S-1/A: Synergy CHC Corp. Files Amendment No. 5 for Proposed $20 Million IPO

Sentiment:

S-1/A Filing 16 September 2024 5:17 PM

Synergy CHC Corp. files an amendment to its S-1 registration statement, aiming to raise approximately $20 million through an IPO to fuel growth initiatives.

Delay expectedThere was a delay in a significant shipment of FOCUSfactor supplements due to delayed receipt of key ingredients from a supplier in the second quarter of 2024, which pushed the shipment into the third quarter of 2024.

Capital raiseSynergy CHC Corp. is offering 2,000,000 shares of our common stock, par value $0.00001 per share.We currently estimate that the initial public offering price of our common stock will be between $9.00 and $11.00.We have granted a 30-day option to the representative of the underwriters to purchase up to 300,000 additional shares of common stock solely to cover over-allotments, if any.We estimate that the net proceeds to us from this offering will be approximately $17.4 million, or approximately $20.2 million if the underwriters exercise their over-allotment option in full, assuming a public offering price of $10.00 per share, the midpoint of the price range set forth on the cover page of this prospectus.We intend to use the net proceeds of this offering for general corporate purposes.

Worse than expectedNet revenue for the six months ended June 30, 2024 was $17.4 million, a decrease of $1.3 million, or 7.0% over net revenue for the six months ended June 30, 2023.FOCUSfactor net revenue decreased from $15.1 million for the six months ended June 30, 2023 to $14.8 million for the six months ended June 30, 2024, which represents a 1.9% decrease.For the six months ended June 30, 2024, net income was $1,235,716 as compared to a net income of $2,463,257 for the six months ended June 30, 2023 due to lower revenue.

Summary

Synergy CHC Corp., a consumer health and wellness company, has filed Amendment No. 5 to its Form S-1 registration statement with the SEC.
The company plans to offer 2,000,000 shares of common stock with an estimated IPO price between $9.00 and $11.00 per share.
The company intends to list its common stock on the Nasdaq Global Market under the symbol SNYR, but there is no guarantee of approval.
The company's brand portfolio includes FOCUSfactor, a brain health supplement, and Flat Tummy, a lifestyle and wellness brand.
In 2023, FOCUSfactor represented 87% of the company's net revenue, while Flat Tummy accounted for 13%.
For the six months ended June 30, 2024, net revenue was $17.4 million, a decrease of 7.0% compared to the same period in 2023.
The company intends to use the net proceeds from the IPO to accelerate the growth of its FOCUSfactor supplements and energy RTD products.
The company's asset-light business model relies on third-party manufacturers.
For the year ended December 31, 2023, net revenues were $42.8 million, net income was $6.3 million, and EBITDA was $10.8 million.
The company had a working capital deficit of $3.8 million as of June 30, 2024.
Approximately $4.1 million of the company's outstanding indebtedness comes due in the year ending December 31, 2024, and approximately $12.3 million comes due in the year ending December 31, 2025.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While there's positive growth in some areas and a clear strategy for future expansion, the current working capital deficit, dependence on a few key customers, and competitive landscape temper the overall outlook.

Positives

FOCUSfactor has a clinically-tested formula and an independent study supports its claims for improved memory, concentration, and focus.
The company has premier retail partners, including Costco, Walmart, Amazon.com, Walgreens, and CVS.
The company has a scalable and flexible asset-light model to support growth.
The company plans to expand into new geographic markets, including Taiwan, Mexico, Australia, and Asia.
The company's EBITDA improved significantly in 2023 due to increased revenue and distribution, as well as non-recurring items in 2022.
The company has successfully completed RTD pilot programs in the United States and Canada.

Negatives

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 had a working capital deficit of $3.8 million as of June 30, 2024.
The company is subject to credit risk.
The company is highly dependent on its management team.
The company's existing indebtedness may adversely affect its ability to obtain additional funds.

Risks

The company's failure to compete effectively could materially and adversely affect its sales and growth prospects.
The company's failure to appropriately respond to changing consumer preferences could significantly harm its relationship with customers.
The loss of any one of the company's large customers could materially adversely affect its business and financial performance.
If the company's outside suppliers and manufacturers fail to supply products in sufficient quantities and in a timely fashion, its business could suffer.
Adverse or negative publicity could cause the company's business to suffer.
The company may experience product recalls, withdrawals or seizures, which could materially and adversely affect its business.
The company is subject to government regulation, both in the United States and abroad, which could increase its costs significantly and limit or prevent the sale of its products.
The price of the company's common stock may be volatile, and investors may be unable to resell their shares at or above the price paid.
Investors will incur immediate dilution in the net tangible book value of the shares they purchase in this offering.

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. The company plans to expand into new geographic markets and continue to develop and expand its current brands.

