,094 Loan receivable (related party) 4,438,727 4,459,996 Prepaid expenses (including related party amount of $ 570,000 and $ 501,321 , respectively) 1,072,639 797,985 Inventory, net 1,910,515 3,726,240 Total Current Assets 11,853,286 11,822,849 Intangible assets, net 316,667 416,667 Total Assets $ 12,169,953 $ 12,239,516 Liabilities and Stockholders’ Deficit Current Liabilities: Accounts payable and accrued liabilities (including related party payable of $ 129,091 and $ 26,885 , respectively) $ 5,082,140 $ 11,727,490 Income taxes payable, net 254,272 185,665 Contract liabilities 2,100 14,202 Short term loans payable, related party 2,915,692 - Current portion of long-term debt, net of debt discount and debt issuance cost, related party 3,000,000 - Current portion of long-term debt, net of debt discount and debt issuance cost 6,994,766 2,094,525 Total Current Liabilities 18,248,970 14,021,882 Long-term Liabilities: Note payable, net of debt discount and debt issuance cost, related party 9,333,053 12,426,997 Notes payable 9,757,022 13,096,610 Total Long-term Liabilities 19,090,075 25,523,607 Total Liabilities 37,339,045 39,545,489 Commitments and contingencies Stockholders’ Deficit: Common stock, $ 0.00001 par value; 300,000,000 shares authorized; 7,553,818 shares issued and outstanding 76 76 Additional paid in capital 19,157,931 19,148,707 Accumulated other comprehensive income (loss) 5,881 ( 102,467 ) Accumulated deficit ( 44,332,980 ) ( 46,352,289 ) Total stockholders ’ deficit ( 25,169,092 ) ( 27,305,973 ) Total Liabilities and Stockholders’ Deficit $ 12,169,953 $ 12,239,516 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 3 Synergy CHC Corp. Unaudited Condensed Consolidated Statements of Income and Comprehensive Income For the three months ended For the nine months ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Revenue $ 7,126,333 $ 10,805,735 $ 24,563,036 $ 29,559,440 Cost of sales 2,335,901 3,028,023 7,421,930 8,351,645 Gross profit 4,790,432 7,777,712 17,141,106 21,207,795 Operating expenses Selling and marketing 2,509,440 4,302,034 9,149,303 10,533,217 General and administrative 1,196,784 1,326,864 3,449,007 4,294,634 Depreciation and amortization 33,333 - 100,000 - Total operating expenses 3,739,557 5,628,898 12,698,310 14,827,851 Income from operations 1,050,875 2,148,814 4,442,796 6,379,944 Other (income) expenses Other income ( 252,405 ) - ( 252,405 ) - Interest expense, net 704,707 885,548 2,559,454 2,605,320 Remeasurement (gain) loss on translation of foreign subsidiary 7,279 ( 7,555 ) 2,166 ( 11,716 ) Total other expenses 459,581 877,993 2,309,215 2,593,604 Net income before income taxes 591,294 1,270,821 2,133,581 3,786,340 Income tax benefit (expense) 192,299 13,366 ( 114,272 ) ( 38,896 ) Net income after tax $ 783,593 $ 1,284,187 $ 2,019,309 $ 3,747,444 Net income per share – basic $ 0.10 $ 0.17 $ 0.27 $ 0.50 Net income per share – diluted $ 0.10 $ 0.17 $ 0.27 $ 0.50 Weighted average common shares outstanding Basic 7,553,818 7,553,818 7,553,818 7,553,818 Diluted 7,553,818 7,553,818 7,553,818 7,553,818 Comprehensive income : Net income 783,593 1,284,187 2,019,309 3,747,444 Foreign currency translation adjustment ( 79,025 ) 105,398 108,348 ( 4,257 ) Comprehensive income $ 704,568 $ 1,389,585 $ 2,127,657 $ 3,743,187 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 Synergy CHC Corp. Unaudited Condensed Consolidated Statement of Stockholders’ Deficit Common stock Additional Paid in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Income (Loss) Deficit Deficit Balance as of December 31, 2022 7,553,818 $ 76 $ 19,148,707 $ 22,389 $ ( 52,691,039 ) $ ( 33,519,867 ) Foreign currency translation loss ( 4,443 ) ( 4,443 ) Net income 328,428 328,428 Balance as of March 31, 2023 7,553,818 $ 76 $ 19,148,707 $ 17,946 $ ( 52,362,611 ) $ ( 33,195,882 ) Foreign currency translation loss ( 105,212 ) - ( 105,212 ) Net income 2,134,829 2,134,829 Balance as of June 30, 2023 7,553,818 $ 76 $ 19,148,707 $ ( 87,266 ) $ ( 50,227,782 ) $ ( 31,166,264 ) Foreign currency translation loss 105,398 - 105,398 Net income 1,284,187 1,284,187 Balance as of September 30, 2023 7,553,818 $ 76 $ 19,148,707 $ 18,132 $ ( 48,943,595 ) $ ( 29,776,680 ) Common stock Additional Paid in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Income (Loss) Deficit Deficit Balance as of December 31, 2023 7,553,818 $ 76 $ 19,148,707 $ ( 102,467 ) $ ( 46,352,289 ) $ ( 27,305,973 ) Foreign currency translation gain 131,637 131,637 Net income 580,530 580,530 Balance as of March 31, 2024 7,553,818 $ 76 $ 19,148,707 $ 29,170 $ ( 45,771,759 ) $ ( 26,593,806 ) Fair value of vested stock options 4,611 4,611 Foreign currency translation gain 55,736 55,736 Net income 655,186 655,186 Balance as of June 30, 2024 7,553,818 $ 76 $ 19,153,318 $ 84,906 $ ( 45,116,573 ) $ ( 25,878,273 ) Fair value of vested stock options 4,613 4,613 Foreign currency translation gain ( 79,025 ) ( 79,025 ) Net income 783,593 783,593 Balance as of September 30, 2024 7,553,818 $ 76 $ 19,157,931 $ 5,881 $ ( 44,332,980 ) $ ( 25,169,092 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 Synergy CHC Corp. Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended For the nine months ended September 30, 2024 September 30, 2023 Cash Flows from Operating Activities Net income $ 2,019,309 $ 3,747,444 Adjustments to reconcile net income to net cash used in operating activities: Amortization of debt issuance cost 47,519 37,838 Depreciation and amortization 100,000 - Stock based compensation expense 9,224 - Foreign currency transaction loss 23,777 16,146 Remeasurement loss on translation of foreign subsidiary 2,166 ( 11,716 ) Non cash implied interest 4,799 21,994 Changes in operating assets and liabilities: Accounts receivable ( 1,965,936 ) 102,649 Loan receivable, related party 21,269 118,192 Inventory 1,815,725 3,829,729 Prepaid expenses ( 205,975 ) ( 1,029,858 ) Prepaid expense, related party ( 396,683 ) ( 143,106 ) Income taxes receivable - 5,381 Income taxes payable 68,607 - Contract liabilities ( 12,102 ) 3,434 Accounts payable and accrued liabilities ( 3,011,384 ) ( 9,335,734 ) Accounts payable, related party 102,206 ( 100,242 ) Net cash used in operating activities ( 1,377,479 ) ( 2,737,849 ) Cash Flows from Investing Activities - - Cash Flows from Financing Activities Advances from related party 3,395,587 1,000,000 Repayment of advances from related party ( 157,425 ) - Repayment of notes payable, related party ( 84,500 ) ( 73,500 ) Proceeds from notes payable 600,000 360,000 Repayment of notes payable ( 2,857,690 ) ( 733,010 ) Net cash provided by financing activities 895,972 553,490 Effect of exchange rate on cash, cash equivalents and restricted cash 108,348 ( 4,257 ) Net decrease in cash, cash equivalents and restricted cash ( 373,159 ) ( 2,188,616 ) Cash and restricted cash, beginning of year 732,534 2,526,443 Cash and restricted cash, end of period $ 359,375 $ 337,827 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 2,432,653 $ 2,584,604 Income taxes $ 45,664 $ - Supplemental Disclosure of Noncash Investing and Financing Activities: Accounts payable converted to loan payable upon settlement $ 3,770,824 $ - Reduction of short term related party note payable by reduction of prepaid balance $ 328,003 $ - The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 Synergy CHC 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 acquisitions. Effective January 1, 2019 the Company has merged its U.S. subsidiaries (Neuragen Corp., Breakthrough Products, Inc., Sneaky Vaunt Corp., and The Queen Pegasus Corp.) into the parent company. Synergy is the sole owner of two subsidiaries: NomadChoice Pty Ltd., and Synergy CHC Inc. and the results have been consolidated in these statements. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 are unaudited. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). 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 nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024. 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, 2023 and footnotes thereto. All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Reverse Stock Split On September 11, 2024, we effected a 1-for-11.9 reverse stock split with respect to our common stock. The reverse stock split did not change the number of authorized shares of common stock or par value. All references in these condensed consolidated financial statements to shares, share prices, exercise prices and other per share information in all periods have been adjusted, on a retroactive basis, to reflect the reverse stock split. 