Synergy CHC Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS Synergy CHC Corp. Condensed Consolidated Balance Sheets September 30, 2016 December 31, 2015 (Unaudited) Assets Current Assets: Cash and cash equivalents $ 4,220,141 $ 3,640,893 Restricted cash 291,620 607,084 Accounts receivable 1,894,278 3,979,857 Prepaid expenses 1,394,937 422,434 Inventory 986,538 686,655 Total Current Assets 8,787,514 9,336,923 Fixes assets, net 195,577 12,017 Goodwill 9,776,400 11,496,402 Intangible assets, net 5,621,174 5,915,262 Total Assets $ 24,380,665 $ 26,760,604 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable and accrued liabilities $ 2,995,137 $ 5,032,102 Provision for income taxes payable 921,389 910,894 Earn out payment - 2,551,500 Current portion of long-term debt, net of debt discount and debt issuance cost, related party 5,073,033 3,025,669 Current portion of long-term debt 750,000 750,000 Warrant derivative liability 1,535,795 3,096,179 Total Current Liabilities 11,275,354 15,366,344 Long-term Liabilities: Note payable - 750,000 Royalty payable 302,979 258,897 Note payable, net of debt discount and debt issuance cost, related party 1,805,059 4,965,650 Total Long-term Liabilities 2,108,038 5,974,547 Total Liabilities 13,383,392 21,340,891 Commitments and contingencies - - Stockholders’ Equity: Common stock, $0.00001 par value; 300,000,000 shares authorized; 81,264,357 and 81,692,954 shares issued and outstanding, respectively 813 817 Common stock to be issued (125,000 and 213,742 shares, respectively) 56,250 68,000 Additional paid in capital 13,657,669 13,920,735 Accumulated other comprehensive income 3,830 - Accumulated deficit (2,721,289 ) (8,569,841 ) Total stockholders ’ equity 10,997,273 5,419,713 Total Liabilities and Stockholders’ Equity $ 24,380,665 $ 26,760,604 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 3 Synergy CHC Corp. Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended For the nine months ended September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015 Revenue $ 11,569,568 $ 3,181,623 $ 28,111,894 $ 7,237,619 Cost of sales 3,475,159 1,469,910 7,694,028 3,103,244 Gross profit 8,094,409 1,711,713 20,417,866 4,134,375 Operating expenses Selling and marketing 3,051,808 814,640 6,688,663 2,228,418 General and administrative 1,811,395 706,806 5,359,578 1,407,458 Depreciation and amortization 298,079 103,103 871,089 282,256 Total operating expenses 5,161,282 1,624,549 12,919,330 3,918,132 Income from operations 2,933,127 87,164 7,498,536 216,243 Other (income) expenses Interest income (370 ) - (5,043 ) - Interest expense 432,622 212,904 1,265,844 612,094 Remeasurement gain on translation of foreign subsidiary (52,069 ) - (79,076 ) - Gain on change in fair value of derivative liability (1,137,309 ) - (1,560,384 ) - Settlement expense 56,250 - 56,250 - Amortization of debt discount 273,941 304,117 1,142,649 2,575,192 Amortization of debt issuance cost 45,019 37,753 170,282 101,105 Total other (income) expenses (381,916 ) 554,774 990,522 3,288,391 Net income (loss) before income taxes 3,315,043 (467,610 ) 6,508,014 (3,072,148 ) Income tax expense 264,377 - 659,462 - Net income (loss) after tax $ 3,050,666 $ (467,610 ) $ 5,848,552 $ (3,072,148 ) Net income (loss) per share – basic $ 0.04 (0.01 ) $ 0.07 $ (0.05 ) Net income (loss) per share – diluted $ 0.04 (0.01 ) $ 0.07 $ (0.05 ) Weighted average common shares outstanding Basic 81,272,115 68,096,740 81,561,017 67,033,094 Diluted 82,740,985 68,096,740 84,102,987 67,033,094 Comprehensive income (loss): Net income (loss) 3,050,666 (467,610 ) 5,848,552 (3,072,148 ) Foreign currency translation adjustment 2,710 - 3,830 - Comprehensive income (loss) $ 3,053,376 $ (467,610 ) $ 5,852,382 $ (3,072,148 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 Synergy CHC Corp. Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2016 September 30, 2015 Cash Flows from Operating Activities Net income (loss) $ 5,848,552 $ (3,072,148 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 871,089 282,256 Amortization of debt issuance cost 170,282 101,105 Stock issued for services 50,000 - Settlement expense 56,250 - Stock based compensation expense 913,930 28,000 Change in the fair value of derivative liability (1,560,384 ) - Remeasurement gain on translation of foreign subsidiary (79,076 ) - Non cash implied interest 92,924 - Amortization of debt discount 1,142,649 2,575,192 Changes in operating assets and liabilities: Accounts receivable 2,085,579 1,660,167 Inventory (299,883 ) (201,346 ) Prepaid expense (1,097,503 ) (118,976 ) Accounts payable and accrued liabilities (1,947,350 ) (454,220 ) Net cash provided by operating activities 6,247,059 800,030 Cash Flows from Investing Activities Payments for acquisition of fixed assets (210,605 ) (4,045 ) Payments for acquisition of Focus Factor - (4,500,000 ) Payments for acquisition transaction with Knight Therapeutics Inc. - (250,000 ) Payment of earn out liability (2,551,500 ) - Restricted cash 315,464 - Net cash used in investing activities (2,446,641 ) (4,754,045 ) Cash Flows from Financing Activities Proceeds from notes payable - 6,000,000 Repayment of notes payable (3,225,000 ) (762,500 ) Payment of debt issuance cost - (299,531 ) Repayment of related party note - (159,345 ) Proceeds from exercise of warrant - 1 Net cash (used in) provided by financing activities (3,225,000 ) 4,778,625 Effect of exchange rate on cash and cash equivalents 3,830 - Net increase in cash and cash equivalents 579,248 824,610 Cash and Cash Equivalents, beginning of period 3,640,893 338 Cash and Cash Equivalents, end of period $ 4,220,141 $ 824,948 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 1,331,392 $ 612,094 Income taxes $ 703,651 $ - Supplemental Disclosure of Non-cash Investing and Financing Activities: Reallocation of goodwill related to acquisition of Factor Nutrition to intellectual property $ 450,000 $ - Reallocation of goodwill related to acquisition of Breakthrough Products, Inc. to intellectual property $ 150,000 $ - Reallocation of non-compete agreement related to acquisition of Breakthrough Products, Inc. to goodwill $ 50,000 $ - Adjusting the value of shares issued to goodwill related to acquisition of Breakthrough Products, Inc. $ 1,170,000 $ - Reallocation of blogger database and intellectual property related to acquisition of Nomadchoice Pty Ltd. to customer database $ 215,000 $ - Common stock to be issued now issued $ 68,000 $ - Cancellation of common stock $ 125,000 $ - Common stock issued for settlement of debt $ - $ 100,000 Beneficial conversion feature on warrants issued concurrent with debt $ - $ 3,415,514 Assumption of assets and liabilities as part of acquisition transaction $ - $ 9,332,559 Assumption of liabilities as part of acquisition transaction with Knight Therapeutics, Inc. $ - $ 1,400,315 Note issued as part of asset purchase agreement $ - $ 1,500,000 Common stock issued as part of contribution agreement $ - $ 1,500,000 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 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 acquisition. Synergy is the sole owner of four subsidiaries: Neuragen Corp., Breakthrough Products, Inc., NomadChoice Pty Ltd. and Synergy CHC Inc. and the results have been consolidated in these statements. Synergy CHC Inc., a Canadian corporation, was created during February 2016 in order to perform marketing and customer service operations for the companies owned by Synergy CHC Corp. Note 2 – Summary of Significant Accounting Policies General The accompanying condensed consolidated financial statements as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. 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, 2015 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC. Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are assumptions about collection of accounts receivable, useful life of fixed and intangible assets, goodwill and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. 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, 2016 the Company had no 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, 2016, the uninsured balance amounted to $3,802,571. Capitalization of Fixed Assets The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. 6 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 except intellectual property of $1,450,000 acquired as part of Asset Purchase Agreement entered into with Factor Nutrition LLC on January 22, 2015. 