Industry Context

The U.S. nutritional supplements retail industry is large and highly fragmented with few barriers to entry. 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 weight management and wellbeing market, which Flat Tummy competes in, was estimated to be an $11.3 billion global market in 2022, with forecasted growth of 4.0% annually from 2023 to 2032, according to Business Research Insights.

Comparison to Industry Standards

The document mentions competitors like Celsius, Bang, Reign, and C4 in the energy RTD category.
It also references Celsius and Beyond Raw as examples of dual-benefit products delivering fat burning plus energy, and C4 Smart Energy and FocusAid as delivering focus plus energy.
The document cites Euromonitor data indicating U.S. sales of $19.2 billion in 2023 and a CAGR of 6.3% from 2018 to 2023 for the energy RTD category.
The document cites Zion Research data indicating the beverage market is a large ($176 billion in 2022) and growing (projected 8.6% CAGR covering eight years from 2022 through 2030) market.

Legal Proceedings

The company settled a lawsuit with a former supplier in December 2023, resulting in a net gain of $2,235,986 and a loan payable of $5,450,000.
The company settled a claim with L.O.D.C. Group in April 2024.

Related Party Transactions

The company has a Sales and Marketing Consultant and Distribution Agreement with Kenek Brands Inc., owned by CEO Jack Ross.
The company has a loan agreement with Knight Therapeutics (Barbados) Inc., an affiliate of a major stockholder.
The company has distribution agreements with Knight Therapeutics, Inc. for FOCUSfactor and Hand MD in Canada.
The company has a loan receivable from BoomBod Ltd., a related party indirectly owned by CEO Jack Ross.

Stakeholder Impact

The IPO will provide capital for growth initiatives, potentially benefiting shareholders.
The company's expansion plans could create new job opportunities for employees.
The company's focus on health and wellness products could benefit customers.
The company's relationships with suppliers and manufacturers are important for ensuring product availability.

Next Steps

The company plans to launch a national advertising campaign towards the end of 2024.
The company plans to introduce three to five new SKUs across three potential retailers.
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 new graphics for the FOCUSfactor line in the third quarter of 2024.
The company plans to introduce new complementary products to the Flat Tummy line-up in the fourth quarter of 2024.

Key Dates

Date	Description
October 15, 1994	Date before which dietary ingredients must have been marketed in the U.S. to avoid new dietary ingredient notification requirements.
December 29, 2010	Oro Capital Corporation (now Synergy CHC Corp.) was incorporated.
April 2, 2014	Synergy Strips Corp. (Delaware) became a wholly-owned subsidiary, and Oro Capital Corporation changed its name to Synergy Strips Corp.
April 21, 2014	The Company changed its fiscal year end from July 31 to December 31.
August 5, 2015	Synergy Strips Corp. changed its name to Synergy CHC Corp.
January 22, 2015	Synergy entered into a Loan Agreement with Knight Therapeutics.
November 12, 2015	Synergy CHC Corp. entered into a Stock Purchase Agreement with Breakthrough Products, Inc.
November 15, 2015	Synergy CHC Corp. entered into a Share Purchase Agreement with NomadChoice Pty Limited trading as Flat Tummy Tea.
December 23, 2016	Synergy entered into distribution agreements with Knight Therapeutics for FOCUSfactor and Hand MD in Canada.
January 1, 2017	Synergy entered into distribution agreements with Knight Therapeutics for Sneaky Vaunt in Canada, Israel, Romania, Russia and Sub-Saharan Africa.
August 9, 2017	Synergy entered into an Amended and Restated Loan Agreement with Knight Therapeutics.
January 1, 2019	Synergy merged its U.S. subsidiaries into the parent company.
May 8, 2020	Synergy entered into a Third Amendment Agreement with Knight Therapeutics.
July 17, 2020	Synergy filed a Form 15 to voluntarily suspend its duty to file reports under Sections 13 and 15(d) of the Exchange Act.
September 28, 2021	Synergy's common stock was shifted to the OTC Expert Market.
July 7, 2022	Synergy entered into a Fourth Amendment Agreement with Knight Therapeutics.
September 30, 2023	Synergy entered into a Fifth Amendment Agreement with Knight Therapeutics.
March 31, 2024	Synergy entered into an Amended Agreement with Knight Therapeutics for its existing secured debt.
June 6, 2024	Synergy entered into a Sixth Amendment Agreement to the Loan Agreement with Knight.
September 11, 2024	Synergy effected a 1-for-11.9 reverse stock split.
Second Quarter 2025	Anticipated entry into Taiwan and Mexico markets.
First Quarter 2026	Anticipated entry into Australia and Asia markets.

Keywords

FOCUSfactor, Flat Tummy, IPO, nutritional supplements, consumer health, brain health, wellness, RTD, EBITDA, SNYR

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