Synergy CHC Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited condensed consolidated financial statements and the notes thereto contained elsewhere in this Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. Overview We are a provider of consumer health care, beauty, and lifestyle products. Our current brand portfolio consists of two core brands: FOCUSfactor, a clinically-tested brain health supplement (this study was performed independently and is not related to any FDA-approved IND application) that has been shown to improve memory, concentration and focus and Flat Tummy, a lifestyle brand that provides a suite of nutritional products to help women achieve their weight management goals. Our management’s discussion and analysis of our financial condition and results of operations are only based on our current business and should be read in conjunction with our unaudited interim condensed consolidated financial statements and audited consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus. Key factors affecting our results of operations include revenues, cost of revenue, operating expenses and income and taxation. 28 Non-GAAP Financial Measures We currently focus on EBITDA to evaluate our business relationships and our resulting operating performance and financial position. EBITDA is defined as net income plus interest expense, income tax expense, depreciation and amortization. We believe that EBITDA, viewed in addition to, and not in lieu of, our reported results in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), provides useful information to investors. Year Ended December 31, 2024 Year Ended December 31, 2023 Net income $ 2,124,976 $ 6,338,750 Interest income (1,523 ) (1,616 ) Interest expense 4,105,198 4,236,149 Taxes 102,085 234,980 Depreciation and amortization 133,334 33,333 EBITDA $ 6,464,070 $ 10,841,596 EBITDA is considered non-GAAP financial measures. EBITDA represents earnings before interest, taxes, depreciation and amortization. Our definition of EBITDA might not be comparable to similarly titled measures reported by other companies. Results of Operations for the Years Ended December 31, 2024 and December 31, 2023 During both 2024 and 2023, we focused on developing our currently owned brands into new markets and by product extensions. Revenue For the year ended December 31, 2024, we had revenues of $34,834,243 from sales of our products, as compared to revenue of $42,777,633 for the year ended December 31, 2023. This is comprised of the following categories: December 31, 2024 December 31, 2023 Nutraceuticals $ 34,817,333 $ 42,753,052 Consumer Goods 16,910 24,581 $ 34,834,243 $ 42,777,633 For the year ended December 31, 2024, our Nutraceuticals revenue consisted of $30,798,145 from our FOCUSfactor brand and $4,019,188 from our Flat Tummy brand, as compared to $37,202,521 and $5,550,531, respectively, for the year ended December 31, 2023. The decrease in our Nutraceutical category was due to undertaking a rebranding and packaging upgrade for FOCUSfactor that resulted in customers selling through their existing inventory before bringing in the new packaging. The decrease in the Consumer Goods category is due to normalization of business after the 2019 launch of our online application. Cost of Sales For the year ended December 31, 2024, our cost of sales was $11,191,224. Our cost of sales for the year ended December 31, 2023 was $10,697,323. The increase in cost of sales was primarily due to a settlement with a supplier in 2023 resulting in a reduction in cost of sales for 2023. Gross Profit Gross profit was $23,643,019, or 68% of revenue for the year ended December 31, 2024, as compared to gross profit of $32,080,310 or 75% of revenue for the same period in 2023, a decrease of $8,437,291 or 26%. The decrease in gross profit is largely related to the decrease in net sales due to the rebranding of FOCUSfactor. 29 Operating Expenses Selling and Marketing Expenses For the year ended December 31, 2024, our selling and marketing expenses were $12,991,431 as compared to $15,188,528 for the year ended December 31, 2023. The decrease is due to management of expenses. General and Administrative Expenses For the year ended December 31, 2024, our general and administrative expenses were $4,717,006. For the year ended December 31, 2023, our general and administrative expenses were $6,051,703. The decrease is largely due to management of expenses. Depreciation and Amortization Expenses For the year ended December 31, 2024, our depreciation and amortization expenses were $133,334 as compared to $33,333 for the year ended December 31, 2023. The increase is due to full year of amortization on license fee during 2024. Other Income and Expenses For the years ended December 31, 2024 and December 31, 2023, we had other (income) and expense items of the following: Year ended December 31, 2024 Year ended December 31, 2023 Other income $ (510,534 ) $ - Interest income (1,523 ) (1,616 ) Interest expense 4,105,198 4,236,149 Remeasurement (gain) loss on translation of foreign subsidiary (18,954 ) (1,517 ) Total $ 3,574,187 $ 4,233,016 The increase in other income in 2024 is related to Employee Retention Credits and an insurance claim on stolen goods. The decrease in interest expense in 2024 was due to reduction in interest rate upon loan consolidation. Income tax expense For the year ended December 31, 2024, we incurred income tax expense of $102,085. For the year ended December 31, 2023 we incurred income tax expense of $234,980. The decrease in 2024 relates to estimated future taxes. Net Income For the year ended December 31, 2024, our net income was $2,124,976. For the year ended December 31, 2023 our net income was $6,338,750. This decrease was due to lower revenue due to undertaking a rebranding and packaging upgrade for FOCUSfactor that resulted in customers selling through their existing inventory before bringing in the new packaging. 