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 included are assumptions about collection of accounts receivable, current income taxes, deferred income taxes valuation allowance, useful life of intangible assets, impairment analysis of intangible assets, estimates used in the fair value calculation of stock based compensation, assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate and expected dividend rate, accrual of sales returns, and accrual of legal expense. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary. 7 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 September 30, 2024 and December 31, 2023, the Company had no cash equivalents. The Company maintains its cash 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 September 30, 2024 and December 31, 2023, the uninsured balances amounted to $ 98,254 and $ 441,711 , respectively. Restricted Cash The following table provides a reconciliation of cash 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. September 30, 2024 December 31, 2023 Cash $ 259,375 $ 632,534 Restricted cash 100,000 100,000 Total cash and restricted cash shown in the statement of cash flows $ 359,375 $ 732,534 Amounts included in restricted cash represent amounts held for credit card collateral. 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 the 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 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. 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. 8 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. The Company recognizes revenue for its digital products in the month the download by the customer occurs. Contract Assets The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s 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 September 30, 2024 and December 31, 2023. Contract Liabilities The Company’s contract liabilities consist of advance customer payments. Contract liability 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 contract liabilities are recognized. September 30, 2024 December 31, 2023 Beginning balance $ 14,202 $ 5,197 Additions 2,100 14,202 Recognized as revenue ( 14,202 ) ( 5,197 ) Ending balance $ 2,100 $ 14,202 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 September 30, 2024 and December 31, 2023, allowance for doubtful accounts was $0 and $ 149,446 , respectively. Advertising Expense The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling and marketing expense in the accompanying consolidated statements of operations. Research and Development Costs incurred in connection with the development of new products and processing methods are charged to general and administrative expenses as incurred. 9 Income Taxes The Company utilizes FASBASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized. The Company generated a deferred tax asset through net operating loss carry-forward. However, a valuation allowance of 100 % has been established due to the uncertainty of the Company’s realization of the net operating loss carry forward prior to its expiration. NomadChoice Pty Ltd, the Company’s wholly-owned subsidiary is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Synergy CHC Inc. is a wholly-owned foreign subsidiary, is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Net Earnings (Loss) Per Common Share The Company computes earnings per share under ASC subtopic 260-10, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted earnings per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net income per share is anti-dilutive. As of September 30, 2024 and 2023, options to purchase 336,134 and 252,102 shares of common stock, respectively, were outstanding. The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2024, and 2023: For the three months ended For the nine months ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Net income after tax $ 783,593 $ 1,284,187 $ 2,019,309 $ 3,747,444 Weighted average common shares outstanding 7,553,818 7,553,818 7,553,818 7,553,818 Incremental shares from the assumed exercise of dilutive stock options - - - - Dilutive potential common shares 7,553,818 7,553,818 7,553,818 7,553,818 Net earnings per share: Basic $ 0.10 $ 0.17 $ 0.27 $ 0.50 Diluted $ 0.10 $ 0.17 $ 0.27 $ 0.50 10 The following securities were not included in the computation of diluted net earnings per share as their effect would have been antidilutive: 2024 2023 Options to purchase common stock 336,134 252,102 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 both September 30, 2024 and December 31, 2023, 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. 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. 11 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: September 30, 2024 December 31, 2023 Period-end AUD: USD exchange rate $ 0.6931 $ 0.6805 Period-end CAD: USD exchange rate $ 0.7408 $ 0.7561 Income statement: September 30, 2024 September 30, 2023 Average nine months AUD: USD exchange rate $ 0.6623 $ 0.6688 Average nine months CAD: USD exchange rate $ 0.7352 $ 0.7434 Average three months AUD: USD exchange rate $ 0.6697 $ 0.6546 Average three months CAD: USD exchange rate $ 0.7334 $ 0.7457 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, all costs associated with getting the products into the retail stores including buying and transportation costs and the hosting of our online Application. 12 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. Deferred Offering Costs Deferred offering costs consist of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including legal, accounting, printing and other offering related costs. Upon completion of the IPO, these deferred costs are to be reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering. As of September 30, 2024 and 2023, deferred offering costs amounted to $ 92,372 and $ 0 , respectively. Subsequently on October 24, 2024, the whole amount of deferred offering costs was charged to additional paid in capital upon the completion of the initial public offering as disclosed in Note 16, Subsequent events. Government assistance There is limited U.S. GAAP accounting guidance for for-profit entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a client. We are permitted to utilize other accounting standards, and have elected to analogize to International Financial Reporting Standards (“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance. Following IAS 20, we recognize government assistance on a systematic basis over the periods in which we recognize the related costs for which the grant is intended to compensate, but only when there is reasonable assurance we will comply with all conditions attached to the grant and there is reasonable assurance the assistance will be received. We have interpreted “reasonable assurance” to mean “probable” as defined in loss contingencies guidance in U.S. GAAP. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relieve and Economic Security Act (“CARES Act”), which among other things, provided payroll tax credits to eligible employers to address the negative economic impacts of the coronavirus pandemic (“COVID-19”) outbreak. Based on the reasonable assurance criteria, during the three and nine months ended September 30, 2024, we have recognized $ 252,405 as other income and as a receivable. Related parties Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests (see Note 9). 13 Segment Reporting Segment identification and selection is consistent with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an aggregated basis. Presentation of Financial Statements – Going Concern Going Concern Evaluation In connection with preparing unaudited condensed consolidated financial statements for the nine months ended September 30, 2024, 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 unaudited condensed consolidated financial statements are issued. The Company considered the following: ● At September 30, 2024, the Company had an accumulated deficit of $ 44,332,980 . ● At September 30, 2024, the Company had working capital deficit of $ 6,395,684 . ● During the nine months ended September 30, 2024, the Company had $ 1,377,479 of net cash used in operating activities. 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: ● During the nine months ended September 30, 2024, the Company repaid $ 3.1 million of loans and received $ 4.0 million through loans from related party and others. ● During the nine months ended September 30, 2024, the Company had a net income of $ 2,019,309 . ● The Company has the option of publicly selling its common stock to raise additional capital. ● The Company raised additional capital through Initial Public Offering (IPO) during October 2024 – See Note 16. ● The Company has the option of selling any of its brands to raise additional capital. ● The Company has restructured its debt agreements in 2024 which extends the terms into 2026. 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. 