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. As of September 30, 2016, our qualitative analysis of long-lived assets did not indicate any impairment. Goodwill An asset purchase is accounted for under the purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. As of September 30, 2016, our qualitative analysis of goodwill did not indicate any impairment. Revenue Recognition The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and/or service has been performed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes that these criteria are satisfied 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. Accounts receivable Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts. Advertising Expense The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling expense in the accompanying unaudited condensed consolidated statements of operations. Research and Development Costs incurred in connection with the development of new products and processing methods are charged to general and administrative expenses as incurred. Income Taxes The Company utilizes 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. 7 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 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 loss per share is anti-dilutive. As of September 30, 2016, options to purchase 5,000,000 shares of common stock and warrants to purchase 9,132,002 shares of common stock were outstanding. These potential shares were included in the shares used to calculate diluted earnings per share. Going Concern The Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at September 30, 2016 of $2,721,289. The Company had a working capital deficit of $2,487,840 as of September 30, 2016. Due to acquisitions during 2015 of revenue-producing products, the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs. Management’s plans to continue as a going concern include growing sales revenue on our existing brands, raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Fair Value Measurements The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. 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 September 30, 2016, the Company has determined that there were no assets or liabilities measured at fair value, except for the warrant derivative liability. 8 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 market. Finished goods include the cost of labor to assemble the items. Stock-Based Compensation The Company adopted the provisions of ASC 718. We estimate the fair value of stock options using a binomial model, consistent with the provisions of ASC 718 and SEC Staff Accounting Bulletin No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the underlying stock. We determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. The expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the Black-Scholes-Merton (BSM) model is based on detailed historical data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. We believe the resulting BSM calculation provides a more refined estimate of the fair value of our employee stock options. 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. 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 exist 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 any additional costs relating to assembly or special pack-outs of the Company’s products are charged to general and administrative expenses as incurred. 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 general and administrative expenses as incurred. Warrant Derivative Liabilities ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described. 9 A Black-Scholes-Merton option-pricing model, with dilution effects, was utilized to estimate the fair value of the Warrant Derivative Liabilities as of September 30, 2016. This model is subject to the significant assumptions discussed below and requires the following key inputs with respect to the Company and/or instrument: Input September 30, 2016 Stock Price $ 0.35 Exercise Price $ 0.49 Expected Life (in years) 9.0 Stock Volatility 143.11 % Risk-Free Rate 1.60 % Dividend Rate 0 % Outstanding Shares of Common Stock 4,547,243 Cost of Sales Cost of sales includes the purchase cost of products sold and all costs associated with getting the products into the retail stores including buying and transportation costs. 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. Impairment of Long-Lived Assets When facts and circumstances indicate that the carrying values of long-lived assets, including fixed assets, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. The Company makes judgments related to the expected useful lives of long-lived assets and its ability to realize undiscounted cash flows in excess of the carrying amounts of such assets which are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge. 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. Related parties Parties are considered to be related to the Company if the parties, 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. All transactions with related parties shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to the related party. 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 aggregate basis. Reclassification of Prior Period Presentation Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results. 10 Recent Accounting Pronouncements ASU 2016-10 In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements. ASU 2016-09 In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements. ASU 2016-08 In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements. ASU 2016-01 In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements. ASU 2015-17 In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements., and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets. ASU 2015-16 In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-14 In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606). The amendments in this ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09 on our consolidated financial statements. 11 ASU 2015-11 In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11 to have a material effect on our consolidated financial statements. ASU 2015-05 In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). ASU 2015-05 provides guidance regarding the accounting for a customer’s fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies’ annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-07 In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-03 In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. The Company reclassified debt issuance cost of $208,569 and $378,852 from other assets to liabilities and netted off with the related loans in the liabilities as of September 30, 2016 and December 31, 2015, respectively. ASU 2015-02 In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-01 In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2014-17 In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting. This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our consolidated financial statements. ASU 2014-16 In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815). ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We have not previously and do not currently have issued, nor were we or are we investors in, hybrid financial instruments. Adoption of this new standard did not have any impact on the Company’s financial position, results of operations or cash flows. 12 ASU 2014-15 In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements. ASU 2014-12 In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2014-09 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. ASU 2014-09 will be effective for the Company in the first quarter of 2018, and early adoption is permitted in the first quarter of 2017. We are still evaluating the effect of the adoption of ASU 2014-09 on our consolidated financial statements. . ASU 2014-08 In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our consolidated financial statements. There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial statements. Note 3 – 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 market. The carrying value of inventory consisted of the following: September 30, 2016 December 31, 2015 Finished goods $ 351,888 $ 535,908 Components 599,244 115,340 Raw Materials 35,406 35,406 Total inventory $ 986,538 $ 686,654 On January 22, 2015, inventory was pledged to Knight Therapeutics under the Loan Agreement (see note 10). During the nine month period ended September 30, 2016, one of the Company’s subsidiaries reached an agreement with a former manufacturer regarding a payment dispute and gained control over approximately $90,000 worth of raw materials which will be used in future production. 