30 Liquidity and Capital Resources Overview As of December 31, 2024, we had $687,920 cash on hand and restricted cash of $100,000 which is held for credit card collateral. In connection with preparing consolidated financial statements for the year ended December 31, 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 consolidated financial statements are issued. The Company considered the following: ● At December 31, 2024, the Company had an accumulated deficit of $44,099,813. ● At December 31, 2024, the Company had a working capital deficit of $1,124,601. ● At December 31, 2024, the Company had a decrease in net revenue of $7,943,390. ● At December 31, 2024, the Company had a decrease in net income of $4,213,774. ● At December 31, 2024, the Company used $4,803,390 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 consolidated financial statements are issued by considering the following: ● In 2024, the Company repaid $8.5 million of loans from related party and others and received $4.9 million through loans from related party and others. ● During 2024, the Company had net income of $2,124,976. ● During 2024, the Company raised additional capital of $8.4 million through its Initial Public Offering (IPO). ● 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. ● The Company is currently in negotiations with lenders to refinance its existing debt. Management concluded that the above factors alleviate doubts about the Company’s ability to generate enough cash from operations and other available sources to satisfy its obligations for the next twelve months from the issuance date. The Company will take the following actions if it starts to trend unfavorably to its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern: ● Raise additional capital through line of credit and/or loans financing for future mergers and acquisition. ● Implement restructuring and cost reductions. ● Raise additional capital through an additional capital raise. Short- and Long-Term Borrowings On June 26, 2015, we, through our 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 required that $250,000 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 was 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. During March 2024, this Security Agreement was consolidated with the other outstanding loans to Knight Therapeutics (Barbados) Inc. (“Knight”). On August 9, 2017, we entered into a Second Amendment to Loan Agreement (“Second Amendment”) with Knight, pursuant to which Knight agreed to loan us an additional $10 million, and an ongoing credit facility of up to $20 million, and which amount was borrowed at closing (the “Financing”) for working capital purposes. At closing, we paid Knight an origination fee of $200,000 and a work fee of $100,000 and also paid $100,000 of Knight’s expenses associated with the Loan. 31 On May 8, 2020, we entered into a Third Amendment Agreement (the “Third Amendment”) to the Amended and Restated Loan Agreement (the “Loan Agreement”) with Knight, pursuant to which Knight agreed to loan us an additional $2.5 million (the “Additional Loan”). That same day (the “Closing”), we 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 we entered into with Knight in January 2015 and subsequently amended (as amended, the “Original Loan Agreement”). The Additional Loan matured on May 8, 2021 (the “TA Maturity Date”) and bore interest at 12.5% per annum compounding quarterly. On the TA Maturity Date, we were obligated to pay Knight a success fee (the “Success Fee”) of $83,250. The Success Fee was 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”) were modified in the Third Amendment. The Third Tranche bore interest from May 8, 2020 at a rate equal to 12.5% per annum compounded quarterly. We were obligated to pay a success fee in the amount of $1,000,000 with respect to the Third Tranche, which was fully earned on May 8, 2020 and payable no later than August 31, 2022. The Third Tranche success fee bore interest at 12.5% per annum compounding quarterly. The loan was extended to a maturity date of December 31, 2021. Because these amendments were considered not substantive changes, we accounted for the modifications as modification of debt. On July 7, 2022, we entered into a Fourth Amendment Agreement (the “Fourth Amendment”) to the Loan Agreement with Knight, pursuant to which Knight agreed to loan us an additional $2.0 million (the “Second Additional Loan”). The Fourth Amendment amended the Original Loan Agreement. The Second Additional Loan matured 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 us. We were obligated to pay Knight a success fee of $40,000 and an amendment fee of $30,000 which was fully earned and payable as of the Fourth Amendment Date. The loan bore interest at the greater of 14% or the prime