14 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 restructuring and cost reductions. ● Raise additional capital through a private placement. ● Raise additional capital through Initial Public Offering (IPO). Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 amends the rules on income tax disclosures to require entities to disclose specific categories in the rate reconciliation, the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and income tax expense or benefit from continuing operations (separated by federal, state, and foreign). In addition, ASU 2023-09 requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The amendments can be applied on a prospective basis although retrospective application is permitted. The amendments are effective for the fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact this update will have on its Consolidated Financial Statements. In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 expands segment disclosure requirements through enhanced disclosures related to significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. All disclosure requirements under ASU 2023- 07 are also required for public entities with a single reportable segment. The amendments are effective for the fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact this update will have on its Consolidated Financial Statements. In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). ASU 2023-06 amends U.S. GAAP to reflect updates and simplifications to certain disclosure and presentation requirements referred to FASB by the Securities and Exchange Commission (“SEC”). The targeted amendments incorporate 14 of the 27 disclosures referred by the SEC into codification. Each amendment in ASU 2023-06 is effective on either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. The Company is currently evaluating the impact this update will have on its Consolidated Financial Statements. Note 3 – 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. 15 Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax positions. For U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382/383, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited or eliminated, as to the amount that could be utilized each year, based on the Code. NOL’s attributable to Breakthrough Products, Inc., which are the majority of the Company’s domestic NOL’s are Separate Return Limitation Year (SRLY) NOL’s. Such losses may generally not be available for use (limited or eliminated). The Company has not filed its State & Local Income/Franchise tax returns in states it is required to file, as such returns and liability remain open. The Company does not expect this to be a significant liability. The Company had tax expense of $ 114,272 and $ 38,896 for the nine months ended September 30, 2024 and 2023, respectively. The Company had tax benefit of $ 192,299 and $ 13,366 for the three months ended September 30, 2024 and 2023, respectively. The Company’s provision for tax expense amount, computed by applying the statutory federal income tax rate of 21 % in 2024 and 2023 to income before taxes, differs from the effective tax rate, due primarily to state income taxes and permanent items (plus utilization of NOL carryforwards in 2023. The Company also has net operating loss carryforwards of approximately $ 51,800,000 and approximately $ 52,800,000 (United States and Canada) included in the deferred tax assets for September 30, 2024 and December 31, 2023, respectively, the majority attributable to the acquisition of Breakthrough Products, Inc. However, due to limitations of carryover attributes and separate return limitation year rules, it is unlikely the company will benefit from the NOL’s and thus Management has determined a 100 % valuation allowance is required. Further, the Company has not completed an evaluation of the NOL’s attributable to Breakthrough Products, Inc. at the date of this report. Note 4 – Accounts Receivable Accounts receivable, net of allowances for doubtful accounts, consisted of the following: September 30, 2024 December 31, 2023 Trade accounts receivable $ 4,072,030 $ 2,255,540 Less allowances - ( 149,446 ) Total accounts receivable, net $ 4,072,030 $ 2,106,094 During the nine months ended September 30, 2024 and 2023, the Company charged $ 0 to bad debt expense. 16 Note 5 – Prepaid Expenses At September 30, 2024 and December 31, 2023, prepaid expenses consisted of the following: September 30, 2024 December 31, 2023 Advances for inventory $ 230,128 $ 128,025 Insurance 6,220 6,133 Deposits 14,000 60,000 Contract employee, related party 570,000 501,321 Components - 97,606 Promotions 144,448 - IT expenses 14,951 - Deferred offering costs 92,372 - Miscellaneous 520 4,900 Total $ 1,072,639 $ 797,985 Note 6 – Concentration of Credit Risk Cash and cash equivalents The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $ 250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At September 30, 2024 and December 31, 2023, the uninsured balance amounted to $ 98,254 and $ 441,711 , respectively. Accounts receivable As of September 30, 2024 and December 31, 2023, four and two customers accounted for 62 % and 68 %, respectively, of the Company’s accounts receivable. Major customers For the nine months ended September 30, 2024, two customers accounted for approximately 69 % of the Company’s net revenue. For the nine months ended September 30, 2023, three customers accounted for approximately 75 % of the Company’s net revenue. For the three months ended September 30, 2024, three customers accounted for approximately 78 % of the Company’s net revenue. For the three months ended September 30, 2023, three customers accounted for approximately 81 % of the Company’s net revenue. Substantially all of the Company’s business is with companies in the United States. 17 Accounts payable As of both September 30, 2024 and December 31, 2023, two vendors accounted for 41 % and 64 %, respectively, of the Company’s accounts payable. Major suppliers For the nine months ended September 30, 2024, three suppliers accounted for approximately 34 % of the Company’s purchases. For the nine months ended September 30, 2023, three suppliers accounted for approximately 17 % of the Company’s purchases. For the three months ended September 30, 2024, two suppliers accounted for approximately 41 % of the Company’s purchases. For the three months ended September 30, 2023, two suppliers accounted for approximately 19 % of the Company’s purchases. Substantially all of the Company’s business is with suppliers in the United States. Note 7 – Inventory Inventory consists of finished goods, components and raw materials. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or net realizable value. The carrying value of inventory consisted of the following: September 30, 2024 December 31, 2023 Finished goods $ 1,771,566 $ 3,584,343 Components 93,949 93,949 Inventory in transit - 2,948 Raw materials 45,000 45,000 Total inventory $ 1,910,515 $ 3,726,240 As of January 22, 2015, inventory was pledged to Knight under the Loan Agreement (see note 12). As of September 30, 2024 and December 31, 2023, $0 and $ 2,948 , respectively, of the Company’s inventory was in transit. During the nine months ended September 30, 2024 and 2023, the Company had no inventory write-offs. Note 8 – Intangible Assets September 30, 2024 December 31, 2023 License Fee $ 450,000 $ 450,000 Less accumulated amortization ( 133,333 ) ( 33,333 ) Intangible assets, net $ 316,667 $ 416,667 Amortization expense for the nine months ended September 30, 2024 and 2023 was $ 100,000 and $ 0 , respectively. Amortization for the three months ended September 30, 2024 and 2023 was $ 33,333 and $ 0 , respectively. The estimated aggregate amortization expense over each of the next five years is as follows: 2024 (remaining) $ 33,333 2025 133,333 2026 133,333 2027 16,668 18 Note 9 – Related Party Transactions The Company paid consulting fees through September 2024 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. The Company expensed $ 0 during the three and nine months ended September 30, 2024 as consulting fees. The Company expensed $ 0 and $ 388,360 during the three and nine months ended September 30, 2023. The Company advanced $ 396,683 in the manner of a prepaid consulting fees during the nine months ended September 30, 2024 and applied $ 328,003 of that advance to a short term loan. The prepaid balance as of September 30, 2024 and December 31, 2023 was $ 570,000 and $ 501,321 , respectively. During 2024, the Company was advanced $ 3,020,000 and $ 514,500 Canadian Dollars (US Dollars $ 375,587 ) in the form of a short term note. The balance owed as of September 30, 2024 and December 31, 2023 is $ 2,915,692 and $ 0 , respectively. On June 26, 