13 Note 4 – Accounts Receivable Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following: September 30, 2016 December 31, 2015 Trade accounts receivable $ 1,894,278 $ 4,101,148 Less allowances 0 - (121,291 ) Total accounts receivable, net $ 1,894,278 $ 3,979,857 During the year ended December 31, 2015, the Company charged $50,000 to bad debt expense in setting up an allowance. During the three and nine months ended September 30, 2016, the Company charged $nil to bad debt expense in setting up an allowance. Note 5 – Prepaid Expenses Prepaid expenses consisted of the following: September 30, 2016 December 31, 2015 Advances for inventory $ 14,718 $ 171,494 Media production 173,518 55,849 Insurance 44,809 54,519 Trade shows - 45,700 Deposits 134,970 41,228 Consultants 42,500 24,000 Rent - 16,216 Promotion - Bloggers 639,259 - License agreement 283,333 - In-store demos 6,141 - Miscellaneous 55,689 13,428 Total $ 1,394,937 $ 422,434 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, 2016 and December 31, 2015, the uninsured balances amounted to $3,802,571 and $3,453,290, respectively. Accounts receivable As of September 30, 2016, three customers accounted for 83% of the Company’s accounts receivable. As of December 31, 2015, one customer accounted for 78% of the Company’s accounts receivable. Major customers For the nine months ended September 30, 2016, four customers accounted for approximately 37% of the Company’s net revenue. For the three months ended September 30, 2016, three customers accounted for approximately 53% of the Company’s net revenue. For the nine months ended September 30, 2015, four customers accounted for approximately 94% of the Company’s net revenue. For the three months ended September 30, 2015, three customers accounted for approximately 96% of the Company’s net revenue. For the year ended December 31, 2015, four customers accounted for approximately 75% of the Company’s net revenues. Substantially all of the Company’s business is with companies in the United States. Major suppliers For the three and nine months ended September 30, 2016 and 2015, our products were made by the following suppliers: FOCUSfactor Atrium Innovations - Pittsburgh, PA Vit-Best Nutrition, Inc. - Tustin, CA Flat Tummy Tea Caraway Tea Company, LLC - Highland, NY - Neuragen C-Care, LLC - Linthicum Heights, MD - UrgentRx Capstone Nutrition - Ogden, UT - It is the opinion of management that the products can be produced by other manufacturers and the choice to utilize these suppliers is not a significant concentration. 14 Note 7 – Fixed Assets and Intangible Assets As of September 30, 2016 and December 31, 2015, fixed assets and intangible assets consisted of the following: September 30, 2016 December 31, 2015 Property and equipment $ 228,578 $ 18,187 Less accumulated depreciation (33,001 ) (6,170 ) Fixed assets, net $ 195,577 $ 12,017 Depreciation expense for the three months ended September 30, 2016 and 2015 was $16,089 and $217, respectively. Depreciation expense for the nine months ended September 30, 2016 and 2015 was $26,783 and $430, respectively. September 30, 2016 December 31, 2015 FOCUSfactor intellectual property $ 1,450,000 $ 1,000,000 Intangible assets subject to amortization 5,623,016 5,521,751 Less accumulated amortization (1,451,842 ) (606,489 ) Intangible assets, net $ 5,621,174 $ 5,915,262 Amortization expense for the nine months ended September 30, 2016 and 2015 was $844,306 and $281,826, respectively. Amortization expense for the three months ended September 30, 2016 and 2015 was $281,990 and $102,886, respectively. These intangible assets were acquired through an Asset Purchase Agreement and Stock Purchase Agreements entered into during 2015 for the acquisitions of the FocusFactor, UrgentRx and Flat Tummy Tea businesses. During 2016, valuations were performed on acquisitions that occurred during 2015. Based on those valuations the Company adjusted intangible asset and goodwill – see Note 17. Note 8 – Related Party Transactions The Company accrued and paid consulting fees of $25,000 per month to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. As of September 30, 2016, the total outstanding balance was $0. On January 22, 2015, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc. (“Knight”), a related party, for the purchase of the Focus Factor assets. At September 30, 2016, the Company owed Knight $3,060,920 on this loan, net of debt discount and debt issuance cost (see Note 10). On June 26, 2015, the Company entered into a Security Agreement with Knight Therapeutics, Inc., through its wholly owned subsidiary Neuragen Corp., for the purchase of Knight Therapeutics, Inc.’s assets. At September 30, 2016, the Company owed Knight $292,931 in relation to this agreement (see Note 10). On August 18, 2015, the Company entered into a Consulting Agreement with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and sales related service. The Company will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated earlier by either party. Hand MD, LLC is a 50% owner in Hand MD Corp. The Company expensed $90,000 through payroll for the nine months ended September 30, 2016 and $30,000 for the three months ended September 30, 2016. As of September 30, 2016, the total outstanding balance was $0. On November 12, 2015, the Company entered into a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for the purchase of NomadChoice Pty Limited and Breakthrough Products, Inc. At September 30, 2016, the Company owed Knight $3,528,163 on this loan, net of debt discount and debt issuance cost (see Note 10). At September 30, 2016 NomadChoice Pty Ltd., a subsidiary of the Company, owed Knight Therapeutics $74,056 in connection with a royalty distribution agreement. 15 Note 9 – Accounts Payable and Accrued Liabilities As of September 30, 2016 and December 31, 2015, accounts payable and accrued liabilities consisted of the following: September 30, 2016 December 31, 2015 Accrued payroll $ 104,290 $ 128,237 Accrued legal fees 12,337 38,752 Accounting fees 7,500 - Manufacturers 839,296 1,527,333 Promotions 457,589 1,213,021 Returns allowance 860,127 1,128,133 Customers 417,055 411,033 Interest 45,206 110,754 Royalties 74,056 71,573 Warehousing - 31,748 Others 177,681 371,518 Total $ 2,995,137 $ 5,032,102 Note 10 – Notes Payable The Company’s loans payable at September 30, 2016 and December 31, 2015 are as follows: September 30, 2016 December 31, 2015 Loans payable $ 9,230,430 $ 12,406,589 Unamortized debt discount (1,393,769 ) (2,536,418 ) Unamortized debt issuance cost (208,569 ) (378,852 ) Total 7,628,092 9,491,319 Less: Current portion (5,823,033 ) (3,775,669 ) Long-term portion $ 1,805,059 $ 5,715,650 $6,000,000 January 22, 2015 Loan: On January 22, 2015, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant to which Knight agreed to loan the Company $6.0 million (the “Loan”), and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring the Focus Factor Business (defined below). At closing, the Company paid Knight an origination fee of $120,000 and a work fee of $60,000 and also paid $40,000 of Knight’s expenses associated with the Loan. The Loan bears interest at a rate of 15% per year; provided, however, that upon the occurrence of an equity or convertible equity offering by the Company of at least $1.0 million, the interest rate will drop to 13% per year. Interest accrues quarterly and is payable in arrears on March 31, June 30, September 30 and December 31 in each year, beginning on March 31, 2015. All outstanding principal and accrued and unpaid interest is due on the earliest to occur of either January 20, 2017 (the “Maturity Date”), or the date that Knight, in its discretion, accelerates the Company’s obligations due to an event of default. The Company may extend the Maturity Date for two successive additional 12-month periods if at March 31, 2016 and March 31, 2017, respectively, the Company’s revenues exceed $13.0 million and its EBITDA exceeds $2.0 million for the respective 12-month period then ending. These covenants were achieved, therefore the Company chose to extend the loan for the first 12-month period. Principal payments under the Loan Agreement commenced on June 30, 2015 and continue quarterly as set forth on the Repayment Schedule to the Loan Agreement. Subject to certain restrictions, the Company may prepay the outstanding principal of the Loan (in whole but not in part) at any time if the Company pays a concurrent prepayment fee equal to the greater of (i) the total unpaid annual interest that would have been payable during the year in which the prepayment is made if the prepayment is made prior to the first anniversary of the closing, and (ii) $300,000. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in all present and future assets of the Company. The Company also agreed to not pledge or otherwise encumber its intellectual property assets, subject to certain customary exceptions. The Loan Agreement includes customary representations, warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, and to not merge or dispose of assets, acquire other businesses (except for businesses substantially similar or complementary to the Company’s business and the aggregate consideration to be paid does not exceed $100,000) or make capital expenditures in excess of $100,000 over the Company’s annual business plan in any year. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants, change of control and material adverse effect default. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of the Loan will bear a default interest rate of an additional 5%. 16 In connection with the Loan Agreement, the Company issued to Knight a warrant that entitled Knight to purchase 4,595,187 shares of common stock of the Company (“Common Stock”) on or prior to close of business on January 30, 2015 (the “ST Warrant”). The aggregate exercise price of the Common Stock under the ST Warrant is $1.00. Knight exercised the ST Warrant on January 22, 2015. Also in connection with the Loan Agreement, the Company issued to Knight a warrant to purchase 3,584,759 shares of Common Stock on or prior to the close of business of January 22, 2025 (the “LT Warrant”). The exercise price per share of the Common Stock under the LT Warrant is $0.34. The LT Warrant provides for cashless exercise. The LT Warrant also provides that in the event the closing price of the Common Stock remains above $1.00 for six consecutive months, Knight will forfeit the difference between the number of shares acquired under the LT Warrant prior to 90 days after such six-month period, and 25% of the shares purchasable under the LT Warrant. The beneficial conversion feature of the warrants issued to the noteholders amounted to $1,952,953 (ST warrants) and $1,462,560 (LT warrants), respectively, and was recorded as debt discount of the corresponding debt. The Company recognized amortization of debt discount of $13,766 and $367,781 (LT warrants) during the three and nine months ended September 30, 2016, respectively. Unamortized debt discount as of September 30, 2016 amounted to $239,951. The Company also recorded deferred financing costs of $289,045 with respect to the above loan in 2015. The Company recognized amortization of deferred financing costs of $14,267 and $78,709 during the three and nine months ended September 30, 2016, respectively. Unamortized debt issuance cost as of September 30, 2016 amounted to $74,129. The Company recognized and paid interest expense of $148,463 and $498,105 during the three and nine months ended September 30, 2016, respectively. Accrued interest expense was $0 as of September 30, 2016. Loan payable balance was $3,375,000 as of September 30, 2016. $1,500,000 January 22, 2015 Loan: On January 22, 2015, the Company issued a 0% promissory note in a principal amount of $1,500,000 in connection with an Asset Purchase Agreement. The note has a maturity date of January 20, 2017, with $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017. The loan payable balance was $750,000 as of September 30, 2016. $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 ended 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 also recorded deferred financing costs of $10,486 with respect to the above agreement in 2015. The Company recognized amortization of deferred financing costs of $1,321 and $3,921 during the three and nine months ended September 30, 2016, respectively. Unamortized debt issuance cost as of September 30, 2016 amounted to $3,921. The Company recorded present value of future payments of $292,931 and $531,589 as of September 30, 2016 and December 31, 2015, respectively. The Company recorded interest expense of $10,588 and $48,842 for the three and nine months ended September 30, 2016, respectively. $5,500,000 November 12, 2015 Loan: On November 12, 2015, we entered into a First Amendment to Loan Agreement (“First Amendment”) with Knight, pursuant to which Knight agreed to loan us an additional $5.5 million, and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring Breakthrough Products, Inc. and NomadChoice Pty Limited through Stock Purchase Agreements. At closing, we paid Knight an origination fee of $110,000 and a work fee of $55,000 and also paid $24,000 of Knight’s expenses associated with the Loan. The Loan bears interest at a rate of 15% per year. The interest rate will decrease to 13% if we meet certain equity-fundraising targets. The New Loan Agreement matures on November 11, 2017. In connection with the New Loan Agreement, we issued Knight a warrant that entitles Knight to purchase 5,550,625 shares of our common stock (“Knight Warrant Shares”) representing approximately 6.5% of our fully diluted capital, which Knight exercised in full on November 12, 2015. Knight also received a 10-year warrant entitling Knight to purchase up to 4,547,243 shares of our common stock at $0.49 per share (“Knight Warrants”). The beneficial conversion feature of the warrants issued to the noteholders amounted to $2,553,287 (5,550,625 warrants) and $2,067,258 (4,547,243 warrants), respectively, and was recorded as debt discount of the corresponding debt in 2015. For derivative liability calculation on 4,547,243 warrants, refer to Note 15. The Company recognized amortization of debt discount of $260,175 (4,547,243 warrants) during the three months and $774,868 during the nine months ended September 30, 2016, respectively. Unamortized debt discount as of September 30, 2016 amounted to $1,153,818. The Company also recorded deferred financing costs of $233,847 with respect to the above loan in 2015. The Company recognized amortization of deferred financing costs of $29,431 and $87,653 during the three and nine months ended September 30, 2016, respectively. Unamortized debt issuance cost as of September 30, 2016 amounted to $130,519. 17 The Company recognized interest expense of $201,953 and $614,453 during the three and nine months ended September 30, 2016, respectively. During the three and nine months ended September 30, 2016, the Company paid interest of $206,250 and $684,298, respectively. Accrued interest was $45,206 as of September 30, 2016. The balance at September 30, 2016 was $4,812,500. Note 11 – 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. During the nine months ended September 30, 2016, the Company issued 213,742 shares of its common stock valued at $0.32 per share as part of an agreement for services rendered. During the nine months ended September 30, 2016, the Company issued 71,428 shares of its common stock valued at $0.70 per share for services rendered. During the nine months ended September 30, 2016, the Company cancelled 713,767 shares of its common stock valued at $125,000 in conjunction with an agreement with a former shareholder. The Company committed to issue 125,000 shares to former shareholders valued at $56,250 recorded as settlement expense during the three and nine months ended September 30, 2016. These shares were not issued as of the date of this Quarterly Report. As of September 30, 2016 and December 31, 2015, there were 81,264,357 and 81,692,954 shares of the Company’s common stock issued and outstanding, respectively. Note 12 – 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. Operating leases In April 2014, a subsidiary entered into an extension of a non-cancellable operating lease for office space that expires on March 31, 2017. Rent expense under this lease for the first six months of 2016 was $8,923 per month less a $3,010 per month sublease through March 2017. During the month of June 2016, the subsidiary was relieved from a portion of the lease, leaving the monthly obligation at $2,609 with the sublease of $3,010 still in effect. In December 2015, a subsidiary entered into a non-cancellable operating lease for office space through November 2016. Rental payments under this lease are $5,500 Australian dollars per month, which is approximately $4,200. In December 2015, the Company entered into a non-cancellable operating lease for office space through December 2016. Rental payments under this lease are $5,500 per month. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2016: Year ending December 31: 2016 – remaining three months $ 32,727 2017 7,827 Total $ 40,554 On December 8, 2014, a subsidiary entered into a non-cancellable 36 month phone lease with an estimated cost of $894 a month. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2016: Year ending December 31: 2016 – remaining three months $ 2,682 2017 9,834 Total $ 12,516 Note 13 – Stock Options On July 30, 2014, the Company’s board of directors approved the Company’s 2014 Equity Incentive Plan (the “Plan”) and the reservation of 15,525,000 shares of common stock for issuance under the Plan. The Plan was approved by the Company’s shareholders and became effective on August 5, 2015. On April 2, 2014, the Company granted 1,000,000 options with an exercise price of $0.25 per share to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company. On December 14, 2015, the Company granted 1,000,000 options each with an exercise price of $0.25 per share to two Board members of the Company. On December 14, 2015, the Company granted 1,000,000 options each with an exercise price of $0.65 per share to two employees of the Company. 18 The following table summarizes the options outstanding, option exercisability and the related prices for the shares of the Company’s common stock issued to employees and consultants under the Plan at September 30, 2016: Options Outstanding Options Exercisable Exercise Prices ($) Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price ($) Number Exercisable Weighted Average Exercise Price ($) $ 0.25 - $0.65 5,000,000 7.9 $ 0.41 3,000,000 $ 0.25 The stock option activity for the nine months ended September 30, 2016 is as follows: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2015 5,000,000 $ 0.41 Granted - - Exercised - - Expired or canceled - - Outstanding at September 30, 2016 5,000,000 $ 0.41 Stock-based compensation expense related to vested options was $306,646 and $913,930 during the three and nine months ended September 30, 2016, respectively. The Company determined the value of share-based compensation for options vesting during the period using the Black-Scholes fair value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common stock of $0.74, risk-free interest rate of 2.23%, volatility of 154%, expected lives of 10 years, and dividend yield of 0%. Stock options outstanding as of September 30, 2016, as disclosed in the above table, have an intrinsic value of $nil. Note 14 – Stock Warrants The following table summarizes the warrants outstanding, warrant exercisability and the related prices for the shares of the Company’s common stock at September 30, 2016: Warrants Outstanding Warrants Exercisable Exercise Prices ($) Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price ($) Number Exercisable Weighted Average Exercise Price ($) $ 0.34 3,584,759 8.3 $ 0.34 3,584,759 $ 0.34 0.49 4,547,243 9.1 0.49 4,547,243 0.49 5.00 1,000,000 2.2 5.00 1,000,000 5.00 The warrant activity for the nine months ended September 30, 2016 is as follows: Options Outstanding Weighted Average Exercise Price Outstanding at December 31, 2015 $ 9,132,002 $ 0.92 Granted - - Exercised - - Expired or canceled - - Outstanding at September 30, 2016 $ 9,132,002 $ 0.92 Note 15 – Derivatives The Company has incurred a liability for the estimated fair value of a derivative warrant instrument. The estimated fair value of the derivative warrant instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the issue date, with the valuation offset against additional paid in capital, and at each reporting date, with changes in fair value recorded as gains or losses on revaluation in non-operating income (expense). 19 The Company identified embedded derivatives related to the warrants issued along with loan payable entered into in November 2015. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the warrants and to adjust the fair value as of each subsequent balance sheet date. At the inception of the warrants, the Company determined a fair value of $2,067,258 of the embedded derivative. The fair value of the embedded derivative was determined using the Black-Scholes Model based on the following assumptions: November 12, 2015 Risk-free interest rate 2.32 % Expected remaining term 10 Years Expected volatility 157.56 % Dividend yield 0 % The initial fair values of the embedded derivative of $2,067,258 was allocated as a debt discount $2,067,258. Fair value at December 31, 2015 was estimated to be $3,096,179 and based on the following assumptions: December 31, 2015 Risk-free interest rate 2.27 % Expected remaining term 9.75 Years Expected volatility 152.07 % Dividend yield 0 % During the year ended December 31, 2015, the increase in the fair value of the warrant derivative liability of $1,028,921 was recorded as a loss on change in fair value of derivative liability. Fair value at September 30, 2016 was estimated to be $1,535,795 and based on the following assumptions: September 30, 2016 Risk-free interest rate 1.60 % Expected remaining term 9.00 Years Expected volatility 143.11 % Dividend yield 0 % During the nine months ended September 30, 2016, the decrease in the fair value of the warrant derivative liability of $1,560,384 was recorded as a gain on change in fair value of derivative liability. During the three months ended September 30, 2016, the decrease in the fair value of the warrant derivative liability of $1,137,309 was recorded as a gain on change in fair value of derivative liability. Note 16 – 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 aggregate basis. Net sales attributed to customers in the United States and foreign countries for the nine months ended September 30, 2016 and 2015 were as follows: September 30, 2016 September 30, 2015 United States $ 26,144,435 $ 7,237,619 Foreign countries 1,967,459 - $ 28,111,894 $ 7,237,619 The Company’s net sales by product group for the nine months ended September 30, 2016 and 2015 were as follows: September 30, 2016 September 30, 2015 Nutraceuticals $ 27,281,476 $ 7,237,619 Over the Counter (OTC) 780,265 - Cosmeceuticals 50,153 - $ 28,111,894 $ 7,237,619 Net sales attributed to customers in the United States and foreign countries for the three months ended September 30, 2016 and 2015 were as follows: September 30, 2016 September 30, 2015 United States $ 10,771,707 $ 3,181,623 Foreign countries 797,861 - $ 11,569,568 $ 3,181,623 The Company’s net sales by product group for the three months ended September 30, 2016 and 2015 were as follows: September 30, 2016 September 30, 2015 Nutraceuticals $ 11,341,036 $ 3,181,623 Over the Counter (OTC) 222,390 - Cosmeceuticals 6,142 - $ 11,569,568 $ 3,181,623 (1) Net sales for any other product group of similar products are less than 10% of consolidated net sales. 20 Long-lived assets (net) attributable to operations in the United States and foreign countries as of September 30, 2016 and December 31, 2015 were as follows: September 30, 2016 December 31, 2015 United States $ 15,567,926 $ 17,411,598 Foreign countries 25,225 12,081 $ 15,593,151 $ 17,423,679 Note 17 – Acquisitions In the Company’s Annual Report on Form 10-K, the following disclosure was made with regard to the Company’s initial allocation of the fair value of the assets and liabilities acquired in the FOCUSfactor acquisition. “Note 3 – Acquisitions Asset Purchase Agreement with Factor Nutrition Labs : The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on January 22, 2015. The Company expects the purchase price allocations for the acquisition of Focus Factor Business to be completed by the filing of first quarter 2016 statements.” The Company has consulted with a valuation professional to assist in determining the fair value of the identifiable FOCUSfactor intangible assets. As a result of this work, the Company has increased the amount allocated to the FOCUSfactor indefinite-lived brand and patent by $450,000 and reduced the amount recorded to goodwill by an identical amount. This adjustment had no effect on the income statement. The Company believes that the restated amount of $1,450,000 properly states the fair value of the FOCUSfactor brand and patent. In the Company’s Annual Report on Form 10-K, the following disclosure was made with regard to the Company’s initial allocation of the fair value of the assets and liabilities acquired in the Breakthrough Products, Inc. acquisition. “Note 3 – Acquisitions Stock Purchase Agreement with Breakthrough Products, Inc.: The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on November 12, 2015. The Company expects the purchase price allocations for the acquisition of UrgentRx to be completed during 2016.” The Company has consulted with a valuation professional to assist in determining the fair value of the identifiable Breakthrough Products, Inc.’s intangible assets. As a result of this work, the Company has increased the amount