rate plus 8% per annum, compounded quarterly. This $2.0 million Second Additional Loan (only) had a personal guarantee by Jack Ross, our chief executive officer and chairman of the board. On September 30, 2023, we 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 bore interest at 15.5% per annum compounding quarterly. We were obligated to pay Knight a closing fee of $1,000,000 and $150,000 as reimbursement for Knight’s 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. We have also paid Knight an extension fee of $136,000 per month from October 2023 through February 2024. The Fifth Amendment amended our financial covenants to be 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 FOCUSfactor net sales on a trailing twelve-month basis of at least $30,000,000. On October 1, 2023 (effective date), we entered into a second amendment to the Distribution Agreement with Knight with an initial term ending on February 25, 2026 and an automatic renewal of one year for a payment of $450,000 by us within 180 days from the effective date. We have 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 December 31, 2023 was $450,000. During March 2024, the Company entered into an Amended Agreement with Knight Therapeutics for its existing secured debt, which we 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. On June 6, 2024, we entered into a Sixth Amendment Agreement (the “Sixth Amendment”) to the Loan Agreement with Knight. This amendment amends certain sections and inserts or restates certain definitions. In addition, we are obligated to pay Knight principal of $1,000,000 at the end of the fiscal quarters ending March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025, with the outstanding balance of the loan due on the maturity date. Additionally, we are obligated to pay Knight all accrued and unpaid interest on the principal amount monthly, on the last day of each month. The final payment will be on the maturity date. One of the covenants was updated so that we must maintain a minimum EBITDA of $1,250,000 for the three-month period ending on the last day of each fiscal quarter, starting March 31, 2024. In addition, we must provide Knight our quarterly and annual operating budget for approval prior to implementation. On February 10, 2022, we entered into a promissory note for $2,000,000 with an individual which was to be repaid with subsequent financing. On March 31, 2024, we 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. We are required to make principal payments of $1,000,000 each quarter starting from March 31, 2025 until 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 $0.12 per share. 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. 32 On March 8, 2022, we 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 we 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, we 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 convert the warrant at a 25% discount in the event we 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. On March 31, 2024, we entered into a Modification Agreement in relation to this loan, which consolidates it with the $2,000,000 February 10, 2022 loan above. On May 10, 2022, we entered into a loan agreement of $355,950 with Shopify Capital Inc. for an advancement of working capital from our online processing account. We received $315,000 from Shopify Capital Inc. and $40,950 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 $355,950. We recognized amortization original issue discount of $13,746, which is included in interest expense in the statement of income during the year ended December 31, 2023. The outstanding loan balance at December 31, 2023 was $0. On April 13, 2023, we entered into a loan agreement of $226,000 with Shopify Capital Inc. for an advancement of working capital from our online processing account. We received $200,000 from Shopify Capital Inc. and $26,000 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 $226,000. We recognized amortization original issue discount of $26,000, which is included in interest expense in the statement of income during the year ended December 31, 2023. The outstanding loan balance at December 31, 2023 was $0. On July 12, 2023, we entered into a loan agreement of $180,800 with Shopify Capital Inc. for an advancement of working capital from our online processing account. We 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. We recognized amortization original issue discount of $12,288 and $8,512, respectively, which are included in interest expense in the statement of income during the years ended December 31, 2024 and 2023. The outstanding loan balance at December 31, 2024 and 2023 was $0 and $94,525, respectively. On December 28, 2023, we 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 us of $2,235,986 and is reflected as a reduction of cost of sales (See Note 13). During 2024 and 2023, we made payments of $2,000,000 and $1,000,000, respectively, toward this loan. The outstanding loan balance at December 31, 2024 and 2023 was $2,802,445 and $4,802,445, respectively, including interest of $352,445. On January 21, 2024, we entered into a loan agreement of $141,250 with Shopify Capital Inc. for an advancement of working capital from our online processing account. We 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. We recognized amortization original issue discount of $16,250, which is included in interest expense in the statement of income during the year ended December 31, 2024. The outstanding loan balance at December 31, 2024 was $0. 