Synergy CHC Corp. 10-K

ITEM 1. BUSINESS Overview We are a consumer health care and beauty company that is in the process of building a portfolio of best-in-class consumer product brands. Our strategy is to grow both organically and by further acquisition. Corporate History We were organized as a corporation under the laws of the State of Nevada on December 29, 2010 under the name “Oro Capital Corporation”. On April 7, 2014, an Agreement and Plan of Merger (the “Merger Agreement”) was entered into by and among us, Synergy Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary formed for the purpose of the transactions under the Merger Agreement (“Merger Sub”), and Synergy Strips Corp., a Delaware corporation incorporated on January 24, 2012 (“SSC”). The Merger Agreement provided for the merger of Merger Sub with and into SSC (the “Merger”), with SSC surviving the merger as our wholly owned subsidiary. On April 17, 2014, we issued a share dividend to our shareholders in order to effect a 30-for-1 forward stock split. The Merger was consummated on April 21, 2014. On April 21, 2014, we changed our fiscal year end from July 31 to December 31. On April 28, 2014, we changed the name of the Company from “Oro Capital Corporation” to “Synergy Strips Corp.” On August 5, 2015, we changed the name to “Synergy CHC Corp.” 2017 Fiscal Year Developments During 2017 we created a new subsidiary, The Queen Pegasus, for the purpose of developing, marketing and selling specialty cosmetic products. We also purchased a cosmetic line, Per-fekt Beauty, and we also focused on executing our current brands and creating line extensions that we expect to launch in 2018. Description of the Business FOCUSfactor is sold at America’s leading retailers such as Costco, Sam’s Club, BJ’s, Walmart, Walgreens, CVS and The Vitamin Shoppe. FOCUSfactor is a brain-health nutritional supplement that includes a proprietary blend of brain supporting vitamins, minerals, antioxidants and other nutrients. In December 2012, the United States Patent and Trademark Office issued US Patent 8,329,227 covering FOCUSfactor’s proprietary formulation “for enhanced mental function.” The issuance of the patent marked one of the few times a patent has been issued for a nationally branded nutritional supplement. FOCUSfactor is clinically tested with results demonstrating improvements in focus, concentration and memory in healthy adults. FOCUSfactor is a material product to our revenue base, representing 47% of revenue. Flat Tummy Tea is a uniquely formulated two-step herbal detox tea that works to naturally help speed metabolism, boost energy and reduce bloating. Flat Tummy Tea is sold online at www.flattummyco.com and at The Vitamin Shoppe. Flat Tummy Tea is a material product to our revenue base, representing 36% of revenue. Hand MD is the world’s first anti-aging skincare line formulated specifically for the hands. Hand MD is sold exclusively online at www.handmd.com. Neuragen is a topical product that works directly at the site of pain as opposed to oral products. Neuragen reduces the spontaneous firing of damaged peripheral nerves. By calming these nerves, Neuragen is clinically shown to reduce shooting and burning pains quickly and without side effects. Neuragen is sold at Walgreens and through various distribution channels. UrgentRx is a line of fast-acting, portable OTC medications that prove ‘right now relief’ for today’s busy, on the go consumer. UrgentRx fast powders are innovative, fast acting flavored powdered medications in patented credit card sized packets. They can be taken without water, providing immediate relief for a wide variety of every day ailments such as allergy attacks, headaches, aches and pains, heartburn and upset stomach. Sneaky Vaunt is a backless, strapless, stick on, push up bra. Sneaky Vaunt is sold exclusively online at www.sneakyvaunt.com . The Queen Pegasus is a two step eyelash elixir kit for longer and fuller looking natural eyelashes. The Queen Pegasus is sold exclusively online at www.thequeenpegasus.com . Per-fekt Beauty is a line of cosmetics that merges advanced skincare formulations with color. Per-fekt Beauty products are sold in retailers across the country such as Ulta, Beauty Brands and online at www.perfektbeauty.com . 