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 Quarterly Report 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 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2026 (the “Annual Report”) and the “Risk Factors” section of this Quarterly 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. 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, 2026 Three Months Ended March 31, 2025 (Unaudited) (Unaudited) Net (loss) income $ (2,568,899 ) $ 876,264 Interest income (340 ) (13,882 ) Interest expense 2,012,121 1,095,369 Income tax benefit (13,720 ) (11,460 ) Depreciation and amortization 33,333 33,333 EBITDA $ (537,505 ) $ 1,979,624 EBITDA is considered a non-GAAP financial measure. 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. 25 Results of Operations for the Three Months Ended March 31, 2026 and March 31, 2025 During both the three months ended March 31, 2026 and 2025, 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, 2026, we had revenue of $5,492,705 from sales of our products, as compared to revenue of $8,170,534 for the three months ended March 31, 2025. The revenue is comprised of the following categories: March 31, 2026 March 31, 2025 Nutraceuticals $ 4,824,763 $ 6,639,564 Beverages 667,942 30,970 License Revenue - 1,500,000 $ 5,492,705 $ 8,170,534 We had a decrease in Nutraceuticals revenue in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 due to a decrease in online sales. We had an increase in Beverages revenue in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 due to new retail distribution. We had a decrease in License Revenue in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 as that was a one-time item that did not repeat. Cost of Revenue For the three months ended March 31, 2026, our cost of revenue was $1,521,910. Our cost of revenue for the three months ended March 31, 2025, was $2,006,513. The decrease in cost of sales was primarily due to the decrease in revenue. Gross Profit Gross profit was $3,970,795, or 72% of revenue, for the three months ended March 31, 2026, as compared to gross profit of $6,164,021, or 75% of revenue, for the same period in 2025, a decrease of $2,193,226, or 36%. The decrease in gross profit is directly related to the license revenue in 2025. Operating Expenses Selling and Marketing Expenses For the three months ended March 31, 2026, our selling and marketing expenses were $2,455,732 as compared to $2,876,271 for the three months ended March 31, 2025, which is primarily due to lower revenue. General and Administrative Expenses For the three months ended March 31, 2026, our general and administrative expenses were $2,048,850. For the three months ended March 31, 2025, our general and administrative expenses were $1,306,714. The increase is largely due to increased salaries and benefits, stock-based compensation, board compensation and professional fees. Depreciation and Amortization Expenses For both the three months ended March 31, 2026 and 2025, our depreciation and amortization expenses were $33,333. Other Income and Expenses For the three months ended March 31, 2026 and 2025 we had other income and expense items as follows: Three months ended March 31, 2026 Three months ended March 31, 2025 Interest expense $ 2,012,121 $ 1,095,369 Interest income (340 ) (13,882 ) Remeasurement loss on translation of foreign subsidiary 3,718 1,412 Total other expense $ 2,015,499 $ 1,082,899 26 For the three months ended March 31, 2026, we had net interest expense of $2,012,121 as compared to $1,095,369 for the three months ended March 31, 2025. The increase is primarily due to an advance taken and the amortization of original debt discount on the May 2025 loan. Net Income For the three months ended March 31, 2026, our net loss was $2,568,899 as compared to a net income of $876,264 for the three months ended March 31, 2025 due to lower revenue. Liquidity and Capital Resources Overview As of March 31, 2026, we had $292,115 cash on hand and restricted cash of $100,000 which is held for credit card collateral. In connection with preparing unaudited condensed consolidated financial statements for the three months ended March 31, 2026, 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 March 31, 2026, we had an accumulated deficit of $59,009,920. ● At March 31, 2026, we had a decrease in net revenue of $2,677,829. ● At March 31, 2026, we had a decrease in net income of $3,445,163. ● At March 31, 2026, we had a working capital deficit of $503,862 ● During the three months ended March 31, 2026, we used $2,044,678 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. We evaluated our ability to meet our obligations as they become due within one year from the date that the unaudited condensed consolidated financial statements are issued by considering the following: ● We entered into a second amendment with our current lender which adjusts various covenants and payment terms. ● We laid off 13 employees in order to right size our overhead expenses. ● We established an at-the-market (“ATM”) equity offering program pursuant to which we may issue and sell shares of our common stock from time to time, subject to market conditions and other factors. Subsequent to March 31, 2026, we have drawn down $2,673,201 in gross proceeds. ● We have entered into an equity purchase agreement (“ELOC”), pursuant to which we may issue and sell shares of our common stock from time to time, subject to market conditions and other factors (see Note 16). Cash Flows from Operating Activities For the three months ended March 31, 2026, net cash used in operating activities was $2,044,678 compared to net cash used in operating activities of $822,781 for the three months ended March 31, 2025. This increase in net cash used by operating activities for the three months ended March 31, 2026 was primarily attributable to a decrease in net income. 27 For the three months ended March 31, 2026, net cash used in operating activities of $2,044,678 consisted of our net loss of $2,568,899 adjusted by: Amortization of debt issuance cost $ 951,942 Depreciation and amortization 33,333 Stock based compensation 116,307 Foreign currency transaction gain 2,684 Remeasurement loss on translation of foreign subsidiary 3,718 Changes in operating assets and liabilities: Accounts receivable 1,935,483 Inventory 355,895 Prepaid expense (410,657 ) Prepaid expense, related party (541,467 ) Income taxes payable (2,297 ) Contract liabilities (1,526 ) Accounts payable and accrued liabilities (1,915,323 ) Accounts payable, related party (3,871 ) 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 Cash Flows from Investing Activities For the three months ended March 31, 2026 and 2025, we used net cash of $0 in investing activities. Cash Flows from Financing Activities For the three months ended March 31, 2026, net cash used in financing activities was $307,600 compared to net cash provided by financing activities of $314,678 for the three months ended March 31, 2025. The decrease was attributable to decreased proceeds of notes. Financing activities during the three months ended March 31, 2026 and 2025: Three months ended March 31, 2026 Three months ended March 31, 2025 Advances from related party $ - $ 135,000 Repayment of notes payable, related party (100,000 ) - Proceeds from notes payable 2,660,000 1,496,250 Payment of loan financing fees (55,000 ) - Repayment of notes payable (2,812,600 ) (1,316,572 ) 28 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, 2026, and during the year ended December 31, 2025, 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, 2026 or 2025. 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. 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.