2015, the Company entered into a Security Agreement with Knight Therapeutics, Inc., a related party (owner of greater than 10 % shares of the Company), through its wholly owned subsidiary Neuragen Corp., for the purchase of Knight Therapeutics, Inc.’s assets. At March 31, 2024 and December 31, 2023, the Company owed Knight $ 275,000 and $ 287,500 in relation to this agreement (see Note 11). The Company recorded present value of future payments of $ 199,640 and $ 204,941 as of March 31, 2024 and December 31, 2023, respectively. During June 2024, this Security Agreement was consolidated into one loan under the sixth amendment. The Company entered into transactions with a related party controlled by the CEO during prior years. The transactions were a pass through and allocation of expenses and reimbursements. As of September 30, 2024 and December 31, 2023 the Company was owed $ 4,438,727 and $ 4,459,996 , respectively. The Company entered into a transaction with a related party controlled by the CEO during the year ended December 31, 2023. The transaction was in the form of a short term loan. The Company received $ 10,000 Canadian dollars (US Dollars $ 7,561 ). This amount was owed to the related party as of December 31, 2023 and was repaid during February 2024. On August 9, 2017, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party (owner of greater than 10 % shares of the Company), for a working capital loan. At both March 31, 2024 and December 31, 2023, the Company owed Knight $ 5,000,000 on this loan, net of debt issuance cost (see Note 11). During the year ended December 31, 2020 a loan success fee of $ 1,000,000 was earned by Knight payable in August 2022 (see Note 11). At both March 31, 2024 and December 31, 2023, the Company owed Knight $ 1,000,000 on the loan success fee (see Note 11). During June 2024, this Loan Agreement was consolidated into one loan under the sixth amendment. On May 8, 2020, the Company entered into a Third Amendment Agreement with Knight Therapeutics (Barbados) Inc., a related party, for working capital loan. At March 31, 2024 and December 31, 2023, the Company owed Knight $ 320,000 and $ 392,000 , respectively on this loan (see Note 11). During June 2024, this Third Amendment Agreement was consolidated into one loan under the sixth amendment. On July 7, 2022, the Company entered into a Fourth Amendment Agreement with Knight Therapeutics (Barbados) Inc., a related party, for an additional $ 2,000,000 loan (the “Second Additional Loan”). At both March 31, 2024 and December 31, 2023, the Company owed Knight $ 2,000,000 on this loan (see Note 11). During the year ended December 31, 2023 a loan success fee of $ 83,250 was earned by Knight and is payable as of both March 31, 2024 and December 31, 2023 (see Note 11). During June 2024, this Fourth Amendment Agreement was consolidated into one loan under the sixth amendment. On September 30, 2023, the Company entered into a Fifth Amendment Agreement (the “Fifth Amendment”) to the Loan Agreement with Knight, pursuant to which Knight agreed to extend the maturity date of the Loan to March 31, 2024. The Company will pay Knight a closing fee of $ 1,000,000 in connection with the Fifth Amendment. This has been accrued for during the year ended December 31, 2022 since this was earned upon renegotiation of the loan during 2022 (see Note 11). During June 2024, this Fifth Amendment Agreement was consolidated into one loan under the sixth amendment. The Company recognized interest expense of $ 1,488,475 and $ 1,279,646 during the nine month periods ended September 30, 2024 and 2023, respectively. The Company recognized interest expense of $ 378,214 and $ 446,619 during the three month periods ended September 30, 2024 and 2023, respectively. Accrued interest was $ 123,331 as of September 30, 2024. Accrued interest was $ 1,760,076 as of both March 31, 2024 and December 31, 2023 and was capitalized and included in the loan balance as of March 31, 2024 and December 31, 2023. During June 2024, the accrued interest was consolidated into one loan under the sixth amendment. During June 2024, the Company entered into Sixth Amended Agreement with Knight Therapeutics Inc., a related party, to modify prior Agreements. This modification consolidates outstanding loans and extends the maturity dates of loans to March 31, 2026 (see Note 11). 19 On December 23, 2016, the Company entered into an agreement with Knight Therapeutics for the distribution rights of FOCUSFactor in Canada. In conjunction with this agreement, the Company is required to pay Knight a distribution fee equal to 30 % of gross sales for sales achieved through a direct sales channel and 5 % of gross sales for sales achieved through retail sales. The minimum due to Knight under this agreement is $ 100,000 Canadian dollars. During the year ended December 31, 2023, the Company expensed $ 133,502 Canadian dollars (US Dollars $ 98,939 ). As of both March 31, 2024 and December 31, 2023, the total outstanding balance was $ 549,229 Canadian dollars. In US Dollars, the total outstanding balance was $ 403,936 and $ 415,272 as of March 31, 2024 and December 31, 2023, respectively. During June 2024, these distribution fees have been consolidated into one loan under the sixth amendment. On December 23, 2016, the Company entered into an agreement with Knight Therapeutics for the distribution rights of Hand MD into Canada. In conjunction with this agreement, the Company is required to pay Knight a distribution fee equal to 60 % of gross sales for sales achieved through a direct sales channel until the sales in the calendar year equal the threshold amount and then 40 % of all such gross sales in such calendar year in excess of the threshold amount and 5 % of gross sales for sales achieved through retail sales. The minimum due to Knight under this agreement is $ 25,000 Canadian dollars. During the year ended December 31, 2023, the Company expensed was $ 25,000 Canadian dollars (US Dollars $ 18,531 ). As of both March 31, 2024 and December 31, 2023, the total outstanding balance was $ 160,637 Canadian dollars. In US Dollars, the total outstanding balance was $ 118,550 and $ 121,428 as of March 31, 2024 and December 31, 2023, respectively. During June 2024, these distribution fees have been consolidated into one loan under the sixth amendment. The Company expensed royalty of $ 47,038 and $ 65,657 for the nine months ended September 30, 2024 and 2023, respectively. The Company expensed royalty of $ 5,761 and $ 20,165 for the three months ended September 30, 2024 and 2023, respectively. At September 30, 2024 and December 31, 2023, the Company owed Knight Therapeutics $ 5,760 and $ 19,324 , respectively, in connection with a royalty distribution agreement. On October 1, 2023 (effective date), the Company entered into second amendment to the Distribution Agreement with Knight with an initial term ending on February 25, 2026 with an automatic renewal of one year for a payment of $ 450,000 by the Company within 180 days from the effective date. The Company has recorded this payable in terms of a Note Payable to Knight Therapeutics in relation to a license fee of an intangible asset. The balance outstanding at both March 31, 2024 and December 31, 2023 was $ 450,000 . During June 2024, this Distribution Agreement was consolidated into one loan under the sixth amendment. Note 10 – Accounts Payable and Accrued Liabilities As of September 30, 2024 and December 31, 2023, accounts payable and accrued liabilities consisted of the following: September 30, 2024 December 31, 2023 Accrued payroll $ 104,054 $ 329,652 Legal fees 107,373 707,590 Commissions 1,187,864 601,988 Manufacturers 1,009,481 4,424,146 Promotions 223,138 3,315,755 Accounting Fees 260,967 223,286 Royalties, related party 5,760 19,324 Warehousing 787,745 962,260 Sales taxes 51,160 18,364 Payroll taxes 853,685 871,047 Professional Fees 45,363 41,556 Inventory 4,596 49,972 Interest 92,942 - Interest, related party 123,331 - Related party advance - 7,561 Others 224,681 154,989 Total $ 5,082,140 $ 11,727,490 The Company has estimated and accrued for its sales tax liability at $ 2,888 and $ 6,098 for the parent entity as of September 30, 2024 and December 31, 2023, respectively. 