33 During 2024, we received $3,175,000 USD and $514,500 CAD in exchange for a short term note payable issued to an entity owned and controlled by our Chief Executive Officer. This was repaid during 2024 along with interest of $525,000 USD. On March 27, 2024 we entered into a confidential settlement agreement and mutual general release with a supplier. During 2024, we made payments of $700,000 toward this loan. The outstanding loan balance at December 31, 2024 was $2,320,824. On May 1, 2024, we entered into a loan agreement with Shopify Capital Inc. for an advancement of working capital from our online processing account. We 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 original issue discount of $13,067 which is included in interest expense in the statement of income during the year ended December 31, 2024. The outstanding loan balance at December 31, 2024 was $269,488 net of unamortized original issue discount of $35,033. On May 22, 2024, we entered into a loan agreement with Shopify Capital Inc. for an advancement of working capital from our online processing account. We 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. We recognized amortization original issue discount of $11,515, which is included in interest expense in the statement of income during the year ended December 31, 2024. The outstanding loan balance at December 31, 2024 was $16,425, net of unamortized original issue discount of $2,135. On December 5, 2024, we entered into a cash advance agreement of $800,000 with Cedar Advance LLC for an advancement of working capital. We received $760,000 and recorded $40,000 as interest expense. The loan bears a repayment rate of $41,100 per week. We recognized total interest expense of $136,000 as of December 31, 2024. The outstanding loan balance at December 31, 2024 was $0. On January 29, 2025, we entered into a cash advance agreement of $1,575,000 with Cedar Advance LLC for an advancement of working capital. We received $1,496,250 and recorded $78,750 as interest expense. The loan bears a repayment rate of $81,000 per week. The outstanding loan balance at March 28, 2025 was $1,008,000. As of the date of this filing, we are in compliance with all of the terms, conditions and covenants associated with the loan agreements described above. Approximately $13.3 million of our outstanding indebtedness comes due in the year ending December 31, 2025, and approximately $15.8 million comes due in the year ending December 31, 2026. We believe that while cash provided by sales of our products will be sufficient to meet these obligations as they come due, we are currently working on refinancing our debt obligations. As of March 25, 2025, we have approximately $0.3 million of cash. Furthermore, although BoomBod Ltd. is obligated to repay to us the outstanding balance of $4,375,059 by December 31, 2025, we do not expect to rely on repayment of the outstanding balance to fund our operations or meet our near-term debt obligations. Operating Activities For the year ended December 31, 2024, we had net cash used in operating activities of $4,803,390 as compared to $421,729 of net cash provided by operating activities for the year ended December 31, 2023. The decrease was primarily due to increases in accounts receivable and prepaid expenses and a decrease of accounts payable and accrued liabilities. 34 For 2024, net cash used in operating activities of $4,803,390 consisted of our net income of $2,124,976 adjusted by: Amortization of debt issuance cost $ 56,796 Depreciation and amortization 133,334 Foreign currency transaction loss 54,321 Remeasurement gain on translation of foreign subsidiary (18,954 ) Non cash implied interest 4,799 Write-off of inventory 125,364 Stock issued for loan financing 97,920 Income from employee retention credits (252,405 ) Income from insurance on stolen goods (258,129 ) Changes in operating assets and liabilities: Accounts receivable (3,214,943 ) Other receivables (1,489,103 ) Loan receivable, related party 84,937 Inventory 1,884,324 Prepaid expenses (1,250,023 ) Prepaid expense, related party (145,092 ) Income taxes payable 57,312 Contract liabilities 10,050 Accounts payable and accrued liabilities (2,870,633 ) Accounts payable, related party 61,759 For 2023, net cash provided by operating activities of $421,729 consisted of our net income of $6,338,750 adjusted by: Amortization of debt issuance cost $ 48,610 Depreciation and amortization 33,333 Gain on settlement of liabilities (4,635,986 ) Foreign currency transaction gain (105,192 ) Remeasurement gain on translation of foreign subsidiary (1,517 ) Non cash implied interest 29,401 Accrual of loan success fee and warrants converted to loan 83,250 Write-off of inventory 251,021 Changes in operating assets and liabilities: Accounts receivable 1,378,620 Loan receivable, related party (51,245 ) Inventory 3,990,456 Prepaid expenses (288,789 ) Prepaid expense, related party (369,427 ) Income taxes receivable 14,339 Income taxes payable 185,665 Contract liabilities 9,005 Accounts payable and accrued liabilities (6,645,324 ) Accounts payable, related party 156,759 Investing Activities For the years ended December 31, 2024 and 2023, we used net cash of $0 in investing activities. 