allocated to the UrgentRx patent by $150,000, decreased the amount allocated to a Non-Compete agreement by $50,000 and reduced the amount recorded to goodwill by the identical amounts. In addition, it was determined that an incorrect stock price was used to calculate the purchase price of the transaction. As a result of this determination, the Company decreased Additional Paid In Capital and Goodwill by $1,170,000. These adjustments had no effect on the income statement. The Company believes that these restated amounts properly states the fair value of the Breakthrough Products, Inc. transaction. In the Company’s Annual Report on Form 10-K, the following disclosure was made with regard to the Company’s initial allocation of the fair value of the assets and liabilities acquired in the TPR Investments Pty Ltd. acquisition. “Note 3 – Acquisitions Stock Purchase Agreement with TPR Investments Pty Ltd.: The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on November 1, 2015. The Company expects the purchase price allocations for the acquisition of NomadChoice to be completed during 2016.” The Company has consulted with a valuation professional to assist in determining the fair value of the identifiable NomadChoice’s intangible assets. As a result of this work, the Company has increased the amount allocated to the Customer Database by $215,000, decreased the amount allocated to Intellectual Property by $100,000 and decreased the amount allocated to the Blogger Database by $115,000. These adjustments had no effect on the income statement. The Company believes that these restated amounts properly states the fair value of the TPR Investments Pty Ltd. transaction. Note 18 – Income Taxes Income tax expense was $264,377 and $659,462 for the three and nine months ended September 30, 2016, respectively, compared to $0 for the same periods in 2015. The current provision is attributable to Australian operations and the current tax rate in effect in that country. The total deferred tax asset is calculated by multiplying a domestic (US) 34% marginal tax rate by the cumulative net operating loss carryforwards (“NOL”). The Company currently has NOLs, which expire through 2035. Management has determined based on all the available information that a 100% valuation reserve is required. 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, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, based on the Code. Note 19 – 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 no subsequent events have occurred that would require adjustments or disclosure into the unaudited condensed consolidated financial statements. 21 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of Synergy for the three and nine months ended September 30, 2016 and 2015, should be read in conjunction with the financial statements of Synergy, and the notes to those financial statements that are included elsewhere in this Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in our Form 10-K filed on March 31, 2016. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Overview The Company is in the business of marketing and distributing consumer branded products through various distribution channels primarily in the health and wellness industry. The Company’s strategy is to grow both organically and by future acquisition. During 2015, we completed five acquisitions, with at least one in each of the three targeted verticals of Nutraceuticals, Cosmeceuticals and Over the Counter (OTC). Our objective is to grow all three verticals to provide a balanced and synergistic portfolio that drives consumer demand via multiple channels. We expect the incorporation of these acquisitions into the Company will have a significant impact on our revenue and results of operations. Our management’s discussion and analysis of our financial condition and results of operations are only based on Synergy’s current business. Our previous shell company’s results of operations are immaterial and will not be included in the discussion below. Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation. Non-GAAP Financial Measures We currently focus on Adjusted EBITDA to evaluate our business relationships and our resulting operating performance and financial position. Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization), further adjusted to exclude certain non-cash expenses and other adjustments as set forth below. We present Adjusted EBITDA because we consider it an important measure of our performance and it is a meaningful financial metric in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business, such as certain non-cash items and other adjustments. We believe that Adjusted EBITDA, viewed in addition to, and not in lieu of, our reported results in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), provides useful information to investors. For the nine months ended September 30, 2016 Net income $ 5,848,552 Interest income (5,043 ) Interest expense 1,265,844 Taxes 659,462 Depreciation 26,783 Amortization 2,157,238 EBITDA $ 9,952,836 Gain on change in fair value of derivative liability (1,560,384 ) Stock-based compensation 913,930 Stock issued for services 50,000 One-time expenses 185,413 Gain on foreign currency translation and transaction (10,362 ) Adjusted EBITDA $ 9,531,433 For the three months ended September 30, 2016 Net income $ 3,050,666 Interest income (370 ) Interest expense 432,622 Taxes 264,377 Depreciation 16,089 Amortization 600,950 EBITDA $ 4,364,334 Gain on change in fair value of derivative liability (1,137,309 ) Stock-based compensation 306,646 One-time expenses 56,250 Gain on foreign currency translation and transaction (80,195 ) Adjusted EBITDA $ 3,509,726 EBITDA and Adjusted EBITDA are considered non-GAAP financial measures. EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA, further adjusted to exclude the impact of higher-than-normal revenue change order activity and certain expenses and transactions that we believe are not representative of our core operating results, including gain on change in fair value of derivative liability; stock-based compensation; one-time expenses for acquisitions; and the gain on foreign currency translation and transaction. The Company’s definitions of EBITDA and adjusted EBITDA might not be comparable to similarly titled measures reported by other companies. Results of Operations for the Three months Ended September 30, 2016 and 2015 Revenue For the three months ended September 30, 2016, we had revenue of $11,569,568 from sales of our products, as compared to revenue of $3,181,623 for the same period in 2015. This is primarily due to the acquisitions we completed during 2015 and is comprised of the following categories: September 30, 2016 Nutraceuticals $ 11,341,036 Over the Counter (OTC) 222,390 Cosmeceuticals 6,142 $ 11,569,568 Cost of Revenue For the three months ended September 30, 2016, our cost of revenue was $3,475,159. Our cost of revenue for the three months ended September 30, 2015, was $1,469,910. This increase is also due to the acquisitions we completed during 2015 and is comprised of the following categories: September 30, 2016 Nutraceuticals $ 3,432,640 Over the Counter (OTC) 40,527 Cosmeceuticals 1,992 $ 3,475,159 22 Gross Profit Gross profit was $8,094,409 for the three months ended September 30, 2016, as compared to gross profit of $1,711,713 for the same period in 2015. Operating Expenses Selling and Marketing Expenses For the three months ended September 30, 2016, our selling and marketing expenses were $3,051,808 as compared to $814,640 for the same period in 2015, which is primarily due to marketing our various products in multiple media channels including print, television and online. This increase is solely attributable to the acquisitions we completed during 2015. General and Administrative Expenses For the three months ended September 30, 2016, our general and administrative expenses were $1,811,395. For the three months ended September 30, 2015, our general and administrative expenses were $706,806. The increase is primarily due to the acquisitions completed during 2015 and having general costs now to run and manage each brand. Depreciation and Amortization Expenses For the three months ended September 30, 2016, our depreciation and amortization expenses were $298,079 as compared to $103,103 for the same period in 2015. The increase in 2016 is due to the acquisitions completed during 2015. Other Income and Expenses For the three months ended September 30, 2016 and 2015 we had other (income) and expense items of the following: Three months ended September 30, 2016 Three months ended