Synergy CHC Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Synergy CHC Corp. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly 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. Special Note Regarding Forward-Looking Statements This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of our final prospectus for our initial public offering filed with the SEC on October 23, 2024 (the “Prospectus”) and the “Risk Factors” section of this report. Our securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. 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 Investigational New Drug 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 Quarterly Report. Key factors affecting our results of operations include revenues, cost of revenue, operating expenses and income and taxation. 29 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. Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 (Unaudited) (Unaudited) Net income $ 876,264 $ 580,530 Interest income (13,882 ) (387 ) Interest expense 1,095,369 1,109,980 Income taxes (benefit) expense (11,460 ) 127,189 Depreciation and amortization 33,333 33,333 EBITDA $ 1,979,624 $ 1,850,645 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 Three Months Ended March 31, 2025 and March 31, 2024 During both the three months ended March 31, 2025 and 2024, we focused on developing our currently owned brands into new markets and by product extensions. Our objective is to grow our two targeted verticals (Nutraceuticals and Ready To Drinks (RTDs)) to provide a balanced and synergistic portfolio that drives consumer demand via multiple channels. Our Nutraceuticals vertical consists of FOCUSfactor, including RTDs, and Flat Tummy consumables. Revenue For the three months ended March 31, 2025, we had revenue of $6,670,534 from sales of our products and $1,500,000 from a license agreement, as compared to revenue of $9,411,863 for the three months ended March 31, 2024. The revenue is comprised of the following categories: March 31, 2025 March 31, 2024 Nutraceuticals $ 6,670,534 $ 9,411,863 License Revenue 1,500,000 - Consumer Goods - - $ 8,170,534 $ 9,411,863 30 We had a decrease in Nutraceuticals revenue in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 due to a new product sell-in to one customer in 2024 that did not repeat in 2025. Cost of Revenue For the three months ended March 31, 2025, our cost of revenue was $2,006,513. Our cost of revenue for the three months ended March 31, 2024, was $2,637,139. The decrease in cost of sales was primarily due to the decrease in revenue. Gross Profit Gross profit was $6,164,021, or 75% of revenue, for the three months ended March 31, 2025, as compared to gross profit of $6,774,724, or 72% of revenue, for the same period in 2024, a decrease of $610,703, or 9%. The decrease in gross profit is directly related to the decrease in net sales. Operating Expenses Selling and Marketing Expenses For the three months ended March 31, 2025, our selling and marketing expenses were $2,876,271 as compared to $3,584,677 for the three months ended March 31, 2024, which is primarily due to lower revenue and an improved management of promotions in 2025. General and Administrative Expenses For the three months ended March 31, 2025, our general and administrative expenses were $1,306,714. For the three months ended March 31, 2024, our general and administrative expenses were $1,348,385. The decrease is primarily due to improved management of operating costs. Depreciation and Amortization Expenses For the three months ended March 31, 2025, our depreciation and amortization expenses were $33,333 as compared to $33,333 for the three months ended March 31, 2024. Other Income and Expenses For the three months ended March 31, 2025 and 2024 we had other income and expense items as follows: Three months ended March 31, 2025 Three months ended March 31, 2024 Interest expense $ 1,095,369 $ 1,109,980 Interest income (13,882 ) (387 ) Remeasurement loss (gain) on translation of foreign subsidiary 1,412 (8,983 ) Total other expense $ 1,082,899 $ 1,100,610 For the three months ended March 31, 2025, we had net interest expense of $1,095,369 as compared to $1,109,980 for the three months ended March 31, 2024. The decrease is primarily due to a reduction in the interest rate effective with the sixth amended loan agreement offset by a new loan. Net Income For the three months ended March 31, 2025, our net income was $876,264 as compared to a net income of $580,530 for the three months ended March 31, 2024 due to lower operating expenses. 31 Liquidity and Capital Resources Overview As of March 31, 2025, we had $177,882 cash on hand and restricted cash of $100,000 which is held for credit card collateral. Cash Flows from Operating Activities For the three months ended March 31, 2025, net cash used by operating activities was $822,781 compared to net cash used in operating activities of $858,042 for the three months ended March 31, 2024. This decrease in net cash used by operating activities for the three months ended March 31, 2024 was primarily attributable to an increase in inventory and a decrease in accounts payable and accrued expenses, offset by a decrease in accounts and other receivables. For the three months ended March 31, 2025, net cash used in operating activities of $822,781 consisted of our net income of $876,264 adjusted by: Amortization of debt issuance cost $ 406,841 Depreciation and amortization 33,333 Foreign currency transaction gain (3,137 ) Remeasurement gain on translation of foreign subsidiary (1,412 ) Changes in operating assets and liabilities: Accounts receivable 940,519 Other receivables 144,637 Loan receivable, related party (833 ) Inventory (629,935 ) Prepaid expense (114,787 ) Prepaid expense, related party (195,913 ) Income taxes payable (165,413 ) Contract liabilities (24,216 ) Accounts payable and accrued liabilities (2,218,041 ) Accounts payable, related party 129,312 For the three months ended March 31, 2024, net cash used in operating activities of $858,042 consisted of our net income of $580,530 adjusted by: Depreciation and amortization $ 33,334 Foreign currency transaction loss 11,178 Remeasurement gain on translation of foreign subsidiary (8,983 ) Non cash implied interest 7,199 Changes in operating assets and liabilities: Accounts receivable (318,330 ) Loan receivable, related party 25,162 Inventory 1,016,455 Prepaid expense (202,888 ) Prepaid expense, related party (165,687 ) Income taxes payable (20,315 ) Contract liabilities 12,932 Accounts payable and accrued liabilities (1,808,989 ) Accounts payable, related party (19,640 ) 32 Cash Flows from Investing Activities For the three months ended March 31, 2025 and 2024, we used net cash of $0 in investing activities. Cash Flows from Financing Activities For the three months ended March 31, 2025, net cash provided by financing activities was $314,678 compared to net cash provided by financing activities of $1,004,620 for the three months ended March 31, 2024. The decrease was attributable to increased payoffs of loans. Financing activities during the three months ended March 31, 2025 and 2024: Three months ended March 31, 2025 Three months ended March 31, 2024 Advances from related party $ 135,000 $ 1,400,000 Repayment of notes payable, related party - (84,500 ) Proceeds from notes payable 1,496,250 125,000 Repayment of notes payable (1,316,572 ) (435,880 ) Key Near-Term Initiatives 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 three months ended March 31, 2025, and during the year ended December 31, 2024, we had no off-balance sheet arrangements. Inflation The effect of inflation on our operating results was not significant in the three months ended March 31, 2025 or 2024. Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this report. Recent Accounting Pronouncements Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this report includes Recent Accounting Pronouncements. 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we have elected not to provide the disclosure required by this item.