20 Note 11 – Notes Payable The Company’s notes payable at September 30, 2024 and December 31, 2023 are as follows: September 30, 2024 December 31, 2023 Kenek, related party $ 2,915,692 $ - Knight 12,333,053 12,426,997 Sanders 9,794,165 10,294,165 Atrium 3,802,445 4,802,445 VitBest 2,820,824 - Shopify 377,820 106,813 Total notes payable $ 32,043,999 $ 27,630,420 Unamortized debt issuance cost ( 43,466 ) ( 12,288 ) Total notes payable, net 32,000,533 27,618,132 Short term loan payable, related party ( 2,915,692 ) - Current portion, related party ( 3,000,000 ) - Current portion, other ( 6,994,766 ) ( 2,094,525 ) Long-term portion, related party 9,333,053 12,426,997 Long-term portion, other $ 9,757,022 $ 13,096,610 $950,000 June 26, 2015 Security Agreement: On June 26, 2015, the Company, through its wholly owned subsidiary, Neuragen Corp. (“Neuragen”), issued a 0 % promissory note in a principal amount of $ 950,000 in connection with an Asset Purchase Agreement. The note requires $ 250,000 to be paid on or before June 30, 2016, and $ 700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of $ 12,500 or 5 % of U.S. net sales, and 2 % of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released upon receipt of total payments of $ 1.2 million. The Company recorded present value of future payments of $ 199,640 and $ 204,941 as of March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023 the Company owed Knight $ 275,000 and $ 287,500 in relation to this agreement. The Company recorded interest expense of $ 7,199 and $ 7,520 for the three months March 31, 2024 and 2023, respectively. The Company made payments of $ 12,500 and $ 12,500 during the three months ended March 31, 2024 and 2023, respectively. During June 2024, this Security Agreement was consolidated with the other outstanding loans to Knight. $10,000,000 August 9, 2017 Loan: On August 9, 2017, the Company entered into a Second Amendment to Loan Agreement (“Second Amendment”) with Knight, pursuant to which Knight agreed to loan the Company an additional $ 10 million, and an ongoing credit facility of up to $ 20 million, and which amount was borrowed at closing (the “Financing”) for working capital purposes. At closing, the Company paid Knight an origination fee of $ 200,000 and a work fee of $ 100,000 and also paid $ 100,000 of Knight’s expenses associated with the Loan. Additional Tranches under the Loan Agreement are available to the Company until August 9, 2022 provided that no event of default exists. Each Additional Tranche must be for a minimum amount of $ 1.0 million, may only be used to finance qualified acquisitions (as defined in the Loan Agreement), and can be denied in Knight’s absolute discretion. If an Additional Tranche is denied, the Company can effect a qualified acquisition through a special purpose entity with such special purpose entity being entitled to obtain financing from third parties so long as such financing does not adversely affect Knight or Knight’s rights under the Loan Agreement. Upon the closing of any Additional Tranche, the Company will pay Knight an origination fee equal to 2 % of the Additional Tranche, a work fee equal to 1 % of the amount of the Additional Tranche, and reimburse Knight for its expenses incurred in connection with its consideration of any Additional Tranche (whether or not advanced). The Loan bears interest at 10.5 % per annum. The amended Loan Agreement matures on August 8, 2020 and (b) the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default. On the Maturity Date of the Third Tranche and every Additional Tranche (or upon the acceleration of each such loan), the Company must pay Knight a success fee (the “Success Fee”) of that number of Company common shares equal to 10 % of the loan, divided by the lesser of (a) $ 1.50 , (b) the lowest price at which any common shares were issued by the Company in any offering or equity financing or other transaction between the Closing Date and the date the Success Fee is due, and (c) the current market price on the date the Success Fee is due. The Company may also pay the Success Fee in cash pursuant to the terms of the Loan Agreement. The Success Fees have been added to the outstanding loan balance. 21 The Loan Agreement includes customary representations, warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, and to not merge or dispose of assets, acquire other businesses (except for businesses substantially similar or complementary to the Company’s business, and provided that the aggregate consideration to be paid does not exceed $ 100,000 and the acquired business guarantees the Company’s obligations under the Loan Agreement) or make capital expenditures in excess of $ 500,000 . The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants, change of control and material adverse effect defaults. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of all loans under the Loan Agreement will bear a default interest rate of an additional 5 %. The Company’s obligations and liabilities under the Loan Agreement are secured and unconditionally guaranteed by certain of the Company’s wholly-owned subsidiaries as provided in the Loan Agreement. On May 8, 2020, the Company entered into a Third Amendment Agreement (the “Third Amendment”) to the Amended and Restated Loan Agreement (the “Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company an additional $ 2.5 million (the “Additional Loan”). That same day (the “Closing”), the Company paid Knight a work fee of $ 36,000 , and $ 25,000 for Knight’s legal costs and expenses incurred in connection with the Third Amendment. The Third Amendment amends the original loan agreement that the Company and Knight entered into in January 2015 and subsequently amended (as amended, the “Original Loan Agreement”). The Additional Loan matures on May 8, 2021 (the “TA Maturity Date”) and bears interest at 12.5 % per annum compounding quarterly. On the TA Maturity Date, the Company will pay Knight a success fee (the “Success Fee”) of $ 83,250 . The Success Fee is payable in cash or stock as set forth in the Loan Agreement. The Third Amendment includes customary representations, warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, including an undertaking to maintain at all times a cash balance of $ 600,000 and EBITDA of $ 3,000,000 for the twelve months ended June 30, 2020 and $ 4,000,000 for the twelve month period ending on the last day of each fiscal quarter thereafter. Terms of the $ 10,000,000 August 9, 2017 loan (Third Tranche) (see note 9) were modified in the Third amendment. Third tranche shall bear interest from May 8, 2020 at a rate equal to 12.5 % per annum compounded quarterly. The Company shall pay success fee in the amount of $ 1,000,000 with respect to the Third Tranche, which shall be fully earned on May 8, 2020 and payable no later than August 31, 2022. Third Tranche success fee shall bear interest at 12.5 % per annum compounding quarterly. The loan has been extended to a maturity date of December 31, 2021 . Because these amendments were considered not substantive changes, the Company accounted for the modifications as modification of debt. On July 7, 2022, the Company entered into a Fourth Amendment Agreement (the “Fourth Amendment”) to the Amended and Restated Loan Agreement (the “Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company an additional $ 2.0 million (the “Second Additional Loan”). The Fourth Amendment amends the original loan agreement that the Company and Knight entered into in January 2015 and subsequently amended (as amended, the “Original Loan Agreement”). The Second Additional Loan matures on the earlier of October 31, 2022 and the date that is ninety days after the date, if any, on which Knight delivers a Second Additional Loan Repayment Notice to the Company. The Company will pay Knight a success fee of $ 40,000 and an amendment fee of $ 30,000 which is fully earned and payable as of the Fourth Amendment Date. The loan bears interest at the greater of 14 % or the prime rate plus 8 % per annum, compounded quarterly. This $ 2.0 million Second Additional Loan (only) has a personal guarantee by a shareholder, Jack Ross. On September 30, 2023, the Company entered into a Fifth Amendment Agreement (the “Fifth Amendment”) to the Loan Agreement with Knight, pursuant to which Knight agreed to extend the maturity date of the Loan to March 31, 2024. The loan will bear interest at 15.5 % per annum compounding quarterly. The Company will pay Knight a closing fee of $ 1,000,000 and $ 150,000 as reimbursement for Knights legal fees incurred in connection with the Fifth Amendment. These have been accrued for during the year ended December 31, 2022 since this was earned upon renegotiation of the loan during 2022. The Company has also paid Knight an extension fee of $136,000 per month from October 2023 through February 2024. We have amended our financial covenants in the Fifth Amendment to as follows: We will maintain a minimum EBITDA of $ 1,000,000 for the three (3) month period ending on the last day of each Fiscal Quarter starting June 30, 2023. We shall at all times maintain Focus Factors net sales on a trailing twelve month basis of at least $ 30,000,000 . 