September 30, 2015 Interest income $ (370 ) $ - Interest expense 432,622 212,904 Remeasurement gain on translation of foreign subsidiary (52,069 ) - Gain on change in fair value of derivative liability (1,137,309 ) - Settlement expense 56,250 - Amortization of debt discount 273,941 304,117 Amortization of debt issuance cost 45,019 37,753 Total $ (381,916 ) $ 554,774 For the three months ended September 30, 2016, we had interest expense of $432,622 as compared to $212,904 for the same period in 2015. The increase was due to the issuance of loans for the purpose of acquisitions of various companies during 2015. We also issued warrants along with the loans and paid debt issuance cost in 2015 which led to the amortization of debt discount and debt issuance costs. We issued warrants with a reset provision in 2015 which led to the calculation of warrant derivative liability and hence we recorded a gain on change in fair value of derivative liability of $1,137,309. During 2015, we acquired a foreign subsidiary and thus recorded a remeasurement gain on the foreign currency translation. Net Income (Loss) For the three months ended September 30, 2016, our net income was $3,050,666 as compared to a net loss of ($467,610) for the same period in 2015. Results of Operations for the Nine months Ended September 30, 2016 and 2015 Revenue For the nine months ended September 30, 2016, we had revenue of $28,111,894 from sales of our products, as compared to revenue of $7,237,619 for the same period in 2015. This is primarily due to the acquisitions we completed during 2015 and is comprised of the following categories: September 30, 2016 Nutraceuticals $ 27,281,476 Over the Counter (OTC) 780,265 Cosmeceuticals 50,153 $ 28,111,894 Cost of Revenue For the nine months ended September 30, 2016, our cost of revenue was $7,694,028. Our cost of revenue for the nine months ended September 30, 2015, was $3,103,244. This increase is also due to the acquisitions we completed during 2015 and is comprised of the following categories: September 30, 2016 Nutraceuticals $ 7,677,847 Over the Counter (OTC) 4,413 Cosmeceuticals 11,768 $ 7,694,028 23 Gross Profit Gross profit was $20,417,866 for the nine months ended September 30, 2016, as compared to gross profit of $4,134,375 for the same period in 2015. Operating Expenses Selling and Marketing Expenses For the nine months ended September 30, 2016, our selling and marketing expenses were $6,688,663 as compared to $2,228,418 for the same period in 2015, which is primarily due to marketing our various products in multiple media channels including print, television and online. This increase is solely attributable to the acquisitions we completed during 2015. General and Administrative Expenses For the nine months ended September 30, 2016, our general and administrative expenses were $5,359,578. For the nine months ended September 30, 2015, our general and administrative expenses were $1,407,458. The increase is primarily due to the acquisitions completed during 2015 and having general costs now to run and manage each brand. Depreciation and Amortization Expenses For the nine months ended September 30, 2016, our depreciation and amortization expenses were $871,089 as compared to $282,256 for the same period in 2015. The increase in 2016 is due to the acquisitions completed during 2015. Other Income and Expenses For the nine months ended September 30, 2016 and 2015, we had other (income) and expense items of the following: Nine months ended September 30, 2016 Nine months ended September 30, 2015 Interest income $ (5043 ) $ - Interest expense 1,265,844 612,094 Remeasurement gain on translation of foreign subsidiary (79,076 ) - Gain on change in fair value of derivative liability (1,560,384 ) - Settlement expenses 56,250 - Amortization of debt discount 1,142,649 2,575,192 Amortization of debt issuance cost 170,282 101,105 Total $ 990,522 $ 3,288,391 For the nine months ended September 30, 2016, we had interest expense of $1,265,844 as compared to $612,094 for the same period in 2015. The increase was due to the issuance of loans for the purpose of acquisitions of various companies during 2015. We also issued warrants along with the loans and paid debt issuance cost in 2015 which led to the amortization of debt discount and debt issuance costs. We issued warrants with a reset provision in 2015 which led to the calculation of warrant derivative liability and hence we recorded a gain on change in fair value of derivative liability of $1,560,384. During 2015, we acquired a foreign subsidiary and thus recorded a remeasurement gain on the foreign currency translation. Net Income (Loss) For the nine months ended September 30, 2016, our net income was $5,848,552, as compared to a net loss of ($3,072,148) for the same period in 2015. Liquidity and Capital Resources Overview As of September 30, 2016, we had $4,220,141 cash on hand and a $2,487,840 working capital deficit. The deficit is largely due to a derivative liability for stock warrants outstanding of $1,535,795. In addition, we also had restricted cash of $291,620 which is comprised of $191,620 for a rolling reserve with Paypal and $100,000 for credit card collateral. 24 Going Concern The Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at September 30, 2016 of $2,721,289. The Company had a working capital deficit of $2,487,840 as of September 30, 2016. Due to acquisitions during 2015 of revenue-producing products, the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs. Management’s plans to continue as a going concern include growing sales revenue on our existing brands, raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Nine months ended September 30, 2016 and 2015 Net Cash Provided by Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2016 was $6,247,059, compared to $800,030 for the same period in 2015. This increase in net cash provided by operating activities for the nine months ended September 30, 2016 was primarily attributable to an increase in net income due to the acquisitions in 2015 as well as the changes in operating assets and liabilities. The $6,247,059 consists of our net income of $5,848,552 increased by: Amortization of debt issuance cost $ 170,282 Depreciation and amortization 871,089 Stock based compensation 913,930 Stock issued for services 50,000 Settlement expense 56,250 Amortization of debt discount 1,142,649 Change in fair value of derivative liability (1,560,384 ) Remeasurement gain on translation of foreign subsidiary (79,076 ) Non cash implied interest 92,924 Decrease in accounts receivable 2,085,579 Increase in inventory (299,883 ) Increase in prepaid expenses (1,097,503 ) Decrease in accounts payable and accrued expenses (1,947,350 ) Net Cash Used in Investing Activities Net cash used in investing activities for the nine months ended September 30, 2016 was $2,446,641, compared to net cash used of $4,754,045 for the same period in 2015. The decrease in cash used in investing activities during 2016 is attributable to the release of restricted cash and the cash used in 2015 is attributable to the purchase of the Focus Factor assets. Payments for acquisition of fixed assets $ (210,605 ) Payment of earn out liability (2,551,500 ) Restricted cash 315,464 Net Cash (Used in) Provided by Financing Activities Net cash used in financing activities for the nine months ended September 30, 2016 was $3,225,000, compared to net cash provided of $4,778,625 for the same period in 2015. This is attributable to the repayment of notes during 2016 and the proceeds of the notes in 2015. Repayment of notes payable $ (3,225,000 ) Key 2016 Initiatives During 2016, we have plans for organic growth within our current product lines by developing and launching new products. We have new marketing campaigns in process and intend to expand our online presence for each product. While we intend to grow further through additional acquisitions, we feel it is important to also develop our existing products. 25 Contractual Obligations and Off-Balance Sheet Arrangements Contractual Obligations None. Off-Balance Sheet Arrangements None. Summary of Significant Accounting Policies Basis of Presentation The unaudited condensed 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. 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 are assumptions about collection of accounts receivable, useful life of fixed and intangible assets, goodwill and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. 