35 Financing Activities For the year ended December 31, 2024, net cash provided by financing activities was $4,804,086, as compared to $2,090,782 used in financing activities for the year ended December 31, 2023. The increase was attributable to the issuance of common stock offset by repayment on notes payable. Financing activities during 2024: Proceeds from issuance of common stock $ 8,397,044 Advances from related party 3,528,003 Repayments of advances to related party (3,200,000 ) Proceeds from notes payable 1,360,000 Repayment of notes payable (5,196,461 ) Repayment of notes payable, related party (84,500 ) Financing activities during 2023: Advances from related party $ 1,170,000 Repayments of advances to related party (1,170,000 ) Repayment of notes payable, related party (145,500 ) Proceeds from notes payable 360,000 Repayment of notes payable (2,305,282 ) Key Near-Term Initiatives During 2025, we intend to organically grow our current product lines by developing and launching new products and expanding into new markets. Specifically, for FOCUSfactor, we are working on increased distribution for our recently launched ready-to-drink beverage. Lastly, we intend to grow further through additional strategic acquisitions and we continue to evaluate opportunities and candidates that we believe fit well with our brand portfolio. Off-Balance Sheet Arrangements During the years ended December 31, 2024 and 2023, we had no off-balance sheet arrangements. Inflation The effect of inflation on our operating results was not significant in the years ended December 31, 2024 and 2023. Critical Accounting Policies Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition and allowance for doubtful accounts. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. 36 Use of Estimates In preparing the consolidated financial statements, management is required 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. Revenue recognition We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect 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. We recognize revenue upon shipment from our 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. We recognize revenue for our digital products in the month the download by the customer occurs. All product sales were initiated based upon the retailer’s purchase orders at a fixed transaction price and revenues recognized when the products were shipped to our customers. Contract Liabilities Our contract liabilities consist of advance customer payments. Contract liability results from transactions in which we have 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. Income Taxes We utilize 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. 37 We 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 our realization of the net operating loss carry forward prior to its expiration. NomadChoice Pty Ltd, our wholly-owned Australian 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. We recognize liabilities for anticipated tax audit issues based on our 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., our wholly-owned Canadian 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. We recognize liabilities for anticipated tax audit issues based on our 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. Effect of Exchange Rate on Results The functional currency of one of our foreign subsidiaries (NomadChoice Pty Ltd.) is the U.S. Dollar. This foreign subsidiary maintains its records using local currency (Australian Dollar–“AUD”). All monetary assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at period 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 were recorded in statements of operations as Remeasurement gain or loss on translation of foreign subsidiary. The functional currency of our other foreign subsidiary (Synergy CHC Inc.) is the Canadian Dollar (CAD). This foreign subsidiary maintains its records using local currency (CAD). All assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at period end exchange rates and stockholders’ equity is translated at the historical rates. Income and expense items were translated using average exchange rate for the period. The resulting translation adjustments, net of income taxes, are reported as other comprehensive income and accumulated other comprehensive income in the stockholder’s equity in accordance with ASC 220 — Comprehensive Income. The exchange rates used to translate amounts in AUD and CAD into USD for the purposes of preparing the consolidated financial statements were as follows: Balance sheet: December 31, 2024 December 31, 2023 Period-end AUD: USD exchange rate $ 0.6183 $ 0.6805 Period-end CAD: USD exchange rate $ 0.6950 $ 0.7561 Income statement: December 31, 2024 December 31, 2023 Average Yearly AUD: USD exchange rate $ 0.6599 $ 0.6644 Average Yearly CAD: USD exchange rate $ 0.7301 $ 0.7411 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. 38 Item 7A. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, we have elected not to provide the disclosure required by this item. Item 8. Financial Statements and Supplementary Data Reference is made to pages F-1 through F-32 comprising a portion of this Annual Report on Form 10-K, which are incorporated by reference under this Item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.