22 The Company recognized interest expense of $ 1,448,475 and $ 1,279,646 during the nine months ended September 30, 2024 and 2023, respectively. The Company recognized interest expense of $ 378,214 and $ 446,619 during the three months ended September 30, 2024 and 2023, respectively. Accrued interest was $ 123,331 as of September 30, 2024. Accrued interest was $ 1,760,076 as of both March 31, 2024 and December 31, 2023. Accrued interest was capitalized and included in the loan balance as of March 31, 2024 and December 31, 2023. On October 1, 2023 (effective date), the Company entered into second amendment to the Distribution Agreement with Knight with an initial term ending on February 25, 2026 with an automatic renewal of one year for a payment of $ 450,000 by the Company within 180 days from the effective date. The Company has recorded this payable in terms of a Note Payable to Knight Therapeutics in relation to a license fee of an intangible asset. The balance outstanding at March 31, 2024 and December 31, 2023 was $ 450,000 . During 2023, the Company accrued $ 83,250 as added to Notes Payable in the form of a loan success fee as earned. During March 2024, the Company has entered into an Amended Agreement with Knight Therapeutics for its existing secured debt, which was finalized in June 2024. The consolidated loan will bear minimum interest rate at 12 % per annum compounded quarterly and will be paid on the last day of each month. The principal repayment will begin in the first quarter of 2025 with $ 1,000,000 due quarterly until March 31, 2026 when the loan becomes due in full. As part of this agreement the outstanding royalties of $ 536,730 were converted to long term debt (see note 9). The loan has been extended to a maturity date of March 31, 2026 . Because these amendments were considered not substantive changes, the Company accounted for the modifications as modification of debt. Minimum interest rate is subjected to the following adjustments: (i) Following an uncured event of default by Synergy, the Interest Rate will increase by 5 %. (ii) Synergy shall raise Five Million Dollars ($ 5,000,000 ) of equity no later than March 31, 2025. Should Synergy fail to raise equity of Five Million Dollars ($5,000,000) by March 31, 2025, then (1) Knight will earn an additional fee of One Million Dollars ($ 1,000,000 ) which will be added to the principal balance of the loan then outstanding and (2) the loan shall be considered to be in default. Any equity raise shall not dilute Knight’s ownership in Synergy below 10 % of fully diluted basis. Security: This loan shall be senior secured against all current and future assets (cash, intellectual property, real property, etc.) of Synergy, its affiliates, and subsidiaries. Synergy shall not add any other debt without paying out KTI first. Bonus Success Fee: Upon closing of a Sale Transaction (hereinafter defined) of Synergy, KTI, shall be paid a One Million eight hundred thousand Dollar ($ 1,800,000 ) bonus success fee (“Bonus Success Fee”). The Sale Transaction shall include but is not limited to the acquisition of Synergy by a Third Party, the merger of Synergy with a Third Party, partial or complete sale of any asset of Synergy. The obligation of Synergy to KTI under the Success Fee shall survive the Maturity Date and remain in force until a Sale Transaction. As the sole exemption from the above defined Sale transaction and herein Bonus success fee, If Synergy or any of its brands does an IPO on a publicly listed exchange, no such Bonus Success fee will be due nor payable by Synergy. An IPO shall be defined as Synergy raising at least $ 10 million of cash through the issuance of equity at a $ 50 million pre-money valuation. Covenants: The following covenants shall be added or amended to the existing Loan with KTI; (i) Jack Ross’s Synergy total annual compensation (salary, bonus and options) shall be capped at $ 500,000 ; until KTI’s loan is paid out or until such a time when Synergy is listed on a publicly traded stock exchange at such time the compensation committee will determine the annual compensation and approve by the Board of Directors. (ii) Synergy shall maintain a minimum EBITDA of US$ 1,250,000 for the three (3) month period ending on the last day of each Fiscal Quarter starting March 31, 2024. (iii) Synergy shall provide KTI a quarterly and annual operating budget for approval prior to implementation; (iv) Synergy shall enter into a Shareholders Agreement with KTI, by June 30, 2024; which shall contain customary terms and conditions acceptable to all parties 23 (v) This Loan becomes immediately due if Focus Factor Net Revenues fall below a trailing 12 month net sales of $ 30 million. Synergy shall provide KTI with monthly Net Revenues for Focus Factor; (vi) Synergy is required to communicate to Knight within 2 working days in the event it receives a notice of default from any third party for any debt payables or obligations. If Synergy, default on any of its third party debt obligations, then the Amended Loan will automatically enter into default. (vii) Timely payment of royalties due to Knight. (viii) Synergy shall repay and terminate Shopify debt no later than December 31, 2024. Other Loan Conditions: In the event, Synergy does not repay the KTI in full on March 31, 2026, Jack Ross shall sell, for $ 1 , a total of 5,400,000 of his Synergy shares to KTI. The purchase of the Additional Shares is at Knight’s option and Jack Ross and KTI shall execute a Share Purchase Agreement prior to April 30th, 2024. The value of the contingent guaranty is nominal as the probability of non-payment is remote. As of June 30, 2024 and December 31, 2023 the total consolidated amount outstanding on these loans, including accrued interest and royalties is $ 12,333,052 and $ 12,426,997 , respectively. The Company is required to make future payments as follows: 2024 $ - 2025 $ 4,000,000 2026 $ 8,333,052 $1,700,000 July 13, 2021 Loan: On July 13, 2021, the Company entered into a loan agreement of $ 1,700,000 with Hand MD, LLC for transfer of ownership to in Hand MD Corp. to the Company. Payments are due as follows: $ 500,000 within 10 business days of execution, $ 400,000 on or before the six month anniversary of the agreement, $ 400,000 on or before the twelve month anniversary of the agreement and $ 400,000 on or before the eighteen month anniversary of the agreement. During the three months ended March 31, 2023 the Company paid remaining $ 400,000 toward the loan. This has been fully repaid during 2023. $2,000,000 February 10, 2022 Loan: On February 10, 2022, the Company entered into a promissory note for $ 2,000,000 with an individual which was to be repaid with subsequent financing. This interest rate on the promissory note was modified effective June 30, 2022 to 15.5 % per annum compounded quarterly. Subsequently and pursuant to the modification agreement entered into on June 14 th , 2023, effective September 9, 2022, the promissory loan would bear all the same characteristics as the additional $ 6,000,000 loan noted below in that, interest would be accrued to December 31, 2022 and added to the outstanding principal loan balance. Interest payments to commence January 31, 2023 on unpaid principal and accrued and unpaid interest through December 31, 2022. The Company shall repay all principal and interest on the earlier of a merger, sale of the Company or Focus Factor or the assets of the Company or September 30, 2023. The Company will pay a closing fee of $ 500,000 and $ 50,000 as reimbursement for legal fees incurred in connection with the loan renegotiation of both the $ 2,000,000 February 10, 2022 Loan and the $ 6,000,000 March 8, 2022 Loan. To the extent that this Note and $ 6 million March 8, 2022 Loan is not repaid on the terms, Jack Ross shall personally grant: Warrants struck at $ 0.01 penny per share, covering 10 % of his stock in the event that Synergy does not make its principal repayment outlined above, in full. The warrant issuance shall be made to the holders of this Note and the $ 6 million March 8, 2022 Loan (ratably). This promissory note was modified effective September 30, 2023 in conjunction with the Senior Subordinated Debentures. Interest payments to commence January 31, 2023 on unpaid principal and accrued and unpaid interest through December 31, 2022. Interest expensed and paid during 2023 has amounted to $ 332,769 . Principal and interest payments shall begin effective October 31, 2023 and continue through March 31, 2024 on the earlier of a merger, sale of the Company or Focus Factor or the assets of the Company or March 31, 2024. To the extent that this Note and $ 6 million March 8, 2022 Loan is not repaid on the terms, Jack Ross shall personally grant: Warrants struck at $ 0.01 penny per share, covering 10 % of his stock in the event that Synergy does not make its principal repayment outlined above, in full. The warrant issuance shall be made to the holders of this Note and the $ 6 million March 8, 2022 Loan (ratably). The value of the contingent guaranty is nominal as the probability of non-payment is remote. The pro-rata closing fee of $ 125,000 originally due on September 30 th 2023 was also extended to March 31, 2024. 