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, 2016, the Company had no cash equivalents. Capitalization of Fixed Assets The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. Intangible Assets We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization except intellectual property of $1,450,000 acquired as part of Asset Purchase Agreement entered into with Factor Nutrition LLC on January 22, 2015. 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. As of September 30, 2016, our qualitative analysis of long-lived assets did not indicate any impairment. Goodwill An asset purchase is accounted for under the purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. As of September 30, 2016, our qualitative analysis of goodwill did not indicate any impairment. 26 Revenue Recognition The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and/or service has been performed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes that these criteria are satisfied 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. Accounts receivable Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts. Advertising Expense The Company expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling expense in the accompanying unaudited condensed consolidated statements of operations. Research and Development Costs incurred in connection with the development of new products and processing methods are charged to general and administrative expenses as incurred. Income Taxes The Company utilizes 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. 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 foreign 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. 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 loss per share is anti-dilutive. As of September 30, 2016, options to purchase 5,000,000 shares of common stock and warrants to purchase 9,132,002 shares of common stock were outstanding. These potential shares were included in the shares used to calculate diluted earnings per share. Going Concern The Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company had an accumulated deficit at September 30, 2016 of $2,721,289. The Company had a working capital deficit of $2,487,840 as of September 30, 2016. Due to acquisitions during 2015 of revenue-producing products, the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs. 27 Management’s plans to continue as a going concern include growing sales revenue on our existing brands, raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Fair Value Measurements The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. 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 September 30, 2016, the Company has determined that there were no assets or liabilities measured at fair value, except for the warrant derivative liability. 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 market. Finished goods include the cost of labor to assemble the items. Stock-Based Compensation The Company adopted the provisions of ASC 718. We estimate the fair value of stock options using a binomial model, consistent with the provisions of ASC 718 and SEC Staff Accounting Bulletin No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the underlying stock. We determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. The expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the Black-Scholes-Merton (BSM) model is based on detailed historical data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. We believe the resulting BSM calculation provides a more refined estimate of the fair value of our employee stock options. 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. Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated either into 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. 28 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 any additional costs relating to assembly or special pack-outs of the Company’s products are charged to general and administrative expenses as incurred. 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 general and administrative expenses as incurred. Warrant Derivative Liabilities ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described. A Black-Scholes-Merton option-pricing model, with dilution effects, was utilized to estimate the fair value of the Warrant Derivative Liabilities as of September 30, 2016. This model is subject to the significant assumptions discussed below and requires the following key inputs with respect to the Company and/or instrument: Input September 30, 2016 Stock Price $ 0.35 Exercise Price $ 0.49 Expected Life (in years) 9.0 Stock Volatility 143.11 % Risk-Free Rate 1.60 % Dividend Rate 0 % Outstanding Shares of Common Stock 4,547,243 Cost of Sales Cost of sales includes the purchase cost of products sold and all costs associated with getting the products into the retail stores including buying and transportation costs. 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. Impairment of Long-Lived Assets When facts and circumstances indicate that the carrying values of long-lived assets, including fixed assets, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. The Company makes judgments related to the expected useful lives of long-lived assets and its ability to realize undiscounted cash flows in excess of the carrying amounts of such assets which are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge. 29 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. Related parties Parties are considered to be related to the Company if the parties, 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. All transactions with related parties shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to the related party. 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 aggregate basis. Reclassification of Prior Period Presentation Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results. Recent Accounting Pronouncements ASU 2016-10 In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements. ASU 2016-09 In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements. ASU 2016-08 In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements. ASU 2016-01 In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements. ASU 2015-17 In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements, and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets. ASU 2015-16 In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement–Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard did not have any material on the Company’s consolidated financial statements. 30 ASU 2015-14 In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606). The amendments in this ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09 on our consolidated financial statements. ASU 2015-11 In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11 to have a material effect on our consolidated financial statements. ASU 2015-05 In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). ASU 2015-05 provides guidance regarding the accounting for a customer’s fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies’ annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-07 In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2015-03 In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. The Company reclassified debt issuance cost of $208,569 and $378,852 from other assets to liabilities and netted off with the related loans in the liabilities as of September 30, 2016 and December 31, 2015, respectively. ASU 2015-02 In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. 31 ASU 2015-01 In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2014-17 In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting. This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our consolidated financial statements. ASU 2014-16 In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815). ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We have not previously issued and do not currently have issued, nor were we or are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our consolidated financial statements. ASU 2014-15 In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements. ASU 2014-12 In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements. ASU 2014-09 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. ASU 2014-09 will be effective for the Company in the first quarter of 2018, and early adoption permitted in the first quarter of 2017. We are still evaluating the effect of the adoption of ASU 2014-09 on our consolidated financial statements. ASU 2014-08 In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our consolidated financial statements. There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial statements. 32 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.