S-1/A: Synergy CHC Corp. Files Amendment for Proposed IPO on Nasdaq

Synergy CHC Corp. is moving forward with its IPO plans, aiming to list on the Nasdaq Capital Market under the ticker SNYR.

Summary

• Synergy CHC Corp., a consumer health and wellness company, has filed an amendment to its Form S-1 registration statement with the SEC.
• The company plans to offer shares of its common stock to the public, with the aim of listing on the Nasdaq Capital Market under the symbol SNYR.
• The initial public offering price is estimated to be between $ and $ per share.
• The company's portfolio includes brands like FOCUSfactor and Flat Tummy, sold through major retailers.
• In January 2015, Synergy CHC acquired FOCUSfactor for $6 million, and in November 2015, it acquired Flat Tummy for AUD 10 million (approximately $7 million).
• For the year ended December 31, 2023, Synergy CHC reported net revenues of $42.8 million and net income of $6.3 million.
• For the six months ended June 30, 2024, net revenues were $17.4 million and net income was $1.2 million.
• The company intends to use the net proceeds from the offering for general corporate purposes, including initiatives to accelerate the growth of its FOCUSfactor supplements and energy RTD products.
• Roth Capital Partners, LLC is acting as the sole book-running manager for the offering.
• Certain officers, directors, and stockholders have indicated an interest in participating in the offering.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company shows revenue growth in 2023 and has positive aspects like a strong brand and experienced management, there are also concerns about a working capital deficit, decreased revenue and income in the first half of 2024, and reliance on a few key customers. The document also contains details about a delay in a significant shipment of FOCUSfactor supplements.

Positives

• The company has experienced growth in its FOCUSfactor brand, driven by expanded distribution.
• The company has a scalable and flexible asset-light model.
• The company has premier retail partners, including Costco, Walmart, and CVS.
• The company has a clinically-tested formula for FOCUSfactor, supported by an independent study.
• The company has an experienced management team with a proven track record of value creation.

Negatives

• The company has a working capital deficit of $3.8 million as of June 30, 2024.
• The company is highly levered.
• Net revenue for the six months ended June 30, 2024 decreased by 7.0% compared to the same period in the prior fiscal year.
• Net income for the six months ended June 30, 2024 decreased by 50% compared to the same period in the prior fiscal year.
• EBITDA for the six months ended June 30, 2024 decreased by 18% compared to the same period in the prior fiscal year.

Risks

• The company operates in a highly competitive industry.
• The company's sales growth is dependent on maintaining relationships with a small number of large customers.
• The company is subject to government regulation, both in the United States and abroad.
• The company may experience product recalls, withdrawals or seizures.
• The company is subject to credit risk.
• The company is highly dependent on its management team.
• Cyber incidents or attacks directed at the company could result in information theft, data corruption, operational disruption and/or financial loss.
• The company's existing indebtedness may adversely affect its ability to obtain additional funds and may increase its vulnerability to economic or business downturns.
• The company may need to raise additional capital in the future, and its failure to do so could restrict its operations or adversely affect its ability to operate and continue its business.
• The company is a controlled company within the meaning of the Nasdaq rules and, as a result, qualify for, and may rely on, exemptions and relief from certain corporate governance requirements.

Future Outlook

The company intends to use the net proceeds of this offering for general corporate purposes, including initiatives to accelerate the growth of both its FOCUSfactor supplements and FOCUSfactor energy RTD products.

Industry Context

The U.S. nutritional supplements retail industry is large and highly fragmented with few barriers to entry, making competition intense.

Comparison to Industry Standards

• The brain health segment is slated to grow at 8% per year in the United States and 13% per year globally, according to Grand View Research.
• The beverage market is a large ($176 billion in 2022) and growing (projected 8.6% CAGR covering eight years from 2022 through 2030) market with an expanding range of functional benefits such as energy, hydration, cognition/focus, weight loss, gut health and immunity, according to Zion Research in January 2024.
• The U.S. energy RTD category had sales of $19.2 billion in 2023 and a CAGR of 6.3% from 2018 to 2023, according to Euromonitor in December 2023.

Legal Proceedings

• In August 2022, the company filed a lawsuit in the Superior Court of Maine against one of its contract manufacturers, bringing several claims arising out of allegations that the contract manufacturer's failure to timely produce and deliver the company's products in 2020 and 2021 damaged the company's business; the case was settled during December 2023, resulting in a net gain to the company of $2,235,986, reflected as a reduction of cost of sales, and a loan payable of $5,450,000.
• On July 28, 2023, L.O.D.C. Group asserted claims of over $1,000,000 against the company for breach of contract arising from their alleged failure to comply with contracts related to the delivery of hand sanitizer; the case was settled during April 2024 by way of a confidential settlement agreement and mutual release.

Related Party Transactions

• The company has a Sales and Marketing Consultant and Distribution Agreement with Kenek Brands, Inc., a company owned by Jack Ross, the Chief Executive Officer.
• The company has an Amended and Restated Loan Agreement with Knight Therapeutics (Barbados) Inc., an affiliate of an owner of greater than 10% of the company's outstanding common stock.
• The company has distribution agreements with Knight Therapeutics, Inc. for FOCUSfactor and Hand MD in Canada.
• The company has transactions with BoomBod Ltd., a related party 100% indirectly owned by Jack Ross, the Chief Executive Officer.
• The company has transactions with Gowan Properties Inc., a related party 100% indirectly owned by Jack Ross, the Chief Executive Officer.

Stakeholder Impact

• The IPO will provide capital for the company to expand its product lines and marketing efforts, potentially benefiting shareholders.
• The company's growth strategy includes acquiring complementary brands, which could impact employees of acquired companies.
• The company's ability to compete effectively and respond to changing consumer preferences will impact its relationship with customers.

Next Steps

• The company will effect a 1-forreverse stock split prior to the effective date of the registration statement.
• The company will list its common stock on the Nasdaq Capital Market under the symbol SNYR.
• The company anticipates a coordinated expansion of its advertising strategy towards the end of 2024.
• The company plans to enter the Taiwan and Mexico markets in the second quarter of 2025 and in Australia and Asia in the first quarter of 2026.
• The company plans to introduce an additional FOCUSfactor supplement for Taiwan, RTDs for the UK and focus and energy coffee for the United States in 2025.
• The company plans on introducing new complementary products to the Flat Tummy line-up, including new protein shakes, gut-healthy ready-to-drink beverage, hydration powder and pre-workout powder in the fourth quarter of 2024.
• A rotation is planned in the second half of 2024 with the major Canadian club retailer.
• This major retailer will be re-launching the RTDs at the end of 2024.

Key Dates

Keywords

IPO, initial public offering, FOCUSfactor, Flat Tummy, Nasdaq, consumer health, nutritional supplements, Roth Capital Partners, SNYR