24 On March 31, 2024, the Company entered into a Modification Agreement in relation to this loan. Effective March 31, 2024, the interest rate is 12 %, compounded quarterly. Cash payments of interest shall be made monthly, on the final day of each month commencing in April 2024. The Company is required to make principal payments of $ 1,000,000 each quarter, starting from March 31, 2025 through December 31, 2025. The remaining principal and unpaid interest is fully due on March 31, 2026. In addition, a loan renegotiation fee of $ 500,000 shall be earned and payable on March 31, 2026 or at such time the loan is paid in full. Upon closing of a sale transaction, as defined in the agreement, a bonus success fee of $ 1,800,000 will be earned and payable. An event of default, as defined in the agreement, will trigger a default interest rate increase by 5 % to 17 %. An incentive fee of a maximum of $ 563,092 will be paid, prorated if the loan is paid off early. If the loan is not repaid by March 31, 2026, Jack Ross, majority shareholder shall grant warrants covering 10 % of his stock struck at $ 0.01 per share. The value of the contingent guaranty is nominal as the probability of non-payment is remote. There is a cross-default clause in the agreement which states that if Knight triggers an event of default on its own loan facility, this loan will also be under default. This Agreement consolidates this $ 2,000,000 loan and the $ 6,000,000 March 8, 2022 loan as detailed below. The loan has been extended to a maturity date of March 31, 2026. Because these amendments were considered not substantive changes, the Company accounted for the modifications as modification of debt. The Company is required to make future payments as follows: 2024 $ - 2025 $ 4,000,000 2026 $ 5,794,165 $6,000,000 March 8, 2022 Loans: On March 8, 2022, the Company entered into Securities Purchase Agreements with debenture holders for the Senior Subordinated Debentures in the amount of $ 6,000,000 with an original maturity date of September 8, 2022 and warrants with a term of 3 years. The Senior Subordinated Debentures were modified on June 14, 2023 in conjunction with the promissory note. The modification included the exercise of $ 1.5 million on cash payment in lieu of the exercise of warrants. Pursuant to ASC 480 warrants were liability classified and the Company accrued the warrant liability of $ 1.5 million on March 8, 2022, the date of issuance. Upon September 8, 2022, the date of exercise of the warrants, the Company offset this warrant liability and added the $ 1.5 million balance to the Senior Subordinated Debentures, for a combined outstanding balance of $ 7.5 million. The terms of the warrants were, at the sole option of the holder, to covert the warrant at a 25 % discount in the event the Company consummated an IPO, a cash option whereby the holder could convert the warrants at a cash value of $ 1.5 million or convert the warrants into the private entity valued by an independent third party appraiser. Covenants pursuant to the loan were as follows: The Company will maintain a minimum EBITDA of $ 1,000,000 for the three (3) month period ending on the last day of each Fiscal Quarter starting June 30, 2023. The Company shall at all times maintain Focus Factor’s net sales on a trailing twelve month basis of at least $ 30,000,000 . The Company also agreed to pay $ 50,000 as reimbursement for the debenture holders legal fees incurred in connection with the modification agreement. The debentures required payments of interest at 8 % per annum for the first 90 days the debentures were funded and outstanding, 9.5 % interest per annum for the next 90 days the debentures were funded and outstanding at which time all interest and principal would be due. These debentures were modified effective September 30, 2023 to the following terms: Interest rate adjusted to 15.5 % compounded quarterly, effective September 9, 2022. Interest payments to commence January 31, 2023 on unpaid principal and accrued and unpaid interest through December 31, 2022. Interest accrued and unpaid during 2022 was $ 672,574 and was subsequently added to the principal balance of the loan outstanding. Interest expensed and paid during 2023 has amounted to $ 1,257,014 . Nominal principal payments were negotiated in lieu of additional extension fees which began effective October 31, 2023 and continue through March 31, 2024 when the balance is due. Loan renegotiation fee of $ 500,000 is due March 31, 2024. This was accrued for during the year ended December 31, 2022, since this was earned upon renegotiation of the loan during 2022. The combined outstanding loan balance at March 31, 2024 and December 31, 2023 was $ 6,900,000 and $ 7,125,000 , respectively, which includes original principal amount net off repayment and warrants conversion to loan of $ 1,500,000 . On March 31, 2024, the Company entered into a Modification Agreement in relation to this loan, which consolidated it with the $ 2,000,000 February 10, 2022 loan above. The loan has been extended to a maturity date of March 31, 2026. Because these amendments were considered not substantive changes, the Company accounted for the modifications as modification of debt. 25 $180,800 July 12, 2023 Loan: On July 12, 2023, the Company entered into a loan agreement of $ 180,800 with Shopify Capital Inc. for an advancement of working capital from its online processing account. The Company received $ 160,000 from Shopify Capital Inc. and $ 20,800 was an original issue discount. The loan bears a repayment rate of 17 % of daily sales. The payment of such amounts is secured by a security interest in certain assets, undertakings and property pursuant to the Security Agreement, which will be released upon receipt of total payments of $ 180,800 . The Company recognized amortization original issue discount of $ 8,512 , which is included in interest expense in the statement of income during the year ended December 31, 2023 and $ 12,288 during the nine months ended September 30, 2024. The outstanding loan balance at September 30, 2024 and December 31, 2023 was $ 0 and $ 94,525 , respectively. $5,450,000 December 28, 2023 Loan: On December 28, 2023, the Company entered into a confidential settlement agreement and mutual general release with a former supplier. The loan bears interest at 5 % per annum and is payable in full with the last payment. This settlement resulted in a gain to the Company of $ 2,235,986 and is reflected as a reduction of cost of sales (See Note 13). During both 2024 and 2023, the Company made payments of $ 1,000,000 each toward this loan. The outstanding loan balances at September 30, 2024 and December 31, 2023 were $ 3,802,445 and $ 4,802,445 , respectively, including interest of $ 352,445 . The Company is required to make future payments as follows: 2024 $ 1,000,000 2025 2,000,000 2026 802,445 $141,250 January 29, 2024 Loan: On January 21, 2024, the Company entered into a loan agreement of $ 141,250 with Shopify Capital Inc. for an advancement of working capital from its online processing account. The Company received $ 125,000 from Shopify Capital Inc. and $ 16,250 was an original issue discount. The loan bears a repayment rate of 17 % of daily sales. The payment of such amounts is secured by a security interest in certain assets, undertakings and property pursuant to the Security Agreement, which will be released upon receipt of total payments of $ 141,250 . The Company recognized amortization original issue discount of $ 16,250 , which is included in interest expense in the statement of income during the three months ended March 31, 2024. The outstanding loan balance at September 30, 2024 was $ 0 . $3,020,824 March 27, 2024 Loan: On March 27, 2024, the Company entered into a confidential settlement agreement and mutual general release with a supplier. During 2024, the Company made payments of $ 200,000 toward this loan. The outstanding loan balance at September 30, 2024 was $ 2,820,824 . The Company is required to make future payments as follows: 2024 $ 500,000 2025 1,460,412 2026 860,412 26 $418,100 May 1, 2024 Loan: On May 1, 2024, the Company entered into a loan agreement of $ 418,100 with Shopify Capital Inc. for an advancement of working capital from its online processing account. The Company received $ 370,000 