SYNERGY CHC CORP. The following discussion is an overview of the important factors that management
focuses on in evaluating our business, financial condition and operating
performance and should be read in conjunction with the financial statements
included in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those anticipated in these forward-looking
statements as a result of any number of factors, including those set forth in
the Company's reports filed with the
Overview
We are in the business of marketing and distributing consumer branded products through various distribution channels primarily in the health and wellness industry. Our strategy is to grow both organically and by future acquisition.
Our management's discussion and analysis of our financial condition and results
of operations are only based on our current business and should be read in
conjunction with our audited Consolidated Financial Statements and accompanying
notes thereto included elsewhere in this Annual Report Form 10-
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
December 31, 2019
Net loss $ (9,207,447 )
Interest income (414 )
Interest expense 981,105
Taxes 131,537
Depreciation 133,873
Amortization 1,208,816
Impairment of intangible assets 9,715,137
EBITDA $ 2,962,607
Stock-based compensation 201,155
One-time expenses, net of other income 751,035
Bad debts 283,972
Loss on foreign currency translation and transaction 6,972
Adjusted EBITDA $ 4,205,741
9
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 loss on change in fair value of derivative liability; stock-based compensation; one-time expenses for acquisitions; and loss 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 Years Ended
During 2019, we focused on developing our currently owned brands into new markets and by product extensions. Our objective is to grow all four of our targeted verticals (Nutraceuticals, Over the Counter (OTC), Consumer Goods and Cosmeceuticals) to provide a balanced and synergistic portfolio that drives consumer demand via multiple channels. During 2018, we focused on developing our currently owned brands into new markets and by product extensions.
Revenue
For the year ended
December 31, December 31,
2019 2018
Nutraceuticals $ 28,149,938 $ 31,332,952
Over the Counter (OTC) 62,359 427,871
Consumer Goods 706,688 987,230
Cosmeceuticals 438,561 1,076,442
$ 29,357,546 $ 33,824,495 The decrease in our Nutraceutical category was due to shifting product sales from online to retail. The decrease in the Over the Counter category was due to a supply issue with one product during the year. The decrease in the consumer goods category is due to normalization of business after the launch year. The decrease in the cosmeceuticals category was due to the discontinuation of a product line.
Cost of Revenue
For the year ended
December 31, December 31,
2019 2018
Nutraceuticals $ 8,943,967 $ 10,125,186
Over the Counter (OTC) - 185,601
Consumer Goods 78,109 107,640
Cosmeceuticals 115,526 618,160
$ 9,137,602 $ 11,036,587 The decrease in our Nutraceutical category was due to lower revenue. The decrease in Over the Counter was due to a write off of inventory. The decrease in Consumer Goods was due to lower sales. The decrease in Cosmeceuticals was due to lower sales and a write off of inventory in 2018.
10 Gross Profit
Gross profit was
Operating Expenses
Selling and Marketing Expenses
For the year ended
Bad debts
For the year ended
General and Administrative Expenses
For the year ended
Impairment of Intangible Assets
For the year ended
Depreciation and Amortization Expenses
For the year ended
11 Other Income and Expenses For the year endedDecember 31, 2019 , we had other (income) and expense items of the following: Interest income$ (414 ) Interest expense 981,105 Remeasurement loss on translation of foreign subsidiary 8,280 Amortization of debt issuance cost 130,829 Total$ 1,119,800 For the year endedDecember 31, 2018 we had other (income) and expense items of the following: Interest income$ (235 ) Interest expense 1,132,763 Remeasurement loss on translation of foreign subsidiary 171,938 Amortization of debt issuance cost 213,966 Other income (27,794 ) Total$ 1,490,638
The decrease in interest expense in 2019 was due to the decreased percentage rate on our loan and lower loan balance due to principal payments made.
Income tax expense
For the year ended
Net Loss
For the year ended
Liquidity and Capital Resources
Overview
Our sources of cash have historically consisted of proceeds from issuances of loans and revenues generated from operations.
Presentation of Financial Statements - Going Concern
Going Concern Evaluation
In connection with preparing consolidated financial statements for the year
ended
The Company considered the following:
? At
? At
? Revenue declined in 2019 by
? The Company had net loss of
? The Company obtained waiver against not meeting financial covenants related to loans payable (minimum EBITDA).
? The Company is required to make repayment of loans payable of
Ordinarily, conditions or events that raise substantial doubt about an entity's ability to continue as a going concern relate to the entity's ability to meet its obligations as they become due.
The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:
? The Company raised
? In 2019, the Company repaid
? In 2019, the Company generated
? Working capital deficit of
? Revenue declines were largely the result of not overspending in marketing in 2019.
? The Company has line of credit facility of
Management concluded that above factors alleviates doubts about the Company's ability to generate enough cash from operations and other available sources to satisfy its obligations for the next twelve months from the issuance date.
The Company will take the following actions if it starts to trend unfavorably to its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern:
? Raise additional capital through line of credit and/or loans financing for future mergers and acquisition, which may be impacted by the recent outbreak of COVID-19.
? Implement additional restructuring and cost reductions.
? Raise additional capital through a private placement, which may be impacted by the recent outbreak of COVID-19.
At
As of
As of
12
Year Ended
Net Cash Provided by Operating Activities
For the year ended
For 2019, the
Amortization of debt issuance cost $ 130,829
Depreciation and amortization 1,211,860
Stock based compensation 201,155
Impairment of intangible assets 9,715,137
Foreign currency transaction loss (1,308 )
Bad debts 283,972
Remeasurement loss on translation of foreign subsidiary 8,280
Non cash implied interest 38,310
Write-off of Inventory 257,111
Decrease in accounts receivable 3,027,900
Increase in accounts receivable, related party (277,432)
Decrease in inventory 552,158
Decrease in prepaid expenses 642,704
Decrease in income taxes receivable 135,072
Decrease in deferred revenue (41,823 )
Decrease in accounts payable and accrued expenses (2,910,949 )
Decrease in accounts payable, related party (819,179 )
13
For 2018, the
Amortization of debt issuance cost $ 213,966
Depreciation and amortization 1,822,064
Stock based compensation 440,999
Foreign currency transaction loss 131,868
Remeasurement loss on translation of foreign subsidiary 171,938
Non cash implied interest 68,688
Bad debts 69,070
Impairment of intangible assets 924,067
Write-off of Inventory 1,056,209
Increase in accounts receivable (193,687 )
Increase in inventory (884,141 )
Decrease in prepaid expenses 314,404
Increase in deferred revenue 46,652
Increase in accounts payable and accrued expenses 2,385,196
Increase in accounts payable, related party 898,029
For the year ended
Investing activities during 2018:
Payments for acquisition of fixed assets $ (129,087 )
Payments for domain name (18,920 )
Payments for brand development fees (50,000 )
For the year ended
Financing activities during 2019:
Repayment of notes payable $ (2,050,000 )
Advances from related party 324,102
Repayments of advances to related party (324,102)
Financing activities during 2018:
Repayment of notes payable $ (2,862,500 )
14
Key 2020 Initiatives
During 2020, we have plans for organic growth within our current product lines by developing and launching new products and expanding into new markets. 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.
The recent outbreak of COVID-19, which has been declared by the
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations None.
Off-Balance Sheet Arrangements
None. Inflation
The effect of inflation on our operating results was not significant in either 2019 or 2018.
Summary of Significant Accounting Policies
The preparation of financial statements in conformity with
Recent Accounting Pronouncements
Note 2 to our audited consolidated financial statements appearing elsewhere in this report includes Recent Accounting Pronouncements.
© Edgar Online, source