4 Products Current Products Development and Commercialization Strategy We intend to expand on the current retail strategies and build out a strong online sales model. Research and Development We currently outsource our research and development to our manufacturers, as they are experienced in the development of new products and line extensions. Manufacturing We currently outsource the manufacturing of our products to third parties who have the necessary equipment and technology to provide mass quantities as required. FOCUSfactor is manufactured by Atrium Innovations and Vit-Best Nutrition. Flat Tummy Tea is manufactured by Caraway Tea Company. Neuragen is manufactured by C-Care. Hand MD is manufactured by HealthSpecialty. Urgent Rx is manufactured by Capstone Nutrition. Sneaky Vaunt is manufactured by Dongguan Jingrui. The Queen Pegasus is manufactured by Skin Actives and Ningbo Beautiful Day Cosmetics. Commercialization We are highly dependent on two retailers for the sale of our FOCUSfactor product: Costco Wholesale Corporation and Sam’s West, Inc./Walmart (a/k/a Sam’s Club), which comprise 88% of our net revenue for FOCUSfactor. We intend to diversify our sales network and generate revenue by selling our consumer-ready products to retailers across North America, which retailers may then sell to end consumers through retail distribution channels. We also sell direct to wholesalers and distributors at a reduced cost as a means to grow our revenue base quickly and to penetrate the market more effectively. 5 Intellectual Property Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we will rely on a combination of patents, patent applications, trademarks, copyrights, trade secrets, including know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and other contractual rights. In December 2012, the United States Patent and Trademark Office issued U.S. Patent 8,329,227 covering FOCUSfactor’s proprietary formulation “for enhanced mental function.” The issuance of the patent marked one of the few times a patent has been issued for a nationally branded nutritional supplement. The issuance of the patent for FOCUSfactor came after a 2011 clinical study report which showed that FOCUSfactor improved memory, concentration and focus in healthy adults participating in the study. The clinical study of FOCUSfactor was sponsored by Factor Nutrition Labs, the owner of the Focus Factor Business at the time, and was conducted by Cognitive Research Corporation, a full-service contract research organization that specializes in the effects of nutritional supplements and pharmaceutical products on human cognition. The study was conducted in compliance with all applicable country requirements for the conduct of clinical studies, including those outlined by the International Conference on Harmonization, Consolidated Guidelines on Good Clinical Practices, and the Food and Drug Administration. In February 2013, the United States Patent and Trademark Office issued U.S. Patent 8,376,140 covering UrgentRx’s portable powder delivery system and method. Distribution and Marketing We plan to focus on selling to retailers and distributors who currently are active in the consumer product space with the aim to expedite the penetration of market acceptance of the product. We are currently conducting research with focus groups to find out what the best approach for marketing efforts is and how to do so in the most cost-effective manner. We also plan to develop an online sales channel. Markets We sell our products in mostly American retail locations along with other developed countries with similar retail landscapes to North America. Competition Although there are many competing products on the market, in all our current product categories, FOCUSFactor is the only product in its category with both a patent and clinical study to support its claims. FOCUSFactor’s competitors include a wide range of products, from targeted brain-enhancement supplements to indirect competitors such as energy drinks that claim to improve concentration. Government Regulation The products that we sell, and those that we are developing for future sale, may be subject to U.S. Food and Drug Administration (“FDA”) approval for packaging compliance. With respect to the products we currently sell, our regulatory counsel has reviewed all of our products and we believe we are compliant with the current rules. Since the current products sold are considered nutraceuticals, cosmeceuticals and over the counter products, minimal regulations are placed on the product with the exception of the appropriate labeling and warnings on the packaging. We will rely on legal and operational compliance programs, as well as local counsel, to guide its businesses in complying with applicable laws and regulations of the jurisdictions in which we do business. 6 We do not anticipate, at this time, that the cost of compliance with U.S. and foreign laws will have a material financial impact on operations, business or financial condition. There are however no guarantees that new regulatory and tariff legislation may not have a material negative effect on business in the future. Employees As of March 30, 2018, we had 66 full-time employees and no part-time employees. We intend to grow our employee base in response to the demands and requirements of the business. ITEM 1A. RISK FACTORS. As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information. ITEM 1B. UNRESOLVED STAFF COMMENTS. None .