from Shopify Capital Inc. and $ 48,100 was an original issue discount. The loan bears a repayment rate of 25 % of daily sales. The payment of such amounts is secured by a security interest in certain assets, undertakings and property pursuant to the Security Agreement, which will be released upon receipt of total payments of $ 418,100 . The Company recognized amortization of original issue discount of $ 11,991 , which is included in interest expense in the statement of income during the nine months ended September 30, 2024. The outstanding loan balance at September 30, 2024 was $ 277,763 . $118,650 May 22, 2024 Loan: On May 22, 2024, the Company entered into a loan agreement of $ 118,650 with Shopify Capital Inc. for an advancement of working capital from its online processing account. The Company received $ 105,000 from Shopify Capital Inc. and $ 13,650 was an original issue discount. The loan bears a repayment rate of 25 % of daily sales. The payment of such amounts is secured by a security interest in certain assets, undertakings and property pursuant to the Security Agreement, which will be released upon receipt of total payments of $ 118,650 . The Company recognized amortization of original issue discount of $ 6,293 , which is included in interest expense in the statement of income during the nine months ended September 30, 2024. The outstanding loan balance at September 30, 2024 was $ 56,591 . Note 12 – Stockholders’ Equity The total number of shares of all classes of capital stock which the Company is authorized to issue is 300,000,000 shares of common stock with $ 0.00001 par value. As of both September 30, 2024 and December 31, 2023, there were 7,553,818 shares of the Company’s common stock issued and outstanding. Note 13 – Commitments & Contingencies Litigation: From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations. In August 2022, the Company filed a lawsuit in the Superior Court of Maine against one of its contract manufacturers, bringing several claims arising out of allegations that the contract manufacturer’s failure to timely produce and delivery the Company’s products in 2020 and 2021 damaged the Company’s business. The contract manufacturer brought counterclaims demanding payment in full for its manufacture of these products. This lawsuit was moved to federal court and remains pending in the United States District Court for the District of Maine, Synergy CHC Corp. v. HVL, LLC d/b/a Atrium Innovations, Case No. 2:22-cv-00301-JAW (D. Me). The case was settled during December 2023, resulting in a net gain to the company of $ 2,235,986 , reflected as a reduction of cost of sales, and a loan payable of $ 5,450,000 (see Note 11). L.O.D.C. Group, Ltd. v. Synergy CHC Corp. , 4:23-cv-691; United States District Court for the Eastern District of Texas, Sherman Division . On July 28, 2023, L.O.D.C. Group (“LODC”) asserted claims of over $ 1,000,000 against Synergy for breach of contract arising from their alleged failure to comply with contracts related to the delivery of hand sanitizer. Synergy denies all allegations and believes Synergy is the aggrieved party in the relationship between Synergy and LODC and Synergy has filed a counterclaim. The case was settled during April 2024 by way of a confidential settlement agreement and mutual release, the settlement of the claim has been accounted for and reported as a charge to operations for the year ended December 31, 2023 . During May 2024, the Company paid in full the settlement to L.O.D.C Group, Ltd. 27 Note 14 – Stock Options The following table summarizes the options outstanding, option exercisability and the related prices for the shares of the Company’s common stock issued to employees and consultants under a stock option plan at September 30, 2024: Options Outstanding Options Exercisable Exercise Prices ($) Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price ($) Number Exercisable Weighted Average Exercise Price ($) $ 2.98 - 10.71 336,136 3.34 $ 7.29 252,102 $ 6.15 The stock option activity for the nine months ended September 30, 2024 is as follows: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2023 252,102 $ 6.51 Granted 84,034 10.71 Exercised - - Expired or canceled - - Outstanding at September 30, 2024 336,136 $ 7.29 Stock-based compensation expense related to vested options was $ 4,613 and $ 9,224 during the three and nine months ended September 30, 2024, respectively. The Company determined the value of share-based compensation for options vesting during the nine months ended September 30, 2024 using the Black-Scholes fair value option-pricing model with the following weighted average assumptions: estimated fair value of the Company’s common stock of $ 1.90 , risk-free interest rate of 4.33 %, volatility of 73 %, expected term of 6 years, and dividend yield of 0 %. Stock options outstanding as of September 30, 2024, as disclosed in the above table, have an intrinsic value of $ 0 . As of September 30, 2024, unamortized stock-based compensation costs related to options was $ 46,118 , and will be recognized over a period of thirty months . Note 15 – Segments Segment identification and selection is consistent with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an aggregated basis. Net sales attributed to customers in the United States and foreign countries for the three months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 United States $ 6,408,173 $ 10,008,377 Foreign countries 718,160 797,358 $ 7,126,333 $ 10,805,735 28 Foreign country sales primarily consist of sales in Canada. The Company’s net sales by product group for the three months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 Nutraceuticals $ 7,126,333 $ 10,799,536 Consumer Goods - 6,199 $ 7,126,333 $ 10,805,735 The Company’s net sales by major sales channel for the three months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 Online $ 1,374,610 $ 2,198,251 Retail 5,751,723 8,607,484 $ 7,126,333 $ 10,805,735 Net sales attributed to customers in the United States and foreign countries for the nine months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 United States $ 21,392,265 $ 27,870,095 Foreign countries 3,170,771 1,689,345 $ 24,563,036 $ 29,559,440 Foreign country sales primarily consist of sales in Canada. The Company’s net sales by product group for the nine months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 Nutraceuticals $ 24,563,036 $ 29,538,736 Consumer Goods - 20,704 $ 24,563,036 $ 29,559,440 The Company’s net sales by major sales channel for the nine months ended September 30, 2024 and 2023 were as follows: September 30, 2024 September 30, 2023 Online $ 5,782,303 $ 8,468,375 Retail 18,780,733 21,091,065 $ 24,563,036 $ 29,559,440 29 Long-lived assets (net) attributable to operations in the United States and foreign countries as of September 30, 2024 and December 31, 2023 were as follows: September 30, 2024 December 31, 2023 United States $ 316,667 $ 416,667 Foreign countries - - $ 316,667 $ 416,667 Note 16 – Subsequent Events Management evaluated all activities of the Company through the issuance date of the Company’s unaudited condensed consolidated financial statements and concluded that except as noted below, no subsequent events have occurred that would require adjustment or disclosure into the unaudited condensed consolidated financial statements. On October 22, 2024, our registration statement on Form S-1 (File No. 333-282780), as amended (the “Registration Statement”) was declared effective by the SEC for our underwritten initial public offering in which we sold a total of 1,150,000 shares of our common stock, par value $ 0.00001 per share, at price to the public of $ 9.00 per share, for gross proceeds of $ 10,350,000 . Roth Capital Partners, LLC acted as representative of the underwriters for the offering. The offering closed on October 24, 2024 (the “initial public offering”). Following the sale of all the shares upon the closing of the initial public offering and the expiration of the over-allotment option, the offering terminated. We received net proceeds of approximately $ 8.4 million after deducting underwriting discounts and commissions and the estimated offering expenses. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10 % or more of any class of our equity securities, or (iii) any of our affiliates. There has been no material change in the planned use of proceeds from our initial public offering as described in the Prospectus. During October 2024, in conjunction with the IPO, the Company issued shares and repaid $ 2,700,000 toward a short term note payable to an entity owned and controlled by the Company’s Chief Executive Officer. Subsequent to September 30, 2024, the Company has repaid $ 400,000 of debt. 30